Item 7. Management’s Discussion and Analysis
Item 7. 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:
• A narrative explanation from the perspective of management of our financial condition, results of operations, cash flows, liquidity and certain other factors that may affect future results;
• Context to the consolidated financial statements; and
• 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 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.
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Organization of Information
MD&A includes the following sections:
Page
Strategies to Enhance Shareholder Value 29
Overview 29
Critical Accounting P olicies and Estimates
30
Results of Operations
34
Liquidity and Capital Resources
39
Balance Sheet
40
Accounting Standards
43
Non-GAAP Financial Measures
43
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.
OVERVIEW
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
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
Gross premiums written $ 382,771 382,771 $ 273,287 273,287
Net premiums written 88,682 88,682 79,824 79,824
Total revenues 126,320 99,236 10,259 235,815 64,101 51,546 9,080 124,728
Total expenses 114,098 107,045 74,516 295,660 63,718 44,257 40,974 148,949
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)
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)
Sale of AAC
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.
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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. 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
Ambac's Consolidated Financial Statements have been prepared in accordance with GAAP. This section highlights accounting estimates management views as critical because they are most important to the portrayal of the Company's financial condition; 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. 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 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. Additional information about these policies can be found in Note 2. 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 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 — — —
ULAE (1)
— 12,238 12,238 — 6,578 6,578
Other (2)
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 — — —
ULAE (1)
— 6,085 6,085 — 4,527 4,527
Other (2)
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 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 could have an adverse impact on default probabilities and loss severities. The loss reserves for many transactions are derived from the issuer’s creditworthiness. For public finance issuers, loss reserves will consider not only creditworthiness, but also political dynamics and economic status and prospects. The loss reserves for transactions which have no direct issuer support, such as most structured finance exposures, including RMBS and student loan exposures, are derived from the default activity and the estimated loss given default of the underlying collateral supporting the transactions. 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. 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; our ability to execute workout strategies and commutations; economic and market conditions; and management's judgments with regards to the current performance and future developments within the insured portfolio. The number and severity of credits included in our loss reserves depend to a large extent on transaction specific attributes, but will generally increase during periods of economic stress and decline during periods of economic prosperity. Reinsurance contracts may mitigate future loss reserve volatility. While Ambac currently has minimal exposure ceded to reinsurers on financial guarantee credits with loss reserves, the existing reinsurance contracts would reduce future volatility to the extent loss reserves are established on those risks ceded to reinsurers. Loss reserve volatility will also be materially impacted by changes in interest rates from period to period.
The table below indicates the gross par outstanding and gross loss reserves (including loss expenses) related to policies in Ambac’s Financial Guarantee loss and loss adjustment expense reserves at December 31, 2024 and 2023:
Gross Par
Outstanding
Gross Loss
and Loss
Adjustment
Expense
Reserves
December 31, 2024
Structured Finance $ 1,612,056 $ 424,073
Domestic Public Finance 834,370 58,688
Other
138,199 (10,625)
Loss expenses — (8,932)
Totals $ 2,584,625 463,204
December 31, 2023
Structured Finance $ 1,859,786 496,541
Domestic Public Finance 834,123 66,381
Other
1,144,195 (7,831)
Loss expenses — 3,549
Totals $ 3,838,104 558,640
See Note 5. 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. Various cash flow scenarios are developed to represent the range of possible outcomes and resultant future claim payments and timing. Scenarios and probabilities of each are adjusted regularly to reflect changes in status, outlook and our analysis and views. Significant judgment is used to develop the cash flow assumptions and related probabilities, and there can be no certainty that the scenarios or probabilities will not deviate materially from ultimate outcomes.
• 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 2023, Ambac revised the model it uses to project RMBS collateral losses
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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.
• 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 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.
• In estimating loss reserves, we may also incorporate scenarios which represent the potential outcome of remediation strategies. Remediation scenarios could include (i) a potential refinancing of the transaction by the issuer; (ii) the issuer’s ability to redeem outstanding securities at a discount, thereby increasing the structure’s ability to absorb future losses; and (iii) our ability to terminate, restructure or commute the policy in whole or in part. 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.
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. See “Risk
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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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 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:
Year Ended December 31, 2024 2023 2022
Revenues:
Net premiums earned $ 99,005 $ 51,911 $ 13,869
Commission income 92,023 51,281 30,695
Program fees 13,506 8,437 3,095
Net investment income 14,448 13,159 4,503
Net investment gains (losses), including impairments (497) 19 (62)
Net gains (losses) on derivative contracts 4,016 (279) 935
Other income
13,314 200 577
Expenses:
Losses and loss adjustment expenses 72,626 36,712 9,071
Policy acquisition costs 23,666 10,557 2,535
Commission expense 40,876 29,465 17,641
General and administrative expenses 129,166 66,985 56,278
Intangible amortization 17,602 4,152 2,921
Interest expense 9,379 — —
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
Less: net (gain) loss attributable to NCI
(361) (1,319) (871)
Plus: 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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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 $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
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 $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
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, 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
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. 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 $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. 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. 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. 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 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. 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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Year Ended December 31,
2024 2023 2022
Compensation $ 64,346 $ 48,468 $ 39,159
Non-compensation 64,820 18,517 17,119
Total
$ 129,166 $ 66,985 $ 56,278
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. 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. 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 (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 $1,663,087 at AFG.
Results of Operations by Segment
Specialty Property and Casualty Insurance
Year Ended December 31, 2024 2023 2022
Gross premiums written $ 382,771 $ 273,287 $ 146,379
Net premiums written 88,682 79,824 28,554
Revenues:
Net premiums earned $ 99,005 $ 51,911 $ 13,869
Net investment income 6,399 3,795 1,605
Net investment gains (losses), including impairments 1 (36) (46)
Program fees 13,506 8,437 3,095
Other income 7,409 (6) (58)
Total 126,320 64,101 18,465
Expenses:
Losses and loss adjustment expenses 72,626 36,712 9,071
Policy acquisition costs 23,666 10,557 2,535
General and administrative expenses 17,806 16,449 13,205
Net (gain) loss attributable to NCI interest 2 (1) 15
EBITDA 12,222 $ 383 $ (6,346)
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-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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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
Year Ended December 31, 2024 2023 2022
Premiums placed $ 493,372 $ 230,606 $ 135,467
Commission income $ 92,023 $ 51,281 $ 30,695
Commission expense 40,876 29,465 17,641
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
Expenses:
General and administrative expenses 38,707 10,598 6,293
EBITDA 19,653 11,483 7,476
Depreciation 8 42 31
Intangible amortization 17,602 4,152 2,921
Pretax income (loss) $ (7,809) $ 7,289 $ 4,524
Ambac's stockholders equity (1)
$ 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 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. 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, 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
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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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 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).
December 31,
2024 2023
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 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 $6,000 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. through the issuance of debt, equity or hybrid securities).
Operating Companies' Liquidity
Insurance:
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 (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 continuing operations for the periods presented.
Year Ended December 31, 2024 2023 2022
Cash provided by (used in):
Operating activities $ 762 $ 36,948 $ 70,368
Investing activities (166,371) (26,679) (41,162)
Financing activities 194,219 (10,986) (19,235)
Net cash flow $ 28,610 $ (717) $ 9,971
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.
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 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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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. 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.
Assets:
Investment Portfolio
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
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
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
Total investments $ 192,747 $ 27,611 $ 92,556 $ 312,914 $ 161,976 $ 3,651 $ 187,924 $ 354,051
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 the composition of fixed maturity securities and other investments by asset class.
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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. Ratings represent the lower of ratings provided by S&P or Moody's when ratings are available from both agencies.
Premium Receivables. Ambac's premium receivables increased to $57,222 at December 31, 2024, from $45,893 at December 31, 2023. As further discussed in Note 8. 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. All premium receivables are in a payment currency of U.S. Dollars.
Reinsurance Recoverable on Paid and Unpaid Losses. Ambac has reinsurance in place pursuant to quota share, surplus share treaty and facultative agreements. To minimize its exposure to losses from reinsurers, Ambac (i) monitors the financial condition of its reinsurers; (ii) is entitled to receive collateral from its reinsurance counterparties under certain reinsurance contracts; and (iii) has certain cancellation rights that can be exercised in the event of rating agency downgrades of a reinsurer (among other events and circumstances). For those reinsurance counterparties that do not currently post collateral, Ambac’s reinsurers are well capitalized, highly rated, authorized capacity providers. Ambac benefited from letters of credit and collateral amounting to approximately $62,792 from its reinsurers at December 31, 2024.
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.
Goodwill. 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.
Liabilities:
Loss and Loss Adjustment Expense Reserves. 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
December 31,
2024 December 31,
2023
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
Other (1)
54,523 2,177 45,282 41
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. 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 8. 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.
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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 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.
ACCOUNTING STANDARDS
Please refer to Note 2. Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements, included in Part II, Item 8 in this Annual Report Form 10-K for a discussion of the impact of recent accounting pronouncements on Ambac’s financial condition and results of operations.
U.S. STATUTORY BASIS FINANCIAL RESULTS
AFG's U.S. insurance subsidiaries prepare financial statements under accounting practices prescribed or permitted by its domiciliary state regulator (“SAP”) for determining and reporting the financial condition and results of operations of an insurance company. The National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures manual (“NAIC SAP”) is adopted as a component of prescribed practices by each domiciliary state. For further information, see Note 9. Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report Form 10-K.
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, 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. 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. 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. Acquired assets include intangible assets with indefinite lives. Such assets are not amortized, but their estimated useful lives are reevaluated each reporting period. No goodwill is recorded for asset acquisitions.
• Acquisition costs and ceding commissions, other than excess ceding commissions, are expensed or recognized at the time of a transaction. Under GAAP, acquisition costs and ceding commissions are deferred and recognized over the life of the related transaction.
• Unearned premiums and loss reserves are presented net of ceded amounts, while under GAAP, they are reflected gross of ceded amounts.
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 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. We view these non-GAAP financial measures as important indicators when assessing and evaluating our performance on a segmented and consolidated basis and they are presented to improve the comparability of our results between periods by eliminating the impact of the items that may not be representative of our core operating performance. 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 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
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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,
2024 2023 2022
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)
Adjustments:
Interest expense — 9,379 — 9,379 — — — — — — — —
Income taxes 1,753 (928) (1,748) (924) 48 156 (1,193) (989) (1) — (462) (462)
Depreciation — 481 1,864 2,345 — 42 1,036 1,078 — 31 841 872
Intangible amortization — 17,602 — 17,602 — 4,152 — 4,152 — 2,921 — 2,921
EBITDA (1)
$ 12,222 $ 19,653 $ (62,393) $ (30,518) $ 383 $ 11,483 $ (30,858) $ (18,991) $ (6,346) $ 7,476 $ (33,043) $ (31,913)
Add: 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) %
Add: Acquisition and integration related expenses — — 27,388 27,388 — — 567 567 — — 593 593
Add: Equity-based compensation expense 414 — 8,941 9,355 634 — 11,632 12,266 208 — 11,024 11,232
Add: Severance and restructuring expense — 248 7,352 7,600 — — — — 481 — — 481
Add: 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.
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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 %
Less: Acquired revenues (45,202) — (16,446) —
Less: 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,
2024 2023 2022
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) (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)
Adjustments:
Add: Acquisition and integration related expenses — — 27,388 27,388 — — 567 567 — — 593 593
Add: Intangible amortization — 17,602 — 17,602 — 4,152 — 4,152 — 2,921 — 2,921
Add: Equity-based compensation expense 414 — 8,941 9,355 634 — 11,632 12,266 208 — 11,024 11,232
Add: Severance and restructuring expense — 248 7,352 7,600 — — — — 481 — — 481
Add: 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 — — — — — — — — — — — —
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. costs.
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Year Ended December 31,
2024 2023 2022
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) 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) %