OCTAVE SPECIALTY GROUP INC 10-K

Item 8. Financial Statements and Supplementary Data AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Account Firm KPMG LLP , New York, NY , PCAOB ID 185 49 Consolidated Financial Statements Consolidated Balance Sheets 52 Consolidated Statements of Stockholders’ Equity 54 Consolidated Statements of Total Comprehensive Income (Loss) 53 Consolidated Statements of Cash Flows 55 Notes to Consolidated Financial Statements Note 1. Background and Business Description 56 Note 11. Goodwill and Intangible Assets 86 Note 2. Basis of Presentation and Significant Accounting Policies 56 Note 12. Debt 87 Note 3. Segment Information 65 Note 13. Revenues From Contracts with Customers 87 Note 4. Business Combination 67 Note 14. Comprehensive Income 88 Note 5. Discontinued Operation 68 Note 15. Net Income Per Share 89 Note 6. Investments 74 Note 16. Income Taxes 89 Note 7. Fair Value Measurements 76 Note 17. Employment Benefit Plans 91 Note 8. Insurance Contracts 80 Note 18. Leases 93 Note 9. Insurance Regulatory Restrictions 84 Note 19. Commitments and Contingencies 94 Note 10. Derivative Instruments 86 Note 20. Quarterly Information (Unaudited) 97 Ambac Financial Group, Inc. 48 2024 Form 10-K Table of Contents , Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Ambac Financial Group, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Ambac Financial Group, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of total comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes and financial statement schedules I, II and III (collectively, the consolidated financial statements), and our report dated March 6, 2025 expressed an unqualified opinion on those consolidated financial statements. The Company acquired Beat Capital Partners Limited during 2024, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, Beat Capital Partners Limited’s internal control over financial reporting associated with total assets of 1% and total revenues of 17% included in the consolidated financial statements of the Company as of and for the year ended December 31, 2024. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Beat Capital Partners Limited. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP New York, New York March 6, 2025 Ambac Financial Group, Inc. 49 2024 Form 10-K Table of Contents , Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Ambac Financial Group, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Ambac Financial Group, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of total comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes and financial statement schedules I, II and III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 6, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Estimate of loss and loss adjustment expense reserves As discussed in Notes 2 and 8 to the consolidated financial statements, the loss and loss adjustment expense reserves (reserves) for Specialty Property and Casualty policies represent the Company’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 as of the balance sheet date. The reserves are estimated based upon experience and using a variety of actuarial methods. The Company’s reserves balance at December 31, 2024 was $349,062 thousand. We identified the assessment of the estimate of reserves for Specialty Property and Casualty policies as a critical audit matter. The assessment of the Company’s selected methods and key assumptions used to develop the estimate of reserves required complex auditor judgment due to the significant measurement uncertainty. Key assumptions included loss development factors, expected loss ratios, and the weighting of actuarial methods when more than one was used. Specialized actuarial skills and knowledge were required to evaluate the actuarial method or methods and key assumptions used. The following are the primary procedures we performed to address the critical audit matter. With the assistance of actuarial professionals, when appropriate, we evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s reserving process. This included controls over the Company’s process to develop the Company’s estimate of reserves based on actuarial methodologies and key assumptions employed by the Company’s actuaries. We involved actuarial professionals with specialized skills and knowledge, who assisted in: • for certain programs, evaluating the Company’s key assumptions and methods for consistency with actuarial standards of practice • for certain programs, developing an independent range of reserves using methods and assumptions consistent with actuarial standards of practice and comparing it to the Company’s recorded reserves • for certain programs, assessing the position in the range and the year-over-year movements of the Company’s recorded reserves within the independent range of reserves Ambac Financial Group, Inc. 50 2024 Form 10-K Table of Contents , Valuation of customer relationship intangibles for the Beat reporting unit As discussed in Note 4 to the consolidated financial statements, on July 31, 2024, the Company completed the acquisition of 60% of Beat Capital Partners (Beat) for a purchase price of $281,278 thousand. The acquisition was accounted for as a business combination using the acquisition method of accounting, which required the Company to allocate the total consideration transferred to the assets acquired, liabilities assumed, and noncontrolling interests based on their fair values at the date of acquisition. As part of the transaction, the Company acquired a customer relationships intangible asset with an acquisition date fair value of $303,331 thousand, which was valued using the multi-period excess earnings method. We identified the assessment of the acquisition date fair value of the customer relationships intangible asset as a critical audit matter. Subjective auditor judgment and the involvement of valuation professionals with specialized skills and knowledge were required to assess the discount rate assumption used to estimate the acquisition date fair value for the customer relationships intangible asset due to the degree of measurement uncertainty associated with this assumption. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s acquisition date valuation process. This included a control over the development of the discount rate used to value the customer relationships i ntangible asset. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s discount rate assumption used for the customer relationships intangible asset by independently developing a range of discount rates based on publicly available market data for comparable entities and comparing that range to the Company’s discount rate. Estimate of loss and loss adjustment expense reserves and subrogation recoverable As described in Note 5 to the consolidated financial statements, the Company estimates financial guarantee loss and loss adjustment expense reserves and subrogation recoverable (loss reserves) on a policy-by-policy basis based upon the present value of expected net claim cash outflows or expected net recovery cash inflows, discounted at risk-free rates. Expected net claim cash outflows represent the present value of expected claim cash outflows, less the present value of expected recovery cash inflows. For such policies, a loss and loss adjustment expense reserves liability is recorded for the present value of expected net claim cash outflows in excess of the related unearned premium revenue. Expected net recovery cash inflows represent the present value of expected recovery cash inflows, less the present value of expected claim cash outflows. For such policies, a subrogation recoverable asset is recorded. As of December 31, 2024, the Company recorded loss and loss adjustment expense reserves of $577,167 thousand and subrogation recoverable of $113,962 thousand within Liabilities held-for-sale and Assets held-for-sale, respectively. We identified the evaluation of loss adjustment reserves as a critical audit matter. The evaluation encompassed the assessment of the loss reserves methodologies, including those methods used to estimate the following assumptions: (1) credit worthiness of the issuer of the insured security, (2) the likelihood of possible outcomes regarding the probability of default by the issuer of the insured security, (3) the expected loss severity for each insurance policy, and (4) the probability of remediation, settlement and restructuring outcomes. The evaluation of the methods and the impact of these assumptions required specialized skills and subjective and complex auditor judgment due to a high level of estimation uncertainty. The following are the primary procedures we performed to address this critical audit matter. With the assistance of credit risk and valuation professionals with specialized industry knowledge and experience, we evaluated the design and tested the operating effectiveness of certain internal controls related to the Company's estimation of loss reserves. This included controls related to the determination of the assumptions and the sources of data and the analysis of the loss reserves. We involved credit risk professionals with specialized skills and knowledge, who assisted in assessing the individual issuer ratings and credit classifications for certain policies by evaluating the financial performance of the issuer of the insured security and underlying collateral. We also involved valuation professionals with specialized skills and knowledge, who assisted in: • evaluating the methods used to estimate loss reserves for compliance with U.S. generally accepted accounting principles, • evaluating, for certain policies, the assumptions, including: the likelihood of possible outcomes regarding the probability of default by the issuer of the insured security; the expected loss severity for each insurance policy; and, the probability of remediation, settlement and restructuring outcomes, and the sources of data and assumptions used in the calculation of loss reserves by comparing to the Company’s internal experience and related historical and industry trends. /s/ KPMG LLP We have served as the Company’s auditor since 1985. New York, New York March 6, 2025 Ambac Financial Group, Inc. 51 2024 Form 10-K Table of Contents , AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except share data) December 31, 2024 2023 Assets: Investments: Fixed maturity securities, at fair value (amortized cost of $ 162,124 and $ 141,179 ) $ 157,020 $ 135,224 Short-term investments, at fair value (amortized cost of $ 127,588 and $ 200,506 ) 127,601 200,510 Other investments (at cost, except for $ 7,499 and $ 5,817 at fair value) 28,294 18,317 Total investments 312,915 354,051 Cash and cash equivalents (including $ 17,669 and $ 11,881 of restricted cash) 47,275 19,223 Premium receivables 57,222 45,893 Commission and fees receivable 55,377 9,419 Reinsurance recoverable on paid and unpaid losses 306,191 164,997 Deferred ceded premium 148,300 110,407 Deferred acquisition costs 8,572 10,960 Intangible assets, less accumulated amortization 344,775 61,403 Goodwill 418,234 69,694 Other assets 92,317 65,817 Assets held-for-sale 6,267,200 7,516,456 Total assets $ 8,058,378 $ 8,428,320 Liabilities and Stockholders’ Equity: Liabilities: Unearned premiums $ 182,446 $ 154,878 Loss and loss adjustment expense reserves 349,062 197,089 Ceded premiums payable 53,002 29,666 Deferred program fees and reinsurance commissions 7,500 5,777 Commissions payable 71,431 6,932 Deferred taxes 70,135 — Short-term debt 150,000 — Accrued interest payable 2,560 — Other liabilities 89,036 60,419 Liabilities held-for-sale 5,887,685 6,541,866 Total liabilities 6,862,857 6,996,627 Commitments and contingencies (See Note 19) Redeemable noncontrolling interest 140,860 17,079 Stockholders’ equity: Preferred stock, par value $ 0.01 per share; 20,000,000 shares authorized shares; issued and outstanding shares— none — — Common stock, par value $ 0.01 per share; 130,000,000 shares authorized; issued shares: 48,875,167 and 46,659,144 489 467 Additional paid-in capital 331,007 291,761 Accumulated other comprehensive income (loss) ( 188,436 ) ( 160,047 ) Retained earnings 742,185 1,246,048 Treasury stock, shares at cost: 2,368,194 and 1,463,774 ( 28,339 ) ( 16,573 ) Total Ambac Financial Group, Inc. stockholders’ equity 856,906 1,361,656 Nonredeemable noncontrolling interest 197,755 52,958 Total stockholders’ equity 1,054,661 1,414,614 Total liabilities, redeemable noncontrolling interest and stockholders’ equity $ 8,058,378 $ 8,428,320 See accompanying Notes to Consolidated Financial Statements Ambac Financial Group, Inc. 52 2024 Form 10-K Table of Contents , AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Total Comprehensive Income (Loss) (Dollars in thousands, except share data) 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 revenue 13,314 200 577 Total revenues and other income 235,815 124,728 53,612 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 Depreciation expense 2,345 1,078 872 Intangible amortization 17,602 4,152 2,921 Interest expense 9,379 — — Total expenses 295,660 148,949 89,318 Pretax income (loss) from continuing operations ( 59,845 ) ( 24,221 ) ( 35,706 ) 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 tax (including loss on disposal of $ 570,145 in 2024) ( 497,167 ) 28,183 557,364 Net income (loss) ( 556,088 ) 4,951 522,120 Less: net (gain) loss attributable to noncontrolling interest ( 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 Net income (loss) attributable to Ambac shareholders Continuing operations $ ( 59,282 ) $ ( 24,551 ) $ ( 36,115 ) Discontinued operations ( 497,167 ) 28,183 558,495 Total $ ( 556,449 ) $ 3,632 $ 522,380 Other comprehensive income (loss), after tax Net income (loss) $ ( 556,088 ) $ 4,951 $ 522,120 Unrealized gains (losses) on securities, net of income tax provision (benefit) of $ 1,295 , $ 2,095 and $( 6,264 ) ( 939 ) 51,184 ( 225,341 ) Gains (losses) on foreign currency translation, net of income tax provision (benefit) of $ 0 , $ 0 and $ 0 ( 22,156 ) 40,132 ( 84,520 ) Credit risk changes of fair value option liabilities, net of income tax provision (benefit) of $( 118 ), $ 177 and $ 79 ( 356 ) ( 88 ) 340 Changes to postretirement benefit, net of income tax provision (benefit) of $ 0 , $ 0 and $ 0 ( 4,939 ) 1,569 ( 933 ) Total other comprehensive income (loss), net of income tax ( 28,390 ) 92,797 ( 310,454 ) Total comprehensive income (loss), net of income tax ( 584,478 ) 97,748 211,666 Less: net (gain) loss attributable to noncontrolling interest ( 361 ) ( 1,319 ) ( 871 ) Less: (gain) loss on foreign currency translation attributable to noncontrolling interest 3,074 — — Plus: gain on purchase of auction market preferred shares — — 1,131 Total comprehensive income (loss) attributable to Ambac shareholders $ ( 581,765 ) $ 96,429 $ 211,926 Net income (loss) from continuing operations per share attributable to Ambac shareholders Basic $ ( 0.13 ) $ ( 0.43 ) $ ( 0.74 ) Diluted $ ( 0.13 ) $ ( 0.43 ) $ ( 0.74 ) Net income (loss) from discontinued operations per share attributable to Ambac shareholders Basic $ ( 10.58 ) $ 0.62 $ 12.22 Diluted $ ( 10.58 ) $ 0.62 $ 12.22 Net income (loss) per share attributable to Ambac shareholders Basic $ ( 10.71 ) $ 0.18 $ 11.48 Diluted $ ( 10.71 ) $ 0.18 $ 11.48 Weighted average number of common shares outstanding: Basic 46,969,708 45,636,649 45,719,906 Diluted 46,969,708 45,636,649 45,719,906 See accompanying Notes to Consolidated Financial Statements Ambac Financial Group, Inc. 53 2024 Form 10-K Table of Contents , AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity Ambac Financial Group, Inc. ($ in thousands) Total Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Common Stock Held in Treasury, at Cost Nonredeemable Noncontrolling Interest Balance at December 31, 2021 $ 1,098,073 $ — $ 465 $ 256,906 $ 57,611 $ 726,054 $ ( 2,931 ) $ 59,968 Total comprehensive income (loss) 210,794 ( 310,454 ) 521,248 Stock-based compensation 17,408 17,408 Cost of shares (acquired) issued under equity plan ( 3,568 ) ( 5,446 ) 1,878 Cost of shares repurchased ( 14,217 ) ( 14,217 ) Changes to NCI 2,504 2,504 Sale or NCI in subsidiary 2,173 172 2,001 Issuance of common stock 2 2 Purchase of Ambac Assurance auction market preferred shares ( 7,919 ) 1,131 ( 9,050 ) Balance at December 31, 2022 $ 1,305,250 $ — $ 467 $ 274,486 $ ( 252,843 ) $ 1,245,491 $ ( 15,270 ) $ 52,919 Total comprehensive income (loss) 96,428 92,796 3,632 Stock-based compensation 17,275 17,275 Cost of shares (acquired) issued under equity plan ( 4,665 ) ( 7,872 ) 3,207 Cost of shares repurchased ( 4,510 ) ( 4,510 ) Changes to NCI 4,836 4,797 39 Balance at December 31, 2023 $ 1,414,614 $ — $ 467 $ 291,761 $ ( 160,047 ) $ 1,246,048 $ ( 16,573 ) $ 52,958 Total comprehensive income (loss) ( 584,839 ) ( 28,390 ) ( 556,449 ) Stock-based compensation 8,995 8,995 Cost of shares (acquired) issued under equity plan ( 701 ) ( 634 ) ( 67 ) Cost of shares repurchased ( 11,699 ) ( 11,699 ) Changes to NCI 49,966 1,044 53,220 ( 4,298 ) Issuance of common stock 29,229 22 29,207 Fair value of nonredeemable NCI in Beat Capital Partners at acquisition 149,095 149,095 Balance at December 31, 2024 $ 1,054,661 $ — $ 489 $ 331,007 $ ( 188,436 ) $ 742,185 $ ( 28,339 ) $ 197,755 See accompanying Notes to Consolidated Financial Statements Ambac Financial Group, Inc. 54 2024 Form 10-K Table of Contents , AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows ($ in thousands) Year Ended December 31, 2024 2023 2022 Cash flows from operating activities: Net income (loss) ( 556,088 ) 4,951 522,120 Net income (loss) from discontinued operations ( 497,167 ) 28,183 557,364 Net income (loss) from continuing operations ( 58,921 ) ( 23,232 ) ( 35,244 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,345 1,078 872 Amortization of bond premium and discount ( 296 ) 9 ( 6,742 ) Share-based compensation 9,356 12,266 11,231 Unearned premiums, net ( 10,324 ) 27,913 14,684 Losses and loss expenses, net 10,779 23,737 7,900 Ceded premiums payable 23,337 9,721 17,065 Premium receivables ( 11,329 ) ( 30,225 ) ( 13,478 ) Accrued interest payable 2,560 — — Amortization of intangible assets 17,602 4,152 2,921 Net investment gains (losses), including impairments 497 ( 19 ) 13,710 Corporate costs reallocated to continuing operations 14,919 19,367 20,189 Other, net 237 ( 7,819 ) 37,260 Net cash provided by (used in) operating activities from continuing operations 762 36,948 70,368 Cash flows from investing activities: Proceeds from sales of bonds 5,994 1,378 53,517 Proceeds from matured bonds 21,580 15,078 18,097 Purchases of bonds ( 60,470 ) ( 33,243 ) ( 43,489 ) Proceeds from sales of other invested assets 625 — — Purchases of other investments ( 2,522 ) ( 2,242 ) ( 4,788 ) Change in short-term investments 101,829 4,157 ( 48,386 ) Acquisitions, net of cash acquired ( 243,776 ) ( 6,953 ) ( 18,442 ) Proceeds from sale of subsidiary, net of cash transferred 14,119 — — Other, net ( 3,750 ) ( 4,854 ) 2,329 Net cash provided by (used in) investing activities from continuing operations ( 166,371 ) ( 26,679 ) ( 41,162 ) Cash flows from financing activities: Proceeds from short-term debt 147,000 — — Issuance of equity interest in subsidiary 62,000 — — Payments for purchases of common stock held in treasury ( 11,698 ) ( 4,510 ) ( 14,217 ) Tax payments related to shares withheld for share-based compensation plans ( 692 ) ( 4,585 ) ( 3,576 ) Distributions to noncontrolling interest holders ( 2,391 ) ( 1,891 ) ( 1,442 ) Net cash provided by (used in) financing activities from continuing operations 194,219 ( 10,986 ) ( 19,235 ) Effect of foreign exchange on cash and cash equivalents - continuing operations ( 558 ) — — Net cash provided by (used in) continuing operations 28,052 ( 717 ) 9,971 Cash, cash equivalents, and restricted cash at beginning of period - continuing operations 19,223 19,940 9,969 Cash, cash equivalents, and restricted cash at end of period - continuing operations $ 47,275 $ 19,223 $ 19,940 Net cash provided by (used in) operating activities from discontinued operations 33,536 163,376 1,264,975 Net cash provided by (used in) investing activities from discontinued operations ( 7,911 ) 461,870 959,610 Net cash provided by (used in) financing activities from discontinued operations ( 214,606 ) ( 411,947 ) ( 2,195,992 ) Effect of foreign exchange on cash and cash equivalents - discontinued operations ( 126 ) 529 ( 670 ) Net cash provided by (used in) discontinued operations ( 189,107 ) 213,828 27,923 Cash, cash equivalents, and restricted cash at beginning of period - discontinued operations 255,183 41,355 13,432 Cash, cash equivalents, and restricted cash at end of period - discontinued operations $ 66,076 $ 255,183 $ 41,355 See accompanying Notes to Consolidated Financial Statements Ambac Financial Group, Inc. 55 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) 1. BACKGROUND AND BUSINESS DESCRIPTION Ambac Financial Group, Inc. (“AFG”), headquartered in New York City, is a financial services holding company incorporated in the state of Delaware on April 29, 1991. References to “Ambac,” the “Company,” “we,” “our,” and “us” are to AFG and its subsidiaries, as the context requires. Ambac's business operations include: • Insurance Distribution — Ambac's specialty property and casualty ("P&C") insurance distribution business includes Managing General Agents and Underwriters (collectively "MGAs" or "MGA/Us"), an insurance broker, and other distribution and underwriting businesses. Insurance Distribution includes Beat Capital Partners Limited ("Beat", which was acquired on July 31, 2024). At December 31, 2024, Ambac's insurance distribution platform operates in the following lines of business: accident & health, specialty auto, other professional, marine & energy, niche specialty risks, property, reinsurance, professional D&O and other specialty lines. • Specialty Property and Casualty Insurance — Ambac's Specialty Property and Casualty Insurance program business includes four admitted carriers and an excess and surplus lines (“E&S” or “nonadmitted”) insurer (collectively, “Everspan”). Everspan carriers have an A.M. Best rating of 'A-' (Excellent) which was affirmed on June 13, 2024. The Company reports these two business operations as segments; see Note 3. Segment Information for further information. Ambac's financial guarantee business, which is being reported as a discontinued operation due to its pending sale, includes the activities of Ambac Assurance Corporation ("AAC") and its wholly owned subsidiaries, including Ambac Assurance UK Limited (“Ambac UK”) and Ambac Financial Services LLC ("AFS"). Both AAC and Ambac UK have financial guarantee insurance portfolios that have been in runoff since 2008. AFS provided interest rate derivatives to financial guarantee customers and used derivatives to hedge interest rate risk in AAC's insurance and investment portfolios. See Note 5. Discontinued Operation for information related to the pending sale of AAC. Limitations on Voting and Transfer of Common Stock AFG’s Amended and Restated Certificate of Incorporation limits voting and transfer rights of stockholders in significant ways. Article IV contains voting restrictions applicable to any person owning at least 10 % of AFG's common stock so that such person (including any group consisting of such person and any other person with whom such person or any affiliate or associate of such person has any agreement, contract, arrangement or understanding with respect to acquiring, voting, holding or disposing of AFG’s common stock) shall not be entitled to cast votes in excess of one vote less than 10 % of the votes entitled to be cast by all common stock holders, except as otherwise approved by the insurance commissioners of the states of domicile of the insurance companies controlled by AFG. Article XII contains substantial restrictions on the ability to transfer AFG’s common stock. In order to preserve certain tax benefits, subject to limited exceptions, any attempted transfer of common stock shall be prohibited and void to the extent that, as a result of such transfer (or any series of transfers of which such transfer is a part), either (i) any person or group of persons shall become a holder of 5 % or more of AFG’s common stock or (ii) the percentage stock ownership interest in AFG of any holder of 5 % or more of AFG’s common stock shall be increased (a “Prohibited Transfer”). These restrictions shall not apply to an attempted transfer if the transferor or the transferee obtains the written approval of AFG’s Board of Directors to such transfer. A purported transferee of a Prohibited Transfer shall not be recognized as a stockholder of AFG for any purpose whatsoever in respect of the securities which are the subject of the Prohibited Transfer (the “Excess Securities”). Until the Excess Securities are acquired by another person in a transfer that is not a Prohibited Transfer, the purported transferee of a Prohibited Transfer shall not be entitled with respect to such Excess Securities to any rights of stockholders of AFG, including, without limitation, the right to vote such Excess Securities and to receive dividends or distributions, whether liquidating or otherwise, in respect thereof, if any. Once the Excess Securities have been acquired in a transfer that is not a Prohibited Transfer, the securities shall cease to be Excess Securities. If the Board determines that a transfer of securities constitutes a Prohibited Transfer then, upon written demand by AFG, the purported transferee shall transfer or cause to be transferred any certificate or other evidence of ownership of the Excess Securities within the purported transferee’s possession or control, together with any distributions paid by AFG with respect to such Excess Securities, to an agent designated by AFG. Such agent shall thereafter sell such Excess Securities and the proceeds of such sale shall be distributed as set forth in the Amended and Restated Certificate of Incorporation. If the purported transferee of a Prohibited Transfer has resold the Excess Securities before receiving such demand, such person shall be deemed to have sold the Excess Securities for AFG’s agent and shall be required to transfer to such agent the proceeds of such sale, which shall be distributed as set forth in the Amended and Restated Certificate of Incorporation. 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Ambac’s consolidated financial statements have been prepared on the basis of U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures. There can be no assurance that actual results will conform to such estimates and any future changes in estimates could be material to the financial statements. Consolidation The consolidated financial statements include the accounts of AFG and all other entities in which AFG (directly or through its Ambac Financial Group, Inc. 56 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) subsidiaries) has a controlling financial interest. All significant intercompany balances have been eliminated. The usual condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. AFG Unconsolidated Financial Information Financial information of AFG is presented in Schedule II in this Annual Report on Form 10-K as of December 31, 2024 and 2023 and for the years ended December 31, 2024, 2023 and 2022. Investments in subsidiaries are accounted for using the equity method of accounting in Schedule II. Held for Sale and Discontinued Operations The Company has separately classified the assets and liabilities of AAC as held for sale as a result of AAC's pending sale and meeting specified accounting criteria. Assets and liabilities held for sale are presented separately within the Consolidated Balance Sheets with any adjustments necessary to measure the disposal group at the lower of its carrying value or fair value less costs to sell. The stockholders' equity section of the Consolidated Balance Sheet continues to be reported on an aggregate basis; equity components (including nonredeemable NCI) solely attributable to AAC are not presented separately. The Company reports the results of operations of AAC as discontinued operations since the pending sale also represents a strategic shift that will have a major effect on the Company's operations and financial results. The results of discontinued operations are reported separately as Net income (loss) from discontinued operations within the Consolidated Statements of Total Comprehensive Income for the current and prior periods. AAC cash flows are reflected as Net cash provided by (used in) discontinued operations within the Consolidated Statements of Cash Flows for each period presented. Refer to Note 5. Discontinued Operation for further information. Measurement of Credit Losses on Financial Instruments (CECL) Ambac measures credit losses on financial assets that are not accounted for at fair value through net income in accordance with the Current Expected Credit Loss standard or "CECL". The credit loss impairment evaluation process for available-for-sale debt securities is discussed in the Investments sub-section below. CECL does not apply to equity method investments accounted for under ASC 323. Credit loss impairment for amortized cost assets reflect management's current estimate of all expected lifetime credit losses. The estimate of expected lifetime credit losses considers historical information, current information, as well as reasonable and supportable forecasts. Expected lifetime credit losses for amortized cost assets are recorded as an allowance for credit losses, with subsequent increases or decreases in the allowance reflected in net income each period. The credit loss impairment evaluation process for amortized cost assets are addressed in the applicable subsections below. The total allowance for credit losses for amortized cost assets recorded under CECL related to continuing operations was $ 641 at December 31, 2024. Investments The Investments - Debt Securities Topic of the ASC requires that all debt instruments be classified in Ambac’s Consolidated Balance Sheets according to their purpose and, depending on that classification, be carried at either cost or fair market value. Ambac’s debt investment portfolio is accounted for on a trade-date basis and consists primarily of investments in fixed maturity securities are either classified as available-for-sale or trading as defined by the Investments - Debt Securities Topic of the ASC. Available-for-sale debt securities are reported in the financial statements at fair value with unrealized gains and losses, net of deferred taxes, reflected in Accumulated Other Comprehensive Income (Loss) in Stockholders’ Equity and computed using amortized cost as the basis. For purposes of computing amortized cost, premiums and discounts are accounted for using the effective interest method over the term of the security. For structured debt securities with a large underlying pool of homogenous loans, such as mortgage-backed and asset-backed securities, premiums and discounts are adjusted for the effects of actual and anticipated prepayments. For other fixed maturity securities, such as corporate and municipal bonds, discounts are amortized or accreted over the remaining term of the securities and premiums are amortized to the earliest call date. Short-term investments consist of investments in money market funds and fixed maturity investments having maturities of less than one year and greater than three months when purchased. Other investments primarily consist of: • Equity interests in pooled investment funds which are accounted for in accordance with the Investments - Equity Securities Topic of the ASC and reported as Other investments on the Consolidated Balance Sheet with income reported through Net investment income on the Statement of Total Comprehensive Income (Loss). Equity interests in such funds consist of limited partner interests and are reported using the equity method. • Preferred equity investments that do not have readily determinable fair values and are carried at cost, less any impairments as permitted under the Investments — Equity Securities Topic of the ASC. Fair value is based primarily on quotes obtained from independent market sources. When quotes for fixed maturity securities are not available or cannot be reasonably corroborated, valuation models are used to estimate fair value. These models include estimates, made by management, which utilize current market information. When fair value is not readily determinable for pooled investment funds, the investments are valued using net asset value ("NAV") as a practical expedient as permitted under the Fair Value Measurement Topic of the ASC. Investment valuations could differ materially from amounts that would actually be realized in the market. Realized gains and losses on the sale of investments are determined on the basis of specific identification. Refer to Note 7. Fair Value Measurements for further description of the Ambac Financial Group, Inc. 57 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) methodologies used to determine the fair value of investments, including model inputs and assumptions where applicable. Ambac has a formal impairment review process for fixed maturity available-for-sale securities in its investment portfolio. Ambac conducts a review each quarter to identify and evaluate investments that have indications of impairment in accordance with the Investments - Debt Securities Topic of the ASC. If management either: (i) has the intent to sell its investment in an impaired debt security or (ii) determines that the Company more likely than not will be required to sell the debt security before its anticipated recovery of the amortized cost basis less any current period credit impairment, then an impairment charge is recognized in earnings, with the amortized cost of the security written-down to fair value. If management does not intend to sell, or will not be required to sell the debt security, the security is reviewed for credit impairment. Factors considered to identify and assess securities for credit impairment include: (i) fair values that have declined by 20 % or more below amortized cost; (ii) recent downgrades by rating agencies; (iii) the financial condition of the issuer and financial guarantor, as applicable, and an analysis of projected defaults on the underlying collateral; and (iv) whether scheduled interest payments are past due. The recognition of credit impairment losses for available-for-sale debt securities are recorded as an allowance for credit losses with an offsetting charge to net income. Improvements to estimated credit losses for available-for-sale debt securities are recognized immediately in net income. If we believe a decline in the fair value of a particular fixed maturity available-for-sale investment is not credit impaired, we record the decline as an unrealized loss net of tax in Accumulated Other Comprehensive Income (Loss) in Stockholders’ Equity on our Consolidated Balance Sheets. The evaluation of securities for credit impairment is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether, and to what extent, declines in the fair value of investments should be recognized in current period earnings. The risks and uncertainties include changes in general economic conditions, the issuer’s or guarantor’s financial condition and/or future prospects, the impact of regulatory actions on the investment portfolio, the performance of the underlying collateral, the effects of changes in interest rates or credit spreads and the expected recovery period. Ambac has made certain accounting policy elections related to accrued interest receivable ("AIR") for available-for-sale investments under CECL. Elections include: i) not measuring AIR for credit impairment, instead AIR is written off when it becomes 90 days past due; ii) writing off AIR by reversing interest income; iii) presenting AIR separately in Other Assets on the balance sheet and iv) excluding AIR from amortized cost balances in required CECL disclosures found in Note 6. Investments . AIR at December 31, 2024 and 2023 was $ 1,703 and $ 1,569 , respectively. Refer to Note 6. Investments for further credit impairment disclosures. Specialty Property and Casualty Insurance Premiums Gross written premiums on insurance policies are recorded at the inception of the policy and can be received on an upfront or installment basis. Certain gross written premiums are written as assumed reinsurance. Assumed reinsurance can attach on a risk attaching or loss occurring basis. On risk attaching, assumed written premiums are recorded at the inception of the policy and can be received on an upfront or installment basis. On loss occurring, assumed written premium includes the transfer of unearned premiums for inforce policies at the effective date of the respective reinsurance agreements and ongoing premium written activity of policies inforce during the respective contract period. At end of the contract period, the remaining unearned premiums of inforce policies are returned to the carrier. Collections of loss occurring assumed written premiums are generally on an installment basis. Ceded premiums written are based on contractual terms applied against related gross written premiums. Premiums, net of reinsurance, are recognized as revenue on a daily pro-rata basis over the term of the insured risk. Unearned premiums and Deferred ceded premiums represents the portion of gross and ceded premiums written that relate to unexpired risk, respectively. Premium receivables represent balances currently due and amounts not yet due from policyholders, insurance carriers, managing general agents or producers issuing insurance policies on Everspan's behalf. Premium receivables are reported net of an allowance for expected credit losses. The allowance is based upon Everspan's ongoing review of amounts outstanding, including delinquencies and write-offs, and other relevant factors. Credit risk is partially mitigated by the managing general agent's ability to cancel the policy on behalf of Everspan if the policyholder does not pay the premium, thereby reducing the related policy's premium written and Everspan's premium receivable. Derivative Contracts The Company has used derivative contracts to hedge foreign exchange or other economic risks in connection with certain strategic investments. None of Ambac’s derivative contracts were designated as hedges under the Derivatives and Hedging Topic of the ASC. All derivatives are recorded on the Consolidated Balance Sheets at fair value and are included in Other assets and Other liabilities, as appropriate. Refer to Note 10. Derivative Instruments for further discussion of the Company’s use of derivative instruments and their impact of the consolidated financial statements. Refer to Note 7. Fair Value Measurements for further description of the methodologies used to determine the fair value of derivative contracts. Deferred Acquisition Costs, Ceding Commissions and Deferred Program Fees The Specialty Property and Casualty Program business defers acquisition costs incurred that are related directly to the successful acquisition of new or renewal insurance contracts, including commissions paid to managing general agents for direct business, and paid to insurance carriers when acquired via assumed reinsurance. Ceding commissions received from Ambac Financial Group, Inc. 58 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) reinsurers represent a recovery of related acquisition costs. Deferred acquisition costs, net of ceding commissions, are amortized over the related policy period, generally one year, and recognized in amortization of deferred acquisition costs on the Statement of Total Comprehensive Income (Loss). Ceding commissions received in excess of the related direct acquisition costs are deferred and amortized over the related policy period, and recognized as program fees on the Statement of Total Comprehensive Income (Loss). A legal right of offset exists for (i) premiums received and commissions paid to managing general agents on direct business, (ii) premiums received and ceding commission paid on assumed business and (iii) premiums paid and ceding commissions received on ceded business. Goodwill Goodwill is attributable to acquisitions in the Insurance Distribution segment and represents the acquisition cost in excess of the fair value of net assets acquired, including identifiable intangible assets. Goodwill is assigned at acquisition to the applicable reporting unit of the acquired entity giving rise to the goodwill. Goodwill is not amortized but is subject to impairment testing. Goodwill impairment tests are performed annually or more frequently if circumstances indicate a possible impairment. The annual test of goodwill impairment is as of October 1st of each year. The impairment test for each reporting unit 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, then a quantitative impairment evaluation is performed as described below. The quantitative evaluation compares the estimated fair value using an income approach or market approach for each reporting unit with its respective carrying value (including goodwill and identifiable intangible assets). 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. Intangible Assets Finite-lived intangibles Ambac acquired identifiable intangible assets attributable to the Insurance Distribution segment. The intangible assets primarily relate to distribution relationships, non-compete agreements and trade names, all of which have finite lives and are amortized over their estimated useful lives using the straight-line method. The acquisition date valuation method used to determine the fair value of customer relationships, which were the most significant intangible assets acquired, 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. The Company tests finite-lived acquired intangible assets for impairment if certain events occur or circumstances change indicating that the carrying amount of the intangible asset may not be recoverable. The carrying amount of the intangible asset is not recoverable if it exceeds the projected undiscounted cash flows expected to result from the use and eventual disposal of the asset or asset group. If deemed unrecoverable, an impairment loss is recognized for the excess carrying amount over the fair value. There have been no accumulated impairment losses since these finite-lived intangible assets were established. Indefinite-lived intangibles Ambac acquired identifiable intangible assets attributable to its acquisitions of licensed insurance carriers in both 2021 and 2022, which were accounted for as asset acquisitions (Specialty Property and Casualty Insurance segment). The intangible assets relate to insurance licenses which have indefinite lives and therefore are not amortized. The useful lives are re-evaluated each period to determine whether facts and circumstances continue to support an indefinite life. The Company tests indefinite-lived acquired intangible assets for impairment annually or more frequently if circumstances indicate a possible impairment. Ambac tests indefinite-lived intangibles for impairment as of October 1st of each year. If, after assessing qualitative factors, management believes it is more likely than not that the intangible assets are impaired, a quantitative impairment evaluation is performed. Management also has the option to bypass the qualitative evaluation and proceed directly to the quantitative evaluation. The quantitative test compares the estimated fair value of the intangible asset with its carrying value. An impairment is recognized for the excess of the carrying amount of the intangible asset over it estimated fair value. If the asset’s estimated fair value exceeds its carrying value, the intangible asset is not impaired. There have been no accumulated impairment losses since these indefinite-lived intangible assets were established. Cash and Cash Equivalents Cash and cash equivalents principally consist of demand deposits with financial institutions and highly liquid fixed maturity investments having maturities of three months or less when purchased. Ambac Financial Group, Inc. 59 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Restricted Cash including Fiduciary Funds Cash that we do not have the right to use for general purposes is recorded as restricted cash in our consolidated balance sheets. Restricted cash includes fiduciary cash held by Ambac's insurance distribution subsidiaries as described below. As an intermediary, we hold funds, generally in a fiduciary capacity, for the account of third parties, typically as the result of premiums received from retail brokers or insureds that are in transit to insurers and claims due that are in transit from insurers. Since fiduciary assets are not available for corporate use, they are shown in the consolidated balance sheets as restricted cash and we present an equal and corresponding fiduciary liability relating to these funds representing amounts or claims or premiums due on our consolidated balance sheets (included in Other liabilities). Fiduciary funds are generally required to be kept in bank accounts subject to guidelines which emphasize capital preservation and liquidity. The Company is entitled to retain investment income earned on certain of these fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds. Restricted cash for net uncollected premiums and claims and the related fiduciary liabilities were $ 17,669 and $ 11,881 at December 31, 2024 and 2023, respectively. Specialty Property and Casualty Loss and Loss Adjustment Expenses Loss and loss adjustment expense reserves for Specialty Property and Casualty policies 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 represent management estimates, primarily utilizing actuarial expertise and projection methods that develop estimates for the ultimate cost of claims and claim adjustment expenses. The reserves are estimated based upon experience and using a variety of actuarial methods. These estimates are reviewed 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. Our actuarial methods may also rely on external data, such as industry loss ratios, loss development factors, or trend factors. Such data while more mature than Everspan's own data may not be perfectly representative of the particular business written by Everspan. The ultimate amount for loss and loss adjustment expenses may be in excess, or less than, the amounts recorded on our financial statements. Because the establishment of claims and claim adjustment expense reserves is an inherently uncertain process involving estimates and judgment, currently estimated claims and claim adjustment expense reserves may change. Adjustments will be reflected as part of the net increase or reduction in loss and loss adjustment expense reserves in the periods in which they become known. Cumulative amounts paid and case reserves held as of the balance sheet date are subtracted from the estimate of the ultimate cost of claims and claim adjustment expenses to derive incurred but not reported (IBNR) reserves. There were no changes in methodology in the past year. Detailed claim data is typically insufficient to produce a reliable indication of the initial estimate for ultimate claims and claim adjustment expenses for an accident year. As a result, 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 other known or observed factors influencing the accident year relative to prior accident years. The following estimation and analysis methods are principally used by the Company’s actuaries to estimate the ultimate cost of claims and claim 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. While these are the principal methods utilized, the Company’s actuaries have available to them the full range of actuarial methods developed by the casualty actuarial profession. Most actuarial methods assume that past patterns demonstrated in the data will repeat themselves in the future. The Company performs a continuing review of its loss and loss adjustment expense reserves, including its reserving techniques and the impact of reinsurance. Since the reserves are based on estimates, the ultimate liability may be more or less than such reserves. In this context, in the fourth quarter of 2024, management determined for runoff programs that it would Ambac Financial Group, Inc. 60 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) select the high end of its actuarial estimate as it's loss selection pick given the greater volatility that runoff programs may experience. Reinsurance Recoverable The Company uses ceded reinsurance to transfer certain insurance risk, along with premiums written and earned, to other insurance carriers that agree to share in such risks. The primary purpose of the reinsurance is to (i) protect the Company, at a cost, from losses in excess of amounts it is willing to accept, (ii) protect the Company's capital, and (iii) to manage the Company's net retention on individual risks and overall exposure to losses while providing the Company the ability to offer policies with sufficient limits to meet policyholder needs. The Company generally enters into quota share reinsurance agreements whereby it cedes to the capacity providers (reinsurers) a substantial amount (generally 70 % or more) of its gross liability under all policies issued by and on behalf of the Company by the MGA/U. Everspan is exposed to the credit risk of the reinsurer, or the risk that one of its reinsurers becomes insolvent or otherwise unable or unwilling to pay policyholder claims. This credit risk is generally mitigated by either selecting well capitalized, highly rated authorized capacity providers or requiring that the capacity provider post collateral to secure the reinsured risks, which in some instances, exceeds the related reinsurance recoverable. Amounts recoverable from reinsurers are estimated in a manner consistent with the associated loss and loss adjustment expense reserves. The Company reports reinsurance recoverables net of an allowance for amounts that are estimated to be uncollectible. The reinsurance of risk does not legally relieve Everspan of its original liability to its policyholders. In the event that any of Everspan’s reinsurers are unable to meet their obligations under reinsurance contracts, Everspan would, nonetheless, be liable to its policyholders for the full amount of its policy. To minimize credit exposure to losses from reinsurer insolvencies, Everspan (i) is entitled to receive collateral from certain reinsurance counterparties pursuant to the terms of the relevant reinsurance contracts and (ii) has certain cancellation rights that can be exercised by Everspan 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, Everspan’s reinsurers are well capitalized, highly rated, authorized capacity providers. Everspan has a formal quarterly credit impairment review process whereby it has elected to use the practical expedient of considering the fair value of collateral posted by reinsurers when evaluating credit impairment. To determine the total unsecured recoverable to be evaluated for credit impairment, we net the reinsurance recoverable amount by ceded premiums payable and the fair value of collateral posted, if any. The key factors in assessing credit impairment for reinsurance recoverables are independent rating agency credit ratings and loss severities. Management utilizes a probability of default/loss given default ("PD/LGD") approach, which is applied to the net unsecured reinsurance recoverable amount. Refer to Note 8. Insurance Contracts for credit impairment disclosures. Short-term Debt Short-term debt is carried at par value less unamortized discount. Accrued interest and discount accretion on short-term debt is reported as Interest expense on the Consolidated Statements of Total Comprehensive Income (Loss). Noncontrolling Interests ("NCI") Nonredeemable NCI interests Nonredeemable NCI of $ 146,837 includes the aggregate NCI share in certain operating units which are minority owned by the units' respective management teams. As of December 31, 2024, there are no put or call options associated with these minority interests and as such, the aggregate amount is classified as nonredeemable NCI on the balance sheet. The acquisition date valuation method to determine the fair value of nonredeemable NCI 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. At December 31, 2024 and 2023, AAC had 4,596 shares of issued and outstanding Auction Market Preferred Shares ("AMPS") with a liquidation preference of $ 114,900 relative to Ambac common shareholders (reported as nonredeemable noncontrolling interest of $ 50,918 on Ambac's balance sheet). See Note 5. Discontinued Operation for further discussion of the AMPS. Redeemable noncontrolling interests The Xchange, All Trans, Capacity Marine, Riverton and Beat acquisitions resulted in the ownership percentages of the acquired entities by Ambac as shown in the following table Company Ownership Percentage Xchange 80 % All Trans 85 % Capacity Marine 80 % Riverton 80 % Beat (1) 60 % (1) Beat's majority interests in its underlying MGAs ranges from 60 % to 100 % at December 31, 2024, resulting in Ambac's interest ranging from 36 % to 60 % % in each underlying MGA/U. Under the terms of all the acquisition agreements, Ambac has call options to purchase the remaining interest from the minority owners (i.e., noncontrolling interests) and the minority owners have put options to sell their remaining interests to Ambac. Because the exercise of the put options are outside the control of Ambac, in accordance with the Distinguishing Liabilities from Equity Topic of the ASC, Ambac reports redeemable NCI in the mezzanine section of its consolidated balance sheets. The acquisition date valuation method to determine the fair value of redeemable NCI and related put and call options was Monte Carlo Simulation. The significant fair value assumptions used in the simulation include the exercise thresholds, EBITDA forecasts, discount rate and long-term growth rates. The redeemable NCI is remeasured each period as the greater of: Ambac Financial Group, Inc. 61 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) i. the carrying value under ASC 810, which attributes a portion of consolidated net income (loss) to the redeemable NCI, and ii. the redemption value of the put option under ASC 480 as if it were exercisable at the end of the reporting period. Any increase (decrease) in the carrying amount of the redeemable NCI as a result of adjusting to the redemption value of the put option is recorded as an offset to retained earnings. The impact of such differences on earnings per share are presented in Note 15. Net Income Per Share. Following is a rollforward of redeemable NCI. Years ended December 31, 2024 2023 Beginning balance $ 17,079 $ 19,983 Fair value of redeemable NCI at acquisition date 185,469 2,450 Net income attributable to redeemable NCI (ASC 810) ( 1,282 ) 1,318 Distributions ( 2,391 ) ( 1,880 ) Adjustment to redemption value (ASC 480 ) ( 53,210 ) ( 4,792 ) Foreign exchange ( 4,805 ) — Ending Balance $ 140,860 $ 17,079 Revenue Recognition Revenues for the Insurance Distribution business operations are recognized in accordance with the Revenue from Contracts with Customers Topic of the ASC. The following steps are applied to recognize revenue: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, and (iv) allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. A performance obligation is satisfied either at a point in time or over time depending on the nature of the product or service provided, and the specific terms of the contract with customers. Performance obligations consist of underwriting and placing policies with insurers and, for certain products, providing claims servicing. Revenue from employer stop loss policies ("ESL") is apportioned to policy placement and claims servicing based on the relative stand-alone selling price of the respective performance obligations with policy placement revenue recognized upfront while claims servicing revenue is recognized over the claim adjustment period. Revenue from other insurance policies are recognized up front as no further performance obligations exist after policy placement. Revenue consists of base and profit-sharing commissions. • Base commissions, associated with policy placement and claims servicing, are estimated by applying the contractual commission percentages to estimated gross premiums placed. • Profit-sharing commissions represent variable consideration associated with policy placement only and are estimated based on expected loss ratios and the estimated gross premium for base commissions. Base and profit-sharing commissions are estimated with a constraint applied such that a significant reversal of revenue in the future is not probable. Revenue is reported in Commissions income on the Consolidated Statement of Total Comprehensive Income. Contract assets represent the Company's right to future consideration for services it has already transferred to the customer, which is subject to certain contingencies. Once the right to consideration becomes unconditional, it is reported as a receivable. Contract assets are evaluated for credit loss under CECL using a probability of default / loss given default (“PD/LGD”) method which measures credit impairment as the product of the carrying value, default probability and loss given default, considering the asset’s credit rating and average life. Contract liabilities represent the Company's obligation to transfer services for which it has already received consideration from the customer. Contract assets and receivables are reported as other assets, and contract liabilities are reported as other liabilities, on the Consolidated Balance Sheet. The Company’s costs to obtain customer contracts relate to certain commissions paid to independent agents for procuring policies. As these costs relate to the Company’s policy placement performance obligation to its customers, they are expensed as incurred. These costs are reported in Commission expenses on the Consolidated Statement of Total Comprehensive Income (Loss). Incentive Compensation Incentive compensation is a key component of our compensation strategy. Incentive compensation has two components: short term incentive compensation (consisting of an annual cash bonus) and long term incentive plan awards (consisting of deferred cash and awards of restricted and performance stock units). Annual decisions with regard to incentive compensation are generally made in the first quarter of each year and are based on the prior year's performance for the Company, the employee and the employee's business unit. In 2024, the Ambac 2020 Incentive Compensation Plan (the “2020 Incentive Plan”) was superseded by the 2024 Incentive Compensation Plan ("2024 Incentive Plan"). Both plans allow for the granting of stock options, restricted stock, stock appreciation rights, restricted and performance units and other awards to employees, directors and consultants that are valued or determined by reference to Ambac's common stock. Under these plans, Ambac has issued both cash and equity awards to US employees and consultants. In connection with the adoption of the 2024 Incentive Plan, all shares reserved but unissued under the 2020 Incentive Plan were transferred to the the 2024 Incentive Plan in addition to any shares underlying outstanding awards under the 2020 Incentive Plan as of June 5, 2024, that subsequently terminate by expiration or forfeiture, cancellation, or otherwise are not issued. Under the 2020 and 2024 Incentive Compensation Plans. Ambac recognizes compensation costs for all equity classified awards granted at fair value, which is measured on the grant date, and records forfeitures for unvested shares only when they occur. Ambac Financial Group, Inc. 62 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) For awards that only include service and performance conditions, the fair value is the market price of Ambac stock on the grant date. For awards that also contain a market condition, specifically a total shareholder return ("TSR") modifier, the fair value is estimated using a Monte Carlo simulation. The types of equity awards granted to employees are as follows: • Restricted stock units — only require future service and accordingly the respective fair value is recognized as compensation expense over the relevant service period. • Performance stock units — require both future service and achieving specified performance targets to vest. Performance stock unit grants also include a market condition TSR modifier that will cause the total payout at the end the performance period to increase or decrease depending on Ambac's stock performance relative to a peer group. Compensation costs for all performance stock units are only recognized when the achievement of the performance conditions are considered probable. Once deemed probable, such compensation costs are recognized as compensation expense over the relevant service period. Compensation costs are initially based on the probable outcome of the performance conditions and adjusted for subsequent changes in the estimated or actual outcome each reporting period as necessary. Changes in the estimated or actual outcome of a performance condition are recognized by reflecting a retrospective adjustment to compensation cost in the current period. Operating Leases A contract contains a lease if it conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Ambac's evaluation of whether certain contracts contain leases requires judgment regarding what party controls the asset and whether the asset is physically distinct. Ambac is the lessee in leases which are classified as operating leases. Ambac recognizes a single lease cost, calculated so that the cost is allocated generally on a straight-line basis over the lease term within operating expenses in the Consolidated Statements of Total Comprehensive Income (Loss). The lease term commences on the earlier of the date when we become legally obligated for the rent payments or the date on which we take possession of the property. For such operating leases, Ambac recognizes a right-of-use ("ROU") asset and a lease liability, initially measured at the present value of the lease payments. The discount rate used to initially measure the ROU assets and lease liabilities reflects the estimated secured borrowing rate of the applicable Ambac subsidiary, which considers the rate of existing or recent debt obligations of the entity. All cash payments are classified within operating activities in the statement of cash flows. For contracts where Ambac is the lessee, we have elected the short-term lease recognition exemption for all leases that qualify. For those leases that qualify for that exemption, we will not recognize ROU assets or lease liabilities. For all contracts where Ambac is the lessee and lessor we have also elected the practical expedient to not separate lease and non-lease components. Depreciation and Amortization of Fixed Assets Depreciation of furniture and fixtures, certain information technology development costs and electronic data processing equipment is charged over the estimated useful lives of the respective assets, ranging from three to five years, using the straight-line method. Amortization of leasehold improvements is charged over the remaining term of the respective operating lease using the straight-line method. Changes to estimated useful lives are accounted for prospectively from the period of change. Fixed assets are evaluated for impairment whenever events or changes in circumstances indicate their carrying value may not be recoverable. Foreign Currency Financial statement accounts expressed in foreign currencies are translated into U.S. dollars in accordance with the Foreign Currency Matters Topic of the ASC. The functional currencies of Ambac's subsidiaries are the local currencies of the country where the respective subsidiaries are based, which are also the primary operating environments in which the subsidiaries operate. Foreign currency translation: Functional currency assets and liabilities of Ambac’s foreign subsidiaries are translated into U.S. dollars using exchange rates in effect at the balance sheet dates and the related translation adjustments, net of deferred taxes, are included as a component of Accumulated Other Comprehensive Income (Loss) in Stockholders' Equity. Functional currency operating results of foreign subsidiaries are translated using average exchange rates. Foreign currency transactions: The impact of non-functional currency transactions and the remeasurement of non-functional currency assets and liabilities into the respective subsidiaries' functional currency (collectively "foreign currency transactions gains/(losses)") are $ 101 , $ 0 and $ 0 for the years ended December 31, 2024, 2023 and 2022, respectively. Foreign currency transactions gains/(losses) are primarily the result of Beat's transactions in currencies (primarily the U.S. dollar) other than its functional currency (the British Pound Sterling). Commitments and Contingencies The Company and its subsidiaries are defendants in or parties to actual, pending and threatened lawsuits and proceedings. A liability is accrued for such contingencies when a loss is both probable and reasonably estimable. If a loss is not "probable and reasonably estimable," but is reasonably possible, disclosure of the contingency and an estimate of the loss or range of loss is required if such an estimate can be determined. Significant management judgment is required to apply this guidance. As a legal contingency develops, the Company, in conjunction with outside counsel, evaluates what level of accrual and/or disclosure is required under the guidance. See Note 19. Commitments and Contingencies for additional information about our legal contingencies and related accounting evaluation. Ambac Financial Group, Inc. 63 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Income Taxes Ambac files a consolidated U.S. Federal income tax return with its subsidiaries, except for Beat which files a separate tax return. Ambac and its subsidiaries also file separate or combined income tax returns in various states, local and foreign jurisdictions. Current tax assets and liabilities are recognized for taxes refundable or payable for the current year. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on current and deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The Income Taxes Topic of the ASC requires that companies assess whether valuation allowances should be established against their deferred tax assets based on management's assessment and consideration of all available evidence using a ‘more likely than not' standard. In making such judgments, significant weight is given to evidence that can be objectively verified. The level of deferred tax asset recognition is influenced by management’s assessment of future profitability, which depends on the existence of sufficient taxable income within the carry forward periods available under the tax law. Net Income Per Share Basic net income per share is computed by dividing net income attributable to common stockholders, including the adjustment to redemption value of the redeemable NCI, by the weighted-average number of common shares outstanding and vested restricted stock units (together, "Basic Weighted Average Shares Outstanding"). Diluted net income per share is computed by dividing net income attributable to common stockholders, including the adjustment to redemption value of the redeemable controlling interest, by the Basic Weighted-Average Shares Outstanding plus all potentially dilutive common shares outstanding during the period. All potentially dilutive common shares outstanding consider common stock deliverable pursuant to warrants, unvested restricted stock units and performance stock units granted under existing compensation plans. Supplemental Disclosure of Cash Flow Information Year Ended December 31, 2024 2023 2022 Cash paid during the period for: Income taxes $ 526 $ 381 $ 347 Interest on debt 3,821 — — Non-cash investing and financing activities: Ambac common stock issued as partial consideration to acquire Beat 29,229 — — December 31, 2024 2023 2022 Reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets to the Consolidated Statements of Cash Flow: Cash and cash equivalents $ 29,606 $ 7,342 $ 6,329 Restricted cash 17,669 11,881 13,612 Total cash, cash equivalents, and restricted cash shown on the Consolidated Statements of Cash Flows 47,275 19,223 19,941 Reclassifications and Rounding Reclassifications have been made to prior years' amounts to conform to the current year's presentation. This includes reclassifying held-for-sale assets and liabilities of Ambac's financial guarantee business which is being reported as a discontinued operation. Certain amounts and tables in the consolidated financial statements and associated notes may not add due to rounding. Adopted Accounting Standards The Company adopted the following accounting standard in 2024: Segment Reporting: In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures . The ASU requires disclosure of the following: • Significant segment expenses regularly provided to the chief operating decision maker (CODM) and included within the reported measure(s) of a segment’s profit or loss. • The amount and composition of "other segment items". This amount reconciles segment revenue, less significant expenses, to the reported measure(s) of a segment’s profit or loss. • The CODM's title and position. • How the CODM uses the reported measure(s) of a segment’s profit or loss to assess segment performance and decide how to allocate resources. • All segment profit or loss and assets disclosures currently required annually by Topic 280, as well as those introduced by the ASU, to also be disclosed in interim periods. The ASU also permits a public entity to report multiple measures of a segment’s profit or loss as long as: i) all the reported measures of a segment’s profit or loss are used by the Ambac Financial Group, Inc. 64 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) CODM for purposes of assessing performance and allocating resources; and ii) the measure closest to GAAP is also provided. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Ambac adopted this ASU for the annual reporting period ending December 31, 2024. See Note 3. Segment Information for the required disclosures. Future Application of Accounting Standards Income Taxes: In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures . The enhancements in the ASU include the following: • Within the rate reconciliation table, disclosure of additional categories of information about federal, state and foreign income taxes and providing more details about the reconciling items in some categories if the items meet a quantitative threshold. • Annual disclosure of income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign taxes and disaggregation of the information by jurisdiction based on a quantitative threshold. • Other disclosures include: i) income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and ii) income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. Ambac will adopt this ASU on January 1, 2025 and do not expect it to have a consequential impact on Ambac's financial statements. Expense Disaggregation Disclosures: In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The enhanced disclosures requirements include the following: • Disclose the amounts of certain expense categories included in each relevant expense caption. Those categories applicable to Ambac include employee compensation, depreciation, and intangible asset amortization. A relevant expense caption is an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed above. • Include certain amounts that are already required to be disclosed under current GAAP in the same disclosure as the other disaggregation requirements. • Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. • Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026 and for interim reporting periods after December 15, 2027 with early adoption permitted. Ambac has not determined if it will early adopt this ASU and is evaluating the impact on Ambac's financial statements. 3. SEGMENT INFORMATION The Company reports its results of continuing operations in two segments: Specialty Property and Casualty Insurance and Insurance Distribution. These reportable segments offer distinct products and services as further described in Note 1. Background and Business Description. The operating entities within each segment are wholly or majority owned by separate intermediate holding companies: Everspan Holdings, LLC for Specialty Property and Casualty Insurance and Cirrata Group, LLC for Insurance Distribution. The Company's segments have separate management teams with incentive compensation structures based on segment level performance. Financial reporting for each segment is regularly provided to the Company's Chief Executive Officer, who is the chief operating decision maker ("CODM"), for purposes of monitoring the businesses, assessing performance and allocating resources. The following tables summarize the components of the Company’s total revenues and expenses, and pretax income (loss) by reportable business segment. Information provided below for “Corporate and Other” primarily relates to the operations of AFG, which will include investment income on its investment portfolio and costs to maintain the operations of AFG, including public company reporting, capital management and business development costs for the acquisition and development of new business initiatives. As a result of the Company reporting the results of operations of AAC as discontinued operations, certain corporate costs charged to AAC totaling $ 14,919 , $ 19,367 and $ 20,189 for the years ended December 31, 2024, 2023 and 2022, respectively, have been reported in Net income from continuing operations on the Consolidated Statements of Total Comprehensive Income and included in Corporate and Other in the tables below. Ambac Financial Group, Inc. 65 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Year Ended December 31, 2024 Year Ended December 31, 2023 Reportable Segments Reportable Segments Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Total Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Total Revenues: Net premiums earned $ 99,005 $ 99,005 $ 51,911 $ 51,911 Commission income $ 92,023 92,023 $ 51,281 51,281 Program fees 13,506 13,506 8,437 8,437 Net investment income, net investment gains (losses), including impairments 6,400 787 $ 6,764 13,951 3,759 64 $ 9,353 13,176 Net gains (losses) on derivative contracts — 106 3,910 4,016 — — ( 279 ) ( 279 ) Other income (expense) 7,409 6,320 ( 415 ) 13,314 ( 6 ) 200 6 200 Total revenues from Continuing Operations (1) 126,320 99,236 10,259 235,815 64,101 51,546 9,080 124,728 Less: Loss and loss adjustment expenses (benefit) 72,626 72,626 36,712 36,712 Policy acquisition costs 23,666 23,666 10,557 10,557 Commission expenses 40,876 40,876 29,465 29,465 Depreciation expense — 481 1,864 2,345 — 42 1,036 1,078 Intangible amortization 17,602 17,602 4,152 4,152 Interest expense 9,379 9,379 — Compensation expense 10,201 28,353 25,791 64,346 10,853 7,951 29,664 48,468 Non Compensation expense 7,605 10,354 46,861 64,820 5,596 2,647 10,274 18,517 Total expenses from Continuing Operations 114,098 107,045 74,516 295,660 63,718 44,257 40,974 148,949 Segment pretax income (loss) 12,222 ( 7,809 ) ( 64,257 ) ( 59,845 ) 383 7,289 ( 31,894 ) ( 24,221 ) Segment income tax expense (benefit) 1,753 ( 928 ) ( 1,748 ) ( 924 ) 48 156 ( 1,193 ) ( 989 ) Segment net income (loss) 10,469 ( 6,881 ) ( 62,509 ) ( 58,921 ) 335 7,133 ( 30,701 ) ( 23,232 ) Segment net (income) loss attributable to NCI 2 ( 363 ) ( 361 ) ( 1 ) ( 1,318 ) ( 1,319 ) Segment net income (loss) attributable to Ambac shareholders $ 10,471 $ ( 7,244 ) $ ( 62,509 ) $ ( 59,282 ) $ 334 5,815 ( 30,701 ) $ ( 24,551 ) Reconciliation to consolidated net income (loss) attributable to Ambac stockholders Discontinued operations ( 497,167 ) 28,183 Net income (loss) attributable to Ambac stockholders $ ( 556,449 ) $ 3,632 Reconciliation of segment assets to consolidated total assets Total assets $ 751,272 $ 900,222 $ 139,684 $ 1,791,178 $ 523,179 $ 154,846 $ 233,839 $ 911,864 Discontinued operations $ 6,267,200 $ 7,516,456 Total consolidated assets $ 8,058,378 $ 8,428,320 EBITDA Reconciliation Segment net income (loss) $ 10,469 $ ( 6,881 ) $ ( 62,509 ) $ ( 58,921 ) $ 335 $ 7,133 $ ( 30,701 ) $ ( 23,232 ) Adjustments: Interest expense 9,379 9,379 — — Income taxes 1,753 ( 928 ) ( 1,748 ) ( 924 ) 48 156 ( 1,193 ) ( 989 ) Depreciation — 481 1,864 2,345 — 42 1,036 1,078 Intangible amortization 17,602 17,602 4,152 4,152 EBITDA 12,222 19,653 ( 62,393 ) ( 30,518 ) $ 383 $ 11,483 $ ( 30,858 ) $ ( 18,991 ) Add: Impact of noncontrolling interests ( 6,448 ) ( 6,448 ) ( 2,102 ) ( 2,102 ) Ambac EBITDA $ 12,222 $ 13,208 $ ( 62,396 ) $ ( 36,966 ) 383 9,381 ( 30,858 ) ( 21,093 ) (1) Inter-segment revenues and inter-segment pre-tax income (loss) amounts are insignificant and are not presented separately. Ambac Financial Group, Inc. 66 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Year Ended December 31, 2022 Reportable Segments Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Total Revenues: Net premiums earned $ 13,869 $ 13,869 Commission income $ 30,695 30,695 Program fees 3,095 3,095 Net investment income, net investment gains (losses), including impairments 1,559 — $ 2,883 4,442 Net gains (losses) on derivative contracts 935 935 Other income (expense) ( 58 ) 715 ( 81 ) 576 Total revenues from Continuing Operations 18,465 31,410 3,737 53,612 Less: Loss and loss adjustment expenses (benefit) 9,071 9,071 Policy acquisition costs 2,535 2,535 Commission expenses 17,641 17,641 Depreciation expense — 31 841 872 Intangible amortization 2,921 2,921 Interest expense — — — Compensation expense 7,799 4,518 26,842 39,159 Non Compensation expense 5,406 1,775 9,938 17,119 Total expenses from Continuing Operations (1) 24,811 26,886 37,621 89,318 Segment pretax income (loss) ( 6,346 ) 4,524 ( 33,884 ) ( 35,706 ) Segment income tax expense (benefit) ( 1 ) — ( 462 ) ( 462 ) Segment net income (loss) ( 6,345 ) 4,524 ( 33,422 ) ( 35,244 ) Segment net (income) loss attributable to NCI 15 ( 886 ) ( 871 ) Segment net income (loss) attributable to Ambac shareholders $ ( 6,330 ) $ 3,638 $ ( 33,422 ) $ ( 36,115 ) Reconciliation to consolidated net income (loss) attributable to Ambac stockholders Discontinued operations 557,364 Plus: gain on purchase of auction market preferred shares 1,131 Net income (loss) attributable to Ambac stockholders $ 522,380 Reconciliation of segment assets to consolidated total assets Total assets 316,327 138,068 226,386 $ 680,781 Discontinued operations 7,291,949 Total consolidated assets $ 7,972,730 Segment net income (loss) $ ( 6,345 ) $ 4,524 $ ( 33,422 ) $ ( 35,244 ) Adjustments: Interest expense — — — Income taxes ( 1 ) — ( 462 ) ( 462 ) Depreciation — 31 841 872 Intangible amortization 2,921 2,921 EBITDA ( 6,346 ) 7,476 ( 33,043 ) ( 31,913 ) Add: Impact of noncontrolling interests ( 1,463 ) ( 1,463 ) Ambac EBITDA $ ( 6,347 ) $ 6,013 $ ( 33,043 ) $ ( 33,377 ) (1) Inter-segment revenues and inter-segment pre-tax income (loss) amounts are insignificant and are not presented separately. Geographic Information Revenue is primarily recognized based on the country in which the services are performed. The following table shows the geographic breakdown of revenue: Year Ended December 31, 2024 2023 2022 United States $ 212,605 $ 124,728 $ 53,612 United Kingdom 23,210 — — Total revenues and other income $ 235,815 $ 124,728 $ 53,612 4. BUSINESS COMBINATION On July 31, 2024, Ambac completed the acquisition of 60 % of Beat for a purchase price of $ 281,278 of which approximately $ 252,048 was paid in cash and the remainder was satisfied through the issuance of 2,216,023 shares of Company Common Stock to certain Sellers (the "Beat Transaction"). 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. Many of Beat's operating units are minority owned by their respective management teams and accordingly, Ambac's economic interests in those units is less than 60 % despite our ownership of 60 % of Beat. AFG funded the cash portion of the consideration with a combination of available cash, approximately $ 62,000 of funding from AAC in the form of an investment in Cirrata V LLC, and $ 147,000 from new indebtedness (the "Credit Facility") that was issued in the third quarter of 2024. See Note 12. Debt for the terms of the Credit Facility. AFG issued the common stock free and clear of any liens or restrictions (other than those arising under state and federal securities laws of the United States) and bearing a restrictive legend. The common stock has not been registered under the Securities Act in reliance upon an exemption from registration pursuant to Section 4(a)(2) of the Securities Act. At the closing of the Beat Transaction, AFG entered into a Shareholders’ Agreement by and among AFG, the Purchaser, the Rollover Shareholders and Beat (the “Shareholders’ Agreement”). The Shareholders’ Agreement provides for, among other things, the granting of (i) put options to each Rollover Shareholder to require the Purchaser to purchase from such Rollover Shareholder, the Relevant Shares (as defined in the Shareholders’ Agreement), and (ii) call options to the Purchaser to purchase from each Rollover Shareholder, the Relevant Shares. The acquisition was accounted for as a business combination using the acquisition method of accounting. The Company has finalized its fair value estimates of the acquired assets, assumed liabilities and NCI as of December 31, 2024, and no subsequent adjustments will be made within the permitted measurement period as defined by ASC 805. Ambac Financial Group, Inc. 67 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) The following table summarizes the consideration transferred to acquire Beat and the estimated fair values of the identified assets acquired and liabilities assumed at the acquisition date, as well as the fair value of the NCI, at the acquisition date: Fair value of consideration transferred: Cash $ 252,048 Common shares 29,229 Total consideration $ 281,278 Recognized amounts of assets acquired, liabilities assumed and NCI: Cash and equivalents $ 8,272 Short-term investments 28,919 Commission receivables and contract assets 47,696 Other assets 10,972 Intangible assets 311,557 Goodwill 357,317 Advanced commissions ( 49,299 ) Premium payable ( 5,722 ) Deferred tax liability ( 74,300 ) Other liabilities ( 19,570 ) Redeemable NCI ( 185,469 ) Nonredeemable NCI ( 149,095 ) Total $ 281,278 Goodwill was recorded to reflect the excess purchase consideration over net assets acquired and primarily consists of the future economic benefits that we expect to receive as a result of the acquisition, driven by the value of Beat's potential future distribution and carrier relationships, and synergies with other Ambac business operations. All of the $ 357,317 of goodwill was assigned to the Insurance Distribution segment. The goodwill is not deductible for tax purposes. The fair value of the redeemable non-controlling interest of $ 185,469 on the acquisition date was estimated based on the non-controlling interest’s respective share of Beat's enterprise value, adjusted for the value of Ambac's call option to purchase, and the minority owners' put option to sell to Ambac, respectively, the remaining 40 % membership interest in Beat. Please refer to the Redeemable Noncontrolling Interest section of Note 2. Basis of Presentation and Significant Accounting Policies, for further information regarding the terms of the call and put option, as well as the redeemable NCI balance sheet classification. The fair value of the nonredeemable NCI of $ 149,095 represents the aggregate NCI share in certain Beat operating units which are minority owned by the units' respective management teams. At December 31, 2024, there are no put or call options associated with these minority interests and as such, the aggregate amount is classified as nonredeemable NCI on the balance sheet. The following table sets forth the estimated fair values of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition: Fair Value Useful Life - Years Customer relationships $ 303,331 10.0 Trademarks 8,226 10.0 Total $ 311,557 The customer relationships intangible represents existing relationships Beat maintains with a variety of brokers and distributors across its product lines. It excludes the value of potential future distribution relationships that may be developed, which is included in goodwill. The trade name intangible represents the rights to the Beat Capital Partners brand name which is well known in the marketplace in which Beat competes. The overall weighted average useful life of the identified amortizable intangible assets acquired is 5.1 years. The acquired business contributed revenues of $ 40,343 and net income of $ 4,551 to Ambac for the period from August 1, 2024, to December 31, 2024. The following unaudited pro forma summary presents consolidated information of Ambac as if the business combination had occurred on January 1, 2023. Year Ended December 31, Pro forma (unaudited) 2024 2023 Revenues $ 276,800 $ 182,482 Net income (loss) from continuing operations $ ( 51,782 ) $ ( 93,021 ) Ambac did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and net income. These pro forma amounts have been calculated after applying Ambac's accounting policies and adjusting the results of Beat to reflect amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied from January 1, 2023, with the consequential tax effects. In 2024, Ambac incurred $ 27,388 of acquisition-related costs. These expenses are included in general and administrative expense on Ambac's consolidated statement of comprehensive income (loss) for the year ended December 31, 2024. In the table above, these expenses are reflected in the pro forma net income for the year ended December 31, 2023. 5. DISCONTINUED OPERATION Sale of Ambac Assurance Corporation ("AAC") On June 4, 2024, AFG entered into a stock purchase agreement (the "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 owned by AFG to the Buyer for aggregate consideration of $ 420,000 in cash, and will issue to the Buyer a warrant to Ambac Financial Group, Inc. 68 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) purchase AFG common stock as further described below (the "AAC Sale"). The terms of the AAC Sale as contemplated by the Purchase Agreement provide that, at the closing of the AAC Sale (the “Closing”), Buyer will acquire complete ownership of the common stock of AAC and all of its wholly owned subsidiaries, including Ambac UK. The Purchase Agreement required AFG to seek the affirmative vote in favor of the AAC Sale by the holders of a majority of the issued and outstanding shares of AFG common stock entitled to vote thereon (the “Stockholder Approval”). On October 16, 2024, Stockholder Approval was obtained at a special meeting of stockholders duly convened for that purpose. The Purchase Agreement contains certain customary termination rights for each of AFG and Buyer, including (i) by mutual written agreement; (ii) if the AAC Sale has not been consummated on or before April 4, 2025 (the “End Date”), subject to extension by 90 days in certain circumstances; (iii) if the other party is in breach of the Purchase Agreement in a manner that would result in a failure of an applicable closing condition and such breach cannot be cured or, if curable, has not been cured within 60 days after written notice to the other party of such breach; or (iv) if any applicable law makes the consummation of the Closing illegal or otherwise prohibited, or any judgment, order or decree of any governmental authority enjoins Buyer and AFG from consummating the Closing. AFG would pay the Buyer an amount equal to $ 22,000 (the “Termination Fee”) if all of the following occur: (i) the Purchase Agreement is terminated as a result of (a) not closing the AAC Sale and other transactions contemplated by the Purchase Agreement by the End Date, as it may be extended, or (b) an AFG breach of representations or covenants that would cause certain closing conditions not to be satisfied; (ii) AFG has received an alternative acquisition proposal prior to a valid termination of the Purchase Agreement; and (iii) within 12 months after termination of the Purchase Agreement, AFG enters into a definitive agreement for an alternative acquisition. AFG would also pay Buyer the Termination Fee if the Purchase Agreement is terminated for (x) AFG's breach of certain covenants that would cause closing conditions not to be satisfied, or (y) AFG changing its recommendation to the Company’s stockholders regarding the sale. In addition to the Termination Fee, AFG would pay Buyer up to $ 6,000 as a reimbursement of Buyer’s reasonably documented out-of-pocket fees and expenses incurred in connection with the AAC Sale and other transactions contemplated by the Purchase Agreement if (i) the Purchase Agreement is terminated as a result of not closing the AAC Sale and other transactions by the End Date and the Termination Fee is also payable; (ii) the Purchase Agreement is terminated as a result of AFG changing its recommendation to the AFG stockholders regarding the AAC Sale; or (iii) there is an AFG breach of representations or covenants that would cause certain closing conditions not to be satisfied. The Closing is subject to customary closing conditions, including the receipt of specified regulatory approvals. In connection with and pursuant to the Purchase Agreement, AFG has agreed to issue to the 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 6.5 year term from the date of issuance and will be immediately exercisable. Payment of the exercise price may be settled, at AFG’s option, by way of a cash exercise or by net share settlement. Also pursuant to the Purchase Agreement, concurrent with the AAC 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. While management, the Board and AFG's stockholders have approved the AAC Sale, the AAC Sale is also subject to approval by our regulators in both the US and UK. Buyer received approval from the U.K. Prudential Regulation Authority ("PRA") for the change in control of Ambac UK on October 24, 2024 (which remains effective only if the AAC Sale is completed by April 30, 2025, which deadline may be extended by the PRA on upon Buyer's request). Approval from the Wisconsin Office of the Commissioner of Insurance ("OCI") remains outstanding. Management believes the OCI approval of the sale of AAC is ordinary and customary and it is probable that the deal will close in the first half of 2025. The AAC Sale will have a major effect on AFG's operations and financial results and, as of December 31, 2024, meets the held-for-sale reporting requirements. Accordingly, AAC's assets and liabilities that will be transferred in the AAC Sale are classified as held-for-sale, and its results and cash flows presented as discontinued operations. At December 31, 2024, the carrying value of AAC's net assets held-for-sale is $ 962,637 , before the valuation allowance for the expected loss on disposal, inclusive of the accrued value of AAC's co-investment with AFG described above, and net of the carrying value of AAC's Auction Market Preferred Shares ("AMPS"). • At December 31, 2024 and 2023, AAC had 4,596 shares of issued and outstanding AMPS with a liquidation preference of $ 114,900 relative to Ambac common shareholders (reported as nonredeemable noncontrolling interest of $ 50,918 on Ambac's balance sheet). In 2022, AAC purchased 905 shares of AMPS for $7,919. The difference between this amount paid to AMPS holders and the carrying amount was reflected as an increase to Net income attributable to common shareholders for approximately $ 1,131 . The auction occurs every 28 days and the dividend rate has continuously been reset at the maximum, equal to the Reference Rate plus 200 basis points. Beginning July 1, 2023, the Reference Rate for the AMPS is one-month CME Term SOFR plus 0.11448 percent. Prior to July 1, 2023, the Reference Rate was one-month LIBOR. • Under the terms of the AMPS, dividends may not be paid on the common stock of AAC unless all accrued and unpaid dividends on the AMPS for the then current dividend period have been paid, provided, that dividends on the common stock may be made at all times for the purpose of, and only in such amounts as are necessary for, enabling AFG (i) to service its indebtedness for borrowed money as such payments become due or (ii) to pay its operating Ambac Financial Group, Inc. 69 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) expenses. If dividends are paid on the common stock as provided in the prior sentence, dividends on the AMPS become cumulative until the date that all accumulated and unpaid dividends have been paid on the AMPS. AAC has not paid dividends on its AMPS since 2010. The expected loss on sale reported in the Statement of Comprehensive Income (Loss) for the year ended December 31, 2024 of $( 570,145 ) is equal to the difference between the sale proceeds (net of the value of the Warrants to be issued) and the carrying value of AAC's net assets held-for-sale, less expected closing costs. The carrying value of held-for-sale assets and liabilities, and consequently the expected loss on disposal, are subject to variability through the closing date of the AAC Sale. Changes to the carrying value of held-for-sale assets and liabilities could arise from changes in estimates of financial guarantee losses and loss adjustment expense reserves, including subrogation recoverable; changes in the valuation of invested assets and other financial instruments carried at fair value; adverse or favorable litigation outcomes; and other operating results of AAC and its subsidiaries, including consolidated variable interest entities (“VIEs”). Additionally, at closing, net income will be impacted by reclassification from Accumulated Other Comprehensive Income (Loss) of net unrealized gains (losses) on available-for-sale investment securities, cumulative foreign currency translation adjustments and cumulative credit risk changes of fair value option liabilities attributable to AAC and subsidiaries, which at December 31, 2024, amounted to $( 175,278 ). The components of anticipated loss on sale included within Net income (loss) from discontinued operations before tax on the Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2024, are summarized below: Fair value of net consideration to be received $ 399,727 Less: estimated closing costs ( 7,235 ) 392,492 Carrying amount of net assets held-for-sale 962,637 Loss on disposal $ ( 570,145 ) The following table summarizes the major classes of assets and liabilities held-for-sale on the Consolidated Balance Sheets after elimination of intercompany balances: December 31, 2024 2023 ASSETS: Total investments $ 2,226,505 $ 2,309,967 Cash and equivalents 8,322 9,152 Premiums receivable 217,096 243,710 Reinsurance recoverable on paid and unpaid losses 25,274 29,518 Deferred ceded premiums 79,074 93,264 Subrogation recoverable 113,962 137,219 Intangible assets 213,457 245,133 Other assets, net 49,396 54,091 VIE assets (including restricted cash of $ 57,754 and $ 246,031 ) 3,904,259 4,394,402 Valuation allowance on assets held-for-sale ( 570,145 ) — Total assets held-for-sale $ 6,267,200 $ 7,516,456 LIABILITIES: Unearned premiums $ 228,177 $ 266,727 Loss and loss adjustment reserves 577,167 695,859 Ceded premiums payable 56,404 60,627 Long-term debt and accrued interest 1,046,658 983,069 Other liabilities, net 105,772 131,294 VIE liabilities 3,873,507 4,404,290 Total liabilities held-for-sale $ 5,887,685 $ 6,541,866 The following table summarizes the major line items constituting net income (loss) from discontinued operations reconciled to net income (loss) from discontinued operations presented in the Consolidated Statement of Comprehensive Income (Loss): Ambac Financial Group, Inc. 70 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Year ended December 31, 2024 2023 2022 REVENUES: Net premiums earned $ 23,879 $ 26,040 $ 42,383 Net investment income 133,933 126,957 12,324 Net investment gains (losses), including impairments 4,416 ( 22,507 ) 31,538 Net gains (losses) on derivative contracts 3,958 ( 699 ) 127,630 Net realized gain on extinguishment of debt — — 81,272 Litigation recoveries — — 125,869 Other revenues 31,096 14,533 30,266 Total revenues 197,282 144,324 451,282 EXPENSES: Loss and loss adjustment expenses (benefit) ( 45,767 ) ( 69,320 ) ( 405,534 ) Intangible amortization 30,508 24,736 43,925 General & administrative and other expenses 57,491 88,306 84,455 Interest expense 63,587 64,025 168,158 Total expenses 105,819 107,747 ( 108,996 ) Pretax income 91,463 36,577 560,278 Provision for income taxes 18,485 8,394 2,914 Loss on disposal ( 570,145 ) — — Net income (loss) from discontinued operations ( 497,167 ) $ 28,183 557,364 Gain on purchase of AMPS — $ — 1,131 Net income (loss) attributable to Ambac common shareholders $ ( 497,167 ) $ 28,183 $ 558,495 Significant Accounting Policies The held-for-sale assets and liabilities and results of operations are subject to certain additional significant accounting policies to those described in Note 2. Basis of Presentation and Significant Accounting Policies. Fair value of assets held-for-sale: Total assets held-for-sale are carried at fair value as of December 31, 2024. The Fair Value Measurement Topic of the ASC specifies a fair value hierarchy based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Measurement of fair value of assets held-for-sale is based on information from the purchase agreement and other unobservable information and is considered by management to be a Level 3 valuation under the Fair Value Measurement Topic of the ASC. Investments: Equity interests in pooled investment funds which are accounted for in accordance with the Investments - Equity Securities Topic of the ASC include equity interests in the form of common stock or in-substance common stock are classified as trading securities and reported at fair value with changes in fair value reported through income. Investments in fixed maturity securities classified at trading are reported within Assets held-for-sale at fair value with unrealized gains and losses reported through income. Consolidation of Variable Interest Entities: The consolidated financial statements include the accounts of VIEs for which AAC or Ambac UK is deemed the primary beneficiary in accordance with the Consolidation Topic of the ASC. A VIE is an entity: a) that lacks enough equity investment at risk to permit the entity to finance its activities without additional subordinated financial support from other parties; or b) where the group of equity holders does not have: (1) the power, through voting rights or similar rights, to direct the activities of an entity that most significantly impact the entity’s economic performance; (2) the obligation to absorb the entity’s expected losses; or (3) the right to receive the entity’s expected residual returns. The determination of whether a variable interest holder is the primary beneficiary involves performing a qualitative analysis of the VIE that includes, among other factors, its capital structure, contractual terms including the rights of each variable interest holder, the activities of the VIE, whether the variable interest holder has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, whether the variable interest holder has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, related party relationships and the design of the VIE. An entity that is deemed the primary beneficiary of a VIE is required to consolidate the VIE. We determined that AAC or Ambac UK generally have the obligation to absorb a LFG VIE's expected losses given that they have issued financial guarantees supporting certain liabilities (and in some cases certain assets). Ambac consolidates certain LFG VIEs in cases where we also have the power to direct the activities that most significantly impact the VIE’s economic performance. A VIE is generally deconsolidated in the period that AAC or Ambac UK no longer has such control rights. The impact of consolidating such LFG VIEs on Ambac’s balance sheet is the elimination of transactions between the consolidated LFG VIEs and AAC or Ambac UK and the inclusion of the LFG VIE’s third party assets and liabilities. For a financial guarantee insurance policy issued to a consolidated VIE, Ambac does not reflect the financial guarantee insurance policy in accordance with the related insurance accounting rules under the Financial Services — Insurance Topic of the ASC. Consequently, upon consolidation, Ambac eliminates the insurance assets and liabilities associated with the policy from the Consolidated Balance Sheets, including premium receivables, unearned premiums, loss and loss expense reserves, and insurance intangible assets. For investment securities owned by AAC or Ambac UK that are debt instruments issued by the VIE, the associated debt and investment balances are eliminated upon consolidation. Generally, Ambac has elected the fair value option for consolidated LFG VIE financial assets and financial liabilities, except in cases where AAC or Ambac UK was involved in the Ambac Financial Group, Inc. 71 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) design of the VIE and was granted control rights at its inception or when the financial liabilities are primarily supported by non-financial assets. The election to use the fair value option is made on an instrument by instrument basis. In cases where the fair value option has not been elected, the LFG VIE's invested assets are fixed maturity securities and are classified as either available-for-sale or trading as defined by the Investments - Debt Securities Topic of the ASC. When the fair value option is elected for LFG VIE long-term debt, changes in the fair value of the long-term debt is reported in income on the Consolidated Statements of Total Comprehensive Income (Loss), except for the portion of the total change in fair value of financial liabilities caused by changes in the instrument-specific credit risk which is presented separately in Other comprehensive income (loss). In cases where the fair value option has not been elected, the LFG VIEs' long-term debt is carried at par less unamortized discount, with interest expense reported in income on the Consolidated Statements of Total Comprehensive Income (Loss). Consolidated VIE assets and liabilities are presented in VIE assets and VIE liabilities in the above table. Results of consolidated VIEs are included in other revenues above. Financial Guarantee Insurance Intangible: Upon Ambac's emergence from bankruptcy in 2013, an insurance intangible asset was recorded which represented the difference between the fair value and aggregate carrying value of the financial guarantee insurance and reinsurance assets and liabilities. The carrying values of financial guarantee insurance and reinsurance contracts continue to be reported and measured in accordance with their existing accounting policies. Pursuant to the Financial Services-Insurance Topic of the ASC, the insurance intangible is to be measured on a basis consistent with the related financial guarantee insurance and reinsurance contracts. The initial insurance intangible asset was assigned to groups of insurance and reinsurance contracts with similar characteristics and has been amortized using a level-yield method based on par exposure of the related groups. Legacy Financial Guarantee Loss and Loss Adjustment Expenses: The loss and loss adjustment expense reserve (“loss reserve”) policy relates only to Ambac’s non-derivative financial guarantee insurance business for insurance policies issued to beneficiaries, including VIEs, for which we do not consolidate the VIE. Losses and loss expenses are based upon estimates of the ultimate aggregate losses inherent in the insured portfolio as of the reporting date. A loss reserve is recorded on the balance sheet on a policy-by-policy basis based upon 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 consider the likelihood of all possible outcomes that may occur from missed principal and/or interest payments on the insured obligation. This estimate also considers future recoveries related to remediation strategies and other contractual or subrogation-related cash flows. ▪ Net claim cash outflow policies represent contracts where the PV of expected cash outflows are greater than the PV of expected recovery cash inflows. For such policies, a “loss and loss adjustment expense reserves” liability is recorded for the excess of the PV of expected net claim cash outflows over the unearned premium revenue. ▪ Net recovery cash inflow policies represent contracts where the PV of expected recovery cash inflows are greater than the PV of expected claim cash outflows. For such policies, a “Subrogation recoverable” asset is recorded. The evaluation process for determining expected losses is subject to certain judgments based on our assumptions regarding the probability of default by the issuer of the insured security, probability of settlement outcomes (which may include commutation settlements, refinancing and/or other settlement outcomes) and expected severity of credits for each insurance contract. Ambac’s loss reserves are based on management’s ongoing review of the financial guarantee credit portfolio. Active surveillance of the insured portfolio enables Ambac’s Risk Management Group ("RMG") to track credit migration of insured obligations from period to period and update internal classifications and credit ratings for each transaction. Non-adversely classified credits are assigned a Class I rating while adversely classified credits are assigned a rating ranging from Class IA (" Potential Problem with Risks to be Dimensioned") through Class V ( “Fully Reserved”) . The criteria for an exposure to be assigned an adversely classified credit rating includes the deterioration of an issuer’s financial condition, underperformance of the underlying collateral (for collateral dependent transactions such as mortgage-backed or student loan securitizations), poor performance by the servicer of the underlying collateral and other adverse economic events or trends. The servicer of the underlying collateral of an insured securitization transaction is a consideration in assessing credit quality because the servicer’s performance can directly impact the performance of the related issue. All credits are assigned risk classifications by RMG using established guidelines The population of credits evaluated in Ambac’s loss reserve process are: (i) all adversely classified credits and ii) non-adversely classified credits which had an internal Ambac rating downgrade since the transaction’s inception. One of two approaches is then utilized to estimate losses to ultimately determine if a loss reserve should be established. ▪ The first approach is a statistical expected loss approach, which considers the likelihood of all possible outcomes. The “base case” statistical expected loss is the product of: (i) the par outstanding on the credit; (ii) internally developed default information (taking into consideration internal ratings and average life of an obligation); (iii) internally developed loss severities; and (iv) a discount factor. The loss severities and default information are based on rating agency information, are specific to each bond type and are established and approved by senior RMG officers. For certain credit exposures, Ambac’s additional monitoring, loss remediation efforts and probabilities of Ambac Financial Group, Inc. 72 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) potential settlement outcomes may provide information relevant to adjust this estimate of “base case” statistical expected losses. RMG may accept the “base case” statistical expected loss as the best estimate of expected loss or assign multiple probability weighted scenarios to determine an adjusted statistical expected loss that better reflects management’s view of a given transaction’s expected losses, as well as the potential for additional remediation activities (e.g., commutations). ▪ The second approach entails the use of cash-flow based models to estimate expected losses (future claims, net of potential recoveries, expected to be paid to the holder of the insured financial obligation). Ambac’s RMG group will consider the likelihood of all possible outcomes and develop appropriate cash flow scenarios. This approach can include the utilization of internal or third party models and tools to project future losses and resultant claim payment estimates. We utilize cash flow models for RMBS, student loans and other exposures. RMBS and student loan models use historical performance of the collateral pools in order to then derive future performance characteristics, such as default and voluntary prepayment rates, which in turn determine projected future claim payments. In other cases, such as many public finance exposures we do not specifically forecast resources available to pay debt service in the cash flow model itself. Rather, we consider the issuers’ overall ability and willingness to pay, including the fiscal, economic, legal and political framework to develop projected future claim payment estimates. In this approach, a probability-weighted expected loss estimate is developed based on assigning probabilities to multiple claim payment scenarios and applying an appropriate discount factor. Additionally, we consider the issuer’s ability to refinance an insured issue, Ambac’s ability to execute a potential settlement (i.e., commutation) of the insurance policy, including the impact on future installment premiums, and/or other restructuring possibilities in our scenarios. The commutation scenarios and the related probabilities of occurrence vary by transaction, depending on our view of the likelihood of negotiating such a transaction with issuers and/or investors. The discount factor applied to the statistical expected loss approach is based on a risk-free discount rate corresponding to the remaining expected weighted-average life of the exposure and the exposure currency. For the cash flow scenario approach, discount factors are applied based on a risk-free discount rate term structure and correspond to the date of each respective cash flow payment or recovery and the exposure currency. Discount factors are updated for the current risk-free rate each reporting period. Ambac establishes loss expense reserves based on our estimate of expected net cash outflows for loss expenses, such as legal and consulting costs. Long-term Debt Long-term debt issued is carried at par value less unamortized discount. Accrued interest and discount accretion on long-term debt is reported through income on the Consolidated Statements of Total Comprehensive Income (Loss). To the extent Ambac repurchases or redeems its long-term debt, such repurchases or redemptions may be settled for an amount different than the carrying value of the obligation. Any difference between the payment and carrying value of the obligation is reported in income on the Consolidated Statements of Total Comprehensive Income (Loss). For surplus note repurchases, the pro-rata purchase price related to principal and accrued interest is reported as a financing and operating activity, respectively, on the Statement of Cash Flows. AAC's 5.1 % surplus notes have an outstanding par value of $ 519,235 and carrying value of $ 503,139 at December 31, 2024 and had an original maturity of June 7, 2020. Surplus note principal and interest payments require the approval of OCI. Since the issuance of the surplus notes in 2010, OCI has declined to approve regular payments of interest on surplus notes, although the OCI has permitted two exceptional payments. As a result, the scheduled payment date for interest, and the scheduled maturity date for payment of principal of the surplus notes are extended until OCI grants approval to make the payment. Interest will accrue, compounded on each anniversary of the original scheduled payment date or scheduled maturity date, on any unpaid principal or interest through the actual date of payment, at 5.1 % per annum. Holders of surplus notes have no rights to enforce the payment of the principal of, or interest on, surplus notes in the absence of OCI approval to pay such amount. The interest on the outstanding surplus notes were accrued for and AAC is accruing interest on the interest amounts following each scheduled payment date. As required by the terms of surplus notes, AAC will continue to seek OCI’s approval to make payments of principal and interest on its surplus notes. OCI’s approval may be granted or denied in OCI’s sole discretion. Ambac can provide no assurance as to when or if surplus note principal and interest payments will be made. If OCI does not approve payments on or the acquisition of surplus notes over time, the ongoing accretion of interest on the notes may impair AAC's ability to extinguish the notes in full. Surplus notes are subordinated in right of payment to policyholder and other claims. Ambac UK debt, issued in connection with the commutation of an exposure on June 18, 2019, has a par value of $ 40,600 and a carrying value of $ 18,079 at December 31, 2024. The Ambac UK debt has a legal maturity of May 2, 2036. Interest on the Ambac UK debt is at an annual rate of 0.00 %. The Ambac UK debt was recorded at its fair value at the date of issuance with the discount amortizing at an effective interest rate of 7.4 %. NOL & Investment Interest Carryforward As of December 31, 2024, AAC has (i) $ 1,952,621 of NOLs, which if not utilized will begin expiring in 2030, and will fully expire in 2045, and (ii) $ 110,494 of interest expense tax deduction carryover, which has an indefinite carryforward period but is limited in any particular year based on certain provisions. AAC has maintained a full valuation allowance since 2010. Ambac Financial Group, Inc. 73 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) 6. INVESTMENTS Ambac’s invested assets are primarily comprised of (i) fixed maturity securities classified as either available-for-sale, (ii) interests in pooled investment funds which are reported within Other investments on the Consolidated Balance Sheets and (iii) preferred equity investments which are reported within Other investments on the Consolidated Balance Sheets. Interests in pooled investment funds are limited partner interests and are reported using the equity method. Fixed Maturity Securities The amortized cost and estimated fair value of available-for-sale investments, at December 31, 2024 and 2023 were as follows: December 31, 2024 December 31, 2023 Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Fixed maturity securities: Municipal obligations $ 14,646 $ — $ 7 $ 570 $ 14,083 $ 9,394 — 13 696 8,711 Corporate obligations 92,990 — 107 3,905 89,192 92,694 — 262 4,965 87,991 U.S. government obligations 41,706 — 98 809 40,995 39,091 — 364 933 38,522 Residential mortgage-backed securities 2,475 — — 29 2,446 — — — — — Commercial mortgage-backed securities 2,127 — 8 34 2,101 — — — — — Collateralized debt obligations 3,131 — 13 2 3,142 — — — — — Other asset-backed securities 5,049 — 14 2 5,061 — — — — — 162,124 — 247 5,351 157,020 141,179 — 639 6,594 135,224 Short-term 127,588 — 13 — 127,601 200,506 — 4 — 200,510 Total available-for-sale investments $ 289,712 $ — $ 260 $ 5,351 $ 284,621 341,685 $ — $ 643 $ 6,594 $ 335,734 The amortized cost and estimated fair value of available-for-sale investments, at December 31, 2024, by contractual maturity, were as follows: Amortized Cost Estimated Fair Value Due in one year or less $ 158,357 $ 158,056 Due after one year through five years 62,715 61,169 Due after five years through ten years 54,882 51,688 Due after ten years 976 958 276,930 271,871 Residential mortgage-backed securities 2,475 2,446 Commercial mortgage-backed securities 2,127 2,101 Collateralized debt obligations 3,131 3,142 Other asset-backed securities 5,049 5,061 Total $ 289,712 $ 284,621 Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties. Unrealized Losses on Fixed Maturity Securities The following table shows gross unrealized losses and fair values of Ambac’s available-for-sale investments, which at December 31, 2024, did not have an allowance for credit losses under the CECL standard. This information is aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2024 and 2023: Ambac Financial Group, Inc. 74 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) December 31, 2024 December 31, 2023 Less Than 12 Months 12 Months or More Total Less Than 12 Months 12 Months or More Total Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fixed maturity securities: Municipal obligations $ 6,042 $ 112 $ 6,582 $ 458 $ 12,624 $ 570 $ 732 $ 17 $ 7,015 $ 679 $ 7,747 $ 696 Corporate obligations 23,784 269 46,612 3,636 70,396 3,905 12,134 49 59,010 4,916 71,144 4,965 U.S. government obligations 15,919 344 14,818 465 30,737 809 6,847 37 20,981 896 27,828 933 Residential mortgage-backed securities 2,446 29 — — 2,446 29 — — — — — — Commercial mortgage-backed securities 738 34 — — 738 34 — — — — — — Collateralized debt obligations 655 2 — — 655 2 — — — — — — Other asset-backed securities 1,428 2 — — 1,428 2 — — — — — — 51,012 792 68,012 4,559 119,024 5,351 19,713 103 87,006 6,491 106,719 6,594 Short-term — — — — — — 619 — — — 619 — Total temporarily impaired securities $ 51,012 $ 792 $ 68,012 $ 4,559 $ 119,024 $ 5,351 $ 20,332 $ 103 $ 87,006 $ 6,491 $ 107,338 $ 6,594 Management has determined that the securities in the above table do not have credit impairment as of December 31, 2024 and 2023 based upon (i) no actual or expected principal and interest payment defaults on these securities and (ii) analysis of the creditworthiness of the issuer. Ambac’s assessment about whether a security is credit impaired reflects management’s current judgment regarding facts and circumstances specific to the security and other factors. If that judgment changes, Ambac may record a charge for credit impairment in future periods. The declines in fair value and resultant unrealized losses across asset classes as of December 31, 2024, included in the above table resulted primarily from the impact of increasing interest rates since the securities were purchased. Management has determined that the securities with unrealized losses are not credit impaired. Further discussion of management's assessment with respect to security categories with larger unrealized loss balances is below. Corporate obligations The gross unrealized losses on corporate obligations as of December 31, 2024, resulted primarily from an increase in interest rates since the securities were purchased. Unrealized losses of $ 3,905 related to 145 investment grade securities with an average unrealized loss equal to 5 % of amortized cost at December 31, 2024. Securities that have below investment grade credit ratings or are unrated comprise $ 0 of the gross unrealized loss at December 31, 2024. Management believes that the full and timely receipt of all principal and interest payment on corporate obligations with unrealized losses as of December 31, 2024, is probable. Investment Income (Loss) Net investment income (loss) was comprised of the following for the affected periods: Year Ended December 31, 2024 2023 2022 Fixed maturity securities $ 4,895 $ 3,696 $ 2,163 Short-term investments 10,033 9,287 2,345 Investment expense ( 365 ) ( 296 ) ( 139 ) Securities available-for-sale and short-term 14,563 12,687 4,369 Fixed maturity securities - trading — — — Other investments ( 115 ) 472 134 Total net investment income (loss) $ 14,448 $ 13,159 $ 4,503 Net i nvestment income (loss) from Other investments primarily represents changes in fair value on equity securities including certain pooled investment funds, and income from investment limited partnerships and other equity interests accounted for under the equity method. Net Investments Gains (Losses), including Impairments The following table details amounts included in net investment gains (losses) and impairments included in earnings for the affected periods: Year Ended December 31, 2024 2023 2022 Gross realized gains on securities $ 6,020 $ 57 $ 43 Gross realized losses on securities ( 1 ) ( 38 ) ( 105 ) Foreign exchange (losses) gains — — — Credit impairments ( 6,516 ) — — Intent to sell impairments — — — Net investment gains (losses), including impairments $ ( 497 ) $ 19 $ ( 62 ) Ambac had an allowance for credit losses $ 0 and $ 0 at December 31, 2024 and 2023, respectively. Ambac did not purchase any financial assets with credit deterioration for the years ended December 31, 2024 and 2023. Ambac Financial Group, Inc. 75 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Deposits with Regulators and Other Restrictions Securities carried at $ 22,861 and $ 20,748 at December 31, 2024 and 2023, respectively, were deposited by Ambac's insurance subsidiaries with governmental authorities or designated custodian banks as required by laws affecting insurance companies. Invested assets of AAC carried at $ 800 and reported within assets held-for-sale on Ambac's consolidated balance sheet as of December 31, 2024, were deposited as security in connection with a letter of credit issued for a corporate office lease. The lease will be transferred to Ambac in connection with the AAC sale. Fiduciary funds held by Ambac's insurance distribution subsidiaries, carried at $ 2,845 and $ 1,769 at December 31, 2024 and 2023, respectively, are included in invested assets. Other Investments Ambac's investment portfolio includes a limited partnership interest in a private equity fund which seeks to generate long-term capital appreciation through investments in private equity, equity-related and other instruments. The fair value of Ambac's investment in the fund was $ 7,499 and $ 5,817 as of December 31, 2024 and 2023, determined using net asset value ("NAV") as a practical expedient. Redemptions may be made quarterly with 90 days notice subject to withdrawal limitations and/or redemption fees which vary with the timing and notification of withdrawal provided by the investor. Ambac's unfunded commitments total $ 1,724 on this private equity fund at December 31, 2024. Other investments also include preferred equity investments with a carrying value of $ 20,618 and $ 12,500 as of December 31, 2024 and 2023, respectively, that do not have readily determinable fair values and are carried at cost, less any impairments as permitted under the Investments — Equity Securities Topic of the ASC. Impairments of $6,516, $0, and $0 were recorded on these investments in the years ended December 31, 2024, 2023 and 2022, respectively. There were no adjustments to fair value to reflect observable price changes in identical or similar investments from the same issuer during the years ended December 31, 2024, 2023 and 2022. 7. FAIR VALUE MEASUREMENTS The Fair Value Measurement Topic of the ASC establishes a framework for measuring fair value and disclosures about fair value measurements. Fair Value Hierarchy The Fair Value Measurement Topic of the ASC specifies a fair value hierarchy based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company-based assumptions. The fair value hierarchy has three broad levels as follows: l Level 1 Quoted prices for identical instruments in active markets. Assets and liabilities classified as Level 1 include US Treasury and other foreign government obligations traded in highly liquid and transparent markets, and money market funds. l Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Assets and liabilities classified as Level 2 generally include investments in fixed maturity securities and certain derivatives valued using only market observable data. l Level 3 Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available. Financial instruments classified as Level 3 include certain investments in fixed maturity securities, loans and derivatives. The Fair Value Measurement Topic of the ASC permits, as a practical expedient, the estimation of fair value of certain investments in funds using the net asset value per share of the investment or its equivalent (“NAV”). Investments in funds valued using NAV are not categorized as Level 1, 2 or 3 under the fair value hierarchy. The Investments — Equity Securities Topic of the ASC permits the measurement of certain equity securities without a readily determinable fair value at cost, less impairment, and adjusted to fair value when observable price changes in identical or similar investments from the same issuer occur (the "measurement alternative"). The fair values of investments measured under this measurement alternative are not included in the below disclosures of fair value of financial instruments. Ambac Financial Group, Inc. 76 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of December 31, 2024 and 2023, including the level within the fair value hierarchy at which fair value measurements are categorized. As required by the Fair Value Measurement Topic of the ASC financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. December 31, 2024: December 31, 2023: Carrying Amount Total Fair Value Fair Value Measurements Categorized as: Carrying Amount Total Fair Value Fair Value Measurements Categorized as: Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Financial assets: Fixed maturity securities: Municipal obligations $ 14,083 $ 14,083 $ — $ 14,083 $ — $ 8,711 $ 8,711 $ — $ 8,711 Corporate obligations 89,192 89,192 — 89,192 — 87,991 87,991 — 74,071 13,920 U.S. government obligations 40,995 40,995 40,995 — — 38,522 38,522 38,522 — — Residential mortgage-backed securities 2,446 2,446 — 2,446 — — — — — — Commercial mortgage-backed securities 2,101 2,101 — 2,101 — — — — — — Collateralized debt obligations 3,142 3,142 — 3,142 — — — — — — Other asset-backed securities 5,061 5,061 — 5,061 — — — — — — Short term investments 127,601 127,601 127,601 — — 200,510 200,510 200,510 — — Other investments (1) 28,294 7,499 — — — 18,317 5,817 — — — Cash, cash equivalents and restricted cash 47,276 47,276 47,276 — — 19,223 19,223 19,223 — — Other assets-Loans 3,434 3,434 — — 3,434 — — — — — Other assets - Derivatives: Warrants — — — — — 656 656 — — 656 Total financial assets $ 363,625 $ 342,830 $ 215,872 $ 116,025 $ 3,434 $ 373,930 $ 361,430 $ 258,255 $ 82,782 $ 14,576 Financial liabilities: Short-term debt, including accrued interest $ 152,560 $ 152,560 $ — $ — $ 152,560 $ — $ — $ — $ — $ — Other liabilities - Derivatives: FX forward contracts 317 317 — 317 — — — — — — Total financial liabilities $ 152,877 $ 152,877 $ — $ 317 $ 152,560 $ — $ — — — — (1) Excluded from the fair value measurement categories in the table above are investment funds of $ 7,499 and $ 5,817 as of December 31, 2024 and 2023, respectively, which are measured using NAV as a practical expedient. Also excluded from the fair value measurements in the table above are equity securities with a carrying value of $ 20,618 and $ 12,500 as of December 31, 2024 and 2023, respectively, that do not have readily determinable fair values and have carrying amounts determined using the measurement alternative, and an equity method investment of $ 177 as of December 31, 2024. Determination of Fair Value When available, Ambac uses quoted active market prices specific to the financial instrument to determine fair value and classifies such items within Level 1. The determination of fair value for financial instruments categorized in Level 2 or 3 involves judgment due to the complexity of factors contributing to the valuation. Third-party sources from which we obtain independent market quotes also use assumptions, judgments and estimates in determining financial instrument values and different third parties may use different methodologies or provide different values for financial instruments. In addition, the use of internal valuation models may require assumptions about hypothetical or inactive markets. As a result of these factors, the actual trade value of a financial instrument in the market, or exit value of a financial instrument position by Ambac, may be significantly different from its recorded fair value. Ambac’s financial instruments carried at fair value are mainly comprised of investments in fixed maturity securities, equity interests in pooled investment funds, and derivative instruments. Valuation of financial instruments is performed by Ambac’s finance group using methods approved by senior financial management with consultation from risk management and third-party portfolio managers as appropriate. Preliminary valuation results are discussed internally and with third-party portfolio managers as necessary quarterly to assess consistency with market transactions and trends as applicable. Market transactions such as trades or negotiated settlements of similar positions, if any, are reviewed to validate fair value model results. However, financial instruments valued using significant unobservable inputs have very little or no observable market activity. Methods and significant inputs and assumptions used to determine fair values across portfolios are reviewed quarterly by senior financial management. Other valuation control procedures specific to particular portfolios are described further below. Fixed Maturity Securities The fair values of fixed maturity investment securities are based primarily on market prices received independent pricing sources. Because many fixed maturity securities do not trade on a daily basis, pricing sources apply available market information through processes such as matrix pricing to calculate fair value. Such prices generally consider a variety of factors, including recent trades of the same and similar securities. In those cases, the items are classified within Level 2. For those fixed maturity investments where quotes were not available or cannot be reasonably corroborated, fair values are based on internal valuation models. Key inputs to the internal valuation models generally include maturity date, coupon and yield curves for asset-type and credit rating characteristics that closely match those characteristics of the specific investment securities being valued. Items valued using valuation models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Ambac Financial Group, Inc. 77 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Level 3 even though there may be significant inputs that are readily observable. Longer (shorter) expected maturities or higher (lower) yields used in the valuation model will, in isolation, result in decreases (increases) in fair value. Generally, lower credit ratings or longer expected maturities will be accompanied by higher yields used to value a security. Ambac performs various review and validation procedures to quoted and modeled prices for fixed maturity securities, including price variance analyses, missing and static price reviews, overall valuation analysis by portfolio managers and finance managers and reviews associated with our ongoing impairment analysis. Unusual prices identified through these procedures will be evaluated further against alternative third-party quotes (if available), internally modeled prices and/or other relevant data, and the pricing source values will be challenged as necessary. Price challenges generally result in the use of the pricing source’s quote as originally provided or as revised by the source following their internal diligence process. A price challenge may result in a determination by either the pricing source or Ambac management that the pricing source cannot provide a reasonable value for a security or cannot adequately support a quote, in which case Ambac would resort to using either other quotes or internal models. Results of price challenges are reviewed by portfolio managers and finance managers. Information about the valuation inputs for fixed maturity securities classified as Level 3 is included below: Corporate obligations: This includes certain investments in convertible debt securities. The fair value classified as Level 3 was $ 0 and $ 13,920 at December 31, 2024 and 2023, respectively. Fair value was calculated by discounting cash flows to average maturity of 0.75 years and a yield of 9.4 % at December 31, 2023. Yields used are consistent with the security type and rating. Other Investments Other investments primarily relate to investments in pooled investment funds. The fair value of pooled investment funds is determined using dealer quotes or alternative pricing sources when such investments have readily determinable fair values. When fair value is not readily determinable, pooled investment funds are valued using NAV as a practical expedient as permitted under the Fair Value Measurement Topic of the ASC. Refer to Note 6. Investments for additional information about such investments in pooled funds that are reported at fair value using NAV as a practical expedient. Derivative Instruments As of December 31, 2024, Ambac has foreign currency forward contracts and holds warrants to purchase preferred stock of a development stage company. The fair value of foreign currency forwards are determined using valuation models with observable market inputs. Fair value of the warrants are determined using a standard warrant valuation model with internally developed input assumptions. Short-term Debt Short-term debt consists of SOFR indexed borrowing used for the partial funding of the Beat acquisition and is classified as Level 3. Other Financial Assets Included in Other assets are loans carried at amortized cost, the fair values of which are estimated based upon internal valuation models and are classified as Level 3. Additional Fair Value Information for Financial Assets and Liabilities Accounted for at Fair Value The following tables present the changes in the Level 3 fair value category for the periods presented in 2024, 2023 and 2022. Ambac classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs. Level-3 Financial Assets and Liabilities Accounted for at Fair Value Year ended December 31, 2024 Investments Derivatives Total Balance, beginning of period $ 13,920 $ 656 $ 14,576 Total gains/(losses) realized and unrealized: Included in earnings 6,016 ( 656 ) 5,360 Included in other comprehensive income 125 — 125 Purchases — — — Issuances — — — Sales — — — Settlements ( 20,061 ) — ( 20,061 ) Balance, end of period $ — $ — $ — The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date $ — $ ( 656 ) $ ( 656 ) The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date $ — $ — $ — Ambac Financial Group, Inc. 78 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Level-3 Financial Assets and Liabilities Accounted for at Fair Value Year Ended December 31, 2023 Investments Derivatives Total Balance, beginning of period $ 12,341 $ 935 $ 13,276 Total gains/(losses) realized and unrealized: Included in earnings — ( 279 ) ( 279 ) Included in other comprehensive income 784 784 Purchases 795 795 Issuances — — Sales — — Settlements — — Balance, end of period $ 13,920 $ 656 $ 14,576 The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date $ — $ ( 279 ) $ ( 279 ) The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date $ 784 $ — $ 784 Level-3 Financial Assets and Liabilities Accounted for at Fair Value Year Ended December 31, 2022 Investments Derivatives Total Balance, beginning of period $ 12,305 $ — $ 12,305 Total gains/(losses) realized and unrealized: Included in earnings — 935 935 Included in other comprehensive income ( 714 ) — ( 714 ) Purchases 750 — 750 Issuances — — — Sales — — — Settlements — — — Balance, end of period $ 12,341 $ 935 $ 13,276 The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date $ — $ 935 $ 935 The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date $ ( 713 ) $ — $ ( 713 ) Invested assets are transferred into Level 3 when internal valuation models that include significant unobservable inputs are used to estimate fair value. All such securities that have internally modeled fair values have been classified as Level 3. Derivative instruments are transferred into Level 3 when the use of unobservable inputs becomes significant to the overall valuation. There were no transfers of financial instruments into or out of Level 3 in the periods disclosed. Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported as follows: Net Investment Income Net Gains (Losses) on Derivative Contracts Year Ended December 31, 2024 Total gains (losses) included in earnings for the period $ 6,016 $ ( 656 ) Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date — ( 656 ) Year Ended December 31, 2023 Total gains (losses) included in earnings for the period $ — $ ( 278 ) Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date — ( 278 ) Year Ended December 31, 2022 Total gains (losses) included in earnings for the period $ — $ 935 Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date — 935 Ambac Financial Group, Inc. 79 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) 8. INSURANCE CONTRACTS Premiums The effect of reinsurance on premiums written and earned was as follows: Year Ended December 31, Direct Assumed Ceded Net Premiums 2024: Written $ 334,311 $ 48,459 $ 294,088 $ 88,682 Earned 298,121 57,081 256,197 99,005 2023: Written $ 233,702 $ 39,585 $ 193,462 $ 79,825 Earned 185,470 18,354 151,913 51,911 2022: Written $ 146,379 $ — $ 117,826 $ 28,553 Earned 70,577 — 56,708 13,869 Premium Receivables, including Credit Impairments Premium receivables at December 31, 2024 and 2023 were $ 57,222 and $ 45,893 , respectively. Management evaluates premium receivables for expected credit losses ("credit impairment") in accordance with the CECL standard, which is further described in Note 2. Basis of Presentation and Significant Accounting Policies . Below is a rollforward of the premium receivable allowance for credit losses as of December 31, 2024 and 2023: Year Ended December 31, 2024 2023 2022 Beginning balance $ 69 $ — $ — Current period provision (benefit) 73 69 — Write-offs of the allowance — — — Recoveries of previously written-off amounts — — — Ending balance $ 142 $ 69 $ — At December 31, 2024 and 2023, $ 5,690 and $ 510 of premiums were past due. Loss and Loss Adjustment Expense Reserves Below is the loss and loss reserve expense roll-forward, recoverable and reinsurance, for the affected periods. Year Ended December 31, 2024 2023 2022 Beginning gross loss and loss adjustment expense reserves $ 197,089 $ 89,907 $ 32,169 Reinsurance recoverable 156,301 80,155 31,695 Beginning balance of net loss and loss adjustment expense reserves 40,788 9,752 474 Losses and loss expenses incurred: Current year 67,937 36,569 9,049 Prior years 4,689 143 23 Total (1) 72,626 36,712 9,072 Loss and loss adjustment expenses (recovered) paid: Current year 16,202 3,798 ( 206 ) Prior years 18,231 1,878 — Total 34,433 5,676 ( 206 ) Ending net loss and loss adjustment expense reserves 78,981 40,788 9,752 Reinsurance recoverable (2) 270,081 156,301 80,155 Ending gross loss and loss adjustment expense reserves $ 349,062 $ 197,089 $ 89,907 (1) Total losses and loss expenses (benefit) is net of $( 191,151 ), $( 113,622 ) and $( 52,960 ) for the years ended December 31, 2024, 2023 and 2022, respectively, related to ceded reinsurance. (2) Represents reinsurance recoverable on future loss and loss adjustment expenses. Additionally, the Balance Sheet line "Reinsurance recoverable on paid and unpaid losses" includes reinsurance recoverables of $ 36,210 , $ 8,765 and $ 1,397 as of December 31, 2024, 2023 and 2022, respectively, related to previously paid loss and loss adjustment expenses. Prior accident years losses incurred development for the year end December 31, 2024 was primarily driven by commercial auto loss experience 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. Specialty Property & Casualty Loss Reserves Claims Development The following is a summary of loss and loss adjustment expense reserves, including certain components, for the Company’s major product lines by reporting segment at December 31, 2024. Net Loss and Loss Adjustment Expense Reserves Reinsurance Recoverables on Unpaid Losses (1) Loss and Loss Adjustment Reserves (1) Commercial auto $ 28,720 $ 129,752 $ 158,472 Excess and general liability 14,857 70,602 85,459 Workers compensation 14,465 — 14,465 Non-standard personal auto 12,185 504 12,689 Unallocated loss adjustment expense reserves 6,578 5,660 12,238 Other 2,176 63,563 65,739 Total 78,981 270,081 349,062 (1) Other includes $ 35,146 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. Ambac Financial Group, Inc. 80 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) The claim development tables that follow present, by accident year, incurred and cumulative paid claims and allocated claim adjustment expense on a historical basis. This claim development information is presented on an undiscounted, net of reinsurance basis since 2021, Everspan's entry into the Specialty P&C business. The claim development tables also provide the historical average annual percentage payout of incurred claims by age, net of reinsurance, as supplementary information (identified as unaudited in the tables below). The historical average annual percentage payout for incurred claims is subject to variability due to the impact of both large claim activity and subrogation recoveries, among other items. Commercial Auto Incurred Claims and Allocated LAE, Net of Reinsurance Accident Year Year ended December 31, IBNR Reserves at December 31, 2024 Cumulative Number of Reported Claims 2021 2022 2023 2024 Unaudited 2021 $ 432 $ 468 $ 978 $ 962 $ 150 80 2022 8,225 7,866 9,099 1,959 1,155 2023 19,459 23,313 6,496 3,197 2024 $ 15,193 7,583 2,768 Total $ 48,567 Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance Accident Year Year ended December 31, Liability for Loss and Loss Adjustment Expenses, Net of Reinsurance 2021 2022 2023 2024 2021 - Before Unaudited 2024 2021 2021 $ 7 $ 44 $ 151 $ 681 2022 555 2,325 4,700 2023 3,914 10,989 2024 3,477 Total 19,847 28,720 — Total net liability 28,720 Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Unaudited Years 1 2 3 4 11.6 % 17.9 % 18.6 % 55.1 % Excess and General Liability Incurred Claims and Allocated LAE, Net of Reinsurance Accident Year Year ended December 31, IBNR Reserves at December 31, 2024 Cumulative Number of Reported Claims 2021 2022 2023 2024 Unaudited 2021 $ 3 $ 3 $ 10 $ 12 $ 2 1 2022 372 350 589 227 6 2023 3,597 2,901 2,434 69 2024 $ 12,200 10,877 177 Total $ 15,702 Ambac Financial Group, Inc. 81 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance Accident Year Year ended December 31, Liability for Loss and Loss Adjustment Expenses, Net of Reinsurance 2021 2022 2023 2024 2021 - Before Unaudited 2024 2021 2021 $ — $ — $ — $ — 2022 — 1 368 2023 30 316 2024 161 Total 845 14,857 — Total net liability 14,857 Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Unaudited Years 1 2 3 4 0.6 % 3.7 % 31.3 % — % Workers Compensation Incurred Claims and Allocated LAE, Net of Reinsurance Accident Year Year ended December 31, IBNR Reserves at December 31, 2024 Cumulative Number of Reported Claims 2021 2022 2023 2024 Unaudited 2021 $ — $ — $ — $ — $ — 0 2022 — — — — 0 2023 6,053 6,056 ( 331 ) 2,308 2024 $ 16,486 8,156 3,177 Total $ 22,542 Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance Accident Year Year ended December 31, Liability for Loss and Loss Adjustment Expenses, Net of Reinsurance 2021 2022 2023 2024 2021 - Before Unaudited 2024 2021 2021 $ — $ — $ — $ — 2022 — — — 2023 807 3,938 2024 4,139 Total 8,077 14,465 — Total net liability 14,465 Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Unaudited Years 1 2 3 4 19.2 % 65.0 % — % — % Ambac Financial Group, Inc. 82 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Other (1) Incurred Claims and Allocated LAE, Net of Reinsurance Accident Year Year Ended December 31, IBNR Reserves at December 31, 2024 Cumulative Number of Reported Claims 2021 2022 2023 2024 Unaudited 2021 $ — $ — $ — $ — $ — — 2022 1 1 1 1 740 2023 6,142 6,062 539 17,633 2024 23,341 3,469 52,385 Total $ 29,404 Cumulative Paid Claims and Allocated LAE, Net of Reinsurance Accident Year Year Ended December 31, Liability for Loss and Loss Adjustment Expenses, Net of Reinsurance 2021 2022 2023 2024 2021 - Before Unaudited 2024 2021 2021 $ — $ — $ — $ — 2022 — — — 2023 966 4,337 2024 10,706 Total 15,043 14,361 — Total net liability 14,361 Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Unaudited Years 1 2 3 4 20.6 % 35.8 % — % — % (1) Other includes non-standard personal auto, professional liability, business owners products, travel and surety Methodology for Determining Cumulative Number of Reported Claims A claim file is created when the Company or the third party claims administrator is notified of an actual demand for payment, notified of an event that may lead to a demand for payment or when it is determined that a demand for payment could possibly lead to a future demand for payment on another coverage on the same policy or on another policy. Claim files are generally created at the claimant by coverage type, depending on the particular facts and circumstances of the underlying event. For purposes of the claims development tables above, claims reported for direct business are counted even if they eventually close with no loss payment. Note that claims with zero claim dollars may still generate some level of claim adjustment expenses. Claim counts for assumed business are included only to the extent such counts are available. The methods used to summarize claim counts have not changed significantly over the time periods reported in the tables above. The Company cautions against using the summarized claim count information provided in this disclosure in attempting to project ultimate loss payouts by product line. The Company generally finds claim count data to be useful only on a more granular basis than the aggregated basis disclosed in the claim development tables above, as the risks, average values and other dynamics of the claim process can vary materially by the cause of loss and coverage within product line. Reinsurance Recoverables, Including Credit Impairments: Everspan’s reinsurance assets, including deferred ceded premiums and reinsurance recoverables on losses amounted to $ 454,491 at December 31, 2024. Credit exposure existed at December 31, 2024, with respect to reinsurance recoverables to the extent that any reinsurer may not be able to reimburse Everspan under the terms of these reinsurance arrangements. At December 31, 2024, there were ceded reinsurance balances payable of $ 53,002 offsetting this credit exposure. Contractually ceded reinsurance payables can only be offset against amounts owed from the same reinsurer in the event that such reinsurer is unable to meet its obligations to reimburse Everspan. To minimize its credit exposure to losses from reinsurer insolvencies, Everspan (i) is entitled to receive collateral from its reinsurance counterparties in certain reinsurance contracts Ambac Financial Group, Inc. 83 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) and (ii) has certain cancellation rights that can be exercised by Everspan in the event of rating agency downgrades of a reinsurer (among other events and circumstances). Everspan held letters of credit and collateral amounting to $ 62,792 from its reinsurers at December 31, 2024. For those reinsurance counterparties that do not currently post collateral, Everspan's reinsurers are well capitalized, highly rated, authorized capacity providers. Additionally, while legacy liabilities from the Providence Washington Insurance Company acquisition and the admitted carriers acquired by Everspan on January 3, 2022 (Greenwood Insurance Company, and Consolidated Specialty Insurance Company), were fully ceded to certain reinsurers, Everspan also benefits from an unlimited, uncapped indemnity from Enstar Holdings (US) and 21st Century Premier Insurance Company, respectively, to mitigate any residual risk to these reinsurers. For 2024, our top five reinsurers represented 69 % our total reinsurance recoverables on paid and unpaid losses. These reinsurance recoverables were primarily from reinsurers with applicable ratings of A or better. The following table sets forth our five most significant reinsurers by amount of reinsurance recoverable as of December 31, 2024. Reinsurers Type of Insurance Rating (1) Reinsurance Recoverable (2) Unsecured Recoverable (3) General Reinsurance Company Specialty P&C A++ $ 135,706 $ 117,537 QBE Insurance Corporation Specialty P&C A 31,502 31,502 Munich Reinsurance Company Specialty P&C A+ 20,052 16,653 The Cincinnati Insurance Company Specialty P&C A+ 15,663 14,933 Everest Reinsurance Company Specialty P&C A+ 8,641 7,356 All other reinsurers 94,726 44,329 Total recoverables $ 306,290 $ 232,310 (1) Represents financial strength ratings from AM Best. (2) Represents reinsurance recoverables on paid and unpaid losses. Unsecured amounts from QBE Insurance Corporation is also supported by an unlimited, uncapped indemnity from Enstar Holdings (US). (3) Reinsurance recoverables reduced by ceded premiums payables due to reinsurers, letters of credit, and collateral posted for the benefit of Everspan . Everspan has uncollateralized credit exposure to reinsurers of $ 232,310 and $ 127,568 and has recorded an allowance for credit losses of $ 100 and $ 100 at December 31, 2024 and 2023, respectively. The uncollateralized credit exposure to reinsurers includes legacy liabilities obtained from the acquisitions of Providence Washington Insurance Company and the admitted carriers acquired by Everspan on January 3, 2022, of $ 35,146 and $ 43,688 at December 31, 2024 and December 31, 2023, respectively. All legacy liabilities remain with affiliates of the sellers through reinsurance and contractual indemnities. 9. INSURANCE REGULATORY RESTRICTIONS Everspan Indemnity and its wholly owned subsidiary, Everspan Insurance Company ("Everspan Insurance"), as well as Consolidated Specialty Insurance Company, a wholly-owned subsidiary of Everspan Insurance, are domiciled in Arizona and are subject to the insurance laws and regulations of Arizona (the “Arizona Insurance Laws”) and are regulated by the Arizona Department of Insurance and Financial Institutions as domestic insurers. The other subsidiaries of Everspan Insurance, Providence Washington Insurance Company and Greenwood Insurance Company (together with Everspan Insurance, the "Everspan Admitted Carriers") are domiciled in Rhode Island and Pennsylvania, respectively, and are therefore subject to the insurance laws and regulations of their respective States of domicile (together with Arizona Insurance Laws, the “State Insurance Laws”) and regulated by the insurance departments of those States as domestic insurers. In addition, the Everspan Admitted Carriers are subject to the insurance laws and regulations of the other jurisdictions in which they are licensed and operate as foreign insurers. I nsurance laws and regulations applicable to insurers vary by jurisdiction, but the insurance laws and regulations applicable to our insurance carriers generally require them to maintain minimum standards of business conduct and solvency; to meet certain financial tests; and to file policy forms, premium rate schedules and certain reports with regulatory authorities, including information concerning capital structure, ownership, financial condition (such as risk-based capital), corporate governance and enterprise risk. Regulated insurance companies are also required to file quarterly and annual statutory financial statements in each jurisdiction in which they are licensed. The State Insurance Laws also require prior approval (or non-disapproval) of certain transactions between an insurance carrier and its affiliates. The level of supervisory authority that may be exercised by non-domiciliary insurance regulators varies by jurisdiction. Generally, however, non-domiciliary regulators are authorized to suspend or revoke the insurance license they issued and to impose restrictions on that license in the event that laws or regulations are breached by a regulated insurance company or in the event that continued or unrestricted licensing of the regulated insurance company constitutes a “hazardous condition” (or meets a similar standard) in the opinion of the non-domiciliary regulator. The domiciliary regulators have primary regulatory authority, including with respect to the initiation and administration of rehabilitation or liquidation proceedings. Additionally, the accounts and operations of Everspan Indemnity and the Everspan Admitted Carriers are subject to individual periodic comprehensive financial examinations by their domestic regulators, and may be examined collectively by the lead regulator of the affiliated insurance company group. Everspan Indemnity is a domestic surplus lines insurer and is eligible to write property and casualty insurance as an excess Ambac Financial Group, Inc. 84 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) and surplus lines insurance in all states by virtue of the U.S. Nonadmitted and Reinsurance Reform Act of 2010. Everspan Insurance, Greenwood Insurance Company, Consolidated Specialty Insurance Company, and Providence Washington Insurance Company are admitted property and casualty insurers. Collectively, they have broad authority to write property and casualty insurance throughout the United States. Everspan Indemnity and the Everspan Admitted Carriers (collectively, "Everspan") are subject to risk-based capital requirements. All of Ambac's insurance subsidiaries are in compliance with the minimum capital and surplus levels required under the State Insurance Laws required to transact all business written to date. Our Insurance Distribution businesses, like some other managing general agents, brokerages and program administrators, may be subject to licensing requirements and regulation by insurance regulators in various regulatory jurisdictions in which they conduct business. The financial statements Everspan are prepared on the basis of accounting practices prescribed or permitted by the State Insurance Laws and the actions of regulatory authorities thereunder. Everspan uses such statutory accounting practices prescribed or permitted by the applicable regulatory authorities for determining and reporting their financial condition and results of operations, including for determining solvency under the State Insurance Laws. The States in which Everspan are domiciled have adopted the National Association of Insurance Commissioners (“NAIC”) accounting practices and procedures manual (“NAIC SAP”) as a component of prescribed practices as codified in each State’s applicable law or regulation. Statutory policyholder surplus differs from stockholder's equity determined under GAAP principally due to statutory accounting rules that treat investments, acquisition costs and consolidation of subsidiaries differently. Everspan Indemnity has statutory policyholder surplus of $ 125,235 as of December 31, 2024, as compared to $ 108,051 as of December 31, 2023. Everspan does not have any permitted or additional prescribed practices at December 31, 2024, or December 31, 2023. Dividend Restrictions, Including Contractual Restrictions United States State Insurance Regulators prescribe rules that determine if Everspan may declare dividends. In addition, Everspan is subject to certain restrictions in their respective articles of incorporation with regards to the payment of dividends. Board action authorizing a distribution by an insurance company must generally be reported to the applicable domiciliary regulator prior to payment. In addition, State Insurance Laws generally require regulatory approval for the payment of extraordinary dividends, which are distributions in amounts that would exceed certain thresholds, such as a percentage of surplus or net income for the prior year or number of years. Everspan does not have sufficient earned surplus at this time to pay ordinary dividends under the State Insurance Laws. Furthermore, certain subsidiaries of Everspan Insurance were restricted from paying dividends to Everspan Insurance until January 1, 2025. Currently, Everspan Insurance’s subsidiaries, other than Greenwood Insurance Company, do not have sufficient surplus to pay dividends. Ambac's MGA/U subsidiaries are not restricted from paying dividends or partner distributions (collectively "Distributions") to their owners or partners, including Cirrata, which is 100 % owned by AFG. Ambac's established MGA/Us historically have paid Distributions equating to the majority of their individual EBITDA, subject to working capital, taxes and other capital needs, on a quarterly basis. Newly formed de-novo MGA/Us are not expected to make regular distributions to their partners until they become profitable and generate free cash flow on a steady and/or predictable basis. United Kingdom Beat's UK subsidiaries are subject to certain restrictions in their articles of association and shareholder agreements with regards to the payment of dividends. The Board of Beat and each subsidiary can approve the payment of a dividend (subject to repayment of any funding agreements). Beat and its UK subsidiaries historically have paid Distributions equating to the majority of their distributable reserves, being principally profit after taxation. Bermuda Beat’s Bermuda subsidiary is subject to certain restrictions in their articles of association and shareholder agreements with regards to the payment of dividends. The Board of the Bermuda subsidiary can approve the payment of a dividend (subject to repayment of any funding agreement). The Board of the Bermuda subsidiary historically has paid Distributions equating to the majority of their distributable reserves, being principally profit after taxation. Ambac Financial Group, Inc. 85 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) 10. DERIVATIVE INSTRUMENTS The following tables summarize the location and gross fair values of individual derivative instruments and the impact of legal rights of offset as reported in the Consolidated Balance Sheets, as of December 31, 2024 and 2023. December 31, 2024: December 31, 2023: Gross Amounts of Recognized Assets / Liabilities Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet Gross Amount of Collateral Received / Pledged not Offset in the Consolidated Balance Sheet Net Amount Gross Amounts of Recognized Assets / Liabilities Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet Gross Amount of Collateral Received / Pledged not Offset in the Consolidated Balance Sheet Net Amount Other assets: Warrants $ — $ — $ — $ — $ — $ 656 $ — $ 656 $ — $ 656 Total derivative assets $ — $ — $ — $ — $ — $ 656 $ — $ 656 $ — $ 656 Other liabilities: FX forward $ 317 $ — $ 317 $ — $ 317 $ — $ — $ — $ — $ — Total derivative liabilities $ 317 $ — $ 317 $ — $ 317 $ — $ — $ — $ — $ — The following tables summarize the location and amount of gains and losses of derivative contracts in the Consolidated Statements of Total Comprehensive Income (Loss) for the years ended December 31, 2024, 2023 and 2022: Location of Gain (Loss) Recognized in Consolidated Statements of Total Comprehensive Income (Loss) Amount of Gain (Loss) Recognized in Consolidated Statement of Total Comprehensive Income (Loss) – Year Ended December 31, 2024 2023 2022 Warrants Net gains (losses) on derivative contracts $ ( 656 ) $ ( 279 ) $ 935 FX forwards Net gains (losses) on derivative contracts 4,672 — — Total derivatives $ 4,016 $ ( 279 ) $ 935 Other Derivatives: At December 31, 2024 and 2023, Ambac holds warrants to purchase equity shares of a development stage company. During 2024, Ambac entered into US dollar/British pound sterling foreign exchange (FX) forward contracts to protect against currency fluctuations related to the purchase of Beat. Ambac's FX forward position was closed concurrent with the Beat purchase closed and the contracts matured October 4, 2024. In addition, Beat utilizes foreign exchange forward contracts to partially hedge its foreign currency exposure. Beat’s functional currency is the British Pound, but a significant portion of its revenues are generated in currencies other then the British Pound, particularly the US Dollar. Beat, therefore, typically enters into forward contracts to partially hedge its exposure to fluctuations in exchange rates relative to the British Pound. In connection with our acquisition of Beat and the growth profile of its business, we will be re-evaluating our exposure to foreign currency exchange rates and related hedging strategy. Ambac had no FX forward contacts as of December 31, 2023. Information about FX forward contracts as of December 31, 2024, is summarized below. Derivative Type Weighted Average Remaining Term (years) Face Amount (Buy) Face Amount (Sell) Fair Value Asset (Liability) FX Forwards-Buy GBP/Sell USD 0.61 15,720 20,000 ( 317 ) 11. GOODWILL AND INTANGIBLE ASSETS The following table presents a rollforward of goodwill at December 31, 2024 and 2023. December 31, 2024 2023 Beginning balance $ 69,694 $ 46,050 Business acquisitions 357,316 8,791 Gain (loss) on foreign currency translation ( 8,776 ) — Impairments — — Ending balance $ 418,234 $ 69,694 Ambac Financial Group, Inc. 86 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Intangible asset and accumulated amortization are included in the Consolidated Balance Sheets, as shown below. Cost Accumulated Amortization Net Carrying Amount December 31, 2024 Finite-lived Intangible Assets: Customer relationships $ 348,350 $ 24,630 $ 323,720 Non-compete agreements 1,350 1,080 270 Trade names 10,767 1,195 9,572 Total finite-lived intangible assets 360,467 26,905 333,562 Indefinite-lived Intangible Assets: Insurance licenses 11,213 — 11,213 Total intangible assets $ 371,680 $ 26,905 $ 344,775 December 31, 2023 Finite-lived Intangible Assets: Customer relationships $ 52,878 $ 8,293 $ 44,585 Non-compete agreements 1,350 810 540 Trade names 2,755 602 2,153 Total finite-lived intangible assets 56,983 9,705 47,278 Indefinite-lived Intangible Assets: Insurance licenses $ 14,125 $ — $ 14,125 Total intangible assets $ 71,108 $ 9,705 $ 61,403 Amortization Expense: Amortization expense is included in the Consolidated Statements of Total Comprehensive Income (Loss), as shown below. Year ended December 31, 2024 2023 2022 Customer relationships 16,739 3,622 2,472 Non-compete 270 270 270 Trade names 593 260 179 Total (1) $ 17,602 $ 4,152 $ 2,921 (1) The weighted-average amortization period 5.0 years. The estimated future amortization expense for finite-lived intangible assets is as follows: Amortization Expense Total 2025 $ 34,847 2026 34,508 2027 34,508 2028 34,504 2029 34,345 Thereafter 160,850 12. DEBT In the third quarter of 2024, Ambac funded a portion of the acquisition of Beat with a $ 150,000 Credit Facility. The debt incurred under the Credit Facility matures on July 31, 2025. Obligations under the Credit Facility are guaranteed by AFG and are secured on a first-priority basis by (i) a pledge by AFG of all of the capital stock of Everspan Holdings, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company and (ii) a pledge by the Purchaser of all of the capital stock of Beat held by Purchaser. Borrowing under the Credit Facility bears interest at three-month SOFR plus a margin initially equal to 4.50 %, increasing to 5.50 % on November 1, 2024, 6.50 % on February 1, 2025, and 7.50 % on May 1, 2025. A duration fee equal to 1 % of the then outstanding Credit Facility shall be due on each of February 1, 2025 and May 1, 2025, to the extent the borrowing under the Credit Facility is not repaid earlier. 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, including the sale of AAC. These requirements will impact our financial and operational flexibility while the Credit Facility remains in place. 13. REVENUES FROM CONTRACTS WITH CUSTOMERS As further described in the Revenue Recognition section of Note 2. Basis of Presentation and Significant Accounting Policies , the Insurance Distribution businesses have contracts that are subject to the Revenue from Contracts with Customers Topic of the ASC ("ASC 606"). The following table presents Insurance Distribution commission income recognized disaggregated by policy type for the years ended December 31, 2024, 2023 and 2022: Year ended December 31, 2024 2023 2022 Accident & Health $ 30,123 $ 32,836 $ 28,399 Specialty Auto 17,851 11,929 1,871 Other Professional 10,076 3,097 — Marine & Energy 2,829 2,909 158 Niche Specialty Risks 5,268 — — Property 5,116 — — Reinsurance 1,641 147 — Professional D&O 1,422 — — Misc. Specialty 17,697 363 267 Total $ 92,023 $ 51,281 $ 30,695 For the years ended December 31, 2024, 2023 and 2022, income of $ 6,320 , $ 200 and $ 715 , respectively, was recognized in accordance with ASC 606 and reported in other revenue on the Consolidated Statement of Comprehensive Income. During the years ended December 31, 2024, 2023 and 2022, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates was approximately $ 5,325 , $ 5,241 and $ 5,816 , respectively. Ambac Financial Group, Inc. 87 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Receivables, Contract Assets and Liabilities The balances of receivables, contract assets and contract liabilities with customers were as follows: December 31, 2024 2023 Receivables $ 55,377 $ 9,419 Contract assets 15,967 7,261 Contract liabilities 473 527 Contract assets represent estimated future consideration related to base commissions and profit-sharing commissions that were recognized as revenue upon the placement of the policy, but are not yet billable or collectable. The Company does not have the right to bill or collect payment on i) base commissions until the related premiums from policyholders have been collected nor ii) profit-sharing commissions until after the contract year is completed. Contract liabilities represent advance consideration received from customers related to Employer stop loss base commissions that will be recognized over time as claims servicing is performed, which typically occurs between 17 and 20 months from contract inception. During the years ended December 31, 2024, 2023 and 2022, the Company recognized revenue that was included in the contract liability balance as of the beginning of the period of $ 479 , $ 583 and $ 523 , respectively. 14. COMPREHENSIVE INCOME The following tables detail the changes in the balances of each component of accumulated other comprehensive income for the affected periods: Year Ended December 31, 2024: Year ended December 31, 2023: Unrealized Gains (Losses) on Available- for Sale Securities (1) Amortization of Postretirement Benefit (1) Gain (Loss) on Foreign Currency Translation (1) Credit Risk Changes of Fair Value Option Liabilities (1) (2) Total Unrealized Gains (Losses) on Available- for Sale Securities (1) Amortization of Postretirement Benefit (1) Gain (Loss) on Foreign Currency Translation (1) Credit Risk Changes of Fair Value Option Liabilities (1) (2) Total Beginning Balance $ ( 20,197 ) $ 4,939 $ ( 144,035 ) $ ( 753 ) $ ( 160,047 ) $ ( 71,381 ) $ 3,370 $ ( 184,167 ) $ ( 665 ) $ ( 252,843 ) Other comprehensive income (loss) before reclassifications 3,583 ( 67 ) ( 22,156 ) — ( 18,640 ) 30,623 3,051 40,132 — 73,806 Amounts reclassified from accumulated other comprehensive income (loss) ( 4,522 ) ( 4,872 ) — ( 356 ) ( 9,750 ) 20,561 ( 1,482 ) — ( 88 ) 18,991 Net current period other comprehensive income (loss) ( 939 ) ( 4,939 ) ( 22,156 ) ( 356 ) ( 28,390 ) 51,184 1,569 40,132 ( 88 ) 92,797 Ending balance $ ( 21,136 ) $ — $ ( 166,191 ) $ ( 1,109 ) $ ( 188,436 ) $ ( 20,197 ) $ 4,939 $ ( 144,035 ) $ ( 753 ) $ ( 160,047 ) (1) All amounts are net of tax and NCI. Amounts in parentheses indicate reductions to Accumulated Other Comprehensive Income. (2) Represents the changes in fair value attributable to instrument-specific credit risk of liabilities for which the fair value option is elected. The following table details the significant amounts reclassified from each component of accumulated other comprehensive income, shown in the above rollforward tables, for the affected periods: Details about Accumulated Other Comprehensive Income Components Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the Consolidated Statement of Total Comprehensive Income Year Ended December 31, 2024 2023 Unrealized Gains (Losses) on Available-for-Sale Securities (1) $ ( 3,919 ) $ 22,489 Net realized investment gains (losses) ( 603 ) ( 1,928 ) Provision for income taxes $ ( 4,522 ) $ 20,561 Net of tax and NCI Amortization of Postretirement Benefit Prior service cost $ ( 210 ) $ ( 963 ) Other income Actuarial gains (losses) ( 67 ) ( 519 ) Other income Curtailment gain ( 4,662 ) — Other income ( 4,939 ) ( 1,482 ) Total before tax — — Provision for income taxes $ ( 4,939 ) $ ( 1,482 ) Net of tax and NCI Credit Risk Changes of Fair Value Option Liabilities $ ( 474 ) $ 89 Credit risk changes of fair value option liabilities 118 ( 177 ) Provision for income taxes ( 356 ) ( 88 ) Net of tax and NCI Total reclassifications for the period $ ( 9,817 ) $ 18,991 Net of tax and NCI (1) Net unrealized investment gains (losses) on available for sale securities are included in Ambac's Consolidated Statements of Comprehensive Income as a component of Accumulated Other Comprehensive Income. Changes in these amounts include reclassification adjustments to exclude from "Other Ambac Financial Group, Inc. 88 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) comprehensive income (loss)" those items that are included as part of "Net income" for a period that has been part of "Other comprehensive income (loss)" in earlier periods. 15. NET INCOME PER SHARE As of December 31, 2024, 46,506,973 shares of AFG's common stock (par value $ 0.01 ) were issued and outstanding. Common shares outstanding increased by 1,311,603 , during the year ended December 31, 2024, primarily due to the issuance of shares in the Beat acquisition, offset by share repurchases. Share Repurchases On March 29, 2022, AFG's Board of Directors approved a share repurchase program authorizing up to $ 20,000 in share repurchases. On May 5, 2022, the Board of Directors authorized an additional $ 15,000 in share repurchase. This program expired on March 31, 2024. On November 12, 2024, Ambac’s Board of Directors authorized a share repurchase program, under which Ambac may opportunistically repurchase up to $ 50,000 of the Company’s common shares at management’s discretion over the period ending on December 31, 2026. The following table shows shares repurchased by year. ($ in thousands, except per share) Year ended December 31, 2022 2023 2024 Shares repurchased 1,605,316 325,068 937,141 Total cost $ 14,217 $ 4,510 $ 11,699 Average purchase price per share $ 8.86 $ 13.88 $ 12.48 Unused authorization amount $ 38,302 Earnings Per Share Calculation The numerator of the basic and diluted earnings per share computation represents net income (loss) attributable to common stockholders adjusted by the retained earnings impact of the adjustment to redemption value of redeemable NCI under ASC 480. The redemption value adjustment is further described in the Redeemable NCI section of Note 2. Basis of Presentation and Significant Accounting Policies . The following table provides a reconciliation of net income (loss) from continuing operations attributable to common stockholders to the numerator in the basic and diluted earnings per share calculation, together with the resulting earnings per share amounts: Year ended December 31, 2024 2023 2022 Net income (loss) attributable to Ambac common stockholders $ ( 59,282 ) $ ( 24,551 ) $ ( 36,115 ) Adjustment to redemption value (ASC 480) 53,210 4,792 2,469 Numerator of basic and diluted EPS $ ( 6,072 ) $ ( 19,759 ) $ ( 33,646 ) Per Share: Basic $ ( 0.13 ) $ ( 0.43 ) $ ( 0.74 ) Diluted $ ( 0.13 ) $ ( 0.43 ) $ ( 0.74 ) The denominator of the basic earnings per share computation represents the weighted average common shares outstanding plus vested restricted stock units (together, "Basic Weighted Average Shares Outstanding"). The denominator of diluted earnings per share adjusts the basic weighted average shares outstanding for all potential dilutive common shares outstanding during the period. All potential dilutive common shares outstanding consider common stock deliverable pursuant to warrants, unvested restricted stock units and performance stock units granted under existing compensation plans. In determining diluted net income (loss) per share, whether net income from continuing operations is positive or negative controls whether dilutive shares are included in the determination. For all periods presented, net income from continuing operations is negative, a net loss. Accordingly, since including dilutive shares would dilute the loss from continuing operations, no dilutive shares are included in any of the per share calculations. The following table provides a reconciliation of the common shares used for basic net income per share to the diluted shares used for diluted net income per share: Year Ended December 31, 2024 2023 2022 Basic weighted average shares outstanding 46,969,708 45,636,649 45,719,906 Effect of potential dilutive shares (1) : Restricted stock units — — — Performance stock units (1) — — — Diluted weighted average shares outstanding 46,969,708 45,636,649 45,719,906 Anti-dilutive shares excluded from the above reconciliation Warrants — — 4,877,617 Restricted stock units 479,781 550,255 600,994 Performance stock units (1) 817,483 900,964 1,095,664 (1) Performance stock units are reflected based on the performance metrics through the balance sheet date. Vesting of these units is contingent upon meeting certain performance metrics. Although a portion of these performance metrics have been achieved as of the respective period end, it is possible that awards may no longer meet the metric at the end of the performance period. 16. INCOME TAXES AFG files a consolidated U.S. Federal income tax return with its 80% or more owned domestic subsidiaries ("Consolidated Tax Subsidiaries"). Beat's US subsidiaries file separate U.S. Federal income tax returns as they are not directly owned by AFG for tax purposes. AFG and its Consolidated Tax Subsidiaries also file separate or combined income tax returns in various states, local and foreign jurisdictions. The following are the major jurisdictions in which Ambac and its subsidiaries, including it foreign subsidiaries, operate and the earliest tax years subject to examination: Ambac Financial Group, Inc. 89 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Jurisdiction Tax Year United States 2010 New York State 2015 New York City 2018 United Kingdom 2020 Consolidated Pretax Income (Loss) U.S. and foreign components of pre-tax income (loss) from continuing operations were as follows: Year Ended December 31, 2024 2023 2022 U.S. $ ( 58,014 ) $ ( 24,221 ) $ ( 35,706 ) Foreign ( 1,831 ) — — Total $ ( 59,845 ) $ ( 24,221 ) $ ( 35,706 ) Provision (Benefit) for Income Taxes The components of the provision (benefit) for income taxes from continuing operations were as follows: Year Ended December 31, 2024 2023 2022 Current taxes U.S. state and local $ 100 $ 431 $ ( 453 ) Foreign 2,193 — — Total current taxes 2,197 431 ( 453 ) Deferred taxes Domestic — ( 1,420 ) ( 9 ) Foreign ( 3,121 ) — — Total deferred taxes $ ( 3,121 ) $ ( 1,420 ) $ ( 9 ) Provision for income taxes $ ( 924 ) $ ( 989 ) $ ( 462 ) The total effect of income taxes on net income and stockholders’ equity for the years ended December 31, 2024, 2023 and 2022 is as follows: Year Ended December 31, 2024 2023 2022 Total income taxes charged to net income $ ( 924 ) $ ( 989 ) $ ( 462 ) Income taxes charged (credited) to stockholders’ equity: Unrealized gains (losses) on investment securities, including foreign exchange 144 918 335 Unrealized gains (losses) on foreign currency translations ( 1,922 ) — — Valuation allowance to equity 1,778 ( 918 ) ( 335 ) Total charged to stockholders’ equity: — — — Total effect of income taxes $ ( 924 ) $ ( 989 ) $ ( 462 ) Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate The tax provisions for continuing operations in the accompanying Consolidated Statements of Total Comprehensive Income (Loss) reflect effective tax rates differing from prevailing Federal corporate income tax rates. The following is a reconciliation of these differences: Year Ended December 31, 2024 2023 2022 Tax on income (loss) at statutory rate $ ( 12,567 ) 21 % $ ( 5,086 ) 21 % $ ( 7,498 ) 21 % Changes in expected tax resulting from: State only DTA and tax rate change 4,554 ( 8 ) % — — % ( 1,003 ) 3 % Tax-exempt interest ( 4 ) — % ( 5 ) — % ( 14 ) — % Foreign taxes 787 ( 1 ) % — — % — — % State Income Taxes 79 — % 411 ( 2 ) % 367 ( 1 ) % Outside tax basis difference 105,630 ( 177 ) % — — % — — % Acquisition costs 2,017 ( 3 ) % 1,497 ( 6 ) % — — % Valuation allowance ( 101,598 ) 170 % 1,602 ( 7 ) % 8,379 ( 24 ) % Other, net 178 — % 592 ( 2 ) % ( 693 ) 2 % Tax expense on income (loss) $ ( 924 ) 2 % $ ( 989 ) 1 % $ ( 462 ) ( 2 ) % Unrecognized Tax Positions The Company had no material unrecognized tax positions at December 31, 2024 and 2023. Ambac Financial Group, Inc. 90 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Deferred Income Taxes The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets at December 31, 2024 and 2023, are presented below: December 31, 2024 2023 Deferred tax liabilities: Amortizable intangible $ 71,414 $ — Outside basis difference 105,630 — Deferred acquisition costs 9,474 7,531 Investments 3,568 — Other 787 139 Total deferred tax liabilities 190,873 7,670 Deferred tax assets: Net operating loss carryforward 349,931 341,886 Unearned premium reserves 9,138 3,590 Loss reserves 1,102 162 State capital loss carryforward 3,096 7,650 Compensation 1,423 1,423 Investments — 1,072 Other 429 1,625 Subtotal deferred tax assets 365,119 357,408 Valuation allowance 244,381 349,738 Total deferred tax assets 120,738 7,670 Net deferred tax liability $ 70,135 $ — The Company has adopted an accounting policy to classify the inside tax basis differences deferred tax assets and liabilities (i.e., inside basis differences) associated with the disposition of shares of a subsidiary as assets or liabilities held for sale on the Consolidated Balance Sheets. For the years ended December 31, 2024, and 2023, the Company has included net deferred tax liabilities of $ 20,382 and $ 19,138 , respectively, in liabilities held for sale. In accordance with the Income Tax Topic of the ASC, a valuation allowance is recognized if, based on the weight of available evidence, it is more-likely-than-not that some, or all, of the deferred tax asset will not be realized. As a result of the risks and uncertainties associated with future operating results, management believes it is more likely than not that the Company will not generate sufficient U.S. federal, state and/or local taxable income to recover the deferred tax operating assets and therefore maintains a full valuation allowance on AFG's U.S. net deferred tax assets. The remaining net deferred tax liability of $ 70,135 is attributable to the amortizing intangible related to the acquisition of Beat and is classified in Deferred Taxes on the Consolidated Balance Sheet. NOL & Investment Interest Carryforward As of December 31, 2024, the Company has $ 1,663,087 of US NOLs if not utilized will begin expiring in 2030. Of the total NOLs $ 158,663 carry forward indefinitely. 17. EMPLOYMENT BENEFIT PLANS Incentive Compensation - Stock Units and Cash Employees, directors and consultants of Ambac are eligible to participate in Ambac’s 2024 Incentive Plan, which is the successor plan to the Ambac’s 2020 Incentive Plan and 2013 Incentive Plan, subject to the discretion of the Compensation Committee of Ambac’s Board of Directors. There are 4,350,000 1,475,000 and 4,000,000 shares of Ambac's common stock authorized for awards under the 2024 Plan, 2020 Plan and 2013 Plan, respectively. Awards may also be made under the 2024 Plan with respect to the shares that remained available for grant under the 2020 Plan. In addition, shares subject to outstanding awards granted under the 2020 Plan that subsequently terminate by expiration or forfeiture, cancellation, or otherwise without the issuance of such shares become available for awards under the 2024 Plan. On June 24, 2021, the Compensation Committee of Ambac's Board of Directors adopted the Ambac Financial Group, Inc. Executive Stock Deferral Plan (the “Stock Deferral Plan”). Under the Stock Deferral Plan, certain executives of AFG and its subsidiaries who are designated by the compensation committee as eligible to participate in the Stock Deferral Plan may elect to defer the settlement of all or a portion of the RSU and PSU (as defined below) awards that are granted to the executives to a future date(s) selected by the executive. Deferred awards under the Stock Deferral Plan (and any related dividend equivalents) will continue to be paid in shares of common stock of AFG, which will be issued under the relevant incentive compensation plan pursuant to which the underlying award was first granted, provided that any dividend equivalents credited on a participant’s deferred awards in respect of cash dividends paid by AFG will be paid to the participant in cash. The sale of AAC will trigger a change in control provision under the Stock Deferral Plan and immediately prior to closing all deferred shares will be settled in stock. At the discretion of the Compensation Committee of the Board of Directors, RSU and PSU awards may be settled in cash based on the closing price of AFG's common stock on the last business day prior to the settlement date. The Stock Deferral Plan is not funded, and deferred awards under the Stock Deferral Plan are not segregated from the Company’s general assets. The amount of stock-based compensation expense and corresponding after-tax expense from continuing operations are as follows. Year Ended December 31, 2024 2023 2022 Restricted stock units $ 3,144 $ 3,462 $ 2,911 Performance awards 6,212 8,804 8,320 Total stock-based compensation $ 9,356 $ 12,266 $ 11,231 Total stock-based compensation (after-tax) $ 9,356 $ 12,266 $ 11,231 Restricted Stock Units (“RSUs”) RSUs can be awarded to certain employees for a portion of their STIP compensation, LTIP compensation, sign-on and special awards for exceptional performance or promotion. RSUs can Ambac Financial Group, Inc. 91 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) also be awarded to consultants as part of the consideration for their services. The LTIP, sign-on, consultant and special awards generally vest in equal installments over, or cliff-vest at the end of, a two to three year period. Such vesting is expressly conditioned upon continued service with Ambac through the applicable vesting date, although vesting may be accelerated in certain circumstances under the awards, including for terminations due to death, disability, eligible retirement, or involuntary termination by Ambac other than for cause. As part of our director compensation program, RSUs are granted quarterly and vest one year from the grant date. These RSUs will not settle until the respective director’s termination from the Board of Directors or, if earlier, upon a change in control. All RSUs provide for accelerated vesting upon a change in control, death or disability or involuntary removal other than for cause (not including removal pursuant to a shareholder vote at a regularly scheduled annual meeting of shareholders). The sale of AAC will meet the requirements for a change in control and immediately prior to closing any unvested shares will vest and settle along with all previously deferred shares. Upon termination (other than for cause), the unvested RSUs shall partially vest as of the date of such termination in an amount equal to the number of then outstanding unvested RSUs multiplied by a fraction, the numerator of which shall be the number of calendar days which have lapsed since the grant date and the denominator of which shall be the number of calendar days from the grant date until the next regularly scheduled quarterly grant date pursuant to Ambac’s director compensation program. As of December 31, 2024, 1,075,025 RSUs remained outstanding, of which (i) 467,705 units required future service as a condition to the delivery of the underlying shares of common stock and (ii) 608,853 units do not require future service and are deferred for future settlement. As of December 31, 2023, 1,036,339 RSUs remained outstanding, of which (i) 634,312 units required future service as a condition to the delivery of the underlying shares of common stock, and (ii) 402,027 units did not require future service and were deferred for future settlement. A summary of RSU activity for 2024 is as follows. Shares Weighted Average Grant Date Fair Value Per Share Outstanding at beginning of period 1,036,339 $ 15.75 Granted 250,992 14.28 Delivered or returned to plan (1) ( 208,038 ) 14.67 Forfeited ( 4,268 ) 15.52 Outstanding at end of period 1,075,025 $ 15.62 (1) When restricted stock unit awards issued by Ambac become taxable compensation to employees, shares may be withheld to cover the employee’s withholding taxes. For the year ended December 31, 2024, Ambac withheld 19,335 shares from employees that settled restricted stock units to meet the required tax withholdings. Ambac’s closing share price on the grant date was used to estimate the fair value of the service condition based RSU on the grant date. The weighted average grant date fair value per share of RSUs granted during 2024, 2023 and 2022 was $ 14.28 , $ 15.72 and $ 12.48 , respectively. As of December 31, 2024, there was $ 3,687 of total unrecognized compensation costs related to unvested RSUs granted of which $ 494 will be transferred to the buyer upon close of AAC sale. These costs are expected to be recognized over a weighted average period of 1.6 years. The fair value for RSUs vested and delivered during the year ended December 31, 2024, 2023 and 2022 was $ 1,654 , $ 4,646 and $ 3,861 , respectively. Performance Stock Awards ("PSUs") PSUs are awarded to certain employees for a portion of their LTIP compensation and vest after 3 years from grant date. The actual number of shares payable at settlement is subject to performance metrics relative to the companies and segments of Ambac. Actual payout can range from 0 % to 240 % of the number of units granted. Under currently outstanding award agreements, performance will be evaluated as follows: • In regards to Xchange, for the 2022 PSU awards, and Cirrata for the 2023 and 2024 PSU awards, (i) cumulative earnings before interest, taxes, depreciation and amortization over the vesting period and (ii) for Cirrata 2023 and 2024 PSU awards, the aggregate of all premiums placed by Cirrata with any insurance carrier over the vesting period. • In regards to Everspan: (i) for the 2022, 2023 and 2024 PSU awards, cumulative earnings before interest, taxes, depreciation and amortization over the vesting period and (ii) for the 2023 and 2024 PSU award, cumulative direct or assumed premiums written (including any from Cirrata) and fronting fees over the vesting period. • In regards to AAC: reductions in watch list and adversely classified credits, which is intended to reward participants for de-risking the financial guarantee insured portfolio. • Relative Total Shareholder Return will cause the payout at the end of the performance period to be increased or decreased 20 % for PSU awards granted 2022, 2023 and 2024, if AFG's stock performance compared to a peer group is at or above the 75 th percentile or at or below the 25 th percentile, respectively . Pursuant to the LTIP award agreements if (i) a termination occurred prior to the last day of the performance period by reason of disability, an involuntary termination by the Company other than for “cause,” or "retirement," the recipient would be entitled to receive the PSU award at the end of the relevant performance period based on the satisfaction of the performance conditions related to such award at the end of the performance period, and (ii) a termination occurred prior to the last day of the performance period by reason of death, the beneficiaries of the recipient would be entitled to receive the number of PSUs that the recipient would have been entitled to receive at a 100 % overall payout multiple regardless of the outcome of any of the performance conditions. The current performance awards shall be settled within 75 days after the end of the performance period, including those with partial or accelerated vesting, Ambac Financial Group, Inc. 92 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) subject to any deferrals made pursuant to the Stock Deferral Plan. A summary of PSU activity for 2024 is as follows. Shares Weighted Average Grant Date Fair Value Per Share Outstanding at beginning of period 1,019,071 $ 15.52 Granted (1) 371,877 15.94 Delivered (2) ( 312,280 ) 10.02 Forfeited ( 20,017 ) 15.57 Performance adjustment (3) 204,860 18.67 Outstanding at end of period 1,263,511 $ — (1) Represents performance share units at 100 % of units granted for LTIP Awards. (2) Reflects the number of performance shares attributable to the performance goals attained over the completed performance period and for which service conditions have been met. When performance stock unit awards issued by Ambac become taxable compensation to employees, shares may be withheld to cover the employee’s withholding taxes. For the year ended December 31, 2024, Ambac withheld 24,431 of shares from employees that settled performance based restricted stock units to meet the required tax withholdings. (3) Represents the number of additional shares issued for awards granted in 2021 as a result of actual performance during the performance period. The weighted average grant date fair value per share of PSUs granted during 2024, 2023 and 2022 was $ 15.94 , $ 17.72 and $ 13.44 , respectively. As of December 31, 2024, there was $ 5,509 of total unrecognized compensation costs related to the PSU portion of unvested performance awards of which $724 will be transferred to the buyer upon close of AAC sale. These costs are expected to be recognized over a weighted average period of 2.0 years. The fair value for PSUs vested and delivered during the year ended December 31, 2024, 2023 and 2022 was $ 2,663 , $ 7,665 and $ 4,620 , respectively. Postemployment Benefits Ambac provides discretionary severance benefits. Severance benefits from continuing operations, were $ 416 , $ 0 and $ 0 for the years ended December 31, 2024, 2023 and 2022, respectively. Defined Contribution Plans As a result of the acquisitions of All Trans and Capacity Marine effective November 1, 2022, and Beat effective July 31, 2024, Ambac has multiple savings incentive plans. Substantially all US employees are covered by one of these plans. The Plan sponsored by AFG includes employer matching contributions equal to 100 % of the employees’ contributions, up to 3 % of such participants’ compensation, as defined in the plan, plus 50 % of contributions up to an additional 2 % of compensation, subject to limits set by the Internal Revenue Code. Xchange and Riverton employees moved to this plan from a previous plan (Xchange during 2022 and Riverton during 2023). Employees of All Trans and Capacity Marine are included in a multiple employer plan that has discretionary contributions for which none were made during Ambac's ownership of these entities. The plan for US employees of Beat includes employer matching contributions equal to 100 % of the employees’ contributions, up to 5% of such participants’ compensation. UK employees of Beat have a defined contribution pension plan where employer contributes 10% of participants’ compensation of which the assets are held separately from those of the group in an independently administrated fund. The total cost of all the were $ 1,945 , $ 676 and $ 379 for the years December 31, 2024, 2023 and 2022, respectively. 18. LEASES Ambac is the lessee and lessor under certain lease agreements further described below. Lessee information Ambac is the lessee in operating leases for corporate offices. Leases in effect at December 31, 2024, have remaining lease terms ranging from under 2 years to 8 years. Certain of these leases include early termination provisions which Ambac does not include in the determination of its lease liabilities and right-of-use assets unless exercise is considered reasonably certain. Lease costs are included in operating expenses on the Consolidated Statement of Total Comprehensive Income (Loss). The components of lease costs, net of sub-lessor income, is as follows: Year Ended December 31, 2024 2023 2022 Operating lease cost $ 4,247 $ 3,904 $ 3,848 Short-term lease cost — 52 18 Variable lease cost 437 404 317 Sublease income ( 1,086 ) ( 1,124 ) ( 1,132 ) Total lease cost $ 3,598 $ 3,236 $ 3,051 Ambac is required to make variable lease payments under certain leases which primarily relates to variable costs of the lessor, such as taxes, insurance, maintenance and electricity. Supplemental information related to leases is as follows: Year Ended December 31, 2024 2023 2022 Cash paid for amounts included in the measurement of operating lease liabilities $ 4,432 $ 4,155 $ 4,123 Right-of-use assets obtained in exchange for operating lease liabilities (non-cash) 2,256 714 — Supplemental balance sheet information related to leases is as follows: December 31, 2024 2023 Operating leases: Operating lease right of use assets $ 18,107 $ 18,421 Operating lease liabilities 21,543 22,041 Weighted average remaining lease term: Operating leases 5.1 years 6.1 years Weighted average discount rate: Operating leases 7.8 % 7.9 % Ambac Financial Group, Inc. 93 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) Operating lease right of use assets and operating lease liabilities are included in Other assets and Other liabilities, respectively, on the consolidated balance sheet. Future undiscounted lease payments, gross of sublease receipts, to be made are as follows: As of December 31, 2024 Operating Leases 2025 $ 5,008 2026 5,135 2027 5,140 2028 5,016 2029 4,960 Thereafter 827 Total lease payments 26,086 Less: imputed interest ( 4,543 ) Total $ 21,543 Lessor information Ambac is the lessor in one operating sublease of corporate office space which has a remaining term of 5.0 years. There are no extension or termination provisions. Future undiscounted lease payments to be received are as follows: As of December 31, 2024 Operating Leases 2025 $ 1,184 2026 1,286 2027 1,302 2028 1,318 2029 1,331 Thereafter — Total lease receipts 6,421 19. COMMITMENTS AND CONTINGENCIES The Company periodically receives various regulatory inquiries and requests for information with respect to investigations and inquiries that such regulators are conducting. The Company has complied with all such inquiries and requests for information. The Company is involved from time to time in various routine legal proceedings, including proceedings related to litigation with present or former employees. Although such litigation is routine and incidental to the conduct of its business, such litigation can potentially result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive damages. Everspan may be subject to disputes with policyholders regarding the scope and extent of coverage offered under Everspan's policies; be required to defend claimants in suits against its policyholders for covered liability claims; or enter into commercial disputes with its reinsurers, MGA/Us or third party claims administrators or other parties regarding their respective contractual obligations and rights. Under some circumstances, the results of such disputes or suits may lead to liabilities beyond those which are anticipated or reserved. In the ordinary course of their businesses, certain of Ambac’s subsidiaries assert claims in legal proceedings against third parties to recover losses already paid and/or mitigate future losses. The amounts recovered and/or losses avoided which may result from these proceedings is uncertain, although recoveries and/or losses avoided in any one or more of these proceedings during any quarter or fiscal year could be material to Ambac’s results of operations in that quarter or fiscal year. From time to time, Ambac is subject to allegations concerning its corporate governance, including the manner in which it exercises control and oversight of its subsidiaries, that may lead to litigation, including derivative litigation. While the monetary impacts of addressing such allegations outside of litigation may not be material, these charges may distract management and the Board of Directors from their principal focus on Ambac's business, strategy and objectives. It is not reasonably possible to predict whether suits in addition to those described below will be filed or whether additional inquiries or requests for information will be made, and it is also not possible to predict the outcome of litigation, inquiries or requests for information. It is possible that there could be unfavorable outcomes in these or other proceedings. Legal accruals for litigation against the Company with losses that are probable and reasonably estimable are not material to the operating results or financial position of the Company. For the litigation matters the Company is defending that do not meet the “probable and reasonably estimable” accrual threshold and where no loss estimates have been provided below, management is unable to make a meaningful estimate of the amount or range of loss that could result from unfavorable outcomes. Under some circumstances, adverse results in any such proceedings could be material to our business, operations, financial position, profitability or cash flows. The Company believes that it has substantial defenses to the claims described below and, to the extent that these actions proceed, the Company intends to defend itself vigorously; however, the Company is not able to predict the outcomes of these actions. Litigation against Ambac Financial Group, Inc. Dwight Jereczek and Stanley Elliott, individually and on behalf of all others similarly situated v. MBIA Inc., Ambac Financial Group, Inc., Ambac Assurance Corporation, MBIA Insurance Corporation, and National Public Finance Guarantee Corporation (United States District Court for the District of Connecticut, filed on February 12, 2025) (the "COFINA Case"). This putative class action complaint is brought by alleged former holders of bonds issued by the Puerto Rico Sales Tax Financing Corporation (“COFINA”) allegedly insured by defendants under financial guaranty insurance policies. On behalf of themselves and all persons and entities that owned such bonds between October 19, 2018, and February 12, 2019, plaintiffs allege that, in connection with the restructuring of COFINA under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act, defendants orchestrated a scheme to improperly use their role in the Title III process to alter contracts with insured COFINA bondholders, resulting in such bondholders receiving less than what they contracted for under the financial guaranty insurance policies. Plaintiffs assert claims for breach of contract, unjust enrichment, Ambac Financial Group, Inc. 94 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) and bad faith refusal to pay first-party benefits under an insurance contract. Plaintiffs seek an unspecified amount of damages with interest thereon, disgorgement of profits, a declaratory judgment of plaintiffs’ rights and defendants’ responsibilities, and a permanent injunction against violations of law. As of the date of this report, no summons has been issued or served on Ambac. Litigation in Legacy Financial Guarantee Business AAC is involved in litigation as described below as well as the COFINA Case described above. These actual and potential cases may continue after the AAC Sale is completed. Following completion of the AAC Sale, the Company will no longer have any exposure to the following matters, except with respect to the COFINA Case described above for so long as AFG remains a defendant in the case. Current Litigation Monterey Bay Military Housing, LLC, et al. v. Ambac Assurance Corporation, et al. (United States District Court, Southern District of New York, Case No. 1:19-cv-09193-PGG, transferred on October 4, 2019 from the United States District Court, Northern District of California, San Jose Division, Case No. 17-cv-04992-BLF, filed August 28, 2017). Plaintiffs, the corporate developers of various military housing projects, filed an amended complaint on October 27, 2017 against AAC, a former employee of AAC, and certain unaffiliated persons and entities, asserting claims for (i) violation of 18 U.S.C §§ 1962(c) and 1962(d) (civil Racketeer Influenced and Corrupt Organizations Act (“RICO”) and conspiracy to commit civil RICO), (ii) breach of fiduciary duty, (iii) aiding and abetting breach of fiduciary duty, (iv) fraudulent misrepresentation, (v) fraudulent concealment and (vi) conspiracy to commit fraud. The claims relate to bonds and debt certificates (insured by AAC) that were issued to finance the renovation and construction of housing at certain military bases. Plaintiffs allege that defendants secretly conspired to overcharge plaintiffs for the financing of the projects and directed the excess profits to themselves. Plaintiffs allege defendants generated these excess profits by supposedly charging inflated interest rates, manipulating “shadow ratings,” charging unnecessary fees, and hiding evidence of their alleged wrongdoing. Plaintiffs seek, among other things, compensatory damages, disgorgement of profits and fees, punitive damages, trebled damages and attorneys’ fees. AAC and the other defendants filed motions to dismiss the amended complaint on November 13, 2017. On July 17, 2018, the court granted AAC’s and the other defendants’ motion to dismiss the first amended complaint without prejudice. On December 17, 2018, Plaintiffs filed a second amended complaint. On February 15, 2019, AAC and the other defendants filed a motion to dismiss the second amended complaint. On September 26, 2019, the court issued a decision denying defendants’ motion to dismiss and sua sponte reconsidering its previous denial of defendants’ motion to transfer venue to the Southern District of New York (“SDNY”). On October 10, 2019, after the case was transferred to the SDNY, the defendants filed motions to vacate or reconsider the decision by the Northern District of California on the defendants’ motion to dismiss. On March 31, 2021, the court granted defendants’ motions for reconsideration and, upon reconsideration, dismissed the claims against AAC and its former employee for breach of fiduciary duty and for aiding and abetting breach of AAC’s or its former employee’s fiduciary duty; dismissed two plaintiffs’ RICO claims against AAC and its former employee; and in all other respects denied defendants’ motions. Defendants served answers to the second amended complaint on April 21, 2021, asserting several affirmative defenses, including a defense for unclean hands focused on the plaintiffs’ failure to maintain the project properties and falsification of maintenance records. On May 24, 2021, plaintiffs moved to strike defendants’ unclean hands defenses. On September 14, 2021, Magistrate Judge Sarah L. Cave, to whom plaintiffs’ motion to strike was referred for a Report and Recommendation, issued an opinion and order denying plaintiffs’ motion. On April 6, 2022, certain co-defendants filed a motion to sever the plaintiffs’ claims and to dismiss all claims except for claims asserted by the Monterey Bay plaintiffs. On January 26, 2024, the court granted the parties leave to file motions for summary judgment; opening briefs were due March 22, 2024, while oppositions are due May 31, 2024 and replies on July 12, 2024. On February 29, 2024, the court denied co-defendants’ motion to sever plaintiffs’ claims. On March 22, 2024, defendants served opening motions for summary judgment against plaintiffs’ claims in their entirety on multiple grounds, and plaintiffs served cross-motions for summary judgment on defendants’ unclean hands defenses. The parties’ summary judgment motions were fully briefed as of July 12, 2024 and are currently awaiting a decision from the Court. On December 11, 2024, the Court denied Plaintiffs’ motion for oral argument on Defendants’ motions for summary judgment, stating that it would “notify the parties if it concludes that oral argument concerning the motions for summary judgment would be productive.” In re National Collegiate Student Loan Trusts Litigation (Delaware Court of Chancery, Consolidated C.A. No. 12111, filed November 1, 2019). On November 1, 2019, AAC became aware of a new declaratory judgment action filed by certain residual equity interest holders (“NC Owners” or “Plaintiffs”) in fourteen National Collegiate Student Loan Trusts (the “Trusts”) against Wilmington Trust Company, the Owner Trustee for the Trusts; U.S. Bank National Association, the Indenture Trustee; GSS Data Services, Inc., the Administrator; and AAC. Through this action, Plaintiffs seek a number of judicial determinations. On January 21, 2020, the presiding Vice Chancellor entered an order consolidating the action with previously filed litigation relating to the Trusts. On February 13, 2020, AAC, the Owner Trustee, the Indenture Trustee, and other parties filed declaratory judgment counterclaims. Several parties, including Plaintiffs and AAC, filed motions for judgment on the pleadings in support of their requested judicial determinations. On August 27, 2020, the Vice Chancellor issued an opinion addressing all of the pending motions for judgment on the pleadings, which granted certain of the parties’ requested judicial determinations and denied others. He deferred judgment on still other declarations pending further factual development. The Vice Chancellor entered a series of stays to facilitate good-faith settlement discussions, the most recent of which was entered on May 2, 2023, and stayed the matter through May 5, 2023. On February 21, 2025, the Administrator filed a status report stating Ambac Financial Group, Inc. 95 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) that certain parties continue to negotiate a resolution to some of the pending claims. Ambac Assurance Corporation v. Bank of New York Mellon (United States District Court, Southern District of New York, No. 1:17-cv-03804, filed May 2, 2017). On May 2, 2017, AAC filed a complaint in New York State Supreme Court, New York County, against the trustee for the COFINA bonds, Bank of New York Mellon (“BNY”), alleging breach of fiduciary, contractual, and other duties for failing to adequately and appropriately protect the holders of certain AAC-insured senior COFINA bonds. On May 19, 2017, BNY filed a notice of removal of this action from New York state court to the United States District Court for the Southern District of New York. On May 30, 2017, the United States District Court for the District of Puerto Rico entered an order in an adversary proceeding brought by BNY (No. 1:17-ap-00133) staying this litigation pending further order of the court. The COFINA Plan became effective on February 12, 2019, and, pursuant to the District Court’s confirmation order, this litigation was permitted to continue, with AAC’s claims against BNYM being limited to those for gross negligence, willful misconduct and intentional fraud. On November 17, 2021, the District Court denied as moot BNY's motion to transfer venue to the District of Puerto Rico and continued the stay of the action. On July 6, 2022, the District Court granted AAC’s motion to lift the stay and for leave to file a Second Amended Complaint (“SAC”). AAC filed its SAC on July 10, 2022, and on July 25, 2022, BNY moved to dismiss the SAC. On September 23, 2022, Ambac filed its opposition to BNY’s motion to dismiss, and on October 24, 2022, BNY filed its reply in support of its motion to dismiss. On September 12, 2024, the District Court entered an Order to Show Cause concerning the proper venue for the case, stating that it planned to transfer the case to the United States District Court for the District of Puerto Rico. After AAC and BNY filed a Joint Response to the Order to Show Cause on September 19, 2024, stating that they did not object to the transfer, the case was transferred to the District Court for the District of Puerto Rico on September 20, 2024. On September 24, 2024, the District Court granted BNY’s motion to dismiss in its entirety. On October 23, 2024, AAC filed a Notice of Appeal appealing the case to the United States Court of Appeals for the First Circuit. On December 9, 2024, AAC and BNY filed a joint stipulation to voluntarily dismiss the appeal with prejudice and, following such filing, the District Court entered its judgment ordering such dismissal. Potential Litigation AAC’s estimates of projected losses for RMBS transactions consider, among other things, the RMBS transactions’ payment waterfall structure, including the application of interest and principal payments and recoveries, and depend in part on our interpretations of contracts and other bases of our legal rights. From time to time, bond trustees and other transaction participants have employed different contractual interpretations and have commenced, or threatened to commence, litigation to resolve these differences. From time to time AAC is also subject to allegations that it has failed to fulfill a contractual obligation or duty in respect of securities that it has issued. It is not possible to predict whether additional disputes will arise, nor the outcomes of any potential litigation. It is possible that there could be unfavorable outcomes in these or other disputes or proceedings and that our interpretations may prove to be incorrect, which could lead to changes to our estimate of loss reserves. In the ordinary course of its businesses, AAC asserts claims in legal proceedings against third parties to recover losses already paid and/or mitigate future losses. The amounts recovered and/or losses avoided which may result from these proceedings is uncertain, although recoveries and/or losses avoided in any one or more of these proceedings during any quarter or fiscal year could be material to Ambac’s results of operations in that quarter or fiscal year. Ambac Financial Group, Inc. 96 2024 Form 10-K Table of Contents AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar Amounts in Thousands, Except Share Amounts) 20. QUARTERLY INFORMATION (Unaudited) Our unaudited quarterly results of operations for the year ended December 31, 2024 and 2023 are being included because of our held for sale treatment in the fourth quarter of 2024 resulting in reporting discontinued operations and are summarized in the table below. 2024 Quarters 2023 Quarters ($ in thousands) First Second Third Fourth First Second Third Fourth Gross premiums written $ 96,422 $ 111,206 $ 115,154 $ 59,988 $ 51,823 $ 53,229 $ 77,499 $ 90,736 Net premiums written 26,247 32,289 32,754 ( 2,608 ) 9,187 9,120 24,768 36,750 Net premiums earned 25,579 27,054 27,441 18,931 6,995 7,785 12,187 24,945 Commission income 17,729 13,221 23,064 38,009 14,486 10,032 14,572 12,191 Program fees 2,567 3,328 3,622 3,989 1,485 2,076 2,415 2,461 Net investment income 3,640 3,763 3,488 3,557 2,881 3,027 3,663 3,588 Net investment gains (losses), including impairments — 4,535 ( 577 ) ( 4,455 ) 38 ( 20 ) — 1 Net gains (losses) on derivative contracts ( 48 ) ( 438 ) 6,545 ( 2,043 ) ( 175 ) ( 146 ) ( 27 ) 69 Other revenue (loss) 83 ( 426 ) 6,422 7,235 37 101 ( 5 ) 67 Losses and loss expenses (benefit) 19,355 23,024 20,421 9,826 4,659 5,739 9,509 16,805 Policy acquisition costs 4,424 5,399 5,993 7,850 1,399 1,351 1,956 5,851 Commission expense 9,822 7,888 9,499 13,667 7,597 6,021 8,455 7,392 General & administrative expense, including depreciation expense 18,050 28,336 44,681 40,444 11,839 17,117 17,914 21,193 Intangible amortization 1,139 1,139 6,423 8,901 967 966 1,079 1,139 Interest expense — — 3,745 5,634 — — — — Net income (loss) from continuing operations ( 3,369 ) ( 14,719 ) ( 19,890 ) ( 20,943 ) ( 813 ) ( 8,725 ) ( 4,595 ) ( 9,099 ) Net income (loss) from continuing operations attributable to Ambac shareholders (4,070) (14,932) (18,117) (22,163) (1,482) (8,835) (5,026) (9,208) Net income (loss) from discontinued operations net of tax (including loss on disposal of $570,145 in 2024) 24,140 14,182 ( 9,387 ) ( 526,102 ) ( 35,876 ) ( 9,300 ) 66,190 7,169 Net income (loss) attributable to Ambac shareholders $ 20,070 $ ( 750 ) $ ( 27,504 ) $ ( 548,265 ) $ ( 33,417 ) $ ( 13,132 ) $ 65,869 $ ( 15,688 ) Net income (loss) from continuing operations per share attributable to Ambac shareholders Basic $ ( 0.09 ) $ ( 0.33 ) $ ( 0.43 ) $ 0.70 $ ( 0.03 ) $ ( 0.20 ) $ ( 0.11 ) $ ( 0.10 ) Diluted $ ( 0.09 ) $ ( 0.33 ) $ ( 0.43 ) $ 0.70 $ ( 0.03 ) $ ( 0.20 ) $ ( 0.11 ) $ ( 0.10 ) Net income (loss) from discontinued operations per share attributable to Ambac shareholders Basic $ 0.53 $ 0.31 $ ( 0.20 ) $ ( 10.93 ) $ ( 0.70 ) $ ( 0.09 ) $ 1.55 $ ( 0.14 ) Diluted $ 0.53 $ 0.31 $ ( 0.20 ) $ ( 10.93 ) $ ( 0.70 ) $ ( 0.09 ) $ 1.55 $ ( 0.14 ) Net income (loss) per share attributable to Ambac shareholders Basic 0.44 ( 0.02 ) ( 0.63 ) ( 10.23 ) ( 0.73 ) ( 0.29 ) 1.44 ( 0.24 ) Diluted 0.44 ( 0.02 ) ( 0.63 ) ( 10.23 ) ( 0.73 ) ( 0.29 ) 1.44 ( 0.24 ) Net income (loss) attributable to Ambac shareholders $ 20,070 $ ( 750 ) $ ( 27,504 ) $ ( 548,265 ) $ ( 33,417 ) $ ( 13,132 ) $ 65,869 $ ( 15,688 ) Adjustment for Redeemable NCI 53 ( 184 ) ( 2,402 ) 55,762 212 ( 294 ) 19 4,855 Numerator of basic and diluted EPS $ 20,123 $ ( 934 ) $ ( 29,906 ) $ ( 492,503 ) $ ( 33,205 ) $ ( 13,426 ) $ 65,888 $ ( 10,833 ) Ambac Financial Group, Inc. 97 2024 Form 10-K Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure — None.