OCTAVE SPECIALTY GROUP INC 10-K

Item 1. Business INTRODUCTION Ambac Financial Group, Inc. ("AFG"), headquartered in New York City, is a financial services holding company incorporated in the State of Delaware on April 29, 1991. References to “Ambac,” the “Company,” “we,” “our,” and “us” are to AFG and its subsidiaries, as the context requires. Ambac operates two principal businesses: • Insurance Distribution — Ambac's specialty property and casualty ("P&C") insurance distribution business includes Managing General Agents, Underwriters and other appointed and delegated underwriting businesses (collectively "MGAs" or "MGA/Us"), an insurance broker, and other distribution and underwriting businesses. Insurance Distribution includes Beat Capital Partners Limited, which was acquired on July 31, 2024. At December 31, 2024, Ambac's insurance distribution platform operates in the following lines of business: accident & health, specialty auto, other professional, marine & energy, niche specialty risks, property, reinsurance, professional director's & officers ("D&O") and other specialty lines. • Specialty Property & Casualty Insurance — Ambac's Specialty Property & Casualty Insurance program business currently includes five carriers (collectively, “Everspan”). Everspan carriers have an A.M. Best rating of 'A-' (Excellent) which was affirmed on June 13, 2024. The Company reports these two business operations as segments; see Note 3. Segment Information for further information. Ambac has entered into an agreement to sell Ambac Assurance Corporation ("AAC") and its wholly owned subsidiaries, including Ambac Assurance UK Limited (“Ambac UK”) and Ambac Financial Services LLC ("AFS"), pursuant to the stock purchase agreement, dated June 4, 2024 (the "Purchase Agreement"), with American Acorn Corporation ("Buyer"), a Delaware corporation owned by funds managed by Oaktree Capital Management, L.P. (the "AAC Sale"). The assets and liabilities of AAC and its subsidiaries (collectively "the Discontinued Operation") that will be transferred in the sale are classified as held-for-sale, and their results presented as discontinued operations. The carrying value of held-for-sale assets and liabilities, and consequently the expected loss on disposal, are subject to variability through the closing date of the AAC Sale. Material changes to the carrying value of held-for-sale assets and liabilities could arise from changes in estimates of financial guarantee losses and loss adjustment expense reserves, including subrogation recoverable, as well as from changes in the valuation of invested assets and other financial instruments carried at fair value and other operating results of AAC and its subsidiaries. Refer to Note 5. Discontinued Operation to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information about the sale of AAC. Unless otherwise noted, information in Item 1 of this Annual Report on Form 10-K relates solely to the continuing operations of Ambac and does not include information related to the discontinued operations and held-for-sale assets and liabilities of AAC. For additional information about AAC's business, risk management and insurance regulatory matters, refer to Ambac's Annual Report on Form 10-K for the year ended December 31, 2023. AFG, on a standalone basis, had $119 million in net assets (excluding its investment in subsidiaries) and net operating loss carry-forwards of $3.6 billion ($2.0 billion of which is allocated to AAC and will transfer with AAC in connection with its sale) at December 31, 2024. See Schedule II for more information on the holding company. 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. DESCRIPTION OF THE BUSINESS P&C Industry Overview We operate within the $968 billion U.S. P&C insurance market with a particular focus on the commercial MGA/U program market both on an Admitted and Excess & Surplus Lines ("E&S") basis. Admitted and E&S Insurance Insurance carriers sell commercial P&C products in the United States through one of two markets: the Admitted market and the E&S market. The Admitted insurance market, which has highly regulated rates and policy forms, is more consistent in price and coverage. In the E&S market, there is increased flexibility in pricing, terms and conditions in response to evolving market dynamics, and E&S carriers can tailor insurance products to facilitate coverage that would not otherwise be attainable. This flexibility lends itself to providing solutions for unique risks, which has driven meaningful growth within the E&S market over the last decade, exceeding the growth rate of the Admitted market. According to data from AM Best, the E&S market generated over $115 billion of direct written premium in 2023 an increase Ambac Financial Group, Inc. 2 2024 Form 10-K Table of Contents , of 17.4% over the prior year and and represents nearly 12% of the industry direct premium volume. The E&S market is more heavily focused in commercial lines and accounted for over 23% of total commercial direct written premium for the first time in 2023. Over the last five years the E&S market has more than doubled from $56 billion to over $115 billion in 2023, a 15.5% compound annual growth rate compared to 7.4% for the overall P&C industry. Everspan presently has four admitted carriers, which are wholly-owned at December 31, 2024: Everspan Insurance Company; Greenwood Insurance Company; Consolidated Specialty Insurance Company and Providence Washington Insurance Company. Everspan Indemnity Insurance Company ("Everspan Indemnity"), an E&S carrier, which is eligible to write business in all U.S. states and territories, is also part of Everspan. MGA/U Program Market It is estimated by Conning, Inc. ("Conning") that U.S. MGA/Us generated over $100 billion of premium in 2023. We believe there are significant advantages to the MGA/U business model when it comes to capturing the opportunity in the E&S market and propelling profitable growth. MGA/Us are specialized types of insurance agents or brokers that are vested with underwriting authority from an insurer, administering programs and negotiating contracts on their behalf. This is a particularly useful vehicle for P&C insurers as MGA/Us tend to participate in the E&S market where specialized expertise is needed to underwrite policies. Additionally, MGA/Us are cost effective means for an insurer or reinsurer to access or grow a particular class of business they find attractive given the MGA/U already possesses product expertise and distribution capabilities. According to data from Conning, the MGA/U sector is one of fastest growing segments of the U.S. P&C insurance market with 2023 direct premium written of $82 billion, an increase of 14% over the prior year, and loss ratios consistently lower than the P&C sector overall. In 2023, Conning identified over 800 MGAs in the U.S. market with nearly 350 additional MGAs not counted in that group as their premium production falls below the 5% statutory filing threshold. We believe the growth in the MGA/U and program space is likely to continue as the industry continues its move towards increased specialization. Specialty Property and Casualty Insurance Everspan’s strategy is to generate sustainable and profitable long-term specialty property and casualty program business with a focus on diverse classes of commercial and personal liability risks across an expanding roster of MGA/U partners. As a specialty property and casualty program group, Everspan may retain a percentage of the business it underwrites. Everspan's management team has significant years of experience in the program insurance and reinsurance sectors and has long-standing and broad relationships with MGA/Us, reinsurers, brokers, producers and third-party claims administrators ("TPAs"). Everspan sources business through program administrators and managing general agents, reinsurers, brokers, producers and others. Subject to Everspan's operational oversight, Everspan engages these third parties to market and administer policies and handle claims within defined authorities on Everspan's behalf. Everspan is focused on generating strong underwriting results and stable fee income as part of its specialty program business model. For the year ended December 31, 2024, Everspan generated $382,771 thousand of gross written premium, of which Everspan retained approximately 23.2%, including assumed written premiums. Everspan retained approximately 12.0% of its direct written premiums, with the balance primarily ceded to quota share reinsurers. Everspan may retain up to 30% of risk on each direct program and will reinsure the remainder to reinsurers and other providers of risk capital. These reinsurers may be domestic and foreign reinsurers and institutional risk investors (capacity providers). While underwriting direct business produced by MGA/Us is Everspan's primary means of distribution, Everspan also1 selectively assumes reinsurance to further its goal of writing a diversified book of specialty P&C business while managing its exposure limits. For example, the Company would evaluate, and may write certain lines, including those with catastrophe risk or Workers’ Compensation on an assumed basis. Everspan may participate as a reinsurer on up to 30% of a program, which is in line with its strategy to retain up to 30% of risk per program. Participation as a reinsurer will affect the retention ratio as Everspan's portion of assumed premiums is reflected fully in both Gross and Net Written Premiums. The following table sets forth gross written premiums (direct and assumed) by line of business for the years ended December 31, 2024 and 2023: ($ in thousands) Year Ended December 31, 2024 2023 Excess liability $ 95,827 $ 40,549 Commercial auto liability 78,238 121,946 General liability 77,767 27,143 Surety 34,794 26,267 Workers Compensation 28,294 19,512 Non-standard personal auto 20,186 20,080 Commercial auto physical damage 1,480 12,057 Other 46,185 5,733 Gross written premiums $ 382,771 $ 273,287 Everspan purchases reinsurance to manage its net retention on individual risks and overall exposure to losses, while providing it with the ability to offer policies with sufficient limits to meet producer and policyholder needs. Generally, reinsurance contracts are specific to a program and are renewed annually, at which time they are subject to renegotiation. The key contractual provisions include, but are not limited to, those relating to the scope of business reinsured, ceding commissions, required reports to reinsurers, dispute resolution, any required collateral, and Everspan's termination rights when, among other triggers, a reinsurer defaults (such as by failing to collateralize its obligations when required) or its financial strength falls below an agreed level. Everspan’s ceded reinsurance contracts do not legally discharge Everspan from its primary liability for the full amount of the policies, and Everspan will be required to pay the loss and bear collection risk if a reinsurer fails to meet its obligations under the reinsurance agreement. Ambac Financial Group, Inc. 3 2024 Form 10-K Table of Contents , Everspan mitigates this credit risk by selecting well capitalized, highly rated, authorized capacity providers, or requiring that the capacity provider post collateral, typically in the form of letters of credit issued by or trust accounts in the custody of NAIC-qualified financial institutions, to secure the reinsured risks. The following graph shows our reinsurance carriers' AM Best rating based on share of ceded premium for the year ended December 31, 2024: (1) NR represents reinsurance carriers not rated by AM Best. Generally, under the terms of reinsurance contracts with such carriers the reinsurer is required to post collateral to Everspan. See Note 8. Insurance Contracts to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further information on reinsurance recoverables, including the evaluation for credit impairments. Competitive Strengths: Specialty Property and Casualty Insurance is a competitive industry. Everspan believes that it can successfully operate in this industry in part based upon the following competitive strengths. • Experience — Everspan has an experienced leadership team across underwriting, pricing, claims, and business development with an average tenure of over 30 years in the insurance industry. • Underwriting Focused Strategy — Everspan is driven by underwriting performance, which is achieved via evaluation and monitoring of MGA/U partners from our in-house pricing actuaries, claims executives, and program managers. This underwriting focus also aides in achieving and maintaining support from reinsurance partners. • Risk Appetite — Everspan may retain up to 30% of the risk it underwrites. This meaningful participation serves to align interests with our reinsurers. • Commitment to Program Distribution — Everspan does not have any direct distribution capability as it is committed to the program market distributed through MGA/Us. As a result, Everspan does not have channel conflicts which would compete with programs partners in underwriting business. • Nimble Platform — A simplified organizational structure which allows Everspan to be efficient and quick in responding to the needs of program partners as well as finding customized solutions. We believe this provides a competitive advantage to the more traditional competitors in the market. • Aligned Ownership — Everspan has a stable ownership structure which is equally focused on long-term value creation based on strong underwriting performance. This alignment of interest and strategic vision allows Everspan to leverage resources across Ambac and access capital for future initiatives. Competition: Everspan faces competition from program business market participants such as Accelerant, Clear Blue, Core Specialty, Fortegra, Obsidian, Sutton National, State National, Transverse, and Trisura. Most of these entities have both admitted and E&S carriers. Competition may take the form of lower program fees, broader coverages, greater product flexibility, higher coverage limits, greater customer service or higher financial strength ratings by independent rating agencies. Few barriers exist to prevent existing insurers from entering target markets within the property and casualty industry. Market conditions and capital capacity influence the degree of competition at any point in time. A number of competitors to Everspan have announced or are rumored to be exploring plans for strategic alternatives. Exploring strategic alternatives may be triggered by the objectives of owners (like private equity funds), weak financial performance, capital and capacity shortfalls or valuation considerations, amongst a number of other reasons. The impact of consolidation amongst program market carriers on Everspan is hard to predict and may have adverse or favorable consequences. During periods of excess underwriting capacity, as defined by the availability of capital, competition can result in lower pricing and less favorable policy terms and conditions for insurers. During periods of reduced underwriting capacity, pricing and policy terms and conditions are generally more favorable for insurers. Historically, the performance of the property and casualty insurance industry has tended to fluctuate in cyclical periods of price competition and excess underwriting capacity, followed by periods of high premium rates and shortages of underwriting capacity. At any given time, Everspan's portfolio of insurance products could experience varying combinations of these characteristics. This cyclical market pattern can be more pronounced in the specialty insurance and reinsurance markets in which Everspan competes than in the standard insurance market. For the last several years the property and casualty industry has been in a period of high premium rates with a shortage of underwriting capacity. While not anticipated to end in the short-term, this cyclical period will eventually end, perhaps unexpectedly. The end of this favorable cycle could have negative consequences for Everspan's growth and profitability prospects. Business Acquisition and Program Partner Selection: With our focus on generating long-term underwriting profitability, we are selective in adding new program partners. We look for program partners that share our vision of underwriting performance and return expectations and consequently are selective about with whom we partner. As of December 31, 2024 , we have 27 programs with 24 MGA/Us. In Ambac Financial Group, Inc. 4 2024 Form 10-K Table of Contents , 2024 approximately 190 submissions were evaluated and we agreed to contract 8 new programs including seven new MGA/Us and one MGA/U with an existing relationship, while renewing or extending eighteen programs with seventeen incumbent MGA/Us. Included in 2024 renewed programs is one executed via assumed reinsurance. At times is will be necessary to exit or discontinue certain programs when then risk profile or performance no longer meet our underwriting expectations or tolerances. As noted above, most of Everspan’s programs are sourced either from MGA/Us or through other third parties, such as reinsurance brokers, that are seeking to provide customized insurance solutions that require a carrier with a high rating from AM Best. Everspan works with MGA/Us that leverage both data and technology to streamline or improve the underwriting process. Everspan may also source programs as a reinsurer. Accessing programs as a reinsurer provides Everspan the ability to diversify its risk profile, efficiently manage its exposure limits and underwrite programs in a cost efficient manner, amongst other benefits. For each new opportunity that Everspan chooses to evaluate, an initial evaluation of the MGA/U is conducted, including an assessment of its underwriting approach, philosophy, size, quality of management, past performance, future performance targets and, above all, compatibility with Everspan’s operating model, risk appetite, and existing book of business. Everspan conducts substantial due diligence on all program partners led by the Underwriting Risk Committee, which is chaired by Everspan’s Chief Underwriting Officer. As part of the diligence process, Everspan works closely with potential MGA/Us to design program underwriting guidelines, ongoing reporting and auditing requirements. Everspan also typically requires the producing partner to retain underwriting risk or otherwise align incentives with program underwriting performance. Additionally, as part of the diligence process for each program, Everspan will perform a review of the claims management function, typically performed by a TPA, which in some cases are managed by the MGA/U or producing partner. Diligence focuses on claims handling and litigation management, compliance, finance, governance, staff and vendor management, data and IT. After due diligence is completed and acceptable reinsurers are identified, each program is presented to the Underwriting Risk Committee for final approval. The Underwriting Risk Committee will consider recommendations made by the credit subcommittee regarding the financial strength of the MGA/Us and/or reinsurers. Ongoing Monitoring: For active programs, Everspan authorizes MGA/Us to underwrite and bind coverages in accordance with approved underwriting guidelines and delegates authority to the TPA for claims adjustment and payment. Everspan monitors each MGA/U and TPA’s adherence to the agreed upon underwriting and claims guidelines. Everspan will conduct periodic reviews of loss experience, rate levels, reserves and the overall financial health of the MGA/U and TPA and hold monthly underwriting meetings with both the MGA/U and TPA. Underwriting and claims data is provided by the MGA/Us and TPAs monthly. Additionally, Everspan conducts underwriting, claims and accounting audits, generally on-site, at least once a year for MGA/U and TPA partners which administer a material amount of Everspan's business. Everspan determines whether it will continue to participate on a program no less than annually, generally at the anniversary date of the program. The renewal process entails an assessment, with Underwriting Risk Committee participation, of the program's operating performance, profitability, and available reinsurance capacity. Everspan maintains the right to terminate relationships with its MGA/Us and TPAs. Reasons to terminate a relationship include an inability to produce targeted underwriting results, writing exposures outside of agreed upon risk tolerances, delinquency in meeting reporting requirements, a change of strategic direction, or failure to meet collateral or other commitments to Everspan. Ratings: Everspan carriers have an AM Best financial strength ratings ("FSR") of 'A-' (Excellent) and Financial Strength Category of Class VIII. Risk is shared among the Everspan carriers via a reinsurance agreement and an intercompany pooling agreement (the "Everspan Pool"). We view this rating and financial size category as a competitive advantage in the marketplace. Ratings are an important factor in assessing Everspan’s competitive position, operation capabilities and risk management in the insurance industry. Insurance Distribution Ambac’s Insurance Distribution business, Cirrata Group ("Cirrata"), has a strategy to build a diversified portfolio of MGA/Us and other insurance distributors covering various P&C products. Ambac plans to grow its existing Insurance Distribution business using several strategies, including (i) organic growth, (ii) acquisitions and/or partnerships, and (iii) hiring experienced underwriting teams to incubate start-up ("de-novo") MGA/Us. Ambac continuously evaluates, and is currently evaluating, opportunities to acquire businesses and assets for its Insurance Distribution business, some of which may be material to our financial condition and operations and/or may involve raising capital to finance the acquisition. Key criteria for acquisitions and underwriting teams include a track record of profitability and a seasoned management team. Insurance underwritten through Ambac's MGA/Us may utilize Everspan as an insurance carrier, but are not required to do so, depending on strategic and operational considerations. Ambac Financial Group, Inc. 5 2024 Form 10-K Table of Contents , The following table sets forth Cirrata's premiums placed by line of business: ($ in thousands) Year ended December 31, 2024 2023 A&H $ 122,596 $ 130,556 Other professional 63,615 12,496 Property 56,402 — Professional D&O 55,789 — Specialty Auto 49,838 62,425 Niche Specialty Risks 36,984 — Reinsurance 30,202 — Marine & Energy 24,864 19,437 Misc. Specialty 53,082 5,691 Premiums placed $ 493,372 $ 230,605 Cirrata's portfolio at December 31, 2024, includes the following entities: Xchange Benefits, LLC ("Xchange") — Ambac owns an 80% controlling interest in Xchange. Xchange operates through specialty producers in accident and health ("A&H") sectors across the U.S. which are typically not targeted by large direct writers and to whom Xchange can provide customized offerings. Xchange conducts business through approximately eleven insurance carriers and dozens of agents and other distributors. Xchange's main products for which it is delegated underwriting authority by insurance carriers include: Employer Stop Loss ("ESL"), Limited Benefit Medical ("LM"), Short-term Medical ("STM"), Travel and Reinsurance ("Xchange Re"). All Trans Risk Solutions, LLC ("All Trans") — Effective November 1, 2022, Ambac acquired an 85% controlling interest in All Trans. All Trans is a full service managing general underwriter with delegated underwriting authority in commercial automobile insurance for specific "for-hire" auto classes; principally private school bus operators. In 2024, All Trans launched a new program primarily focussed on charter buses. All Trans' track record of performance has allowed the company to maintain a consistent panel of insurance carriers and client relationships, several of which go back over 25 years. Capacity Marine Corporation ("Capacity Marine") — Effective November 1, 2022, Ambac acquired an 80% controlling interest in Capacity Marine. Capacity Marine is a wholesale and retail brokerage and reinsurance intermediary specializing in more sophisticated marine and international risk in expsoures such as ports, terminals, and stevedores. Riverton Insurance Agency, Corp. ("Riverton") — Effective August 1, 2023, Ambac acquired an 80% controlling interest in Riverton. Riverton offers professional liability insurance programs to licensed architects, engineers, construction managers and real estate professionals. Riverton's retail agency places professional liability for real estate agents with various markets. Beat Capital Partners Limited ("Beat") — Effective July 31, 2024, Ambac acquired approximately 60% controlling interest in Beat, a London-based insurance underwriting and MGA/U platform. Beat specializes in incubating de-novo MGA/ Us by partnering with leading underwriting teams and providing such teams with funding, infrastructure and risk capital through access to two managed Lloyd's syndicates. Beat's 15 majority-owned MGA/Us (Beat typically owns between 60% and 80% of each MGA/U) offer alternative risk binders, global direct and facultative property, directors and officers, credit, professional errors and omissions, energy, environmental and accident and health. In addition to existing MGA/Us and acquisitions, de-novo MGA/U formations primarily through Beat, will be a core element of the Insurance Distribution segment's growth strategy. Cirrata's businesses are compensated for their services primarily by commissions paid by insurance carriers for underwriting, structuring and/or administering polices and, in some cases for managing claims under agency agreements. Commission revenues are usually based on a percentage of the premiums placed. The businesses are also eligible to receive profit sharing contingent commissions on certain programs based on the underwriting results of the policies they write, which may cause some variability in revenue and earnings recognition. Commission revenues experience seasonality during the year which can lead to concentrations of revenues and earning in certain quarters, including the first quarter of each year. Given recent acquisitions and potential de-novo launches, this seasonality may become more muted over time. Expenses at Cirrata include commissions the businesses pay to their independent agents/producers, compensation for their management and staff, general overhead and intangible asset amortization from acquisitions. Commission expenses are a variable cost as we pay a percentage of premiums written to the agents/producers. Insurance Distribution generated gross commission revenue and net commission revenue (commissions less commission expenses) during the years ended December 31, 2024 and 2023 as shown below. ($ in thousands) December 31, 2024 2023 Gross commissions $ 143,305 $ 51,282 Net Commissions 51,147 21,816 Commission revenue and expense growth will be driven by the businesses' continued expansion and diversification of its products across regions, products, distribution partners and carriers. Competitive Strengths: • Strategic operator — Ambac is a strategic operator with MGA/Us and Programs at the center of our business. This allows for the MGA/U principals the confidence and freedom to focus building their business without distraction of either subsequent ownership change or de-emphasis of the sector. • Partnership model — Our partnership based model is built around having MGA/U principals maintain ownership or direct economic alignment to the performance of their respective business. We believe this direct economic Ambac Financial Group, Inc. 6 2024 Form 10-K Table of Contents , connection is valuable in attracting both producing top-tier underwriting and attracting top underwriting talent who share an entrepreneurial mindset. • Aligned & managed capacity — By maintaining direct access to rated and licensed insurance capacity our Insurance Distribution can accelerate the time to launch new MGA/Us. • Shared services platform — One of the challenges new MGA/Us face while scaling their business is managing the increasing administrative burden. Our Insurance Distribution offers a range of shared services across IT, HR, and Finance which both provide economies of scale for these functions and allow for the principals to focus their efforts on building the franchise. • Deep specialty domain knowledge — Our Insurance Distribution businesses are anchored by a deep specialty domain knowledge in their respective classes of business. This knowledge is key to generating the underwriting results necessary to maintain long-standing carrier relationships. • Long standing carrier relationships — Our MGA/Us strive towards long and durable carrier relationships supported by a focus on underwriting profitability. P&C insurance is a cyclical industry with opportunistic players entering and exiting the business. We believe that growing multi-year carrier relationships are evidence of the value created by our MGA/Us, a value which we believe should sustain through routine market cycles. • Strong distribution relationships — Distribution relationships provide value in several ways. First, carrier and capital partners are looking for both underwriting expertise and distribution access when working with MGA/Us. In addition, the quality of distribution relationships helps in allowing our MGA/Us access to higher quality risks from the wholesale and retail agents which we believe over time will help produce better underwriting results. Competition: The MGA/U insurance sector is highly fragmented and competitive, and firms actively compete with Cirrata's businesses for customers and insurance carrier capacity. Our main competitors in this segment include other MGA/U aggregators (such as Amynta), wholesale brokers (such as Ryan Specialty) and insurance carriers that choose to write insurance without the assistance of MGA/Us. Given our competitive strengths we believe that we can compete effectively in this sector of the market. ENTERPRISE RISK MANAGEMENT The Company's policies and procedures relating to risk assessment and risk management are overseen by its Board of Directors. The Board of Directors takes an enterprise-wide approach to risk management oversight that is designed to support the Company's business plans at a level of risk considered by the Board to be reasonable. A fundamental part of risk assessment and risk management is not only understanding the risks the Company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. The Board of Directors periodically reviews the Company's business plan, factoring risk management into account. It also approves the Company's risk appetite statements, which articulate the Company's tolerance for certain risks and describes the general types of risk that the Company accepts, within certain parameters, or attempts to avoid. While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the Board also have responsibilities related to risk assessment and risk management, and management has responsibility for managing the risks to which the Company is exposed and reporting on such matters to the Board of Directors and applicable Board committees. • The Audit Committee oversees the management of risks associated with the integrity of Ambac’s financial statements and its compliance with legal and regulatory requirements. In addition, the Audit Committee discusses policies with respect to risk assessment and risk management, including major financial risk exposures and the steps management has taken to monitor and control such exposures. The Audit Committee reviews with management, internal auditors and independent auditors Ambac's critical accounting policies, Ambac's system of internal controls over financial reporting and the quality and appropriateness of disclosure and content in the financial statements and other external financial communications. • The Compensation Committee oversees the management of risk primarily associated with our ability to attract, motivate and retain quality talent (particularly executive talent) and with setting financial incentives that do not motivate undue risk-taking. • The Governance and Nominating Committee oversees the management of risk primarily associated with Ambac’s ability to attract and retain quality directors, Ambac’s corporate governance programs and practices and our compliance therewith, including integration of ESG and sustainability policies, practices and goals into the Company's business strategy and decision making. Additionally, the Governance and Nominating Committee oversees the processes for evaluation of the performance of the Board of Directors and its committees each year and considers risk management effectiveness as part of its evaluation. This committee also reviews succession plans for Ambac's executive officers, including the Chief Executive Officer. The Governance and Nominating Committee also performs oversight of the business ethics and compliance program, and reviews compliance with Ambac’s Code of Business Conduct. • The Strategy Committee oversees the management of strategic plans and initiatives. The Board of Directors receives quarterly updates from Board committees and the Board provides guidance to individual committee activities, as appropriate. In order to assist the Board of Directors in overseeing Ambac’s risk management, Ambac uses enterprise risk management, a Ambac Financial Group, Inc. 7 2024 Form 10-K Table of Contents , company-wide process that involves the Board of Directors, management and other personnel in an integrated effort to identify, assess and manage a broad range of risks (e.g., credit, financial, legal, liquidity, market, model, operational, regulatory, reputational and strategic) that may affect the Company’s ability to execute on its corporate strategies and fulfill its business objectives. The Enterprise Risk Committee (“ERC”), which is a management committee, is comprised of executive and senior level management responsible for assisting in the management of the Company’s risks on an individual and aggregate basis. The ERC produces the relevant risk management information for executive and senior management and the Board of Directors. Ambac management has established other management committees to assist in managing the risks throughout the enterprise. These committees will meet monthly or as needed on an ad hoc basis. • The Disclosure Committee's objective is to assist the CEO and CFO in their responsibilities to design, establish, maintain and evaluate the effectiveness of disclosure controls and procedures. Members of the Disclosure Committee include the CEO, CFO, Chief Accounting Officer, General Counsel, Chief Operating Officer, Head of Risk Management and senior managers from finance and legal. • The Everspan Underwriting Risk Committee's objective is to provide oversight of the active underwriting operations of Everspan, develop underwriting parameters, and assist the Boards of the Everspan companies in overseeing the integrity and effectiveness of Everspan’s underwriting risk management framework. Members of the committee include the CEO, key members of Everspan management and other senior managers or advisors of Ambac. Additionally, a Reinsurance and Program Administrator Credit Risk sub-committee was established at the direction of the Underwriting Risk Committee to assist with the management of credit risk emanating from ceded reinsurance and program administrators. • Subsidiary Boards of Directors . Each of Ambac's subsidiaries has an Ambac management-led Board charged with overseeing the strategy, performance and operations of such subsidiary. These subsidiaries include Everspan as well as each of our MGA/Us. Many of these Boards are led by Executive Management of AFG and, in other instances, senior management from throughout the organization. Occasionally, our subsidiary boards may also include independent members that are not employees of Ambac or its subsidiaries. Many of our MGA/U subsidiaries also maintain Underwriting Committees to oversee the underwriting quality and risk management of such underwriting unit. These Underwriting Committees provide regular updates to their respective Boards of Directors. The Company’s Enterprise Risk Management efforts build upon the foundation of an effective internal control environment. The design of any risk management or control system must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. As a result, the possibility of material financial loss remains regardless of the Company’s Enterprise Risk Management efforts. An investor should carefully consider the risks and all of the other information set forth in this annual report, including the discussions included in Item 1A. Risk Factors, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, and Item 8. Financial Statements and Supplementary Data. AVAILABLE INFORMATION Our Internet address is www.ambac.com. We make available through the investor relations section of our web site, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission. Our Investor Relations Department can be contacted at Ambac Financial Group, Inc., One World Trade Center, 41st Floor, New York, New York 10007, Attn: Investor Relations; telephone: 212-208-3222; email: ir@ambac.com. The reference to our website address does not constitute inclusion or incorporation by reference of the information contained on our website in this Annual Report on Form 10-K or other filings with the SEC and the information contained on our website is not part of this document. INSURANCE REGULATORY MATTERS AND OTHER RESTRICTIONS Regulatory Matters Everspan Indemnity and its wholly owned subsidiary, Everspan Insurance Company ("Everspan Insurance") are domiciled in the state of Arizona and are therefore subject to the insurance laws and regulations of the State of Arizona and regulated by the Arizona Department of Insurance and Financial Institutions as domestic insurers. The subsidiaries of Everspan Insurance are domiciled in various States and are therefore subject to the insurance laws and regulations of their respective domiciliary States and regulated by the insurance departments of those States as domestic insurers. Everspan Insurance and its subsidiaries are also subject to the insurance laws and regulations of the other jurisdictions in which they are licensed and operate as foreign insurers in such jurisdictions. See Note 9. Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further information on regulatory restrictions. The Insurance Distribution businesses, like other MGA/Us, program administrators and brokers, may be subject to licensing requirements and regulation by insurance regulators in various states and other applicable regulatory jurisdictions in which they conduct business. Beat and its UK domiciled entities are subject to the UK Companies Act 2006 as well as to insurance laws and regulations of the UK and other jurisdictions in which they operate. Additionally, some of the Beat subsidiaries, while not regulated entities, must act in line with the regulations of the Financial Conduct Authority and Prudential Regulation Authority as appointed representatives of regulated entities. Ambac Financial Group, Inc. 8 2024 Form 10-K Table of Contents , Beat's subsidiary, Alcor Underwriting Bermuda, is domiciled in Bermuda and is subject to the insurance laws and regulations of Bermuda and regulated by the Bermuda Monetary Authority (the "BMA"). Regulation of Change in Control Under applicable insurance law, any acquisition of control of AFG, or any other direct or indirect acquisition of control of its insurance carrier subsidiaries, requires the prior approval (or non-disapproval) of the domiciliary regulator of the acquired company (or, in the case of AFG, the domiciliary regulators of its insurance carrier subsidiaries). “Control” is generally defined as the direct or indirect power to direct or cause the direction of the management and policies of a person. Any purchaser of 10% or more of the outstanding voting stock of a corporation is presumed to have acquired control of that corporation and its subsidiaries unless the applicable insurance regulator, upon application, determines otherwise. For purposes of this test, AFG believes that a holder of common stock having the right to cast 10% or more of the votes which may be cast by the holders of all shares of common stock of AFG would be presumably deemed to have control of AFG's insurance carrier subsidiaries within the meaning of applicable insurance laws and regulations, although insurance regulators may in their discretion deem control not to exist where, for example, control is disclaimed by a passive investor. With respect to the AAC Sale, the Buyer submitted an application for the proposed acquisition of control of AAC to the Wisconsin Office of the Commissioner of Insurance ("OCI") and is awaiting approval of the acquisition by the OCI. The Buyer received approval for the change in control of Ambac UK from the U.K. Prudential Regulation Authority, which expires on April 30, 2025. Under the UK Companies Act, people with significant control (PSCs), defined as a person or entity holding more than 25% of the shares in the relevant company, must be reported to Companies House. Additionally, any change in control of Beat would need to be approved by Lloyds of London, the BMA and any applicable U.S. regulators. Dividend Restrictions, Including Contractual Restrictions Everspan Companies: Everspan Indemnity, Everspan Insurance and its subsidiaries are subject to regulatory restrictions on their ability to pay dividends, and do not have sufficient earned surplus at this time to pay ordinary dividends under the insurance laws and regulations of their respective States of domicile. Furthermore, certain subsidiaries of Everspan Insurance were restricted from paying dividends to Everspan Insurance until January 1, 2025. Currently, Everspan Insurance’s subsidiaries, other than Greenwood Insurance Company, do not have sufficient surplus to pay dividends. Ambac does not have any plans to seek dividends from Everspan so that surplus may accumulate to support Everspan's growth. Cirrata Companies: Ambac's MGA/U subsidiaries are not restricted from paying dividends or partner distributions (collectively "Distributions") to their owners or partners, including Cirrata, which is 100% owned by AFG. Ambac's established MGA/Us historically have paid Distributions equating to the majority of their individual EBITDA, subject to working capital, taxes and other capital needs, on a quarterly basis. Newly formed de-novo MGA/Us are not expected to make regular distributions to their partners until they become profitable and generate free cash flow on a steady and/or predictable basis. INVESTMENTS AND INVESTMENT POLICY As of December 31, 2024, the consolidated investments of Ambac's continuing operations had an aggregate fair value of approximately $312,915 thousand. Investments are primarily managed by third party investment management firms overseen internally. All investments are made in accordance with the general objectives, policies, and guidelines for investments approved by the Board of Directors of the applicable subsidiary. These policies and guidelines include liquidity, credit quality, diversification and duration objectives and are periodically reviewed and revised as appropriate. As of December 31, 2024, the Everspan group investment portfolio had an aggregate fair value of approximately $192,747 thousand. The investment objective is to achieve the highest risk-adjusted after-tax return on a diversified investment portfolio consistent with the respective company's risk tolerance while employing active asset/liability management practices to satisfy all operating and strategic liquidity needs. In addition to internal investment policies and guidelines, the investment portfolio of each company is subject to limits on the types and quality of investments imposed by applicable insurance laws and regulations of the jurisdictions in which it is licensed. The Board of Directors of each respective subsidiary approves any changes to the respective investment policies. As of December 31, 2024, AFG (parent company only, excluding investments in subsidiaries) investment portfolio had an aggregate carrying value of approximately $92,556 thousand, including $64,439 thousand of short-term investments carried at fair value. The primary investment objective is to preserve capital for strategic uses while maximizing income. The investment portfolio is subject to internal investment guidelines. Such guidelines set forth minimum credit rating requirements and credit risk concentration limits. As of December 31, 2024, the Insurance Distribution investment portfolio had an aggregate fair value of approximately $27,611 thousand, primarily consisting of money market funds. Ambac Financial Group, Inc. 9 2024 Form 10-K Table of Contents , The following table provide certain information concerning the consolidated investments of Ambac: 2024 2023 Investment Category ($ in thousands) December 31, Carrying Value Weighted Average Yield (1) Carrying Value Weighted Average Yield (1) Corporate securities $ 89,192 3.3 % $ 87,991 3.3 % U.S. government obligations 40,995 3.3 % 38,522 2.8 % Municipal obligations 14,083 3.1 % 8,711 2.0 % Asset-backed securities 8,203 4.9 % — — % Residential mortgage-backed securities 2,446 5.0 % — — % Commercial mortgage-backed securities 2,101 5.8 % — — % Short-term investments 127,601 3.7 % 200,510 5.3 % Total fixed maturity-available-for-sale 284,621 3.5 % 335,734 4.4 % Other investments (2) 28,294 — % 18,317 — % Total $ 312,915 3.5 % $ 354,051 4.4 % (1) Yields are stated on a pre-tax basis, based on average amortized cost for both long and short term fixed-maturity investments. (2) Other investments consist of equity interests in development stage insurance MGA's and pooled investment funds. Refer to Note 6. Investments of the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further information about Other investments. EMPLOYEES As of December 31, 2024, Ambac had 195 employees in the United States and 185 employees within the United Kingdom and Bermuda. Our 2024 voluntary turnover rate was approximately 6.5%. Ambac considers its employee relations to be satisfactory. Ambac’s focus has been on identifying and retaining key talent through individual development programs following skills assessments. Ambac’s succession planning has identified internal candidates that could fill executive management and senior management positions as the need arises. The Company continues to rely on compensation components (such as salary, long-term incentive plan awards, deferred cash awards and short-term incentive plan awards) to support employee retention and discourage excessive risk taking. The Company incorporates performance metrics as part of the annual short-term incentive bonus offering with increased bonus potential for exceptional results. We utilize third-party benchmark data to establish market-based compensation levels. We believe that our current compensation and incentive levels reflect high performance expectations as part of our merit pay philosophy. The targeted use of long-term equity incentive plan awards for key talent is an important element of Ambac’s long-term retention strategy.