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Item 7. Management’s Discussion and Analysis

2025-03-06 compared with 2024-02-27 · 543 added, 1023 removed, 269 unchanged (85% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations ($ and £ in millions)

Management’s Discussion and Analysis of Financial Condition and Results of Operations ($ and £ in thousands)

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

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• Information that allows assessment of the likelihood that past performance is indicative of future performance.

Unless otherwise noted, this Management's Discussion and Analysis of Financial Condition and Results of Operations relates solely to our continuing operations and does not include the operations of our Legacy Financial Guarantee business.

See "Sale of AAC" below and Note 5.

Discontinued Operations of the Notes to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K for additional information about the divestiture of the Legacy Financial Guarantee business.

The following discussion should be read in conjunction with our consolidated financial statements in Item 8 of this Report and the matters described under Item 1A.

Risk Factors in this Annual Report on Form 10-K for the year ended December 31, 2024.

Refer to Item 1.

Description of the Business and Note 1.

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

Refer to Part I, Item 1.

Introduction - Description of the Business, for a description of our business and our key strategies to achieve our primary goal to maximize shareholder value.

Ambac Financial Group, Inc.

2024 Form 10-K

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Organization of Information

MD&A includes the following sections:

Executive Summary

Critical Accounting Estimates

Financial Guarantees in Force

Strategies to Enhance Shareholder Value 29

Critical Accounting P olicies and Estimates

Results of Operations

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Accounting Standards

Ambac Assurance Statutory Basis Financial Results

Ambac UK Financial Results under UK Accounting Principles

Non-GAAP Financial Measures

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2023 Form 10-K

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EXECUTIVE SUMMARY

AFG Net Assets:

AFG has the following net assets to support its goals and strategies, including the development and growth of its Specialty Property and Casualty Insurance and Insurance Distribution businesses, acquisitions and capital management.

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

As of December 31, 2023 and 2022, AFG's stand alone net assets, excluding its equity investments in subsidiaries, were $211 and $223, respectively.

Cash and short-term investments $ 156 $ 178

Other investments (1)

Other net assets 23 17

Total $ 211 $ 223

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

The decrease in AFG net assets, excluding its equity investments in subsidiaries, during 2023 was driven by operating expenses, capital contributions to subsidiaries, the acquisition of Riverton Insurance Agency and share repurchases, partially offset by interest income and distributions from subsidiaries.

AFG's subsidiaries/businesses are divided into three segments, the key value metrics of which are summarized below along with other recent developments.

Strategies to Enhance Shareholder Value

The Company's primary goal is to maximize long-term shareholder value through the execution of targeted strategies for its Insurance Distribution and Specialty Property and Casualty Insurance businesses.

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

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

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

• Growing our Specialty Property and Casualty Insurance business to generate underwriting profits from a diversified portfolio of commercial and personal liability risks accessed primarily through program administrators.

The Company's continuing operations include two segments, financial highlights of which are summarized below along with other recent developments.

Year Ended December 31, 2024 Year Ended December 31, 2023

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

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

Distribution Corporate & Other Consoli-dated

Specialty Property & Casualty Insurance Insurance

Distribution Corporate & Other Total Specialty Property & Casualty Insurance Insurance

Distribution Corporate & Other Total

Premiums placed $ 493,372 $ 493,372 $ 230,606 $ 230,606

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Pretax income (loss) 12,222 (7,809) (64,257) (59,845) 383 7,289 (31,894) (24,221)

Net income (loss) 10,469 (6,881) (62,509) (58,921) 335 7,133 (30,701) (23,232)

EBITDA 12,222 19,656 (62,396) (30,518) 383 11,483 (30,858) (18,991)

Ambac Stockholders’ Equity (1)

923 122 105 211 1,362 826 110 93 223 1,252

Non-redeemable noncontrolling interest 51 2 53 51 2 53

Total stockholders’ equity 974 124 105 211 1,415 877 112 93 223 1,305

Redeemable noncontrolling interest 17 17 20 20

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

Banking Sector Crisis of 2023

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

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

In the U.S., this crisis was in part a consequence of rising interest rates, resulting in large declines in the market value of U.S.

Treasury and government-backed debt held by banking institutions.

The risk of additional bank financial stress and/or failures due to asset-liability mismatches or other risks, such as outsized exposure to commercial real estate, remains.

Despite actions by government agencies and regulators to mitigate the consequences of these bank failures by providing liquidity and guaranteeing uninsured deposits, there is no guarantee that they will provide similar support in the event of additional bank failures.

In Europe, regulators stepped in to facilitate mergers of stressed banks into more stable institutions.

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

Ambac's cash balances held at banks was $27 as of December 31, 2023 and $42 as of December 31, 2022.

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

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

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

Included in the cash balances above is $16 of cash of companies Ambac has acquired within its insurance distribution businesses that are held in regional banks.

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

In addition, cash balances held by variable interest entities ("VIEs") that are consolidated in Ambac's financial statements as a result of Ambac's financial guarantees totaled $246 and $17 as of December 31, 2023 and 2022, respectively.

These amounts relate primarily to cash collateral posted against derivative assets and reserve balances

Adjusted EBITDA 5,136 19,904 (16,397) 8,643 1,017 11,483 (18,380) (5,879)

Net income (loss) attributable to Ambac shareholders 10,471 (7,244) (62,509) (59,282) 334 5,815 (30,701) (24,551)

EBITDA attributable to Ambac shareholders 12,222 13,208 (62,396) (36,966) 383 9,381 (30,858) (21,093)

Adjusted EBITDA attributable to Ambac common stockholders 5,136 13,456 (16,397) 2,195 1,017 9,381 (18,380) (7,981)

On June 4, 2024, AFG entered into a stock purchase agreement with American Acorn Corporation (the “Buyer”), a Delaware corporation owned by funds managed by Oaktree Capital Management, L.P., pursuant to which and subject to the conditions set forth therein, AFG will sell all of the issued and outstanding shares of common stock of AAC, a wholly-owned subsidiary of AFG, to Buyer for aggregate consideration of $420 in cash (the "AAC Sale").

The terms of the AAC Sale as contemplated by the stock purchase agreement provide that, at the closing of the AAC Sale (the “Closing”), Buyer will acquire complete common equity ownership of AAC and all of its wholly owned subsidiaries, including Ambac UK.

In connection with and pursuant to the stock purchase agreement, AFG has agreed to issue to Buyer a warrant exercisable for a number of shares of common stock, par value $0.01, of AFG representing

9.9% of the fully diluted shares of AFG’s common stock as of March 31, 2024, pro forma for the issuance of the warrant.

The warrant will have an exercise price per share of $18.50 with a six and a half-year term from the date of issuance and will be immediately exercisable.

Concurrent with the sale, AFG will purchase AAC's co-investment in the holding company established to purchase Beat, for an amount equal to AAC's $62,000 investment plus 7.5% per annum thereon.

Management has determined that the pending sale of AAC and its wholly-owned subsidiaries meets the criteria to be disclosed as discontinued operations beginning in the fourth quarter of 2024.

The loss on disposal recognized in the fourth quarter of 2024 was $570,145.

Refer to Note 5.

Discontinued Operations for additional information about the sale of AAC.

Ambac Financial Group, Inc.

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maintained under the VIEs' governing documents and are not directly managed by Ambac.

Ambac also has exposure to banks through its fixed maturity investment portfolio totaling $169 and $119 as of December 31, 2023 and December 31, 2022, respectively.

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

The average rating of our fixed income investment in banks was A- as of December 31, 2023.

Financial Statement Impact of Foreign Currency:

The impact of foreign currency as reported in Ambac's Consolidated Statement of Total Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022 included the following:

($ in millions)

December 31, 2023 2022

Net income (1)

Gain (losses) on foreign currency translation (net of tax) 40 (85)

Unrealized gains (losses) on non-functional currency available-for-sale securities (net of tax) (6) 11

Impact on total comprehensive income (loss) $ 31 $ (63)

(1) A portion of Ambac UK's, and to a lesser extent AAC's, assets and liabilities are denominated in currencies other than its functional currency and accordingly, we recognized net foreign currency transaction gains/(losses) as a result of changes to foreign currency rates through our Consolidated Statement of Total Comprehensive Income (Loss).

Purchase of Beat Capital Partners

On June 4, 2024, AFG entered into a share purchase agreement (the “Beat Purchase Agreement”), by and among AFG, Cirrata V LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of AFG (the “Purchaser”), certain sellers set forth therein (the “Sellers”) and Beat, pursuant to which the Purchaser purchased from the Sellers approximately 60% of the entire issued share capital of Beat, for total consideration, as of the closing date, of approximately $281,493, of which approximately $252,264 was paid in cash and the remainder of which was satisfied through the issuance of 2,216,023 shares of AFG common stock.

The acquisition closed with an effective date of July 31, 2024.

Beat’s management team and Bain Capital Credit LP (together, the “Rollover Shareholders”) each retained approximately 20% of Beat’s issued share capital immediately after closing.

Refer to Note 4.

Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further details on transaction gains and losses.

Future changes to currency rates, may adversely affect our financial results.

Refer to Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk" for further information on the impact of future currency rate changes on Ambac's financial instruments.

SEC Proposed Rules on Climate Related Information

On March 21, 2022, the Securities and Exchange Commission (“SEC”) proposed rule amendments that would require public companies to include certain climate-related information in their periodic reports and registration statements, including oversight and governance, material impacts (operational and financial), risk identification and management, and Scope 1, 2 and 3 emissions (the “Proposed Rule”).

For accelerated filers, such as Ambac, the Scope 1 and 2 emissions disclosures would require attestation from a third party.

These new requirements, if adopted, would at the earliest take effect in fiscal year 2024 and begin to apply to SEC filings in 2025.

Final climate disclosure rules have not yet been issued, however the rulemaking agendas for U.S.

agencies released in December 2023 indicate the SEC is targeting April 2024 for finalization.

Ambac has reviewed the Proposed Rule and will reassess our related compliance obligations and other effects on our operations when the final rule is issued.

Business Combination for further details on the acquisition of Beat.

Sale of Consolidated National Insurance Company

On January 12, 2024, Everspan Insurance Company entered into a Stock Purchase Agreement with Hagerty Insurance Holdings, Inc., to sell its ownership interests in Consolidated National Insurance Company ("CNIC"), which was one of Everspan's admitted carriers.

The closing of this transaction occurred on September 1, 2024, resulting in a gain of approximately $7,504.

The sale of CNIC will not have any adverse impact on the group's operations or growth prospects.

SEC Final Rules on Climate Related Information

On March 6, 2024, the U.S.

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

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

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

The compliance dates for accelerated filers for annual reports or registration statements that include financial statements for the year ending December 31 are phased in from 2026 through 2031.

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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and require management to make difficult and subjective judgments regarding matters that are inherently uncertain and subject to change.

These estimates are evaluated on an on-going basis considering historical developments, political events, market conditions, industry trends and other information.

These estimates are evaluated on an on-going basis considering historical developments, political events,

market conditions, industry trends and other information.

There can be no assurance that actual results will conform to estimates and that reported results of operations will not be materially adversely affected by the need to make future accounting adjustments to reflect changes in these estimates from time to time.

Management has identified the following critical accounting policies and estimates:

(i) valuation of financial guarantee loss and loss adjustment expense reserves, (ii) valuation of certain financial instruments and (iii) valuation of deferred tax assets.

(i) valuation of specialty property and casualty losses and loss adjustment expense reserves, (ii) valuation of financial guarantee loss and loss adjustment expense reserves, and (iii) business combinations including identification and valuation of intangible assets.

Management has discussed each of these critical accounting policies and estimates with the Audit Committee, including the reasons why they are considered critical and how current and anticipated future events impact those determinations.

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Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K.

Valuation of Financial Guarantee Losses and Loss Expense Reserves (including Subrogation Recoverables)

The loss and loss adjustment expense reserves and subrogation recoverable assets (collectively defined as "loss reserves") discussed in this section relate solely to Ambac’s financial guarantee insurance policies issued to beneficiaries.

Valuation of Specialty Property and Casualty Losses and Loss Expense Reserves

The specialty property and casualty insurance segment consist of Everspan-affiliated carriers.

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

Loss and loss adjustment expense reserves by line of business were as follows as of December 31, 2024 and December 31, 2023:

2024 Gross Net

Line Case IBNR Total Case IBNR Total

Commercial Auto $ 66,092 $ 92,379 $ 158,471 $ 12,532 $ 16,188 $ 28,720

Excess and General Liability 7,111 78,348 85,459 1,317 13,540 14,857

Workers Compensation 6,640 7,825 14,465 6,640 7,825 14,465

Non-standard Personal Auto 10,393 2,296 12,689 10 2 12,000

Surety 1,176 10,041 11,217 — — —

— 12,238 12,238 — 6,578 6,578

8,639 45,884 54,523 111 2,066 2,177

Loss and Loss Expense Reserves $ 100,051 $ 249,011 $ 349,062 $ 30,600 $ 48,197 $ 78,797

(1) Unallocated loss adjustment expenses.

(2) Includes $35,146 and $0 total loss and loss expense reserves on a gross and net of reinsurance basis related to legacy liabilities obtained from the acquisitions of Providence Washington Insurance Company, Greenwood Insurance Company and Consolidated Specialty Insurance Company.

All legacy liabilities remain obligations of affiliates of the sellers through reinsurance and contractual indemnities.

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2023 Gross Net

Line Case IBNR Total Case IBNR Total

Commercial Auto $ 44,370 $ 62,635 $ 107,005 $ 8,969 $ 12,945 $ 21,913

Excess and General Liability 1,604 21,261 22,865 204 3,722 3,925

Workers Compensation 2,571 2,675 5,246 2,571 2,675 5,246

Non-standard Personal Auto 3,323 2,520 5,843 3,074 2,062 5,136

Surety 650 4,113 4,763 — — —

— 6,085 6,085 — 4,527 4,527

10,034 35,248 45,282 — 41 41

Loss and Loss Expense Reserves $ 62,552 $ 134,537 $ 197,089 $ 14,817 $ 25,971 $ 40,788

(1) Unallocated loss adjustment expenses.

(2) Includes $43,751 and $0 total loss and loss expense reserves on a gross and net of reinsurance basis related to legacy liabilities obtained from the acquisitions of Providence Washington Insurance Company, Greenwood Insurance Company, Consolidated National Insurance Company and Consolidated Specialty Insurance Company.

All legacy liabilities remain obligations of affiliates of the sellers through reinsurance and contractual indemnities.

Loss and loss adjustment expense reserves, evaluated at a program and line of business level, are estimated based upon experience and using a variety of actuarial methods and are subject to the impact of future changes in factors such as claim severity and frequency, underwriting and claims practices, changes in social and economic conditions including the impact of inflation, legal and judicial developments, medical cost trends and upward trends in damage awards.

The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios and loss development factors representing reported and paid loss emergence patterns.

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

The initial estimate for an accident year is generally based on an exposure-based method using the loss ratio projection method.

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

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

The loss and loss adjustment expense reserves estimate may be based on a judgmental weighting of estimates produced from multiple estimation and analysis methods considered.

The method(s) selected and weighted are those that are believed to produce the most accurate estimate at that particular evaluation date.

The following estimation and analysis methods are principally used by the Company’s engaged independent actuarial specialists to estimate the ultimate cost of loss and loss adjustment expenses.

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

• The paid loss development method assumes that the future change (positive or negative) in cumulative paid losses for a given cohort of claims will occur in a stable, predictable pattern from year-to-year, consistent with the pattern observed in past cohorts.

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

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

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

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

The actuarial results provide a range of estimated losses by program and line of business including a low, central and high estimate of losses and loss expenses.

Management typically selects the respective midpoint loss ratio between the actuarial determined central and high estimate for its active programs and lines of business for each respective accident year when recording loss and loss adjustment expense reserves.

Beginning December 31, 2024, management decided to set loss reserves for programs that are in runoff at the high end of the respective actuarial loss ranges, given these program can experience greater loss volatility than active programs.

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

Ambac's actuarial evaluation at December 31, 2024 provided a range of losses incurred.

Losses at the low end of the range would be below our recorded gross and net loss expense reserves by approximately $33,400 and $6,900, respectively at December 31, 2024, and losses at the high end of the range would exceed our recorded gross and net loss and loss adjustment expense reserve by approximately $4,500 and $1,000, respectively at December 31, 2024.

This range reflects low and high reasonable reserve estimates determined after using judgment to adjust the methods, factors, and assumptions selected within the internal reserve review.

This approach produces a range of reasonable reserve estimates but does not represent a distribution of all possible outcomes.

Additionally, changes in assumptions such as loss development patterns and expected loss ratios can result in variability in actuarial estimates.

• For the loss development pattern we considered the impact of the reported incurred losses developing faster or slower than expected in our projections.

For every 1.0% slower or faster the losses develop, we would expected our net indicated reserves to increase or decrease, respectively, by approximately 0.8%.

If our reported loss development pattern was 5% slower, the net indicated reserves would be approximately 4% higher.

If our reported loss development pattern was 5% faster, the net indicated reserves would be approximately 4% lower.

• For the expected losses we utilize industry benchmark loss ratios and internal pricing loss ratios applied to earned premium.

For every 1.0% higher or lower the expected losses are, we would expected our net indicated reserves to

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increase or decrease by approximately 0.55%.

If our expected losses were 5% higher, the net indicated reserves would be approximately 3% higher.

If our expected losses were 5% lower, the net indicated reserves would be approximately 3% lower.

Consequently, final outcomes may be greater or less than the estimates.

The extent of the range and variability of loss and loss adjustment expense reserves could be further impacted by future changes in factors discussed above.

See “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10-K.

Valuation of Legacy Financial Guarantee Losses and Loss Expense Reserves (including Subrogation Recoverables)

The legacy financial guarantee ("LFG") business includes the activities of AAC and its wholly owned subsidiaries, including Ambac UK, and are reported as discontinued operations in the Consolidated Financial Statements.

Refer to Note 5.

Discontinued Operations to the Consolidated Financial Statements, included in Part II, Item 8 in this Annual Report on Form 10-K for a discussion of the pending sale of these entities to the Buyer.

As a result of the pending sale, the LFG loss and loss adjustment expense reserves and subrogation recoverable assets (collectively defined as "loss reserves") discussed in this section are reported within liabilities held-for-sale and assets-held-for sale, respectively, on the consolidated balance sheet.

A loss reserve is recorded on the balance sheet on a policy-by-policy basis at the present value ("PV") of expected net claim cash outflows or expected net recovery cash inflows, discounted at risk-free rates.

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

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

This estimate also considers future recoveries related to contractual or subrogation-related cash flows.

The evaluation process for expected future net cash flows is subject to estimates and judgments regarding the probability of default by the issuer of the insured security, the probability of negotiation or settlement outcomes (which may include commutation, litigation and other settlements, and/or a refinancing), the probability of restructuring outcomes (which may include payment moratoriums, debt haircuts and/or subsequent recoveries) and the expected loss severity of credits for each insurance contract.

As the probability of default for an individual credit increases and/or the severity of loss given a default increases, our loss reserve for that insured obligation will also increase.

Political, economic, environmental, credit or other unforeseen events

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could have an adverse impact on default probabilities and loss severities.

Political, economic, environmental, credit or other unforeseen events could have an adverse impact on default probabilities and loss severities.

The loss reserves for many transactions are derived from the issuer’s creditworthiness.

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In addition, many transactions have a combination of issuer/entity and collateral support.

Loss reserves reflect our assessment of the transaction’s overall structure, support and expected performance.

reserves reflect our assessment of the transaction’s overall structure, support and expected performance.

Loss reserve volatility will be a direct result of the credit performance of our insured portfolio, including the number, size, bond types and quality of credits included in our loss reserves;

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Domestic Public Finance 834,370 58,688

138,199 (10,625)

Loss expenses — (8,932)

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Domestic Public Finance 834,123 66,381

1,144,195 (7,831)

Loss expenses — 3,549

Totals $ 3,838,104 558,640

(1) Ceded par outstanding on policies with loss reserves and ceded loss and loss adjustment expense reserves are $362 and $30 respectively, at December 31, 2023, and $472 and $33, respectively at December 31, 2022.

Ceded loss and loss adjustment expense reserves are included in Reinsurance recoverable on paid and unpaid losses.

(2) Gross Par Outstanding includes capital appreciation bonds, which are reported at the par amount at the time of issuance of the

insurance policy as opposed to the current accreted value of the bond.

(3) Loss and Loss Adjustment Expense reserves at December 31, 2023, of $559 are included in the balance sheet in the following line items:

Loss and loss adjustment expense reserves:

$696 and Subrogation recoverable:

Loss and Loss Adjustment Expense reserves at December 31, 2022, of $444 are included in the balance sheet in the following line items:

Loss and loss adjustment expense reserves:

$715 and Subrogation recoverable:

(4) Ambac records as a component of its loss and loss adjustment expense reserves, estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties.

Ambac has recorded gross estimated recoveries of $0 and $140 at December 31, 2023 and 2022, respectively.

See the Balance Sheet section of this Management's Discussion and Analysis of Financial Condition and Results of Operations below for a discussion on the reasons for changes to Gross Loss and Loss Adjustment Expense Reserves during 2023.

Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements, included in Part II, Item 8 in this Annual Report on Form 10-K for a description of the cash flow and statistical methodologies used to develop loss reserves.

Discontinued Operation to the Consolidated Financial Statements, included in Part II, Item 8 in this Annual Report on Form 10-K for a description of the cash flow and statistical methodologies used to develop loss reserves.

The majority of our large loss reserves utilize the cash flow method of reserving.

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• In some cases, such as RMBS and student loans, cash flow projections include the modeling of a securitization's cash flows to determine the resources available to pay debt service on our insured obligations.

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

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

The average estimated loan-to-values of the collateral related to insured exposures have declined to under 50% from peaks above 110%.

Key assumptions impacting student loan cash flow models include projected loan defaults, recoveries and interest rates.

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

• In other cases, such as many public finance exposures, we consider the issuer's overall ability and willingness to pay as it relates to the existing fiscal, economic, legal, restructuring and/or political framework relevant to a particular exposure or group of exposures.

We then develop multiple scenarios where issuer debt service is

During 2023, Ambac revised the model it uses to project RMBS collateral losses

Ambac Financial Group, Inc.

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paid, missed and/or haircut with claims paid then factor in any projected recovery amount (and potential variability of the recovery amount) and the timing thereof.

considering the seasoning of our RMBS exposure and management’s view that the most relevant determinant of prospective collateral performance is borrower payment status (e.g., loan status being current, delinquent, foreclosure, REO, etc.).

Key assumptions impacting student loan cash flow models include projected loan defaults, recoveries and interest rates.

During 2023, we revised our approach to projecting future defaults to both reflect the student loan collateral's seasoning and generally stable performance.

We then develop multiple scenarios where issuer debt service is paid, missed and/or haircut with claims paid then factor in any projected recovery amount (and potential variability of the recovery amount) and the timing thereof.

There is no certainty our assumptions as to scenarios or probabilities will not be subject to material changes as developments occur.

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The remediation scenarios and the related probabilities of occurrence vary by policy depending on ongoing and expected discussions and negotiations with issuers and/or investors.

In addition to commutation negotiations that are underway with various counterparties in various forms, our reserve estimates may also include scenarios which incorporate our ability and/or expectation to commute additional exposure with other counterparties.

Valuation of Certain Financial Instruments

The Fair Value Measurement Topic of the ASC requires financial instruments to be classified within a three-level fair value hierarchy.

The fair value hierarchy, the financial instruments classified within each level, our valuation methods, inputs, assumptions and the review and validation procedures over quoted and modeled pricing are further detailed in Note 5.

Fair Value Measurements to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.

The level of judgment in estimating fair value is largely dependent on the amount of observable market information available to fair value a financial instrument, which is also determinative of where the financial instrument is classified in the fair value hierarchy.

Level 3 instruments are valued using models which use one or more significant inputs or value drivers that are unobservable and therefore require significant judgment.

Level 3 financial instruments which are material include certain invested assets, uncollateralized interest rate swaps and investments and loan receivables of consolidated VIEs.

Model-derived valuations of Level 3 financial instruments incorporate estimates of the effects of Ambac's own credit risk and/or counterparty credit risk, which can be complex and judgmental.

Furthermore, Level 3 investments and loan receivables of consolidated VIEs incorporate estimates of Ambac's financial guarantee cash flows, including future premiums and losses.

Such cash flow estimates require judgments regarding prepayments of VIE debt, loss probabilities and loss severities, all of which are inherently uncertain.

All models and related assumptions are continuously re-evaluated by management and enhanced, as appropriate, based on improvements in information and modeling techniques.

The re-evaluation process includes a quarterly meeting of senior Finance personnel to review and approve changes to models and key assumptions.

As a result of the significant judgment for the above-described instruments, the actual trade value of the financial instrument in the market, or exit value of the financial instrument owned by Ambac, may be significantly different from its recorded fair value.

Valuation of Deferred Tax Assets

Our provision for taxes is based on our income, statutory tax rates and tax planning opportunities available to us in the jurisdictions in which we operate.

Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities.

Significant judgment is required in determining our tax expense and in evaluating our tax positions.

We review our tax positions quarterly and adjust the balances as new information becomes available.

Deferred tax assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss ("NOL").

More specifically, deferred tax assets represent a future tax benefit that results from losses recorded under GAAP in a current period which are only deductible for tax purposes in future periods, future GAAP income that will not result in corresponding taxable income and NOL carry forwards.

Valuation allowances are established to reduce deferred tax assets to an amount that “more likely than not” will be realized.

Management considers all available evidence, both positive and negative, when determining whether to establish and/or maintain a valuation allowance against deferred tax assets, with significant weight given to evidence that can be objectively verified.

Positive evidence includes reduced potential for material loss as a result of settling RMBS representation and warranty litigation and resolving exposure to Puerto Rico, Everspan's receipt of an 'A-'' Financial Strength Rating from AM Best, the launch of a specialty program property and casualty insurance business, AFG's acquisition of majority interests in MGA/U businesses and AAC's reduction of material amounts of debt.

Negative evidence includes Specialty Property and Casualty Insurance and Insurance Distribution businesses not yet at scale, the Legacy Financial Guarantee Insurance business remaining in run-off, and material amounts of debt at AAC.

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

As a result of the above-described risks and uncertainties associated with future operating results, management believes it is more likely than not that the Company will not generate sufficient taxable income to recover part or all the U.S.

federal deferred tax asset and therefore has a full valuation allowance.

To the extent such risks and uncertainties are resolved, Ambac may have the ability to establish a history of making reliable estimates of future income which could ultimately result in a reduction to the deferred tax asset valuation allowance.

Income Taxes to the Consolidated Financial Statements, included in Part II, Item 8 in this Annual Report on Form 10-K for additional information on the Company's deferred income taxes.

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FINANCIAL GUARANTEES IN FORCE

Financial guarantee products were sold in three principal markets:

public finance, U.S.

structured finance and international finance.

Net par exposures within the U.S.

public finance market include capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds.

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

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

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

Analysts evaluate the estimated timing and severity of projected policy claims as well as the potential impact of loss mitigation or remediation strategies in order to target and prioritize policies, or portions thereof, for commutation, reinsurance, refinancing, restructuring or other risk reduction strategies.

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

During 2023, Ambac completed risk reduction transactions equating to $2,419, including a quota share reinsurance cession of $2,069 insured par, consisting primarily of military housing risk of $1,958.

The following table provides a comparison of total, adversely classified ("ACC") and watch list (as described in Note 2.

Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K) credit net par outstanding in the insured portfolio at December 31, 2023 and 2022.

($ in billions)

December 31, 2023 2022 Variance

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

ACC $ 3,504 $ 4,735 $ (1,231) (26) %

Watch List $ 2,181 $ 3,044 $ (863) (28) %

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

The following table provides a breakdown of guaranteed net par outstanding by market at December 31, 2023 and 2022.

Public Finance (1)

$ 7,562 $ 10,547

Structured Finance 3,315 3,612

International Finance 8,664 8,454

Total net par outstanding $ 19,541 $ 22,613

(1) Includes $3,371 and $5,400 of Military Housing net par outstanding at December 31, 2023 and 2022, respectively.

Below we discuss the significant exposures in our insured portfolio relating to each of the three markets.

Financial Guarantees in Force to the Consolidated Financial

Statements, included in Part II, Item 8 in this Annual Report on Form 10-K for exposures by bond type.

Public Finance Insured Portfolio

AAC’s portfolio of U.S.

public finance exposures totaled $7,562 in net par outstanding, representing 39% of Ambac’s net par outstanding as of December 31, 2023, and a 28% reduction from the amount outstanding at December 31, 2022.

This reduction resulted from active de-risking (primarily from the above-mentioned reinsurance cession of $2,069 of insured par), scheduled paydowns, and early terminations (calls, refundings and pre-refundings).

public finance portfolio consists of municipal bonds such as general obligation, revenue, and lease and tax-backed obligations of state and local government entities, and also includes several non-municipal types of bonds, such as financings with public and private elements, which generally finance infrastructure, housing and other public interests, the largest sector of which is U.S.

military housing which accounts for approximately 45% of AAC's U.S.

Public Finance Insured Portfolio.

Municipal Bonds

Municipal bonds are generally supported directly or indirectly by the issuer’s taxing authority or by public sector fees and assessments which may or may not be specifically pledged.

Risk factors in these transactions derive from the municipal issuer, including its fiscal management, politics, and economic position, as well as its ability and willingness to continue to pay its debt service.

Municipal bankruptcies and similar proceedings, while still relatively uncommon, have occurred, exposing Ambac to the risk of liquidity claims and ultimate losses if issuers cannot successfully adjust their liabilities without impairing creditors.

Non-Municipal Bonds

Public/private transactions are generally structured to achieve their targeted public interest objective without direct support from the public sector.

Some examples of this type of financing include affordable housing, private education, and privatized military housing.

Protections within these financings provided to Ambac usually include the strength of the financed asset’s essentiality and public purpose and may include financial covenants, collateral and control rights.

Risk factors include financial underperformance, event risk and a shift in the asset’s mission or essentiality.

Military Housing Bonds

AAC's largest concentration of non-municipal bonds is U.S.

military housing.

Ambac insures $3,371 net par of privatized military housing debt.

The debt was issued to finance the construction and/or renovation of housing units for military personnel and their families on domestic U.S.

military bases.

Debt service is not directly paid or guaranteed by the U.S.

Rather, the bonds are serviced from the cash flow generated in most cases by rental payments deposited by the military directly into lockbox accounts as part of each service personnel’s Basic Allowance for Housing (BAH).

In typically small percentages, rental payments can also come from civilians, including retired service personnel and US Department of Defense contractors living on a particular base.

Collateral for these transactions includes the BAH payments as well as an interest in the ground lease.

Risk factors affecting these

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transactions include ongoing base essentiality, military deployments, the U.S.

government’s commitment to fund the BAH, marketability/attractiveness of the on-base housing units versus off-base housing, construction completion, environmental remediation, natural disasters, excessive utility and other operating costs and housing management.

As of December 31, 2023, privatized military housing represented approximately 17% of net par outstanding as compared to 24% as of December 31, 2022.

Ambac's privatized military housing exposure decreased from 2022 as a result of the above-mentioned reinsurance cession.

Structured Finance Portfolio

Ambac’s portfolio of U.S.

structured finance exposures is $3,315 in net par outstanding, representing 17% of Ambac’s net par outstanding as of December 31, 2023, and an 8% reduction from the amount outstanding at December 31, 2022.

This reduction in exposure was primarily related to (i) RMBS policies, which continued to prepay as well as incur claims and (ii) scheduled paydowns.

Current insured exposures primarily include securitizations of mortgage loans, home equity loans and student loans, and investor-owned utilities in each case where the majority of the underlying collateral risk is situated in the United States.

At December 31, 2023, RMBS represented approximately 9% of net par outstanding.

Structured finance securitization exposures generally entail three forms of risk:

(i) asset risk, which relates to the amount and quality of the underlying assets;

(ii) structural risk, which relates to the extent to which the transaction’s legal structure and credit support provide protection from loss;

and (iii) servicer risk, which is the risk that poor performance at the servicer or manager level contributes to a decline in cash flow available to the transaction.

AAC seeks to mitigate and manage these risks through its risk management practices.

International Finance Insured Portfolio

Ambac’s portfolio of international finance insured exposures is $8,664 in net par outstanding, representing 44% of Ambac’s net

par outstanding as of December 31, 2023, and a 2% increase from the amount outstanding at December 31, 2022.

This increase in exposure was primarily the result of a weakening of the US dollar versus the British pound and the Euro, partially offset by de-risking activity.

Ambac’s international finance insured exposures include a wide array of obligations in the international markets, including infrastructure financings, utility obligations, whole business securitizations (e.g., securitizations of substantially all of the operating assets of a corporation) and sub-sovereign credits.

When underwriting transactions in the international markets, Ambac considered the specific risks related to the particular country and region that could impact the credit of the issuer.

These risks include the legal and political environment, capital markets dynamics, foreign exchange issues and the degree of governmental support.

Ambac continues to assess these risks, as well as emerging risks, through its ongoing risk management.

Ambac's international net par exposures are principally in the United Kingdom ($7,502);

however, we also have exposures with credit risk based in various EU member states, including Austria, France, Germany and Italy ($895).

At December 31, 2023, sub-sovereign and investor-owned and public utilities represented approximately 22% and 15% (Electric 5%, Gas 5% and Water 5%) of total net par outstanding, respectively.

Ambac has no insured exposure related to emerging markets.

Ambac UK, which is regulated in the United Kingdom (“UK”), was AAC’s primary vehicle for directly issuing financial guarantee policies in the UK and the European Union with $8,397 net par outstanding at December 31, 2023 (represents approximately 97% of Ambac's international net par outstanding).

The portfolio of insured exposures underwritten by Ambac UK is financially supported exclusively by the assets of Ambac UK and no capital support arrangements are in place with any other Ambac affiliate.

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Largest Insured Exposures:

The table below shows Ambac’s ten largest exposures, by repayment source, as a percentage of total financial guarantee net par outstanding at December 31, 2023 (in millions):

Bond Kind Country-Bond Type Ambac

Ultimate Maturity Year Net Par

IF AUK Investor Owned Utility Gas - unsecured UK-Utility BBB+ 2037 $ 896 4.6 %

IF AUK PFI - Hospitals UK-Infrastructure BBB+ 2046 741 3.8 %

IF AUK PFI - Accommodation UK-Infrastructure A- 2040 739 3.8 %

IF AUK Other Asset Securitizations UK-Asset Securitizations BBB+ 2033 696 3.6 %

IF AUK Investor Owned Utility Other - unsecured UK-Utility A- 2035 683 3.5 %

IF AUK Investor Owned Utility Electric - unsecured UK-Utility BBB+ 2036 618 3.2 %

IF AUK Sub-Sovereign Italy-Sub-Sovereign BIG 2035 576 2.9 %

IF AUK PFI - Accommodation UK-Infrastructure A- 2038 478 2.4 %

PF AAC US State Lease/Appropriation US-Lease and Tax-backed Revenue BBB 2036 357 1.8 %

IF AUK PFI - Hospitals UK-Infrastructure BBB- 2040 307 1.6 %

Total $ 6,091 31.2 %

PF = Public Finance, SF = Structured Finance, IF = International Finance

AAC = Ambac Assurance, AUK = Ambac UK

(1) Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac.

In cases where Ambac has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used.

Ambac credit ratings are subject to revision at any time and do not constitute investment advice.

BIG denotes credits deemed below investment grade.

Net par related to the top ten exposures reduced $25 from December 31, 2022.

Exposures are impacted by commutations, changes in foreign exchange rates ($283 increase during 2023), certain indexation rates linked to inflation measures in the United Kingdom (RPI) and scheduled and unscheduled paydowns.

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

The concentration of net par amongst the top ten (as a percentage of net par outstanding) increased to 31% at December 31, 2023, from 27% at December 31, 2022.

Excluding the top ten exposures, the remaining insured portfolio of financial guarantees has an average net par outstanding of $28 per single risk, with insured exposures ranging up to $307 and a median net par outstanding of $5.

Additional Insured Portfolio Information

Average Life of Insured Portfolio

Ambac estimates that the average life of its guarantees on par in force at December 31, 2023, is approximately 10 years.

The average life is determined by applying a weighted average calculation, using the remaining years to expected maturity of each guaranteed bond, and weighting them on the basis of the remaining net par guaranteed.

Except for RMBS policies, no assumptions are made for non-contractual reductions, refundings or terminations of insured issues.

RMBS policies incorporate assumptions on expected prepayments over the remaining life of the insured obligation.

The following table depicts amortization of existing guaranteed net par outstanding:

($ in millions)

Net Par Outstanding Amortization (1)

Estimated Net

2024 - 2028 $ 5,813

2029 - 2033 4,345

2034 - 2038 6,424

2039 - 2043 1,340

After 2043 1,619

Total $ 19,541

(1) Depicts amortization of existing guaranteed portfolio, assuming no advance refundings, as of December 31, 2023.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay guaranteed obligations.

Exposure Currency

The table below shows the distribution by currency of Ambac's existing guaranteed net par outstanding as of December 31, 2023:

(in millions)

Currency Net Par

Dollars $ 11,039 $ 11,039 56 %

British Pounds £ 5,769 7,353 38 %

Euros € 800 883 5 %

Australian Dollars A$ 391 266 1 %

Total $ 19,541 100 %

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Financial Guarantees in Force to the Consolidated Financial Statements, included in Part II, Item 8 included in this Annual Report on Form 10-K, for geographic detail by location of risk as of December 31, 2023.

Ratings Distribution

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

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

AAA is less than 1% in both periods.

(1) Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac.

Ambac credit ratings are subject to revision at any time and do not constitute investment advice.

Summary of Below Investment Grade Exposure:

Net Par Outstanding

Public Finance:

Military Housing

General Obligations 85 151

Lease and tax-backed revenue 80 252

Total Public Finance 563 823

Structured Finance:

RMBS 1,642 1,841

Student Loans 264 275

Total Structured Finance 1,906 2,117

International Finance:

Sovereign/sub-sovereign 693 701

Transportation 307 310

Total International Finance 1,001 1,013

Total $ 3,470 $ 3,953

The net decline in below investment grade exposures is significantly due to de-risking activities, including Puerto Rico of $165 and from the above mentioned reinsurance transaction of $50.

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

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

Ceded Reinsurance

AAC has reinsurance in place pursuant to surplus share treaties and facultative agreements.

As a primary financial guarantor, AAC is required to honor its obligations to its policyholders whether or not its reinsurers perform their obligations under these reinsurance agreements.

AAC's reinsurers all have applicable ratings of A or better.

As of December 31, 2023, the aggregate amount of insured par ceded by AAC to reinsurers under reinsurance agreements was $6,464, with the largest reinsurer accounting for $2,766 or 10.6% of gross par outstanding at December 31, 2023.

Variability of Expected Losses and Recoveries

Management believes loss reserves (present value of expected cash flows, net of recoveries) are adequate to cover future claim payments, but there can be no assurance that the ultimate liability will not be higher than such estimates.

While our LFG loss reserves reflect our judgment regarding issuers’ financial flexibility to adapt to adverse markets, they may not adequately capture sudden, unexpected or protracted uncertainty that adversely affects market conditions.

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

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

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

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

In arriving at such view, management makes considerable judgments about the possibility of various future events.

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

Factors” in Part I, Item 1A in this Annual Report on Form 10-K for further discussion of the risks relating to future losses and recoveries that could result in more highly stressed outcomes.

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

the initiation of rehabilitation proceedings against AAC;

and a significant drop in the value of securities issued or insured by AAC.

The possible increase in loss reserves for which we have an estimate of expected loss at December 31, 2024, could be approximately $265,000.

Business Combinations

The acquired entities comprising the Insurance Distribution segment primarily represent business combinations that were accounted for under the acquisition method of accounting.

The acquisition method requires us to allocate the total consideration transferred for each acquisition to the assets acquired, liabilities assumed and noncontrolling ("NCI") interests based on their fair values as of the date of acquisition, including identifiable intangible assets.

The allocation of the consideration utilizes significant estimates in determining the fair values of net assets acquired, which primarily consist of customer relationship intangible assets, redeemable NCI interests and nonredeemable NCI interests.

The valuation method used to determine customer relationship intangible assets was the multi period excess earnings method "(MPEEM"), which quantifies the residual (or excess) cash flows generated by the intangible asset and discounts those cash flows to their present value.

The significant assumptions used in determining the fair value of customer relationships include estimated revenue growth, customer attrition rates, operating margins, and discount rate.

These estimates directly impact the amount of identified intangible assets recognized and the related amortization expense in future periods.

As of December 31, 2024 and 2023, an aggregate of $333,562 and $47,289, respectively, of acquired intangible assets, net of accumulated amortization, was recorded on the Consolidated Balance Sheets, of which $323,720 and $44,585, respectively, represented customer relationships.

The valuation method to determine the fair value of redeemable NCI interests and related put and call options was the Monte Carlo Simulation.

The significant fair value assumptions used in the simulation include the exercise thresholds, EBITDA forecasts, discount rate and long-term growth rate.

The valuation method to determine the fair value of nonredeemable NCI interests, which do not contain put or call options, was the discounted cash flow approach.

The significant fair value assumptions used in the model include estimated long term revenue and expense forecasts and the discount rate.

The excess of purchase price over the fair value of assets acquired, liabilities assumed, and NCI interests (both redeemable and nonredeemable) is recorded as goodwill.

We may refine our estimates and make adjustments to the assets

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The following table shows the distribution, by bond type, of AAC’s ceded guaranteed portfolio at December 31, 2023:

December 31, Ceded Par Amount

Public Finance:

Housing revenue $ 2,829 $ 910

Lease and tax-backed revenue 1,125 1,169

General obligation 1,112 1,265

Transportation revenue 599 699

Other 494 555

Total Public Finance 6,159 4,598

Structured Finance:

Investor-owned utilities 174 174

Other 100 136

Total Structured Finance 274 310

Total Domestic 6,433 4,908

International Finance:

Total International Finance 31 30

Total $ 6,464 $ 4,938

Percentage of Gross Par Ceded 25 % 18 %

acquired and liabilities assumed over a measurement period, not to exceed one year from the date of acquisition.

Intangible asset impairment and useful life evaluation

We review acquired finite-lived intangible assets that are being amortized for impairment whenever events or changes in circumstance indicate that their carrying amount may not be recoverable.

Qualitative factors considered include any adverse developments in regulation, unfavorable market conditions, or the extent to which an asset will be utilized.

We do not believe there will be a material change in the estimates or assumptions used to calculate impairments or useful lives of amortizable intangible assets.

However, if actual results are not consistent with our estimates and assumptions, we may be exposed to an acceleration of amortization or impairment losses that could be material.

Goodwill impairment evaluation

We perform the impairment assessment of goodwill at the reporting unit level within our Insurance Distribution segment on an annual basis or more frequently if circumstances indicate a possible impairment.

The impairment test may first consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

Examples of qualitative factors include, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, entity-specific events, events affecting reporting units and sustained changes in our stock price.

If results of the qualitative assessment indicate a more likely than not determination or if we elect not to perform a qualitative assessment, a quantitative test is performed by comparing the estimated fair value using an income approach or market approach for each reporting unit with its estimated carrying value.

For the 2024 annual impairment evaluation, we performed a qualitative assessment for certain reporting units and for other reporting units we elected to bypass the qualitative evaluation and perform quantitative tests.

There was no goodwill impairment for any of the reporting units.

Under the quantitative assessment, the determination of fair value includes assumptions, which are considered Level 3 inputs, that are subject to risk and uncertainty.

We consider different valuation approaches in the quantitative assessment.

The income approach uses discounted cash flows which are dependent on subjective factors including the timing of future cash flows, the underlying margin projection assumptions, future growth rates and the discount rate.

The market approach uses valuation multiples and is dependent on subjective factors including the determination of industry market multiples and EBITDA forecasts.

Additionally, to corroborate our estimated fair value, we perform a market capitalization reconciliation to determine if the implied control premium is reasonable.

If our assumptions or estimates in our fair value calculations change or if any of the above subjective factors vary from what was expected, this may impact our impairment analysis and result in a decline in fair value that may trigger future impairment charges.

RESULTS OF OPERATIONS

The following discussion should be read along with the financial statements included in this Annual Report on Form 10-K, as well as Part II, "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K for the year ended December 31, 2022, which provides additional information on comparisons of years 2022 and 2021.

Net income attributable to common stockholders for the year ended December 31, 2023, was $4 compared to a net income attributable to common stockholders of $522 for the year ended December 31, 2022.

The net income variance was primarily driven by:

(i) a lower loss and loss adjustment expenses benefit, (ii) a litigation recovery in 2022, (iii) 2022 gains on derivative contracts, and (iv) 2022 net gains on extinguishment of debt, partially offset by higher returns from the investment portfolio and lower interest expense.

The following discussion of results of operations for the years ended December 31, 2024, 2023 and 2022 should be read along with the financial statements included in this Annual Report on Form 10-K.

Net loss from continuing operations for the years ended December 31, 2024, 2023 and 2022, was $58,921, $23,232 and $35,244, respectively.

The net loss variance in 2024 compared to 2023 was primarily driven by:

(i) higher costs related to acquisitions and integrations of $26,821, (ii) higher restructuring costs of $7,600, (iii) higher intangible amortization of $13,450 and (iv) interest expense on short-term debt of $9,379, partially offset by higher Everspan income, including the $7,500 gain on the sale of CNIC, and continuing growth of Insurance Distribution business.

The net loss variance in 2023 compared to 2022 was primarily driven by higher net investment income of $8,655 and growth of both the Specialty Property and Casualty Insurance and Insurance Distribution businesses flowing from higher net premiums earned of $38,042 from Everspan and higher commission income of $20,586 from Insurance Distribution.

A summary of our financial results is shown below:

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Net gains (losses) on derivative contracts 4,016 (279) 935

Net realized gains on extinguishment of debt — 81 33

Income (loss) on variable interest entities 3 21 7

Litigation recoveries — 126 —

13,314 200 577

Losses and loss adjustment expenses 72,626 36,712 9,071

Amortization of deferred acquisition costs, net 11 3 1

Policy acquisition costs 23,666 10,557 2,535

Commission expense 40,876 29,465 17,641

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Interest expense 9,379 — —

Provision (benefit) for income taxes 7 2 18

Provision (benefit) for income taxes from continuing operations (924) (989) (462)

Net income (loss) from continuing operations (58,921) (23,232) (35,244)

Net income (loss) from discontinued operations, net of income taxes

(497,167) 28,183 557,364

Net income (loss) (556,088) 4,951 522,120

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

Net income (loss) attributable to common stockholders $ 4 $ 522 $ (17)

Ambac's results for the year ended December 31, 2023 compared to the year ended December 31, 2022 were impacted by the following:

• During 2023, Ambac completed LFG risk reduction transactions primarily through a quota share reinsurance cession, consisting primarily of military housing risk.

This reinsurance cession had an adverse impact on net premiums earned of approximately $2.

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

As a result of these restructurings, Ambac's 2022 consolidated financial results included a net benefit of $180 in losses and gains of $37 on the consolidation of newly established variable interest entities;

partially offset by net losses of $23 from sales and changes to the fair value of securities received by AAC in the restructurings and losses of $17 on the VIEs after initial consolidation.

• On October 6, 2022, AAC entered into a Settlement Agreement and Release with Bank of America Corporation and certain affiliates thereof (the "BOA Parties") whereby the parties settled all RMBS litigation brought by AAC against the BOA Parties and AAC received $1,840 (the "BOA Settlement Payment").

On December 29, 2022, AAC entered into a Settlement Agreement and Release with Nomura Credit & Capital, Inc.

("Nomura") whereby the parties settled all RMBS litigation brought by AAC

net (gain) loss attributable to NCI

(361) (1,319) (871)

gain on purchase of auction market preferred shares — — 1,131

Net income (loss) attributable to Ambac shareholders $ (556,449) $ 3,632 $ 522,380

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against Nomura and AAC received $140 on January 3, 2023.

AAC used the proceeds from these settlements (net of reinsurance) plus approximately $6 of cash on hand to fully redeem all debt obligations secured by the net proceeds of litigations brought by AAC against RMBS sponsors.

The settlements with the BOA Parties and Nomura brought to closure all of AAC's legacy litigation against RMBS sponsors.

Background and Business Description in Part II, Item 8 in this Annual Report on Form 10-K for further information.

During 2022, AAC recorded a gain of $123 million in loss and loss adjustment expenses and litigation recoveries of $126, offset by net realized losses on extinguishment of debt of $53 related to the above-mentioned settlement agreements.

Interest expense was significantly reduced in 2023 as a result of these settlements.

The following paragraphs describe the consolidated results of operations of Ambac and its subsidiaries for 2023 and 2022.

Ambac's results for the year ended December 31, 2024 compared to the year ended December 31, 2023, and for the year ended December 31, 2023 compared to the year ended December 31, 2022 were impacted by the following:

• Ambac's acquisitions within the Insurance Distribution segment have a significant impact on the comparability of results between 2024, 2023 and 2022.

Effective July 31, 2024, Ambac acquired 60% of Beat.

Effective August 1, 2023, Ambac acquired 80% of Riverton.

Effective November 1, 2022, Ambac acquired 85% of All Trans and 80% of Capacity Marine.

• In the fourth quarter of 2024, the pending sale of AAC was determined to qualify for discontinued operations presentation, resulting in a loss from disposal of $570,145 reported within loss from discontinued operations in 2024.

The income (loss) from discontinued operations were (497,167), 28,183 and 557,364 for the years ended December 31, 2024, 2023 and 2022.

Refer to Note 5.

Discontinued Operation for further details of these amounts.

The following describes the consolidated results of continuing operations of Ambac and its subsidiaries for 2024, 2023 and 2022.

Gross Premiums Written.

Gross premiums written increased $161 for the year ended December 31, 2023, compared to the same periods in the prior year, as shown by segment below.

Gross premiums written increased $109,484 for the year ended December 31, 2024, and $126,908 for the year ended December 31, 2023, compared to the comparable prior year periods, as shown below.

Year Ended December 31, 2024 2023 2022

Legacy Financial Guaranty Insurance $ 15 $ (20) $ (11)

Specialty Property & Casualty Insurance 273 146 13

Total $ 288 $ 127 $ 2

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

Specialty P&C growth is primarily driven by the number of active programs and their size as of December 31, 2023, we have twenty-three programs with nineteen MGA/Us.

Gross Premiums Written

$ 382,771 $ 273,287 $ 146,379

Growth is primarily driven by the number and size of active programs.

As of December 31, 2024, 2023, and 2022 we had 27, 23 and 14 programs across approximately ten lines of business, with a focus on the casualty sector and minimal property exposure.

Net Premiums Written.

Net premiums written increased $22 for the year ended December 31, 2023 compared to the year ended December 31, 2022, as shown by segment below:

Net premiums written increased $8,858 for the year ended December 31, 2024 and $51,270 for the year ended December 31, 2023, compared to the comparable prior year periods, as shown below:

Year Ended December 31, 2024 2023 2022

Legacy Financial Guaranty Insurance $ (35) $ (6) $ (35)

Specialty Property & Casualty Insurance 80 29 3

Total $ 44 $ 23 $ (33)

Legacy Financial Guarantee Insurance net premiums written relate to changes in expected and contractual premium cash flows for existing financial guarantees in force, and reinsurance cessions in 2023 and 2021.

Specialty P&C growth is primarily driven by the number of active programs and their size as of December 31, 2023, in addition to the impact of two assumed reinsurance transactions executed during 2023.

Net Premiums Written

$ 88,682 $ 79,824 $ 28,554

Growth in net premiums written will typically track gross premiums written, but will also be impacted by the percentage of each program Everspan retains.

Everspan typically retains up to 30% of each program.

For the years ended December 31, 2024, 2023 and 2022, Everspan retained 23%, 29% and 17% of gross written premiums, respectively.

The increased retention rate in 2023 compared to 2022 was driven by Everspan's participation on two assumed reinsurance transactions which have an effective retention rate of 100%.

Everspan exited one of those programs in the fourth quarter of 2024, which contributed to the decline in retention rate in 2024 as compared to 2023.

Net Premiums Earned.

Net premiums earned for the year ended December 31, 2023 increased by $22 or 38% as compared to net premiums earned for the year ended December 31, 2022, as shown below.

Net premiums earned for the year ended December 31, 2024, increased by $47,094 or 90.7% and for the year ended December 31, 2023, increased $38,042 or 274% compared to the respective priority years, as shown below.

Year Ended December 31, 2024 2023 2022

Legacy Financial Guaranty Insurance $ 26 $ 42 $ 46

Specialty Property and Casualty Insurance 52 14 1

Total 78 $ 56 $ 47

The reduction in the Legacy Financial Guarantee Insurance segment was primarily due to de-risking activities, including the 2023 reinsurance transaction, the 2022 Puerto Rico restructurings, and run-off of the insured portfolio.

The increase in Specialty Property and Casualty Insurance net premiums earned was driven by the growth in net premiums written.

Net Premiums Earned $ 99,005 $ 51,911 $ 13,869

The increase in net premiums earned was driven by the growth in net premiums written.

Commission Income and Commission Expense.

Commission income was $51 compared to $31, for the years ended December 31, 2023 and 2022.

Commissions include both base and profit sharing commissions from Cirrata Group companies in the Insurance Distribution segment.

The increase was driven by organic growth in premiums placed as well as the acquisition of All Trans and Capacity Marine in November of 2022 and Riverton in August of 2023.

The Insurance Distribution business earns commission income as a percentage of the premium it place with insurance, reinsurance and other capacity providers.

In some cases, the Insurance Distribution business will also earn profit commissions based on the underwriting performance of the business that it underwrites Profit commissions by their nature may be volatile whereas base commissions tend to be more steady.

Commission income was $92,023 and $51,281 for the years ended December 31, 2024 and 2023, respectively.

The increase was driven by organic growth in premiums placed as well as the acquisition of Beat in July 2024 and Riverton in August of 2023.

Commission expense will largely track changes in gross commission.

For the year ended December 31, 2024 and December 31, 2023 commission expense was $40,876 and $29,465 representing approximately 43% and 56% of commission income in each respective period.

The decrease in commission expense relative to commission income in 2024 relative to 2023 is primarily a result of the acquisition of Beat.

When third parties are paid commissions to obtain business, the majority of Beat's commission income is reported net of any distribution and commission expenses, due to the nature of its program agreements.

The majority of the Insurance Distribution Segment's other MGA/Us report their commission income gross of distribution and commission expenses.

Commission income was $51,281 compared to $30,695 for the years ended December 31, 2023 and 2022, respectively.

Growth was primarily driven by acquisitions during each of the periods including Riverton in August 2023 and All Trans and Capacity Marine in November 2022.

For the year ended December 31, 2023 commission expense was $29,465 compared to $17,641 for the year Ended December 31, 2022, representing approximately 57% of commission income in both periods.

Program Fees.

Program fee revenues were $8 compared $3 for the years December 31, 2023 and 2022, respectively.

Program fee revenues were $13,506, $8,437 and $3,095 for the years ended December 31, 2024, 2023 and 2022, respectively.

Program fee revenues represent the recognition of ceding commissions in excess of direct acquisition costs received from reinsurers and minimum fees received from MGA/Us until related programs reach certain levels of premium ceded.

Program fees are charged as a percentage of premiums ceded to reinsurers as a component of total ceding commissions.

Net Investment Income.

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

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

Investments in pooled investment funds and certain other investments are either classified as trading securities with changes in fair value recognized in earnings or are reported under the equity method.

These funds and other investments are reported in Other investments on the Consolidated Balance Sheets.

For further information about investment funds held, refer to Note 4.

Investments to the Consolidated Financial Statements, included in Part II, Item 8 in this Annual Report on Form 10-K.

Net investment income for the periods presented were driven by the Legacy Financial Guarantee Insurance segment;

other segments' results were not significant.

The growth is a function of higher premiums ceded to reinsurers;

driven by the growth in premiums written.

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Net investment income from Ambac-insured securities, available-for-sale securities other than Ambac-insured and Other investments is summarized in the table below:

Year Ended December 31,

2023 2022 2021

Securities available-for-sale:

Ambac-insured (including secured notes)

$ 24 $ 24 $ 45

Securities available-for-sale and short-term other than Ambac-insured 69 42 29

Other investments (includes trading securities) 47 (49) 66

Net Investment Income.

Net investment income increased $123 for the year ended December 31, 2023, compared to 2022.

• Income from Other investments and trading securities increased $97 in 2023, compared to the prior year.

Pooled fund investments produced a gain of $40, an increase of $66 from 2022, driven by improved performance in all fund categories even with a lower allocation to funds overall.

The largest increases were in hedge funds, equities and high-yield and leverage loan funds.

Investments in pooled funds may be volatile, but are generally expected to produce higher returns than traditional fixed maturity investments.

Gains on securities received in the Puerto Rico restructurings, which are classified as trading, were $7 in 2023, compared to a loss of $23 in 2022.

• Net investment income from available-for-sales securities other than Ambac-insured securities increased $27 in 2023, compared to the prior year, due to higher portfolio yields.

• Investment income from Ambac-insured securities was flat compared to 2022.

Higher average holdings of Ambac-insured RMBS and student loans in 2023 offset the impact of the 2022 settlements of Puerto Rico bonds and the redemption of Sitka Senior Secured Notes (as defined in Note 12.

Long-Term Debt to the Consolidated Financial Statements included in Part II, Item 8 in the Annual Report on Form 10-K) held in the portfolio in 2022.

Net investment income consists of interest income, including the net effect of discount accretion and premium amortization, from fixed maturity securities classified as available-for-sale and net gains (losses) on pooled investment funds which are reported under the equity method.

These funds and certain other investments are reported in Other investments on the Consolidated Balance Sheets.

For further information about investment funds held, refer to Note 6.

Investments to the Consolidated Financial Statements, included in Part II, Item 8 in this Annual Report on Form 10-K.

Net investment income was $14,448, $13,159, and $4,503 for the years ended years ended December 31, 2024, 2023 and 2022, respectively.

Net investment income increased in 2024 compared to 2023 due to higher average yields and growth of the Everspan investment portfolio, partially offset by lower average net short term investment balances resulting from the acquisition of Beat, and lower returns on fund investments.

The increase in 2023 compared to 2022 resulted primarily from higher yields and a larger consolidated investment portfolio, following AFG's sale of intercompany debt obligations (which were eliminated in consolidation) in late 2022.

Net Investment Gains (Losses), including Impairments.

The following table provides a breakdown of net investment gains, for the periods presented:

Year Ended December 31,

2023 2022 2021

Net realized gains on securities sold or called

$ (4) $ 18 $ 11

Net foreign exchange gains (losses)

Credit impairment (3) — —

Intent / requirement to sell impairments (12) — —

Total net investment gains, including impairments

$ (22) $ 31 $ 7

Net investment gains (losses) during the year ended December 31, 2023, included impairments of Ambac-insured student loan securities that management intends to sell.

Net investment gains during the year ended December 31, 2022, included a recovery of $9 from a class-action settlement relating to certain RMBS securities previously held in the investment portfolio, $4 from the distribution of residual assets of a legacy financial guarantee student loan restructuring vehicle and $5

from the mandatory redemption of Sitka Senior Secured Notes over their amortized cost value.

Other net realized gains on securities sold or called in 2023 and 2022 are primarily from sales in connection with routine portfolio management.

Refer to Note 2.

Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements located in Part II, Item 8 in this Annual Report on Form 10-K for a description of the Company's policies related to investment impairments.

Net investment gains (losses) were $(497), $19, and $(62) during the years ended December 31, 2024, 2023 and 2022.

During 2024, the net loss included credit impairments of $(6,516) on certain minority investments in development stage companies held by AFG, offset by realized gains of $6,016 arising from the redemption and conversion of convertible notes.

Other gains (losses) related to sales in connection with routine portfolio management.

Net Gains (Losses) on Derivative Contracts.

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

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

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

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

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

Net losses on interest rate derivatives for the year ended December 31, 2023, were $1, compared to a net gains of $128 for the year ended December 31, 2022.

Results for the year ended December 31, 2023, reflect the impacts of interest rate shifts in the early part of 2023 and counterparty credit adjustments as noted below.

The net gains in 2022 were driven primarily by the significant rate increase during the year.

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

In periods when credit spreads are stable, counterparty credit adjustments will generally have a proportionate offsetting impact to gains or losses on derivative assets, relative to fully collateralized assets.

In addition to the impact of interest rates on the underlying derivative asset values, the changes in counterparty credit adjustments are driven by movement of credit spreads.

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

Inclusion of counterparty credit adjustments in the valuation of interest rate derivatives resulted in gains (losses) within Net gains (losses) on derivative contracts of $2 and $8 for the years ended December 31, 2023 and 2022, respectively.

The lower counterparty credit adjustments for both periods reflected lower underlying asset values with the further impact of credit spread narrowing in 2023 and widening in 2022.

Net Realized Gains on Extinguishment of Debt.

Net realized gains on extinguishment of debt was $0 for year ended December 31, 2023.

Net realized gains on extinguishment of debt was $81 for the year ended December 31, 2022.

Gains were recognized due to repurchases of surplus notes below their carrying values, partially offset with losses recognized on the redemption of the Sitka AAC Note (as defined in Note 12.

Long-term Debt to the Consolidated Financial Statements

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included in Part II, Item 8 in this Annual Report on Form 10-K) above its carrying value.

AAC repurchased $266 million current par of surplus notes from third party holders in 2022.

Subject to prevailing market conditions, our liquidity, internal and regulatory guidelines and approvals, contractual restrictions and OCI’s Run-off Capital Framework, Ambac may continue to opportunistically reduce, redeem, repurchase or otherwise retire its outstanding surplus notes, including through open market repurchases, tender offers, repayments, redemptions or otherwise, and may consider opportunities to exchange securities issued by it from time to time for other securities issued by AFG or AAC.

Income (Loss) on Variable Interest Entities.

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

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

In consolidation, most assets and liabilities of the LFG-VIEs are initially reported at fair value, except for customer contract assets and liabilities which are accounted for under the Revenue from Contracts with Customers Topic of the ASC.

The related insurance assets and liabilities are eliminated in consolidation.

The amount of LFG-VIE net assets (liabilities) that remain in consolidation incorporate the net positive (negative) future cash flows from (to) the VIEs which are attributable to Ambac’s insurance subsidiaries in the form of financial guarantee insurance premiums, fees and losses.

Generally, LFG-VIEs in a net liability position are expected to have some portion of their obligations funded by Ambac’s insurance subsidiaries through insurance claim payments.

Differences between the net carrying value of the insurance accounts under the Financial Services—Insurance Topic of the ASC and the carrying value of the consolidated LFG-VIEs' net assets or liabilities are recorded through income at the time of consolidation.

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

Income (loss) on variable interest entities was $3 and $21 for the years ended December 31, 2023 and 2022, respectively.

Results for the year ended December 31, 2023, were driven primarily by the $4 gain upon consolidation of a VIE for which Ambac UK guarantees the senior debt.

Results for the year ended December 31, 2022.

related primarily to three VIE trusts created in connection with the Puerto Rico restructurings in 2022.

The 2022 gain included the initial $37 million gain upon consolidation, losses of $9 from changes to fair value of these VIEs' assets, and losses of $7 from these VIEs' interest and other costs.

Refer to Note 11.

Variable Interest Entities to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on the accounting for VIEs.

Litigation Recoveries.

For the year ended December 31, 2022, in connection with the settlement agreement with Bank of America Corporation and certain affiliates, the BOA Settlement Payment included recoveries from litigations for alleged breaches of contractual obligations and fraud by the BOA Parties.

Management allocated the BOA Settlement Payment to each of the litigations based on previously developed valuations of each individual litigation.

The portion of the BOA Settlement Payment allocated to fraud litigation recoveries has been recorded as a litigation recovery in the Statement of Comprehensive Income (Loss).

Net gains (losses) on derivative contracts include results from FX forward contracts used to manage currency risk within the Insurance Distribution segment, as well as by AFG to protect against currency fluctuations leading up to the purchase of Beat.

Results also include changes in the fair value of warrants to purchase equity of certain development stage companies held by AFG.

Net derivatives gains in 2024 were driven by gains on AFG's FX forwards partially offset by fair value losses on owned warrants.

Results for 2023 and 2022 reflect fair value changes on the warrants.

There were no FX forward contracts in 2023 or 2022.

Losses and Loss Adjustment Expenses (Benefit).

Losses and loss adjustment expenses increased $35,914 for the year ended December 31, 2024, compared to the prior year.

Below provides the breakout of loss and loss expenses by segment:

Year Ended December 31, 2023 2022 2021

Legacy financial guarantee $ (69) $ (406) $ (89)

Specialty property and casualty insurance 37 9 $ —

Total $ (33) $ (396) $ (88)

The large variance within legacy financial guarantee was driven by activities in the RMBS portfolio in 2023 and 2022, including the impact of the Settlement Agreements with Bank of America Corporation and certain affiliates thereof and the settlement agreement with Nomura during 2022.

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

The increase was primarily due to the growth of the business.

Everspan's loss and LAE ratio was 73.4% and 70.7% for the years ended December 31, 2024 and 2023, respectively, inclusive of prior years adverse development of 4.7% and 0.3%, respectively.

The shift in the loss and LAE ratio was driven by commercial auto loss experience in the prior accident years and a higher selected loss ratio for programs in runoff.

In the fourth quarter of 2024 management decided to set loss reserves for programs that are runoff at the high end of the actuarial loss range, given these program can experience greater loss volatility than active programs.

This change to set runoff reserves at the high end of the range resulted in a 1 percentage point increase in

the loss and LAE ratio for the year ended December 31, 2024 compared to our prior reserving method.

Everspan's loss and LAE ratio will vary based on changes in the lines of business underwritten and retained, loss reserving policy, loss development trends, inflation rates and other economic and industry specific factors.

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

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

These sliding scale arrangements help to partially mitigate net income volatility.

Such benefit reduced the Specialty Property and Casualty Insurance segments expense ratio by 0.8% and 3.2% for the years ended December 31, 2024 and 2023, respectively.

Loss and loss expenses incurred increased for the year ended December 31, 2023, relative to the year ended December 31, 2022, primarily due to the growth of the business.

Everspan's loss and LAE ratio was 70.7% and 65.4% for the years ended December 31, 2023 and 2022, respectively, inclusive of prior years adverse development of 0.3% and 0.2%, respectively.

The shift in the loss and LAE ratio was primarily driven by commercial auto loss experience in the current accident year and the addition of non-standard personal auto and workers compensation programs through assumed reinsurance.

The increase in the loss and LAE ratio for the year ended December 31, 2023, compared to the year ended December 31, 2022, was partially offset by a benefit to acquisition costs as a result of sliding scale commission arrangements with program partners.

Such benefit reduced the Specialty Property and Casualty Insurance segments expense ratio by 3.2% and 1.3% for the years ended December 31, 2023 and 2022, respectively.

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

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

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

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

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

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

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

General and Administrative Expenses ("G&A").

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

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$ 129,166 $ 66,985 $ 56,278

G&A expenses for the year ended December 31, 2023 are $156, an increase of $15 from G&A expenses for the year ended December 31, 2022.

The increase was primarily due to the following:

• Higher compensation costs primarily due to a net increase in staffing from additions in the Specialty Property and Casualty Insurance and Insurance Distribution segments and the impact of performance factor adjustments on incentive compensation expense, partially offset by reductions in staffing in the Legacy Financial Guarantee Insurance segment.

• Higher non-compensation costs primarily related to increased Legacy Financial Guarantee Insurance segment defensive litigation expenses and costs associated with growth of the Specialty Property and Casualty Insurance and Insurance Distribution businesses.

The increase in 2024 compared to 2023 was primarily due to the following:

• Higher compensation costs of $15,878 primarily due to acquired MGAs in the Insurance Distribution segment partially offset by the favorable variance from the impact of performance factor adjustments on incentive compensation expense.

• Higher non-compensation costs of $46,303, driven primarily by higher acquisition related costs of $26,821, restructuring costs of $6,990 in anticipation of the sale of AAC, higher Insurance Distribution expenses of $7,707 driven mostly by the increased scale of the business, and and the write-down of certain capitalized software costs.

Growth in Specialty Property and Casualty Insurance also contributed to higher overall costs.

The increase in G&A expenses in 2023 compared to 2022 was primarily due to the following:

• Higher compensation costs associated with acquisitions and the growth of the Insurance Distribution and Specialty Property and Casualty Insurance businesses, and the adverse variance from the impact of performance factor adjustments on incentive compensation expense.

• Higher non-compensation expenses related to acquisitions in the Insurance Distribution segment.

Intangible Amortization.

Insurance intangible amortization was $25 and $44 for the years ended December 31, 2023 and 2022, respectively.

The decrease was driven primarily by the timing of de-risking transactions (including Puerto Rico in 2022) and the reduced size of the financial guarantee insured portfolio.

Insurance intangible amortization will decline after policies

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mature or they are de-risked Other intangible amortization was $3 and $3 for the years ended December 31, 2023 and 2022 relating to acquisitions within the Insurance Distribution segment.

Intangible amortization was $17,603, $4,152 and $2,921 for the years ended years ended December 31, 2024, 2023 and 2022;

all increases relate to acquisitions within the Insurance Distribution segment.

Interest Expense.

All interest expense relates to the Legacy Financial Guarantee Insurance segment and includes accrued interest on the LSNI Ambac Note (fully redeemed in 2021), Sitka AAC Note (fully redeemed during the fourth quarter of 2022), Tier 2 Notes (fully redeemed during the first quarter of 2023), surplus notes and other debt obligations.

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

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

Year Ended December 31,

2023 2022 2021

Surplus Notes (1)

$ 62 $ 78 $ 77

LSNI Ambac Note — — 50

Sitka AAC Note — 63 32

Total interest expense $ 64 $ 168 $ 187

(1) Includes interest on Junior Surplus Notes that were acquired and retired in 2021.

The decrease in interest expense for the year ended December 31, 2023, compared to the year ended December 31, 2022, reflects the impact of the 2022 redemption of secured notes and purchases of surplus notes as described further under "Debt Redemptions and Extinguishments" in Note 12.

Long-term Debt to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.

Surplus note principal and interest payments require the approval of OCI.

In May 2023, OCI declined the request of AAC to pay the principal amount of the surplus notes, plus all accrued and unpaid interest thereon, on the then next scheduled payment date of June 7, 2023.

As a result, the scheduled payment date for interest, and the scheduled maturity date for payment of principal of the surplus notes was extended until OCI grants approval to make the payment.

Interest will accrue, compounded on each anniversary of the original scheduled payment date or scheduled maturity date, on any unpaid principal or interest through the actual date of payment, at 5.1% per annum.

Holders of surplus notes will have no rights to enforce the payment of the principal of, or interest on, surplus notes in the absence of OCI approval to pay such amount.

The interest on the outstanding surplus notes were accrued for and AAC is accruing interest on the interest amounts following each scheduled payment date.

Total accrued and unpaid interest for surplus notes outstanding to third parties was $475 at December 31, 2023.

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

OCI’s approval may be granted or denied in OCI’s sole discretion.

Since the issuance of the surplus notes in 2010, OCI has declined to approve regular payments of interest on surplus notes, although the OCI has permitted two exceptional payments.

Ambac can provide no assurance as to when or if surplus note principal and interest payments will be made.

Interest expense for the year ended December 31, 2024 was $9,379, related to the short-term debt used in funding the Beat acquisition.

No interest expense was incurred in the company's continuing operations for the year ended December 31, 2023 and 2022.

Provision for Income Taxes.

The provision for income taxes for the year ended December 31, 2023 and 2022, was a expense of $7 and $2, respectively.

Income taxes for the year ended December 31, 2023 and 2022, includes provisions for income tax due in respect of Ambac UK of $8 and $3, respectively.

The provision for income taxes (benefit) from continuing operations for the years ended December 31, 2024, 2023 and 2022, was $(924), $(989) and $(462) , respectively.

At December 31, 2024, the Company had approximately $3,615,708 of U.S.

Federal net ordinary operating loss carryforwards, including approximately $1,640 at AFG and $1,760 at AAC.

Federal net ordinary operating loss carryforwards, including approximately $1,663,087 at AFG.

Results of Operations by Segment

Legacy Financial Guarantee Insurance

Year Ended December 31, 2023 2022

Net premiums earned $ 26 $ 42

Net investment income 127 12

Net investment gains (losses), including impairments (23) 32

Net gains (losses) on derivative contracts (1) 128

Net realized gains on extinguishment of debt — 81

Other income 15 30

Litigation recoveries — 126

Total 144 451

Losses and loss adjustment expenses (69) (406)

General and administrative expenses 106 102

Total 37 (303)

EBITDA 107 754

Interest expense 64 168

Depreciation 1 2

Intangible amortization 25 44

Pretax income (loss) $ 17 $ 540

Ambac's stockholders equity (1)

(1) Represents the share of Ambac stockholders equity for each subsidiary within the Legacy Financial Guarantee Insurance segment, including intercompany eliminations.

The Legacy Financial Guarantee Insurance segment is in active runoff.

This will generally result in lower premium earned, investment income, operating expenses and intangible amortization.

The variability in the financial results are primarily driven by changes in loss and loss adjustment expenses resulting from, amongst other items, litigation settlements, credit developments and de-risking transactions.

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

Net premiums earned.

Net premiums earned decreased $16 for the year ended December 31, 2023, compared to the same period in the prior year.

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

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

The positive impact on net premiums earned related to credit losses amounted to $1 and $4 for the years ended December 31, 2023 and 2022, respectively.

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• Accelerated financial guarantee premiums earned as a result of calls and other accelerations on insured obligations, largely due to active de-risking of the insured portfolio, were $0 and $8 for the years ended December 31, 2023 and 2022, respectively.

Losses and Loss Adjustment Expenses (Benefit).

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

Year Ended December 31, 2023 2022

Structured Finance $ (63) $ (207)

Domestic Public Finance (5) (192)

Other (2) (6)

$ (69) $ (406)

(1) Includes loss expenses incurred of $4 and $29 for the year ended years ended December 31, 2023 and 2022 , respectively.

Loss and loss expenses (benefit) for 2023, was largely driven by RMBS recoveries and favorable development related to student loans, partially offset by the negative impact of discount rates on the RMBS portfolio.

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

Losses and loss expenses (benefit) for 2022, were driven by favorable RMBS development due to the impact of the settlement agreements with the BOA Parties and Nomura of $123, the positive impact of discount rates, and favorable loss development in domestic public finance (primarily due to the Puerto Rico restructurings of $180).

G&A Expenses.

The increase in Legacy Financial Guarantee Insurance segment operating expenses during the year ended December 31, 2023, as compared to the year ended December 31, 2022, is driven primarily by additional costs related to defensive litigation, partially offset by the impact of headcount and other cost reductions in the segment.

Specialty Property and Casualty Insurance

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Program fees 13,506 8,437 3,095

Other income 7,409 (6) (58)

Total 126,320 64,101 18,465

Losses and loss adjustment expenses 72,626 36,712 9,071

Amortization of deferred acquisition costs, net 11 3

Policy acquisition costs 23,666 10,557 2,535

General and administrative expenses 17,806 16,449 13,205

Net (gain) loss attributable to noncontrolling interest — —

Net (gain) loss attributable to NCI interest 2 (1) 15

EBITDA 12,222 $ 383 $ (6,346)

Pretax income (loss) $ — $ (6)

Pretax income (loss) from continuing operations $ 12,222 $ 383 $ (6,346)

Retention Ratio (1)

23.2 % 29.2 % 19.5 %

Loss and LAE Ratio (2)

73.4 % 70.7 % 65.4 %

Expense Ratio (3)

28.2 % 35.8 % 91.2 %

Combined Ratio (4)

101.6 % 106.5 % 156.6 %

Ambac's stockholders equity (5)

$ 133,266 $ 121,678 $ 112,363

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

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

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

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

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

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

Twenty-three programs were authorized to issue policies as of December 31, 2023.

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

Twenty-seven programs were authorized to issue policies as of December 31, 2024.

The growth in both the number and size of these programs has contributed to the increase in gross and net premiums written, net premiums earned, program fees, losses and loss adjustment expenses incurred and amortization of deferred acquisition costs.

Additionally, EBITDA and pre-tax income has increased since 2022 due to the growth of the business and, in 2024, due to the gain on sale of CNIC, resulting in a gain of approximately $7,500 The combined ratios have decreased since 2022 as Everspan has begun to gain scale, diversify its book of net insured business and benefit from sliding scale commissions that helped to partially moderate changes in the loss and LAE ratio.

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Losses and Loss Adjustment Expenses (Benefit).

Loss and loss expenses incurred increased for the year ended December 31, 2023, relative to the year ended December 31, 2022, primarily due to the growth and diversification of the business.

Everspan's loss ratio (including ULAE) was 70.7% and 65.4% for the years ended December 31, 2023 and 2022, respectively, inclusive of prior years development of 0.3% and 0.2%, respectively.

The shift in the loss ratio was driven by commercial auto loss experience in the current accident year and diversification, primarily due to the addition of personal auto and workers compensation programs through assumed reinsurance.

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

The increase in the Loss and LAE ratio for the year ended December 31, 2023, compared to December 31, 2022, was partially offset by a benefit to acquisition costs as a result of sliding scale commission arrangements with program partners.

Such benefit reduced the Specialty Property and Casualty Insurance segments expense ratio by 3.2% and 1.3% for the years ended December 31, 2023 and 2022, respectively.

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

These sliding scale arrangements mitigate net income volatility.

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

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

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

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

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

G&A Expenses.

General and administrative costs increased for the year ended December 31, 2023, relative to the year ended December 31, 2022, primarily resulting from the growth in Everspan's staffing and operations.

The impact of growing operations was muted by costs incurred in 2022 in connection with the acquisition of additional shell insurance companies.

G&A Expenses General and administrative costs increased for the year ended December 31, 2024, relative to the year ended December 31, 2023, primarily resulting from the growth in Everspan's staffing and operations.

The impact of growing operations was muted in 2023 compared to 2022 by costs incurred in 2022 in connection with the acquisition of additional shell insurance companies.

Insurance Distribution

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Net commissions 51,147 21,816 13,054

Net investment income 787 64 —

Net gains (losses) on derivatives 106 — —

Other income (expense) 6,320 200 715

General and administrative expenses 38,707 10,598 6,293

EBITDA 19,653 11,483 7,476

Depreciation 8 42 31

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Ambac's stockholders equity (1)

(1) The Consolidated Statements of Comprehensive Income includes this in General and Administrative Expenses.

$ 276,886 $ 105,377 $ 92,802

(1) Represents the share of Ambac stockholders equity for each subsidiary within the Insurance Distribution segment, including intercompany eliminations.

Ambac's Insurance Distribution segment, Cirrata Group "Cirrata", currently includes Xchange Benefits, a P&C MGA specializing in accident and health products;

All Trans, an MGA specializing in commercial automobile insurance for specific "for-hire" auto classes;

Capacity Marine, a wholesale and retail brokerage and reinsurance intermediary specializing in marine and international risk;

and Riverton Insurance Agency, an insurance services business specializing in professional liability lines and consisting of a MGA and a retail agency.

The Insurance Distribution business is typically compensated for its services primarily by commissions paid by insurance carriers for underwriting, structuring and/or administering polices and, in some cases, the managing of claims under an agency agreement.

Ambac's Insurance Distribution companies are compensated for their services primarily by commissions paid by insurance carriers for underwriting, structuring and/or administering polices and, in some cases, the managing of claims under an agency agreement.

Commission revenues are usually based on a percentage of the premiums placed.

Cirrata is also eligible to receive profit sharing contingent commissions on certain of its programs based on the underwriting results of the policies it places with the carrier, which may cause some variability in revenue and earnings.

Cirrata business placed premiums for its carriers of approximately $231 for the year ended December 31, 2023, up $95 or 70% as compared to the year ended December 31, 2022.

The growth was primarily driven by (i) premiums placed by All Trans and Capacity Marine since their acquisition in November 2022;

(ii) premiums placed by Riverton since its acquisition in August 2023 and (iii) organic growth at Xchange of approximately 10%.

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

The Insurance Distribution segment placed premiums for its carriers of approximately $493,372 for the year ended December 31, 2024, up $262,766 or 114% as compared to the year ended December 31, 2023.

The increase was primarily driven by acquisitions and organic growth.

Premiums placed were approximately $230,606 for the year ended December 31, 2023, up $95,139 or 70% compared to the year ended December 31, 2022.

The increase was primarily driven by acquisitions and organic growth.

The Insurance Distribution pretax loss for the year ended December 31, 2024, was ($7,810), down $15,098 or 207%, compared to year ended December 31, 2023.

The decrease was primarily driven by an increase in intangible amortization and interest expense related to acquisitions.

Pretax income for the year end December 31, 2023, was $7,288, up $2,765 or 61% compared to December 31, 2022.

The increase was primarily driven by an increase in commission income due to acquisitions and organic growth.

The Insurance Distribution EBITDA for the year ended December 31, 2024 was $19,653, up $8,170 or 71% compared to the year ended December 31, 2023.

The increase was primarily driven by increase in commission income due to acquisitions and organic growth.

The EBITDA for the year ended December 31, 2023, was $11,483, up $4,007 or 54% compared to the year ended December 31, 2022.

The increase was primarily driven by increase in commission income due to acquisitions and organic growth.

Insurance Distribution businesses may experience seasonal impacts on their revenues and operations.

For example, Employer Stop Loss business underwritten by Xchange has seasonality in January and July, which results in revenue and earnings concentrations in the first and third quarters each calendar year.

For example, Employer Stop Loss business, our largest A&H line of business, has seasonality in January and July, which results in revenue and earnings concentrations in the first and third quarters each calendar year.

Seasonal impacts on the Insurance Distribution segment, and therefore Ambac's results, may increase or decrease over time depending on the relative growth of certain classes of business as well as acquisitions.

G&A Expenses General and administrative expenses for the year ended December 31, 2024, increased as compared to the year ended December 31, 2023, as a result of the addition of the operating expenses of Riverton and Beat, which were acquired in August 2023 and August 2024, respectively.

General and Administrative expenses for the year ended December 31, 2023, increased as compared to the year ended December 31, 2022, as a result of the addition of the operating expenses of All Trans and Capacity Marine which were both acquired in November 2022, and Riverton acquisition in August 2023.

Corporate consists of our holding company and shared services operations ("Corporate").

Corporate provides financial, technological and human resources to Ambac's two segments and is responsible for the function of AFG as a publicly traded company.

Corporate revenues totaled $10,259 and $9,080 and $3,737 for the years ended December 31, 2024, 2023 and 2022, respectively.

Corporate revenue is mostly generated from investment of AFG's liquid resources and investment results from its previously made strategic investments, including certain investments in MGA/Us and an insurtech fund.

Investment revenues comprised of net investment income and net investment gains (losses), including impairments were $6,764, $9,353 and $2,883 in 2024, 2023 and 2022, respectively.

The decline from 2023 to 2024 is attributable to the use of liquid resources for the acquisition of Beat.

The increase from 2022 to 2023 reflected higher short-term yields and investment of funds that were in intercompany investments for part of 2022.

Corporate also had net derivative gains in 2024 of $3,910 related to FX hedging of the purchase price of Beat.

The remainder of Corporate revenues in the periods were driven by derivative gains and losses on a warrant to purchase equity of a minority owned MGA/U.

As a result of the Company reporting the results of operations of AAC as discontinued operations, certain corporate costs charged to AAC have been reported in Net income from continuing operations and included in Corporate expenses for all years presented.

Corporate expenses were $74,516 for the year ended

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G&A Expenses.

General and Administrative expenses for the year ended December 31, 2023, increased as compared to the year ended December 31, 2022, as a result of the addition of the operating expenses of All Trans, Capacity Marine and Riverton, which were acquired in November 2022, November 2022, and August 2023, respectively.

December 31, 2024, up $33,542 from the year ended December 31, 2023.

Corporate expenses for the year ended 2024 and 2023 included compensation expenses of $25,791 and $29,664 and non-compensation and depreciation expense of $48,725 and $11,310, respectively.

The increase in non-compensation corporate expenses from 2023 to 2024 mainly related to higher acquisition related costs of $26,821 including legal and advisory fees associated with the Beat acquisition, restructuring costs of $6,990 in anticipation of the sale of AAC, and the write-down of certain capitalized software costs.

Corporate expenses were $40,974 for the year ended 2023, up $3,353 for the year ended 2022.

The increase in Corporate expenses from 2022 to 2023 mainly related to compensation from growing the Cirrata businesses.

Corporate expenses for the year ended 2023 and 2022 included compensation expenses of $29,664 and $26,842 and non-compensation and depreciation expense of $11,310 and $10,779, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Holding Company Liquidity

AFG is organized as a legal entity separate and distinct from its operating subsidiaries.

AFG is a holding company with no outstanding debt.

AFG’s liquidity is primarily dependent on its net assets, excluding the operating subsidiaries that it owns, totaling $211 as of December 31, 2023, and secondarily on distributions and expense sharing payments from its operating subsidiaries.

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

The $4 reimbursement for 2022 expenses was approved by OCI and paid to AFG in March 2023.

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

AFG is a holding company organized as a legal entity separate and distinct from its operating subsidiaries.

AFG’s liquidity is primarily dependent on its net assets, excluding the operating subsidiaries that it owns, totaling $119,214 as of December 31, 2024, and $146,583, as of December 31, 2023, and secondarily on investment income, distributions, tax and expense sharing payments from its operating subsidiaries and third party capital (e.g.

from credit facilities and equity issuance).

Cash and short-term investments $ 74,423 $ 96,563

Other investments (1)

28,117 32,392

Other net assets 16,674 17,628

Total $ 119,214 $ 146,583

(1) Includes strategic debt and minority equity investments in insurance services businesses of $20,617 and $26,420 at December 31, 2024 and 2023, respectively.

The decrease in AFG net assets, excluding its equity investments in subsidiaries, during 2024 was driven by net cash outflows for the acquisition of Beat Capital Partners Limited ("Beat"), transaction costs associated with the sale of AAC, and other operating expenses, partially offset by interest income and distributions received from Insurance Distribution subsidiaries.

• Effective July 31, 2024, AFG closed the acquisition of a 60% controlling interest in Beat.

In connection with the acquisition, Cirrata incurred $150,000 of debt maturing in 364-days funded by a global bank (the "Credit Facility").

Repayment of debt under the Credit Facility is guaranteed by AFG.

AFG is required to repay this debt upon the closing of the sale of AAC or otherwise refinance such short-term debt with longer-term debt.

The Credit Facility includes covenants that restrict our ability to manage capital resources by limiting, among other actions, the issuance of 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.

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

• Everspan's ability to make future dividend payments will mostly depend on its future profitability relative to its capital needs to support growth.

Everspan is not expected to pay dividends in the near term.

• Under an inter-company cost allocation agreement, AFG is reimbursed by its subsidiaries, including AAC through the date of its sale, for a portion of certain operating costs and expenses

• If AFG were to not sell AAC, its ability to receive dividends from AAC and the timing of any such potential dividends would depend on receipt of regulatory approval and the satisfaction of certain obligations senior to AFG's equity interest.

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

AFG received distributions from Cirrata of $10,739 and $8,032 during the years ended December 31, 2024 and 2023.

Subject to the required approvals for the sale of AAC as described in Note 5.

Discontinued Operation, AFG will receive proceeds of $420,000.

From the proceeds, AFG, is required to purchase AAC's co-investment ($62,000 plus a 7.5% return from the date of funding) in Cirrata V LLC, the holding company established to acquire Beat, repay the Credit Facility ($150,000 plus any accrued and unpaid interest) and pay other transaction expenses.

AFG's principal uses of liquidity are:

(i) the payment of operating expenses, including costs to explore opportunities to grow and diversify Ambac, (ii) the making of strategic investments, which may include illiquid investments and (iii) making capital investments to acquire, grow and/or capitalize new and/or existing businesses;

(i) the payment of operating expenses, including interest on indebtedness and costs to explore opportunities to grow and diversify Ambac and (ii) making capital investments to acquire, grow and/or capitalize new and/or existing businesses;

such capital investments include investments in technology to support the efficient operation of our Specialty Property and Casualty Insurance and Insurance Distribution businesses.

• Funding puts, calls and other capital commitments could require payments from AFG, the magnitude of which may depend on the performance of the underlying businesses and other considerations, of approximatel y $358,000 through 2030.

• AFG may also provide short-term financial support, primarily in the form of loans, to its operating subsidiaries to support their operating requirements.

AFG supported the development of the Specialty Property and Casualty Insurance business, and its acquisitions, with cash contributions of $6 and $14 to the Everspan group of companies during the years ended December 31, 2023 and 2022, respectively.

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

AFG supported the development of the Specialty Property and Casualty Insurance business, and its acquisitions, with cash contributions of $6,000 to the Everspan group of companies during the year ended December 31, 2023.

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

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requirements.

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

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Operating Companies' Liquidity

Sources of liquidity for the Company’s insurance subsidiaries are through funds generated from premiums, recoveries of prior claim payments, reinsurance recoveries, fees, investment income and maturities and sales of investments.

• See Note 7.

Insurance Contracts to the Consolidated Financial Statements included in Part II, Item 8, in this Annual Report on Form 10-K for a summary of future gross financial guarantee premiums to be collected by AAC and Ambac UK under existing insurance policies.

Termination of financial guarantee policies on an accelerated basis may adversely impact AAC’s liquidity.

Cash provided from these sources is used primarily for claim payments and commutations, loss expenses, acquisition costs (Specialty Property and Casualty Insurance segment only), debt service (Legacy Financial Guarantee Insurance segment only), operating expenses, reinsurance payments and purchases of securities and other investments.

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

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

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

AAC's future interest obligations on long-term debt include $475 of accrued and unpaid interest.

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

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

AAC lends AFS cash and securities as needed to fund payments under these derivative contracts, collateral posting requirements and operating expenses.

Intercompany loans are governed by an established lending agreement with defined borrowing limits that has received non-disapproval from OCI.

Insurance subsidiaries manage their liquidity risk by maintaining comprehensive analyses of projected cash flows and maintaining specified levels of cash and short-term investments at all times.

Sources of liquidity for Everspan are primarily through funds generated from premiums, reinsurance recoveries, fees, investment income and maturities and sales of investments.

Cash provided from these sources is used primarily for claim payments, loss expenses, acquisition costs, operating expenses, reinsurance payments and purchases of securities and other investments.

Everspan manages its liquidity risk by projecting cash flows and maintaining specified levels of cash and short-term investments at all times.

It is the opinion of the Company’s management that the insurance subsidiaries’ near term liquidity needs will be adequately met from the sources described above.

Insurance Distribution:

The liquidity requirements of our Insurance Distribution subsidiaries are met primarily by funds generated from commission receipts (both base and profit commissions).

Base commissions are generally received monthly, whereas profit commissions are received only if the business underwritten is profitable.

Cash provided from these sources is used primarily

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for commissions paid to sub-producers, operating expenses and distributions to AFG and other members.

The liquidity requirements of our Insurance Distribution subsidiaries are met primarily by funds generated from commission (both base and profit commissions) and fees.

Base commissions and fees are generally received monthly, whereas profit commissions are received only if the business underwritten is profitable.

Cash provided from these sources is used primarily for commissions paid to sub-producers, operating expenses and distributions to AFG and other members.

Consolidated Cash Flow Statement Discussion

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

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

Year Ended December 31, 2024 2023 2022

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Financing activities 194,219 (10,986) (19,235)

(423) (2,163) (657)

Effect of foreign exchange on cash and cash equivalents 1 (1) —

Net cash flow $ 28,610 $ (717) $ 9,971

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

Cash used in financing activities includes $113 and $311 from such AAC payments for the years ended December 31, 2023 and 2022, respectively.

Operating activities

The following represents the significant cash operating activities during the years ended December 31, 2023 and 2022:

• Cash provided by (i) gross premiums (net of commissions) were $209 and $139 for the years ended December 31, 2023 and 2022, respectively;

(ii) non-VIE interest rate derivatives were $22 and $84 for the years ended December 31, 2023 and 2022, respectively;

(iii) non-VIE investment portfolio income was $96 and $82 for the years ended December 31, 2023 and 2022, respectively;

and (iv) cash settlements from the Puerto Rico restructuring transactions to the consolidated trusts were $47 for the year ended December 31, 2022.

• Payments for accreted interest on redemption of the Tier 2 Notes were $50 for the year ended December 31, 2023.

Payments for debt service and accreted interest on redemptions and debt repurchases of the Sitka AAC Note, Tier 2 Notes and Surplus Notes were $59, $70 and $154, respectively, for the year ended December 31, 2022.

• Payments related to (i) operating expenses we re $120 and $94 for the years ended December 31, 2023 and 2022, respectively;

(ii) reinsurance premiums paid (net of commissions) were $137 and $66 for the years ended December 31, 2023 and 2022, respectively;

and (iii) VIE derivative payments were $326 for the year ended December 31, 2022.

• Fraud litigation recoveries of $126 allocated from the BOA Settlement Payment.

• Net Legacy Financial Guarantee Insurance loss and loss adjustment expenses paid (recovered), including commutation payments, during the years ended December 31, 2023 and 2022 are detailed below:

Year Ended December 31,

Net losses paid $ 30 $ 298

Net subrogation received (1)

(232) (1,951)

Net loss expenses paid 8 48

Net cash flow $ (194) $ (1,605)

(1) 2023 includes Nomura R&W settlement proceeds of $140.

2022 includes the majority of the recoveries from the BOA Settlement Payment except for the portion allocated to fraud litigation recoveries.

Operating Activities for Continuing Operations

Operating cash flows during the year ended December 31, 2024 were adversely impacted by transaction related costs for the acquisition of Beat and the sale of AAC, together with interest payments on Cirrata's short term borrowing.

Operating cash flows for the year ended December 31, 2023, were lower than 2022 primarily due to the receipt of accrued interest in connection with the sale of AAC surplus note investments during 2022, partially offset by growth in the Everspan and Cirrata businesses.

Future operating cash flows will primarily be impacted by net premium collections, investment coupon receipts, fee and net commission revenues, operating expenses, net claim and loss expense payments and debt interest payments.

Financing Activities

Financing activities for the year ended December 31, 2023, included payments for the redemption of Tier 2 Notes of $97, share repurchases of $5 and paydowns and maturities of VIE debt obligations of $315.

Financing activities for the year ended December 31, 2022, included payments for repurchase of surplus notes of $191, redemption of the Sitka AAC Note of $1,210, partial redemption of Tier 2 Notes of $143, share repurchases of $14, repurchases of auction market preferred shares of $8 and paydowns and maturities of VIE debt obligations of $591 (including payments for the accelerations of the VIE trusts created from the Puerto Rico restructuring).

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

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

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

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

AFS may look to re-establish hedge positions that are terminated early, resulting in additional collateral obligations.

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

All collateral and margin obligations are currently met.

Collateral posted by AFS totaled $50 (cash of $23 and securities at fair value of $27), including independent amounts, under these contracts at December 31, 2023.

Investing Activities for Continuing Operations

Investing activities for the year ended December 31, 2024, included net cash used in the Beat acquisition of $243,776 and net cash proceeds from the sale of CNIC of $14,119.

Investing activities for the years ended December 31, 2023, and December 31, 2022 included net cash used in MGA/U acquisitions of $6,953 and $18,442, respectively.

Financing Activities for Continuing Operations

Financing activities for the year ended December 31, 2024, included borrowing of $147,000 under a short-term credit facility and receipt of a $62,000 co-investment from AAC (discontinued operation) to fund the acquisition of Beat and share repurchases of $11,698.

Concurrent with the AAC Sale, AFG will purchase AAC's co-investment for an amount equal to AAC's $62,000 investment plus 7.5% per annum thereon.

Financing activities for the years ended December 31, 2023, and December 31, 2022, included share repurchases of $4,510 and $14,217, respectively.

Cash Flows from Discontinued Operations

Cash flows pertaining to discontinued operations are reported separately on the Consolidated Statements of Cash Flows.

The primary driver of the cash flows from discontinued operations was the continued run-off of the financial guarantee business.

Since the agreement to sell AAC, the operations have been substantially separated and the potential impacts on future liquidity to the continuing operations are expected to be insignificant.

BALANCE SHEET

Total assets increased by approximately $456 from December 31, 2022 to $8,428 at December 31, 2023, primarily due to (i) the increase in asset values of VIEs, driven by a new VIE consolidated in the fourth quarter of 2023 and the weakening of the US dollar against the British Pound Sterling and (ii) the impact on premium receivables, reinsurance

Total assets decreased by approximately $369,942 from December 31, 2023, to $8,058,378 at December 31, 2024, (decrease of $1,249,256 related to discontinued operation, partially offset by an increase of $879,314 from continuing operations).

Total liabilities decreased by approximately $133,770 from December 31, 2023, to $6,862,857 as of December 31, 2024, (decrease of $654,181 relating to discontinued operation, partially offset by an increase of $520,411 from continuing operations).

As of December 31, 2024, total stockholders’ equity was $1,054,661, compared with total stockholders’ equity of $1,414,614 at December 31, 2023.

This decrease was primarily the result of the net loss attributable to common stockholders for the year ended December 31, 2024 of $556,449 and translation losses on the consolidation of AFG's foreign subsidiaries of $22,156, partially offset by increases to nonredeemable NCI of $149,095 due to the Beat acquisition, adjustments to the redemption value of redeemable NCI of $53,210 and the issuance of common stock for the Beat acquisition of $29,229.

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recoverables and deferred ceded premiums from growth in the Specialty Property and Casualty Insurance business.

Total liabilities increased by approximately $349 from December 31, 2022, to $6,997 as of December 31, 2023, primarily due to (i) increases in the value of VIEs liabilities based on consistent factors as noted above in assets, and (ii) higher unearned premiums and ceded premiums payable from the growth in the Specialty Property and Casualty Insurance business, partially offset by the reduction in long-term debt that was fully redeemed on January 15, 2023, primarily from the Nomura Settlement Payment as more fully described in Note 1.

Background and Business Description to the Consolidated Financial Statements in this Annual Report on Form 10-K located in Part II.

As of December 31, 2023, total stockholders’ equity was $1,415, compared with total stockholders’ equity of $1,305 at December 31, 2022.

This increase was primarily due to a Total Comprehensive Income during 2023 primarily driven by the net income attributable to common stockholders for the year ended

December 31, 2023 of $4, unrealized gains on investments of $51 and translation gains on the consolidation of AFG's foreign subsidiaries.of $40.

Ambac's investment portfolio is managed under established guidelines designed to meet the investment objectives of AAC, Everspan, Ambac UK and AFG.

Refer to "Description of the Business — Investments and Investment Policy" in this Annual Report on Form 10-K located in Part I.

Item 1, for further description of Ambac's investment policies and applicable regulations.

Discontinued Operation:

Assets and Liabilities Held-for-Sale.

Assets held-for-sale decreased to $6,267,200 at December 31, 2024, from $7,516,456 as December 31, 2023.

The decrease is primarily due to the recording of a valuation allowance for the loss on disposal of AAC of $570,145 and a decrease in VIE assets of $523,974.

Liabilities held-for-sale decreased to $5,887,685 at December 31, 2024, from $6,541,866 as December 31, 2023, primarily due to a decrease in VIE liabilities of $511,689.

VIE assets and liabilities decreased primarily due to paydowns and the impact of exchange rates on balances denominated in British Pound Sterling.

Continuing Operations:

The following discusses changes in assets, liabilities and stockholders' equity, excluding assets and liabilities held-for-sale related to the pending sale of AAC, as of December 31, 2024, compared to December 31, 2023.

Ambac's acquisition of a controlling interest in Beat had a significant impact on the comparability of the balance sheet between December 31, 2024 and December 31, 2023.

Refer to Note 4.

Investments to the Consolidated Financial Statements in this Annual Report on Form 10-K located in Part II.

Item 8 for information about Ambac's consolidated investment portfolio.

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

Business Combination to the Consolidated Financial Statements included in this Annual Report on Form 10-K for details of the assets and liabilities acquired at the acquisition date.

Investment Portfolio

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

Ambac's investment portfolio is managed under established guidelines designed to meet the investment objectives of Everspan and AFG.

Invested assets of the Cirrata companies consist solely of cash, short-term investments and other money market funds.

Refer to "Description of the Business — Investments and Investment Policy" in this Annual Report on Form 10-K located in Part I.

Item 1, for further description of Ambac's investment policies and applicable regulations.

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

December 31, 2024 December 31, 2023

Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance

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

Specialty Property & Casualty Insurance

Insurance Distribution Corporate & Other Consolidated Specialty Property & Casualty Insurance

Insurance Distribution Corporate & Other Consolidated

Fixed maturity securities $ 157,020 $ — $ — $ 157,020 $ 121,304 $ — $ 13,920 $ 135,224

Fixed maturity securities - trading $ 27 $ — $ — $ — $ 27 59 — — — 59

Short-term 35,727 27,435 64,439 127,601 41,172 3,651 155,688 200,511

Other investments — 176 28,117 28,293 — — 18,316 18,316

Fixed maturity securities pledged as collateral $ 27 $ — $ — $ — $ 27 64 — — — 64

Total investments $ 192,747 $ 27,611 $ 92,556 $ 312,914 $ 161,976 $ 3,651 $ 187,924 $ 354,051

$ 2,310 $ 162 $ 4 $ 188 $ 2,664 $ 2,259 $ 131 $ — $ 203 $ 2,593

(1) Includes investments denominated in non-US dollar currencies with a fair value of £342 ($436) and €25 ($27) as of December 31, 2023 and £296 ($357) and €39 ($42) as of December 31, 2022.

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

Other investments include diversified equity interests in pooled funds.

Refer to Note 6.

Investments to the Consolidated Financial Statements in this Annual Report on Form 10-K located in Part II.

Item 8 for information about fixed maturity securities and pooled funds by asset class.

Item 8 for information about the composition of fixed maturity securities and other investments by asset class.

Ambac Financial Group, Inc.

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The following charts provide the ratings distribution of the fixed maturity investment portfolio based on fair value at December 31, 2024 and 2023.

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

If ratings are unavailable from Moody's or S&P, Fitch ratings are used.

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

(2) Below investment grade and not rated bonds insured by Ambac represented 21% and 19% of the 2023 and 2022 combined fixed maturity investment portfolios, respectively.

The increase is primarily due to purchases of insured Student Loan bonds.

Ratings represent the lower of ratings provided by S&P or Moody's when ratings are available from both agencies.

Premium Receivables.

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Insurance Contracts to the Consolidated Financial Statements, in this Annual Report Form 10-K located in Part II.

Item 8, the increase is primarily due to growth in the Specialty Property and Casualty Insurance Segment, including receivables related to a workers compensation program where Everspan participates as a reinsurer.

At December 31, 2023, Legacy Financial Guarantee

Insurance and Specialty Property and Casualty Insurance premiums receivables were $244 and $46, respectively.

Premium receivables by payment currency were as follows:

(Amounts in millions) Premium Receivable in Payment Currency Premium Receivable in U.S.

Dollars $ 204 $ 204

British Pounds £ 57 72

Euros € 12 13

Item 8, the increase is primarily due to growth in the Specialty Property and Casualty Insurance Segment.

All premium receivables are in a payment currency of U.S.

Reinsurance Recoverable on Paid and Unpaid Losses.

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Ambac benefited from letters of credit and collateral amounting to approximately $62,792 from its reinsurers at December 31, 2024.

As of December 31, 2023 and 2022, reinsurance recoverable on paid and unpaid losses were $195 and $115, respectively.

Specialty Property and Casualty Insurance amounted to $165 and $82 at December 31, 2023 and 2022, respectively;

increase driven largely from growth of the business.

Legacy Financial Guarantee Insurance amounted to $30 and $33 at December 31, 2023 and 2022, respectively.

Intangible Assets.

Intangible assets includes (i) an insurance intangible asset that was established at AFG's emergence from bankruptcy in 2013, representing the difference between the fair value and aggregate carrying value of the financial guarantee insurance and reinsurance assets and liabilities;

(ii) intangible assets established as part of the acquisition of Xchange in 2020, All Trans and Capacity Marine in 2022, and Riverton in 2023;

and (iii) indefinite-lived intangible assets established as part of the acquisition of admitted carriers in both 2021 and 2022.

As of December 31, 2023 and 2022, the net intangible asset was $307 and $326, respectively.

The decline is driven by amortization;

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

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Loss and Loss Adjustment Expense Reserves and Subrogation Recoverable.

Loss and loss adjustment expense reserves are based upon estimates of the ultimate aggregate losses inherent in the non-derivative portfolio for insurance policies issued to beneficiaries, including unconsolidated VIEs.

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

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

included in Note 2.

Basis of Presentation and Significant Accounting Policies and Note 7.

Insurance Contracts, respectively, to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K, for further information on loss and loss adjustment expenses.

The loss and loss adjustment expense reserves net of subrogation recoverables and before reinsurance as of December 31, 2023 and 2022 were $756 and $534, respectively.

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

December 31, 2023:

December 31, 2022:

Specialty Property and Casualty Legacy Financial Guarantee Specialty Property and Casualty Legacy Financial Guarantee

Present Value of Expected

Net Cash Flows Unearned

Revenue Gross Loss

Present Value of Expected

Net Cash Flows Unearned

Revenue Gross Loss

Balance Sheet Line Item Gross Loss

Reserves Claims and

Expenses Recoveries Gross Loss

Reserves Claims and

Expenses Recoveries

As of December 31, 2024 and 2023, reinsurance recoverable on paid and unpaid losses were $306,191 and $164,997,

respectively, an increase driven from the growth of the Specialty Property and Casualty Insurance Segment.

Intangible Assets, net of accumulated depreciation.

Intangible assets includes (i) intangible assets established as part of the acquisition of Xchange in 2020, All Trans and Capacity Marine in 2022, Riverton in 2023 and Beat in 2024;

and (ii) indefinite-lived intangible assets established as part of the acquisition of admitted carriers in both 2021 and 2022.

As of December 31, 2024 and 2023, net intangible assets totaled $344,775 and 61,403, respectively.

The increase is driven by intangibles established from the acquisition of Beat, partially offset by amortization and foreign currently translation.

As of December 31, 2024 and 2023, goodwill totaled $418,235 and $69,694 respectively.

The increase is primarily driven by the acquisition of Beat and goodwill of $357,316.

All of the goodwill was assigned to the Insurance Distribution segment.

Loss and Loss Adjustment Expense Reserves.

Subrogation recoverable — 1 (139) — (137) — 5 (276) — (271)

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

Legacy Financial Guarantee Insurance.

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

The bond types that have experienced the most significant claims, including through commutations, are RMBS, student loan securities and public finance securities.

These bond types represent 91% of our ever-to-date insurance claims recorded with RMBS comprising 61%.

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

December 31, 2023:

Loss and loss adjustment expense reserves are estimates of the ultimate liability for unpaid losses and loss expenses for claims that have been reported and claims that have been incurred, but not yet reported as of the balance sheet date.

Loss and loss adjustment expense reserves by line of business were as follows as of December 31, 2024 and 2023

2024 December 31,

Present Value of Expected

Net Cash Flows Unearned

Revenue Gross Loss

Expense Reserves (1)(2)

Present Value of Expected

Net Cash Flows Unearned

Revenue Gross Loss

Expense Reserves (1)(2)

($ in millions) Gross Par

Outstanding (1)

Expenses Recoveries Gross Par

Outstanding (1)

Expenses Recoveries

Structured Finance $ 1,860 $ 679 $ (172) $ (10) $ 497 $ 2,050 $ 664 $ (296) $ (10) $ 358

Domestic Public Finance 834 82 (8) (8) 66 1,215 96 (11) (10) 75

Other 1,144 15 (13) (10) (8) 782 23 (12) (8) 3

Loss expenses — 4 — — 4 — 8 — — 8

Totals $ 3,838 $ 780 $ (194) $ (28) $ 559 $ 4,047 $ 791 $ (319) $ (28) $ 444

(1) Ceded par outstanding on policies with loss reserves and ceded loss and loss adjustment expense reserves were $362 and $30, respectively, at December 31, 2023 and $472 and $33, respectively at December 31, 2022.

Ceded loss and loss adjustment expense reserves are included in Reinsurance recoverable on paid and unpaid losses.

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

The table below reflects the timing of expected financial guarantee claim payments based on policy specific probability weighted cash flows, excluding expected recoveries.

These deal specific cash flows are based on the expected cash flows of the underlying transactions with the majority of these payments expected at or close to the final maturity of the related insurance policy.

The timing of expected claim payments for credits with reserves that were established using our statistical loss reserve method is determined based on the weighted average expected life of the exposure.

Refer to the Loss Reserves section in Note 2.

Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further discussion of our statistical loss reserve method.

The timing of these payments may vary significantly from the amounts shown below, especially for credits that are based on our statistical loss reserve method.

Payments Due by Period

($ in millions) Total Less Than

1 Year 1 - 3 Years 3 - 5 Years More Than

Claim payments

Line Gross Net Gross Net

Commercial Auto $ 158,471 $ 28,720 $ 107,005 $ 21,913

Excess and General Liability 85,459 14,857 22,865 3,925

Workers Compensation 14,465 14,465 5,246 5,246

Non-standard personal auto 12,689 12,000 5,843 5,136

Surety 11,217 — 4,763 —

ULAE 12,238 6,578 6,085 4,527

54,523 2,177 45,282 41

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Variability of Expected Losses and Recoveries

Ambac’s management believes loss reserves (present value of expected cash flows, net of recoveries) are adequate to cover future claim payments, but there can be no assurance that the ultimate liability will not be higher than such estimates.

While our loss reserves reflect our judgment regarding issuers’ financial flexibility to adapt to adverse markets, they may not adequately capture sudden, unexpected or protracted uncertainty that adversely affects market conditions.

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

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

The possible net cash flows consider the highest stress scenario that was utilized in the development of our probability-weighted expected loss at December 31, 2023, and assumes an inability to execute any commutation transactions with issuers and/or investors.

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

In arriving at such view, management makes considerable judgments about the possibility of various future events.

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

See “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10-K as well as the descriptions of variability in "Structured Finance," "Public Finance," and "Other Credits, including Ambac UK," below for further discussion of the risks relating to future losses and recoveries that could result in more highly stressed outcomes appearing below.

the initiation of rehabilitation proceedings against AAC;

decreased likelihood of AAC delivering value to AFG, through dividends or otherwise;

and a significant drop in the value of securities issued or insured by AFG or AAC.

Structured Finance

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

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

The average estimated loan-

to-values of the collateral related to insured exposures have declined to under 50% from peaks above 110%.

Projected losses in our RMBS exposures and related loss reserves, may increase or decrease in the future.

Possible stress case losses assume higher default rates, loss severities and lower prepayments.

Student Loans:

Changes to assumptions that could make our reserves under-estimated include, but are not limited to, increases in interest rates, default rates and loss severities on the collateral due to economic or other factors, including the economic impact from public health crises and/or natural or other catastrophic events.

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

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

Structured Finance Variability:

Using the approaches described above, the possible increase in loss reserves for structured finance credits for which we have an estimate of expected loss at December 31, 2023, could be approximately $55.

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

Public Finance

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

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

military housing.

It is possible our loss reserves for public finance credits may be under-estimated if issuers are faced with prolonged exposure to adverse political, judicial, economic, fiscal or socioeconomic events or trends.

Additionally, our loss reserves may be under-estimated because of the local, regional or national economic impact of public health crises and/or natural or other catastrophic events, or the impact of political changes or governmental decisions.

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

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

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

Variability of outcomes applies to even what are generally considered more secure municipal financings, such as dedicated

Loss and Loss Expense Reserves $ 349,062 $ 78,797 $ 197,089 $ 40,788

(1) Includes $35,146 and $0 loss and loss expense reserves on a gross and net of reinsurance basis at December 31, 2024 and $43,751 and $0 loss and loss expense reserves on a gross and net of reinsurance basis at December 31, 2023 related to legacy liabilities obtained from the acquisitions of Providence Washington Insurance Company, Greenwood Insurance Company and Consolidated Specialty Insurance Company.

All legacy liabilities remain obligations of affiliates of the sellers through reinsurance.

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

Basis of Presentation and Significant Accounting Policies and Note 8.

Ambac Financial Group, Inc.

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sales tax revenue bonds that capture sales tax revenues for debt service ahead of any amounts being deposited into the general fund of an issuer.

In the case of the Puerto Rico COFINA sales tax bonds that were part of the Commonwealth of Puerto Rico's Title III proceedings, AAC and other creditors agreed to settle at a recovery rate equal to about 93% of pre-petition amounts owed on the Ambac insured senior COFINA bonds.

In the COFINA case, the senior bonds still received a reduction or "haircut" despite the existence of junior COFINA bonds, which received a recovery rate equal to about 56% of pre-petition amounts owed.

In addition, municipal entities may be more inclined to use bankruptcy to resolve their financial stresses if they believe preferred outcomes for various creditor groups can be achieved.

We expect municipal bankruptcies and defaults to continue to be challenging to project given the unique political, economic, fiscal, legal, governance and public policy differences among municipalities as well as the complexity, long duration and relative infrequency of the cases themselves in forums with a scarcity of legal precedent.

Moreover, 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.

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

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

For the public finance credits for which we have an estimate of expected loss at December 31, 2023, the sum of all the highest stress case loss scenarios is $125 and there can be no assurance that losses may not exceed such amounts.

Other Credits, including Ambac UK

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

For all other credits, including Ambac UK, for which we have an estimate of expected loss, the sum of all the highest stress case loss scenarios is approximately $330 greater than the loss reserves at December 31, 2023.

There can be no assurance that losses may not exceed our stress case estimates.

Long-term Debt.

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

December 31, 2023 2022

Surplus Notes $ 491 $ 477

Tier 2 Notes — 146

Ambac UK Debt 17 16

Total Long-term Debt 508 639

Accrued Interest Payable

$ 983 $ 1,065

The decrease in long-term debt, including accrued interest payable, from December 31, 2022 resulted primarily from the full redemption of the Tier 2 Notes in 2023, described further in Note 1.

Background and Business Description to the Consolidated Financial Statements, included in this Annual Report on Form 10-K, partially offset by the accrual of interest on the surplus notes and Ambac UK debt.

In May 2023, OCI declined the request of AAC to pay the principal amount of the surplus notes, plus all accrued and unpaid interest thereon, on the then next scheduled payment date of June 7, 2023.

As a result, the scheduled payment date for interest, and the scheduled maturity date for payment of principal of the surplus notes was extended until OCI grants approval to make the payment.

Holders of surplus notes will have no rights to enforce the payment of the principal of, or interest on, surplus notes in the absence of OCI approval to pay such amount.

Short-term Debt.

Ambac borrowed under a short-term credit facility to provide partial funding of the acquisition of Beat in 2024.

The carrying value of this short term debt is $150,000 as of December 31, 2024.

Ambac had no debt related to its continuing operations as of December 31, 2023.

Commission Payable.

Commission payables are commissions due to sub producers for placing insurance contracts on behalf of the MGAs and amounts due to UK Syndicates that provide advanced commissions to fund short term liquidity needs for MGAs.

The commission payable at December 31, 2024 and December 31, 2023 was $71,431 and $6,932.

The increase is primarily due to higher advance commissions due from Syndicates.

Redeemable Noncontrolling Interest.

The decrease during 2023 was the result the remeasurement of the redemption value of put options provided to minority owners (noncontrolling interest holders) of Cirrata entities acquired as if the put was exercised on December 31, 2023, partially offset by new put options issued during the acquisition of Riverton during 2023.

The increase during 2024 was the net result of the remeasurement of the redemption value of put options provided to minority owners (NCI interest holders) of Cirrata entities acquired as if the put was exercised on December 31, 2024 and new put options issued during the acquisition of Beat during 2024.

No put options are exercisable at December 31, 2024.

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Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report Form 10-K.

Ambac Assurance Corporation

AAC’s statutory policyholder surplus and qualified statutory capital (defined as the sum of policyholders surplus and

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mandatory contingency reserves) were $897 and $1,201, respectively, at December 31, 2023, as compared to $598 and $1,191, respectively, at December 31, 2022.

As of December 31, 2023, statutory policyholder surplus and qualified statutory capital included $519 principal balance of surplus notes outstanding and $115 liquidation preference of preferred stock outstanding.

These surplus notes (including related accrued interest of $475 that is not recorded under statutory basis accounting principles);

preferred stock;

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

The significant drivers to the net increase in policyholder surplus of $301 during 2023 was a reduction to contingency reserves of $290 and investment valuation changes that are direct charges to surplus of $10.

The decline in contingency reserves was the result of the release of excess contingency reserves (which was approved by OCI) of $298.

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

(i) loss reserve development, (ii) timing of surplus note payments, (iii) ongoing interest costs associated with surplus notes, (iv) swap gains and losses at AFS, the financial position of which is supported by certain guarantees and financing arrangements from AAC, (v) first time payment defaults of insured obligations, which increase statutory loss reserves, (vi) commutations of insurance policies at amounts that differ from the amount of liabilities recorded, (vii) reinsurance contract terminations at amounts that differ from net assets recorded, (viii) changes to the fair value of pooled fund and other investments carried at fair value, (ix) realized gains and losses, including losses arising from other than temporary impairments of investment securities, (x) the ultimate residual value of Ambac UK, which is currently a non-admitted asset under SAP and may be impacted by numerous factors including foreign exchange rates, and (xi) future changes to prescribed practices by the OCI.

The significant differences between GAAP and SAP are that under SAP:

• Under SAP, loss reserves are only established for losses on guaranteed obligations that have experienced a payment default.

Loss reserves are established in an amount that is sufficient to cover the present value of the anticipated defaulted debt service payments over the expected period of default, less estimated recoveries under subrogation rights (5.1% as prescribed by OCI).

Under GAAP, in addition to the establishment of loss reserves for defaulted obligations, loss reserves are established (net of GAAP basis unearned premium revenue) for obligations that have experienced credit deterioration, but have not yet defaulted using a weighted-average risk-free discount rate, currently at 3.9%.

• Mandatory contingency reserves are required based upon the type of obligation insured, whereas GAAP does not require such a reserve.

Releases of the contingency reserves

are generally subject to OCI approval and relate to a determination that the held reserves are deemed excessive.

• Investment grade fixed maturity investments are stated at amortized cost and certain below investment grade fixed maturity investments are reported at the lower of amortized cost or fair value.

Under GAAP, all fixed maturity investments are reported at fair value.

• Majority owned subsidiaries are not consolidated;

rather, the equity basis of accounting is utilized and the carrying values of these investments are subject to admissibility tests.

Ambac Assurance's cash loan to AFS is included on the SAP balance sheet, net of an allowance for uncollectible amounts and changes in the allowance are recognized through other income.

Under GAAP, all inter-company transactions are eliminated in consolidation.

• Variable interest entities ("VIE") are not required to be assessed for consolidation.

Under GAAP, a reporting entity that has both the following characteristics is required to consolidate the VIE:

a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

AAC generally has the obligation to absorb losses of VIEs that could potentially be significant to the VIE as the result of its guarantee of insured obligations issued by VIEs.

For certain VIEs AAC has the power to direct the most significant activities of the VIE and accordingly consolidates the related VIEs under GAAP.

• Under SAP, unpaid interest due on the surplus notes is expensed when the approval for payment of interest has been granted by the OCI.

Under GAAP, interest on surplus notes is accrued regardless of OCI approval.

Under SAP, the principal balance of surplus notes is included in surplus whereas under GAAP surplus note principal is reported at par, less unamortized discount within long-term debt.

All payments of principal and interest on surplus notes are subject to the approval of the OCI.

• Upfront premiums written are earned on a basis proportionate to the remaining scheduled debt service to the original total principal and interest insured.

Installment premiums are reflected in income pro-rata over the period covered by the premium payment.

Under GAAP, premium revenues for both upfront and installment premiums are earned over the life of the financial guarantee contract in proportion to the insured principal amount outstanding at each reporting date.

Under GAAP, for installment premium transactions, a premium receivable asset and offsetting UPR liability are established in an amount equal to the present value of future premiums to be collected over the life of the transaction.

• Insurance intangibles that arose as a result of the implementation of Fresh Start reporting are not a concept within SAP.

This insurance intangible asset is amortized as an expense on a level yield basis over the life of the related insurance risks.

• Unearned premiums and loss reserves are presented net of ceded amounts, while under GAAP, they are reflected gross of ceded amounts.

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Everspan Indemnity Insurance Company

Everspan Indemnity Insurance Company’s statutory policyholder surplus was $125,235 at December 31, 2024, as compared to $108,051 at December 31, 2023.

The significant changes to policyholder surplus for the year ended December 31, 2023, were total capital contributions of $7.3, offset by a net loss at Everspan Indemnity Insurance Company, including its subsidiaries, of $7.1 during the year ended December 31, 2023, primarily driven by G&A expenses as the business continues to scale.

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

The significant changes to policyholder surplus for the year ended December 31, 2024, were net income at Everspan Indemnity Insurance Company, including its subsidiaries, of $13,516 during the year ended December 31, 2024, primarily driven by the gain on sale of Consolidated National Insurance Company and continued growth of Specialty Property and Casualty Insurance Segment.

The significant differences between GAAP and SAP are that under SAP:

• Investment grade fixed maturity investments are stated at amortized cost and certain below investment grade fixed maturity investments are reported at the lower of amortized cost or fair value.

• Investment grade fixed maturity investments are stated at amortized cost and certain below investment grade fixed maturity investments are reported at the lower of amortized

cost or fair value.

Under GAAP, all fixed maturity investments are reported at fair value.

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rather, the equity basis of accounting is utilized and the carrying values of these investments are subject to admissibility tests.

Providence Washington Insurance Company's ("PWIC") and the 21st Century Companies' (as defined in Note 7.

Insurance Contracts in Part II, Item 8 in the Consolidated Financial Statements included in this Annual Report on Form 10-K) carrying values include a goodwill component representing the acquisition cost in excess of the related entity's statutory surplus.

Goodwill is amortized over ten years.

The carrying values of Providence Washington Insurance Company, Greenwood Insurance Company, Consolidated National Insurance Company, and Consolidated Specialty Insurance Company include a goodwill component representing the acquisition cost in excess of the related entity's statutory surplus.

Goodwill is amortized over ten years under SAP.

Under GAAP, the initial acquisition of the companies were recorded as asset acquisitions, which required i) all net assets to initially be recorded at fair value and ii) the acquisition costs in excess of the fair value of net assets to be allocated to the bases of certain types of assets based on their relative fair values, if applicable.

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• Unearned premiums and loss reserves are presented net of ceded amounts, while under GAAP, they are reflected gross of ceded amounts.

AMBAC UK FINANCIAL RESULTS UNDER UK ACCOUNTING PRINCIPLES

Ambac UK is required to prepare financial statements under FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland." Ambac UK’s shareholder funds under UK GAAP were £489 at December 31, 2023, as compared to £468 at December 31, 2022.

At December 31, 2023, the carrying value of cash and investments was £535, an increase from £508 at December 31, 2022.

The increase in shareholder funds and cash and investments was primarily due to the

continued receipt of premiums and investment income, and from foreign exchange gains within Ambac UK's investment portfolio, partially offset by loss expenses, operating expenses and tax payments.

The significant differences between US GAAP and UK GAAP are that under UK GAAP:

• Loss reserves are only established for losses on guaranteed obligations when, in the judgment of management, a monetary default in the timely payment of debt service is likely to occur, which would result in Ambac UK incurring a loss.

A loss provision is established in an amount that is sufficient to cover the present value of the anticipated defaulted debt service payments over the expected period of default, less estimated recoveries under subrogation rights.

The discount rate for loss provisions is equal to the lower of the rate of return on invested assets for either the current year or the period covering the current year plus the four previous years, currently at 3.2%.

The discount rate used for estimated recoveries under subrogation rights is reflective of the credit risk of the counterparty from which subrogation will be received, currently 5.3%.

GAAP, loss reserves are established (net of US GAAP basis unearned premium revenue) for obligations that have experienced credit deterioration, but have not yet defaulted using a weighted-average risk-free discount rate, currently at 3.9%.

• Investments in fixed maturity securities are stated at amortized cost, subject to an other-than-temporary impairment evaluation.

Under US GAAP, all fixed maturity investments are reported at fair value.

• VIEs are not required to be assessed for consolidation.

Under US GAAP, as noted under U.S.

Statutory Basis Financial Results above, VIE's with certain characteristics are required to be consolidated.

For several VIEs Ambac UK has the power to direct the most significant activities of the VIE and accordingly consolidates the related VIEs under U.S.

• Upfront premiums written are earned on a basis proportionate to the remaining scheduled debt service to the total principal and interest insured.

Installment premiums are reflected in income pro-rata over the period covered by the premium payment.

Under US GAAP, premium revenues for both upfront and installment premiums are earned over the life of the financial guarantee contract in proportion to the insured principal amount outstanding at each reporting date.

• Insurance intangibles that arose as a result of the implementation of Fresh Start reporting are not a concept within UK GAAP.

Under US GAAP, this insurance intangible asset is amortized as an expense on a level yield basis over the life of the related insurance risks.

• Unearned premiums and loss reserves are presented net of ceded amounts, while under GAAP, they are reflected gross of ceded amounts.

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

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

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

This is an increase from December 31, 2022, when available and eligible capital resources to meet solvency capital requirements were £338.

Eligible capital resources at December 31, 2023 and December 31, 2022, are in comparison to regulatory capital requirements of £220 and £213, respectively.

Therefore, Ambac UK was in a surplus position in terms of compliance with applicable regulatory capital requirements by £210 at December 31, 2023, and was in a surplus position by £125 at December 31, 2022.

The surplus increased as of December 31, 2023, due to the combined impact of (i) a decrease in technical provision liabilities and hence an increase in eligible own funds due to regulatory changes which came into effect in December 2023 and (ii) an increase in eligible own funds from the increase in investments over the year.

Final annual Solvency II data and Ambac UK's annual Solvency and Financial Condition Report will be published on Ambac's website in April 2023.

NON-GAAP FINANCIAL MEASURES

In addition to reporting the Company’s quarterly financial results in accordance with GAAP, the Company is reporting non-GAAP financial measures:

EBITDA, Adjusted Net Income and Adjusted Book Value.

These amounts are derived from our consolidated financial information, but are not presented in our consolidated financial statements prepared in accordance with GAAP.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin, Organic Revenue Growth Rate (Insurance Distribution segment only), Adjusted Net Income and Adjusted Net Income Margin.

These amounts are derived from our consolidated financial information, but are not presented in our consolidated financial results.

We present non-GAAP supplemental financial information because we believe such information is of interest to the investment community, and that it provides greater transparency and enhanced visibility into the underlying drivers and performance of our businesses on a basis that may not be otherwise apparent on a GAAP basis.

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

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

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

The following paragraphs define each non-GAAP financial measure.

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

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

Beginning December 31, 2024, Ambac replaced the non-GAAP measure Adjusted Net Income with new non-GAAP measures Adjusted Net Income and Adjusted Net Income Margin and added Adjusted EBITDA and Adjusted EBITDA Margin to

Ambac Financial Group, Inc.

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

Year Ended December 31, 2023

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

Interest expense 64 — — — 64

Income taxes 8 — — (1) 7

Depreciation 1 — — — 2

Amortization of intangible assets 25 — 4 — 29

$ 107 $ — $ 11 $ (12) $ 107

better align with other participants in the Property & Casualty insurance industry, including insurance carriers and other peers in the insurance distribution business.

The following paragraphs define each non-GAAP financial measure.

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

EBITDA — EBITDA is net income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization of intangible assets.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as net income (loss) from continuing operations before interest expense, income taxes, depreciation, amortization of intangible assets, change in fair value of contingent consideration and certain items of income and expense, including share-based compensation expense, acquisition and integration related expenses, severance, and other exceptional or non-recurring items, including those related to raising capital.

We believe that adjusted EBITDA is an appropriate measure of operating performance because it eliminates the impact of income and expenses that may obfuscate business performance, and that the presentation of this measure enhances an investor's understanding of our financial performance.

Year Ended December 31,

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

Interest expense 168 — — — 168

Income taxes 3 — — — 2

Depreciation 2 — — — 2

Amortization of intangible assets 44 — 3 — 47

2024 2023 2022

Year Ended December 31, 2021

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

Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated

Net income (loss) from continuing operations $ 10,469 $ (6,881) $ (62,509) $ (58,921) $ 335 $ 7,133 $ (30,701) $ (23,232) $ (6,345) $ 4,524 $ (33,422) $ (35,244)

Interest expense — 9,379 — 9,379 — — — — — — — —

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Depreciation — 481 1,864 2,345 — 42 1,036 1,078 — 31 841 872

Amortization of intangible assets 52 — 3 — 55

Intangible amortization — 17,602 — 17,602 — 4,152 — 4,152 — 2,921 — 2,921

$ 12,222 $ 19,653 $ (62,393) $ (30,518) $ 383 $ 11,483 $ (30,858) $ (18,991) $ (6,346) $ 7,476 $ (33,043) $ (31,913)

(1) EBITDA is prior to the impact of noncontrolling interests, and relates to subsidiaries where Ambac does not own 100% in the amounts of $2, $1 and $1 for the years ended December 31, 2023, 2022 and 2021, respectively.

The noncontrolling interest are primarily in the Insurance Distribution segment.

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

(i) net investment (gains) losses, including impairments;

(ii) amortization of intangible assets;

(iii) litigation costs, including attorneys fees and other expenses to defend litigation against the Company, excluding loss adjustment expenses;

(iv) foreign exchange (gains) losses;

(v) workforce change costs, which primarily include severance and other costs related to employee terminations;

(gain) loss on extinguishment of debt.

Adjusted Net Income is also adjusted for the effect of the above items on both income taxes and noncontrolling interests.

The income tax effects are determined by applying the statutory tax rate in each jurisdiction that generate these adjustments.

The noncontrolling interest adjustments relate to subsidiaries where Ambac does not own 100%

Impact of noncontrolling interests — (6,448) — (6,448) — (2,102) — (2,102) — (1,463) — (1,463)

Ambac EBITDA 12,222 13,208 (62,396) (36,966) 383 9,381 (30,858) (21,093) (6,347) 6,013 (33,043) (33,377)

Net income margin 8.3 % (6.9) % (609.2) % (25.0) % 0.5 % 13.8 % (338.1) % (18.6) % (34.4) % 14.4 % (894.1) % (65.7) %

Net income margin to Ambac common stockholders 8.3 % (7.3) % (609.2) % (25.1) % 0.5 % 11.3 % (338.1) % (19.7) % (34.3) % 11.6 % (894.1) % (67.4) %

EBITDA margin 9.7 % 19.8 % (608.1) % (12.9) % 0.6 % 22.3 % (339.8) % (15.2) % (34.4) % 23.8 % (884.0) % (59.5) %

EBITDA margin to Ambac common stockholders 9.7 % 13.3 % (608.1) % (15.7) % 0.6 % 18.2 % (339.8) % (16.9) % (34.4) % 19.1 % (884.0) % (62.3) %

Acquisition and integration related expenses — — 27,388 27,388 — — 567 567 — — 593 593

Equity-based compensation expense 414 — 8,941 9,355 634 — 11,632 12,266 208 — 11,024 11,232

Severance and restructuring expense — 248 7,352 7,600 — — — — 481 — — 481

Other non-operating (income) losses (7,500) — 2,318 (5,182) — — 279 279 — — (935) (935)

Adjusted EBITDA 5,136 19,904 (16,397) 8,643 1,017 11,483 (18,380) (5,879) (5,658) 7,476 (22,361) (20,543)

Adjusted EBITDA attributable to Ambac common stockholders 5,136 13,456 (16,397) 2,195 1,017 9,381 (18,380) (7,981) (5,658) 6,013 (22,361) (22,006)

Adjusted EBITDA Margin 4.1 % 20.1 % (159.8) % 3.7 % 1.6 % 22.3 % (202.4) % (4.7) % (30.6) % 23.8 % (598.2) % (38.3) %

Adjusted EBITDA Margin to Ambac common stockholders 4.1 % 13.6 % (159.8) % 0.9 % 1.6 % 18.2 % (202.4) % (6.4) % (30.6) % 19.1 % (598.2) % (41.0) %

Organic Revenue Growth (Insurance Distribution only)

Organic revenue is based on commissions and fees for the relevant period by excluding (i) the first twelve months of commissions and fees generated from acquisitions and (ii) commissions and fees from divestitures (iii) and other items such as contingent commissions, profit commissions and the impact of changes in foreign exchange rates.

Organic revenue growth is the change in organic revenue period-to-period, with prior period results adjusted to (i) include commissions and fees that were excluded from organic revenue in the prior period and reached the twelve-month owned mark in the current period, and (ii) exclude commissions and fees related to divestitures from organic revenue.

Ambac Financial Group, Inc.

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The following table reconciles net income attributable to common stockholders to the non-GAAP measure, Adjusted Net Income (Loss) on a total dollar amount and per diluted share basis, for all periods presented:

Organic revenue growth rate to Total revenue growth rate, the most directly comparable GAAP measure, for each of the periods indicated is as follows (in percentages):

Year Ended December 31, Year Ended December 31,

2024 2023 % Growth

2023 2022 % Growth

Total Insurance Distribution revenue (1)

$ 99,236 $ 51,546 48.1 % $ 51,546 $ 31,410 64.1 %

($ in millions, except per share data)

Acquired revenues (45,202) — (16,446) —

Profit commission and contingent commission income (4,273) (4,489) (4,489) (3,745)

Total Organic Revenue & Growth Percentage $ 49,761 $ 47,057 5.4 % $ 30,611 $ 27,665 10.6 %

(1) Total Insurance Distribution revenue includes investment income.

Adjusted Net Income and Adjusted Net Income Margin

We define Adjusted net income as net income (loss) from continuing operations attributable to Ambac adjusted for amortization of intangible assets, change in fair value of contingent consideration and certain items of income and expense, including share-based compensation expense, acquisition and integration related expenses, severance and non-recurring income and loss items that, in the opinion of management, significantly affect the period-over-period assessment of operating results, and the related tax effect of those adjustments.

Per share amounts exclude any impact of revaluing non-controlling interests as otherwise reported under GAAP earnings per share.

We believe that adjusted net income is an appropriate measure of operating performance because it eliminates the impact of income and expenses that may obfuscate business performance.

Year Ended December 31,

$ Amount Per Diluted Share (1)

Net income (loss) attributable to common stockholders $ 4 $ 0.18 $ 522 $ 11.31 $ (17) $ (0.61)

Net investment (gains) losses, including impairments 22 0.49 (31) (0.68) (7) (0.14)

2024 2023 2022

Net income (loss) (Continuing Operations) $ 10,469 $ (6,881) $ (62,509) $ (58,921) $ 335 $ 7,133 $ (30,701) $ (23,232) $ (6,346) $ 4,524 $ (33,422) $ (35,244)

Acquisition and integration related expenses — — 27,388 27,388 — — 567 567 — — 593 593

Intangible amortization — 17,602 — 17,602 — 4,152 — 4,152 — 2,921 — 2,921

Litigation costs 41 0.87 33 0.71 7 0.15

Foreign exchange (gains) losses (1) (0.02) 3 0.06 3 0.06

Workforce change costs 1 0.02 1 0.03 1 0.01

Net (gain) loss on extinguishment of debt — — (81) (1.75) (33) (0.70)

Pretax adjusted net income (loss) 96 2.16 494 10.69 9 (0.04)

Equity-based compensation expense 414 — 8,941 9,355 634 — 11,632 12,266 208 — 11,024 11,232

Severance and restructuring expense — 248 7,352 7,600 — — — — 481 — — 481

Other non-operating income (losses) (1)

(7,500) — 2,318 (5,182) — — 279 279 — — (935) (935)

Adjusted net income (loss) before tax and NCI 3,383 10,969 (16,510) (2,158) 969 11,285 (18,223) (5,968) (5,657) 7,445 (22,740) (20,952)

Income tax effects — — — — — — — — — — — —

Net (gains) attributable to noncontrolling interests (1) (0.02) (1) (0.01) (1) (0.01)

Adjusted Net Income (Loss) $ 93 $ 2.11 $ 495 $ 10.72 $ 7 $ (0.07)

(1) Per diluted share includes the impact of adjusting redeemable noncontrolling interest to its redemption value.

Adjusted Book Value.

Adjusted book value is defined as Total Ambac Financial Group, Inc.

stockholders’ equity as reported under GAAP, adjusted for after-tax impact of the following:

• Insurance intangible asset:

Elimination of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting.

This adjustment ensures that all financial guarantee contracts are accounted for within adjusted book value consistent with the provisions of the Financial Services—Insurance Topic of the ASC.

• Net unearned premiums and fees in excess of expected losses:

Addition of the value of the unearned premium revenue ("UPR") on financial guarantee contracts, in excess of expected losses, net of reinsurance.

This non-GAAP adjustment presents the economics of UPR and expected losses for financial guarantee contracts on a consistent basis.

In accordance with GAAP, stockholders’ equity reflects a reduction for expected losses only to the extent they exceed UPR.

However, when expected losses are less

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

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

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

• Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income:

Elimination of the unrealized gains and losses on the Company’s investments that are recorded as a component of accumulated other comprehensive income (“AOCI”), net of income taxes.

Ambac has a significant U.S.

tax net operating loss (“NOL”) that is offset by a full valuation allowance in the GAAP consolidated financial statements.

As a result of this, tax planning strategies and other considerations, we utilized a 0% effective tax rate for non-GAAP operating adjustments to Adjusted Book.

The following table reconciles Total Ambac Financial Group, Inc.

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

($ in millions, except per share data) December 31, $ Amount Per Share $ Amount Per Share

Total Ambac Financial Group, Inc.

stockholders’ equity $ 1,362 $ 30.13 $ 1,252 $ 27.85

Insurance intangible asset (245) (5.43) (266) (5.91)

Net unearned premiums and fees in excess of expected losses 162 3.59 214 4.76

Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income (Loss) 20 0.45 71 1.59

Adjusted Book Value $ 1,299 $ 28.74 $ 1,272 $ 28.29

The increase in Adjusted Book was primarily attributable to Ambac's net income for the year ended December 31, 2023 (excluding earned premium previously included in Adjusted Book Value) and the positive effect of foreign exchange rates on the consolidation of AFG's foreign subsidiaries, partially offset by the impact of the reinsurance de-risking transaction executed during 2023.

Factors that impact changes to Adjusted Book Value include many of the same factors that impact Adjusted Net Income, including the majority of revenues and expenses, but generally exclude components of premium earnings since they are embedded in prior period's Adjusted Book Value through the net unearned premiums and fees in excess of expected losses adjustment.

Net unearned premiums and fees in excess of

Adjusted net income (loss) before NCI 3,383 10,969 (16,510) (2,158) 969 11,285 (18,223) (5,968) (5,657) 7,445 (22,740) (20,952)

Net (income) loss attributable to NCI — (6,448) — (6,448) — (2,102) — (2,102) — (1,463) — (1,463)

Adjusted net income (loss) attributable to Ambac stockholders $ 3,383 $ 4,521 $ (16,510) $ (8,606) $ 969 $ 9,183 $ (18,223) $ (8,070) $ (5,657) $ 5,982 $ (22,740) $ (22,415)

(1) Other non-operating expense includes one time add-backs related to gain on sale of CNIC, partially offset by losses related to minority interest strategy and write down of certain capitalized software.

Ambac Financial Group, Inc.

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expected losses will affect Adjusted Book Value for (i) changes to future premium assumptions (e.g.

expected term, interest rates, foreign currency rates, time passage) and (ii) changes to expected losses for policies which do not exceed their related unearned premiums and (iii) new reinsurance transactions.

Year Ended December 31,

2024 2023 2022

Net income (loss) margin 8.3 % (6.9) % (609.2) % (25.0) % 0.5 % 13.8 % (338.1) % (18.6) % (34.4) % 14.4 % (894.1) % (65.7) %

Adjusted Net income (loss) attributable to Ambac stockholders margin 2.7 % 4.6 % (160.9) % (3.6) % 1.5 % 17.8 % (200.7) % (6.5) % (30.6) % 19.0 % (608.3) % (41.8) %

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis