What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-12 compared with 2024-11-12 · 336 added, 802 removed, 204 unchanged (85% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ and £ in millions)

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

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

6 unchanged sentences

Business and Note 1.

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

Background and Business Description in our Annual Report on Form 10-K for the year ended December 31, 2024 for a description of our business and our key strategies to achieve our primary goal to maximize shareholder value.

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

See "Sale of AAC" below and "Sale of Ambac Assurance Corporation" in Note 5.

Discontinued Operation of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2024 for additional information about the divestiture of the Legacy Financial Guarantee business.

Organization of Information

MD&A includes the following sections:

Strategies to Enhance Shareholder Value 27

Critical Accounting Estimates 29

Financial Guarantees in Force 42

Results of Operations 29

1 unchanged sentence

Balance Sheet 34

Variable Interest Entities 58

Accounting Standards 37

Insurance Statutory Basis Financial Results 37

Ambac UK Financial Results under UK Accounting Principles 58

Non-GAAP Financial Measures 37

AFG Net Assets

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

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

As of September 30, 2024, and December 31, 2023, AFG's stand alone net assets, excluding its equity investments in subsidiaries are shown in the following table:

September 30,

2024 December 31, 2023

Cash and short-term investments $ 97 $ 156

Other investments (1)

Other net (liabilities) assets 18 23

Total $ 147 $ 211

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

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

Strategies to Enhance Shareholder Value

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

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

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

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

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

Ambac continuously evaluates, and is currently evaluating, opportunities to acquire businesses and assets for its Insurance Distribution business, and is currently in ongoing discussions to potentially acquire one or more businesses.

These acquisitions may be material to our business, financial condition and operations and may involve raising capital to finance the acquisition(s).

There can be no assurance, including with respect to the acquisitions under discussion, that we will agree to acquire any business or assets, obtain necessary financing or complete any acquisition in a timely manner or at all.

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

AFG's subsidiaries/businesses are divided into three segments with results for the three and nine months ended September 30, 2024, and 2023, as follows:

Three Months Ended September 30, 2024 Three Months Ended September 30, 2023

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

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

Distribution Corporate & Other Consoli-dated

Premiums placed $ 145 $ 145 $ 62 $ 62

Gross premiums written $ (2) $ 115 114 $ 2 $ 77 80

Net premiums written (2) 33 31 2 25 27

Total revenues 44 40 24 $ 6 114 41 16 15 $ 3 74

Total expenses 54 31 32 24 141 (28) 15 12 7 6

Pretax income (loss) (9) 9 (8) (18) (27) 69 — 2 (4) 68

13 9 2 (18) 6 91 — 4 (4) 91

Ambac Stockholders’ Equity (1)

943 134 242 147 1,465 836 116 103 210 1,265

Non-redeemable noncontrolling interest 51 — $ 154 205 51 2 53

Total stockholders’ equity 994 134 396 147 1,670 887 118 103 210 1,318

Redeemable noncontrolling interest 204 204 22 22

Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023

Legacy Financial Guarantee Insurance Specialty Property and Casualty Insurance Insurance

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

First Quarter 2025 Form 10-Q

Table f Contents

AFG's subsidiaries/businesses are divided into two reportable segments with results for the three months ended March 31, 2025, and 2024, as follows:

Three Months Ended March 31, 2025 Three Months Ended March 31, 2024

($ in thousands) Specialty Property and Casualty Insurance Insurance

Distribution Corporate & Other Consoli-dated Specialty Property and Casualty Insurance Insurance

Distribution Corporate & Other Consoli-dated

6 unchanged sentences

1,503 12,083 (14,063) (477) 1,821 5,122 (8,567) (1,625)

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

(2) EBITDA is prior to the impact of noncontrolling interests, and relates to subsidiaries where Ambac does not own 100% in the amounts, of $(0.3) and $0.6 for the three months ended September 30, 2024 and 2023, respectively, and of $1.1 and $1.8 for the nine months ended September 30, 2024 and 2023, respectively.

These noncontrolling interests are in the Insurance Distribution segment.

Sale of Consolidated National Insurance Company

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

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

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

Adjusted EBITDA 1,589 12,112 (9,988) 3,713 1,872 5,122 (5,689) 1,304

Net income (loss) attributable to Ambac shareholders 1,425 $ (3,397) $ (14,172) (16,144) 1,713 $ 3,152 $ (8,938) (4,070)

EBITDA attributable to Ambac shareholders 1,589 12,112 (9,988) 3,713 1,872 5,122 (5,689) 1,304

Adjusted EBITDA attributable to Ambac common stockholders $ 1,589 12,112 $ (9,988) 3,713 $ 1,872 5,122 $ (5,689) 1,304

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

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

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

value $0.01, of AFG representing 9.9% of the fully diluted shares of AFG’s common stock as of March 31, 2024, pro forma for the issuance of the warrant The warrant will have an exercise price per share of $18.50 with a six and a half-year term from the date of issuance and will be immediately exercisable.

In connection with and pursuant to the stock purchase agreement, AFG has agreed to issue to Buyer a warrant exercisable for a number of shares of common stock, par value $0.01, of AFG representing 9.9% of the fully diluted shares of AFG’s common stock as of March 31, 2024, pro forma for the issuance of the warrant The warrant will have an exercise price per share of $18.50 with a six and a half-year term from the date of issuance and will be immediately exercisable.

Payment of the exercise price may be settled, at AFG’s option, by way of a cash exercise or by net share settlement.

Refer to Note 1.

Business and Basis of Presentation for further details on the pending sale of AAC.

This pending Sale had no impact on the financial statements at September 30, 2024, other than incurred transaction expenses of approximately $2 and $9 for the three and nine months ended September 30, 2024.

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

If the transaction was completed on September 30, 2024, Ambac would have reflected the below:

Fair value of consideration received (cash less estimated value of warrants issued) $ 404

Carrying value of noncontrolling interest 51

carrying amount of AACs net assets 991

estimated incremental transaction expenses 13

Impact of sale of AAC on stockholders' equity $ (549)

Reclassification of Accumulated Other Comprehensive Income to earnings $ (90)

Total (loss on disposal) recognized in net income $ (639)

Purchase of Beat

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

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

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

The Buyer continues to pursue the final outstanding regulatory approval for the Sale, which would be received only after a hearing at or prior to which third parties would have an opportunity to object to the Sale.

As a result, consistent with the terms of the purchase agreement, the term of the purchase agreement has been automatically extended from April 4, 2025, to July 3, 2025.

Refer to Note 5.

Business and Basis of Presentation for further details on the acquisition of Beat.

Banking Sector Crisis of 2023

The collapse of several banks in early 2023 and extending into 2024 precipitated a sudden loss of confidence in the banking system, prompting bank runs and the U.S.

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

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

Treasury and government-backed debt held by banking institutions.

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

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

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

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

Ambac's cash balances held at banks was $70 as of September 30, 2024 and $27 as of December 31, 2023.

Substantially all of these cash balances were uninsured as of September 30, 2024 and December 31, 2023, because they either (i) exceeded the two hundred and fifty thousand FDIC insurance limit or (ii) were held in foreign banks.

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

or global banks.

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

Included in the cash balances above are $42 and $16 as of September 30, 2024 and December 31, 2023, respectively, of cash from companies Ambac has acquired within its insurance distribution businesses that are held in regional banks.

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

In addition, cash balances held by variable interest entities ("VIEs") that are consolidated in Ambac's financial statements as a result of Ambac's financial guarantees totaled $47 and $246 as of September 30, 2024 and December 31, 2023, respectively.

These amounts relate primarily to cash collateral posted against derivative assets and reserve balances maintained under the VIEs' governing documents and are not directly managed by Ambac.

Ambac also has exposure to banks through its fixed maturity investment portfolio totaling $154 and $169 as of September 30, 2024 and December 31, 2023, respectively.

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

The average rating of our fixed income investment in banks was A- as of September 30, 2024.

Financial Statement Impact of Foreign Currency:

The impact of currency transactions and the remeasurement of non-functional currency assets and liabilities into the respective subsidiaries' functional currency as reported in Ambac's Unaudited Consolidated Statement of Total Comprehensive Income for the nine months ended September 30, 2024 and 2023, included the following:

Nine Months Ended September 30, 2024 2023

Net income (1)

Gain (losses) on foreign currency translation (net of tax) 51 8

Unrealized gains (losses) on non-functional currency available-for-sale securities (net of tax) (7) (2)

Impact on total comprehensive income (loss) (2)

(1) A portion of Ambac UK's, Beat's and to a lesser extent AAC's, assets and liabilities are denominated in currencies other than its functional currency.

Other than the foreign currency impact on unrealized gains (losses) on available-for-sale securities, which is included in Other comprehensive income, foreign currency transaction gains/(losses) as a result of changes to foreign currency rates are reported through Net income in the Unaudited Consolidated Statement of Total Comprehensive Income (Loss).

(2) Excludes adjustments to attribute net income (loss) of $(1) and gain (loss) on foreign currency translation of $5 to noncontrolling interests for the nine months ended September 30, 2024.

The above amounts do not include gains of $6 included in net income (loss) attributable to common stockholders for the nine months ended September 30, 2024 arising from changes in fair value of foreign exchange forward contracts used by Beat to partially hedge its foreign currency exposure and by Ambac to protect against currency fluctuations related to the purchase of Beat.

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

Refer to Part II, Item 7A in the Company’s Annual Report on Form 10-K for the year ended December 31,

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

2023, for further information on the impact of future currency rate changes on Ambac's financial instruments.

Discontinued Operation of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2024 for further details on the pending sale of AAC.

The anticipated loss on sale included within Net income (loss) from discontinued operations before tax on the Consolidated Statement of Comprehensive Income (Loss) for the three months ended March 31, 2025 and year ended December 31, 2024, are summarized is $(14,496) and $(570,145), respectively.

Discontinued Operation in this report on Form 10-Q for further information.

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 March 31, 2025, amounted to $(132,778).

SEC Final Rules on Climate Related Information

3 unchanged sentences

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

In March 2025, the SEC ended its defense of the Final Rule, though judicial review of legal challenges continues.

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

1 unchanged sentence

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

Ambac Financial Group, Inc.

First Quarter 2025 Form 10-Q

Table f Contents

CRITICAL ACCOUNTING ESTIMATES

2 unchanged sentences

For a discussion of Ambac’s critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Ambac’s Annual Report on Form 10-K for the year ended December 31, 2024.

As a result of the acquisition of Beat, the growth in our Specialty Property and Casualty Insurance segment and the pending sale of Ambac Assurance, Ambac expects to make changes to its critical accounting estimates in the fourth quarter of 2024.

FINANCIAL GUARANTEES IN FORCE

Financial guarantee products were sold in three principal markets:

public finance, U.S.

structured finance and international finance.

Net par exposures within the U.S.

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

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

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

The following table provides a comparison of total, adversely classified credits ("ACC") and watch list credit net par outstanding in the insured portfolio at September 30, 2024 and December 31, 2023.

($ in billions)

September 30,

2024 December 31,

2023 Variance

Total $ 18,756 $ 19,541 $ (785) (4) %

ACC $ 2,677 $ 3,504 $ (99) (4) %

Watch List $ 2,563 $ 2,181 $ (116) (4) %

The decrease in total and ACC net par outstanding resulted from active de-risking, scheduled maturities, amortizations, refundings and calls, partially offset by a weakening of the USD versus the GBP which increased total net par outstanding by $357.

Additionally, we upgraded (from ACC to Watch List) one credit that has net par outstanding of $542 at September 30, 2024.

The following table provides a breakdown of guaranteed net par outstanding by market at September 30, 2024 and December 31, 2023.

September 30,

2024 December 31,

Public Finance (1)

$ 6,919 $ 7,562

Structured Finance 2,870 3,315

International Finance 8,967 8,664

Total net par outstanding $ 18,756 $ 19,541

(1) Includes $3,321 and $3,371 of Military Housing net par outstanding at September 30, 2024 and December 31, 2023, respectively.

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

The table below shows Ambac’s ten largest insured exposures, by repayment source, as a percentage of total financial guarantee net par outstanding at September 30, 2024:

Bond Kind Country-Bond Type Ambac

Outstanding % of Total

IF AUK Investor Owned Utility Gas - unsecured UK-Utility BBB+ 2037 $ 971 5.2 %

IF AUK PFI - Hospitals UK-Infrastructure BBB+ 2046 776 4.1 %

IF AUK Investor Owned Utility Other - unsecured UK-Utility A- 2035 752 4.0 %

IF AUK PFI - Accommodation UK-Infrastructure A- 2040 750 4.0 %

IF AUK Investor Owned Utility Electric - unsecured UK-Utility BBB+ 2036 670 3.6 %

IF AUK Other Asset Securitizations UK-Asset Securitizations BBB+ 2033 659 3.5 %

IF AUK Sub-Sovereign Italy-Sub-Sovereign BBB- 2035 564 3.0 %

IF AUK PFI - Accommodation UK-Infrastructure A- 2038 479 2.6 %

PF AAC US State Lease/Appropriation US-Lease and Tax-backed Revenue BBB 2036 357 1.9 %

IF AUK PFI - Hospitals UK-Infrastructure BBB- 2040 329 1.8 %

Total $ 6,307 33.7 %

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

AAC = Ambac Assurance, AUK = Ambac UK

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

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

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

BIG denotes credits deemed below investment grade.

Net par related to the top ten exposures increased $216 from December 31, 2023.

Exposures are impacted by changes in foreign exchange rates ($249 increase during the nine months ended September 30, 2024), certain indexation rates linked to inflation measures in the United Kingdom (RPI) and scheduled and unscheduled paydowns.

The concentration of net par amongst the top ten (as a percentage of net par outstanding) was 34% at September 30, 2024, and 31% at December 31, 2023.

Excluding the top ten exposures, the remaining insured portfolio of financial guarantees has an average net par outstanding of $29 per single risk, with insured exposures ranging up to $303 and a median net par outstanding of $5.

Exposure Currency

The table below shows the distribution by currency of Ambac’s insured exposure as of September 30, 2024:

Currency Net Par Amount

Outstanding in

Base Currency Net Par Amount

Outstanding in

Dollars $ 9,927 $ 9,927

British Pounds £ 5,746 7,682

Euros € 779 867

Australian Dollars A$ 405 280

Total $ 18,756

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

Ratings Distribution

The following charts provide a rating distribution of net par outstanding based upon internal Ambac credit ratings (1) and a distribution by bond type of Ambac's below investment grade ("BIG") net par exposures at September 30, 2024 and December 31, 2023.

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

AAA is less than 1% in both periods.

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

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

Summary of Below Investment Grade Exposure:

Net Par Outstanding

Bond Type September 30,

2024 December 31,

Public Finance:

Military Housing $ 357 $ 361

Lease and tax-backed revenue 76 80

General Obligations 77 85

Total Public Finance 543 563

Structured Finance:

RMBS 1,526 1,642

Student Loans 167 264

Total Structured Finance 1,693 1,906

International Finance:

Transportation 303 307

Sovereign/sub-sovereign 121 693

Total International Finance 425 1,001

Total $ 2,661 $ 3,470

The net decline in below investment grade exposures is primarily due to de-risking activities and an upgrade of a sub-sovereign exposure.

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

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

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

Results of Operations

1 unchanged sentence

A summary of our financial results is shown below:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Gross premiums written $ 86,915 $ 96,422

2 unchanged sentences

Commission income 36,771 17,729

Servicing and other fees 4,964 —

Program fees 3,652 2,567

Net investment income 2,815 3,640

Net investment gains (losses), including impairments (1) 1 3 (7)

Net gains (losses) on derivative contracts 5 4 7 1

Income (loss) on variable interest entities 3 1 5 —

Other income 10 2 28 7

Total revenue 114 74 321 194

Losses and loss adjustment expenses (benefit) 38 (76) 54 (51)

Amortization of deferred acquisition costs, net 6 2 16 5

Other revenue (1,124) 36

Losses and loss adjustment expenses 10,496 19,355

Policy acquisition costs 3,841 4,424

Commission expense 10,365 9,822

General and administrative expenses 38,531 17,575

Intangible amortization 13 7 33 21

Intangible amortization and depreciation 9,176 1,614

Interest expense 5,454 —

Total expenses 77,863 52,790

Provision for income taxes 3 1 10 7

Provision (benefit) for income taxes from continuing operations (617) 130

Net income (loss) from continuing operations (14,490) (3,369)

Net income (loss) from discontinued operations, net of income taxes (30,247) 24,140

Net income (loss) (44,737) 20,771

net (gain) loss attributable to noncontrolling interest (1,654) (701)

Net income (loss) attributable to common stockholders $ (28) $ 66 $ (8) $ 19

The following paragraphs describe the consolidated results of operations of Ambac and its subsidiaries for the three and nine months ended September 30, 2024 and 2023, respectively.

Net income (loss) attributable to Ambac shareholders $ (46,391) $ 20,070

Ambac's results for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 were impacted by the following:

• Ambac's acquisition of its interests in Beat on August 1, 2024.

• In the fourth quarter of 2024, the pending sale of AAC was determined to qualify for discontinued operations presentation, resulting in its results being reported within discontinued operations.

Refer to Note 1.

Background and Business Description and Note 5.

Discontinued Operation of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December

31, 2024 and Note 3.

Discontinued Operations to the Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further details on the pending sale and results for the three months ended March 31, 2025 and 2024.

The following paragraphs describe the consolidated results of continuing operations of Ambac and its subsidiaries for the three months ended March 31, 2025 and 2024, respectively.

Gross Premiums Written.

Gross premiums written increased $34 and $130 for the three and nine months ended September 30, 2024, compared to the same period in the prior year, as shown by segment below.

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Legacy Financial Guaranty Insurance $ (2) $ 2 $ 2 $ 12

Specialty Property & Casualty Insurance 115 77 323 183

Total $ 114 $ 80 $ 325 $ 195

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

Specialty Property & Casualty Insurance growth in gross premiums written was driven by new programs, including assumed premium written with Everspan as a reinsurer, and growth in existing programs.

Gross premiums written decreased $11,185 for the three months ended March 31, 2025, compared to the same period in the prior year.

The reduction is primarily driven by the non-renewal of certain programs, including the non-renewal of an assumed non-standard personal auto program, partially offset by growth in existing programs and the addition of new programs.

Net Premiums Written.

Net premiums written increased $4 and $92 for the three and nine months ended September 30, 2024, compared to the same period in the prior year, as shown by segment below:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Legacy Financial Guaranty Insurance $ (2) $ 2 $ 1 $ (43)

Specialty Property & Casualty Insurance 33 25 91 43

Total $ 31 $ 27 $ 92 $ —

Legacy Financial Guarantee Insurance net premiums written in the nine months ended September 30, 2023, were impacted by a significant reinsurance cession as part of its de-risking activities.

Specialty P&C growth was driven by new programs, including assumed premium written by Everspan as a reinsurer, and growth in existing programs.

Net premiums written decreased $8,243 for the three months ended March 31, 2025, compared to the same period in the prior year.

The reduction is primarily driven by the non-renewal of certain programs, including an assumed non-standard personal auto program, partially offset by growth in existing programs and the addition of new programs.

Net Premiums Earned.

Net premiums earned increased $15 and $51 for the three and nine months ended September 30, 2024, compared to the same period in the prior year as shown by segment below.

Three Months Ended September 30, Nine Months Ended September 30,

Legacy Financial Guaranty Insurance $ 6 $ 6 $ 19 $ 20

Specialty Property & Casualty Insurance 27 12 80 27

Total $ 33 $ 18 $ 99 $ 47

The increase in Specialty Property & Casualty Insurance was driven by new programs, including premiums earned via assumed reinsurance, and growth in existing programs.

Net premiums earned decreased $9,901 for the three months ended March 31, 2025, compared to the same period in the prior year.

The decrease was primarily driven by the non-renewal of certain programs, including an assumed non-standard personal auto program, partially offset by growth in existing programs and the addition of new programs.

Commission Income and Commission Expense.

Commission income for the three months ended March 31, 2025, was $36,771 compared to $17,729 for the three months ended March 31, 2024.

Commission income included profit commissions (based on underwriting performance) of $4,691 for the three months ended March 31, 2025 and $1,182 for the three months ended March 31, 2024 , respectively.

The incr ease was primarily driven by the inclusion of profit commissions earned by Beat following the acquisition in August 2024.

For the three months ended March 31, 2025, commission expense of $10,365 compared to $9,822 in three months ended March 31, 2024, representing approximately 45% and 72% of commission income in each respective period.

The decrease in commission expense relative to commission income in 2025 relative to 2024 is primarily a result of the acquisition of Beat.

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

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

Program Fees.

Program fee revenues were $3,652 and $2,567 for the three months ended March 31, 2025 and 2024,

Ambac Financial Group, Inc.

First Quarter 2025 Form 10-Q

Table f Contents

respectively.

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

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

The growth is a function of growth of business and related premiums ceded to reinsurers.

Net Investment Income.

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

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

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

These funds and other investments are reported in Other investments on the Unaudited Consolidated Balance Sheets, which consists primarily of pooled fund investments in diversified asset classes.

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

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

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

Investments to the Unaudited Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q.

Net investment income for the periods presented were driven by the Legacy

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

Financial Guarantee segment;

other segments' results were not significant.

Net investment income from Ambac-insured securities;

available-for-sale and short-term securities, other than Ambac-insured;

and Other investments is summarized in the table below:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Securities available-for-sale and short-term other than Ambac-insured $ 19 $ 18 59 50

Other investments (includes trading securities) 14 6 39 33

Securities available-for-sale:

Ambac-insured 6 6 $ 18 $ 17

Net investment income (loss) $ 38 $ 30 $ 116 $ 100

Net investment income increased $8 and $16 for the three and nine months ended September 30, 2024 compared to the prior year period.

• Net investment income from available-for-sale and short-term securities, other than Ambac-insured increased $1 and $9 for the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year due primarily to higher portfolio yields.

• Other investments income (loss) increased $8 and $7 for the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year.

Improved performance on equity fund investments, along with higher allocations to high-yield and convertible bond funds drove the majority of the increase for the three and nine months ended September 30, 2024.

• Net investment income from Ambac-insured securities for the three and nine months ended September 30, 2024, was generally flat compared to prior year periods.

Net Investment Gains (Losses), including Impairments.

The following table provides a breakdown of net investment gains (losses) for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Net gains (losses) on securities sold or called $ 3 $ (1) $ 9 $ (3)

Net foreign exchange gains (losses) (5) 2 (6) (2)

Credit impairments — (1) (1) (2)

Intent / requirement to sell impairments — — — —

Net investment gains (losses), including impairments $ (2) $ 1 $ 3 $ (7)

Net gains (losses) on securities sold or called for the nine months ended September 30, 2024, were elevated by gains from the conversion and early settlement of certain convertible notes, including make-whole payments.

Foreign exchange (losses) gains relate primarily to US dollar denominated securities held by Ambac UK.

Credit impairments on available-for-sale fixed maturity investments are recorded as an allowance for credit losses with changes in the allowance recorded through earnings.

When credit impairments are recorded, any non-credit related impairment amounts on the securities are recorded in other comprehensive income.

If management either:

(i) has the intent to sell its investment in a debt security or (ii) determines that the Company is more likely than not will be required to sell the debt security before its anticipated recovery, then the amortized cost of the security is written-down to fair value with a corresponding impairment charge recognized in earnings.

Credit impairments for the three and nine months ended September 30, 2024 also included a write-down in carrying value of $1 and $2, respectively on an investment in preferred securities that do not have a readily determinable fair value and are carried at cost less impairments.

Net Gains (Losses) on Derivative Contracts.

Net gains (losses) on derivative contracts includes results from the Company's legacy interest rate derivatives portfolio and, since the acquisition of Beat, foreign exchange derivatives within the insurance distribution segment.

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

This economic hedge was fully removed during the second quarter of 2023.

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

The removal of the economic hedge does not change the exposure of future results to counterparty credit adjustments.

Foreign exchange derivatives are used by Beat to economically hedge the impact of exchange rate volatility on non-pound sterling transactions.

Additionally, Ambac entered into foreign exchange forward contracts to stabilize the US dollar purchase price leading up to its acquisition of 60% of Beat.

Net gains (losses) on derivative contracts for the three and nine months ended September 30, 2024, were $5 and $7, respectively, compared to $4 and $1 for the three and nine months ended September 30, 2023.

Results for the three and nine months ended September 30, 2024, were driven by foreign exchange contract gains of $7 and $6, respectively.

Legacy interest rate derivatives gains (losses) were $(1) and $1, for the three and nine months ended September 30, 2024, and $4 and $2 for the three and nine months ended September 30, 2023, inclusive of the effect of changes to counterparty credit adjustments as described below.

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

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

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

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

Inclusion of counterparty credit adjustments in the valuation of

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

interest rate derivatives resulted in gains (losses) within Net gains (losses) on derivative contracts of $(2) and $1 for the three and nine months ended September 30, 2024, respectively and $4 and $4 for the three and nine months ended September 30, 2023, respectively.

The counterparty credit adjustments for all periods were driven primarily by changes to the underlying asset values.

Commission Income and Commission Expense.

Commission income for the three and nine months ended September 30, 2024, was $23 and $54 compared to $15 and $39, for the three and nine months ended September 30, 2023.

Commissions include both base and profit sharing commissions of the Insurance Distribution segment.

The increase was primarily driven by commissions earned by Beat following the acquisition in August 2024 and full periods of production from Riverton Insurance Agency, acquired in August 2023, as well as organic growth during the quarter.

Gross commission income has an accompanying expense, commission expense, which will mostly track changes in gross commission.

For the three and nine months ended September 30, 2024, commission expense of $9 and $27 compared to $8 and $22 in three and nine months ended September 30, 2023, driven primarily by the same factors as commission income.

For the MGAs in the Insurance Distribution segment, when sub-producers or agents are involved in procuring policies, the related contracts are evaluated in accordance with the ASC 606 revenue recognition guidance to determine the income statement presentation of commission revenue and commission expense.

Based on that evaluation, for certain MGAs commissions paid by the carrier for insurance placement are reported as revenue and the associated sub-producer commissions paid by the MGAs are reported as expense on the income statement.

For certain other MGAs, commissions paid by the carrier for insurance placement are recognized as revenue and there is no associated expense incurred or recognized.

Other Income.

Other income included various LFG fees, foreign exchange gains (losses) unrelated to investments or loss reserves and, during the three and nine months ended September 30, 2024, the gain on the sale of CNIC of $7, where Everspan sold its ownership in CNIC and CNIC's related insurance licenses for proceeds of approximately $19 million.

For the nine months ended September 30, 2024, other income included $12 related to the termination of a LFG postretirement plan.

The gain represents the amount of the accrued and deferred liabilities in excess of the final payment made under the plan

Income (Loss) on Variable Interest Entities.

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

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

Income (loss) on variable interest entities was $3 and $5 for the three and nine months ended September 30, 2024, compared to $1

and $— for the three and nine months ended September 30, 2023.

The three and nine months ended September 30, 2024, increased from the prior year period due to inclusion of the operating results of a LFG-VIE initially consolidated in the fourth quarter 2023, partially offset by lower fair value gains on the net assets of other LFG-VIEs.

Additionally, the nine months ended September 30, 2023, included accelerated discount accretion within interest expense resulting from partial redemption of certain Puerto Rico VIE debt.

Refer to Note 9.

Variable Interest Entities to the Unaudited Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q for further information on the accounting for LFG- VIEs.

Net investment income decreased $825 for the three months ended March 31, 2025 compared to the prior year period due to lower Corporate short-term investment balances resulting primarily from the acquisition of Beat, partially offset by higher investment income on short-term investments at the Cirrata companies with the addition of Beat, and growth of the Everspan investment portfolio.

Servicing and Other Fees.

Includes revenues earned for providing operational and administrative services to the Lloyd's syndicates managed by Beat as well as certain policy and brokerage fees.

Other Revenues.

Other revenues for the three months ended March 31, 2025 of $(1,124) and 2024 of $36 includes (i) net investment gains (losses) on securities sold or called;

(ii) investment impairment charges;

(iii) foreign exchange gains (losses) from the Insurance Distribution segment;

(iv) net gains on derivative contracts for the three months periods ended March 31, 2025, resulting from the change in fair value of FX forward contracts used to manage currency risk within the Insurance Distribution segment and (v) fair value changes on warrants to purchase equity of certain development stage companies held by AFG.

The net loss for the three months ended March 31, 2025 was driven primarily by foreign exchange losses on the non-functional currency operations of Beat.

Losses and Loss Adjustment Expenses (Benefit).

Loss and loss expenses incurred increased $114 and decreased $105 for the three and nine months ended September 30, 2024, compared to the same period in the prior year.

The below provides the breakout of loss and loss expenses by segment:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Legacy financial guarantee $ 17 $ (86) $ (9) (71)

Specialty property and casualty insurance 20 10 63 20

Total $ 38 $ (76) 54 (51)

The variance within legacy financial guarantee was driven by activities in the RMBS portfolio in both years.

The primary driver was largely the negative impact of discount rates in 2024 compared to RMBS recoveries and the positive impact of discount rates on the RMBS portfolio in 2023.

The higher loss and loss adjustment expenses in Specialty P&C is primarily due to increased business production from new and existing programs as well as higher loss expectations on commercial auto risk and the addition of a personal nonstandard auto program.

Loss and loss expenses incurred decreased $8,859 for the three months ended March 31, 2025, compared to the same period in the prior year.

The lower loss and loss adjustment expenses is primarily due to the shift in mix of business driven by the non-renewal of certain programs, including an assumed non-standard personal auto program in which Everspan was a reinsurer and certain commercial auto programs, partially offset by growth in existing programs and the addition of new programs.

General and Administrative Expenses (G&A).

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Compensation $ 22,887 $ 10,546

1 unchanged sentence

Total G&A expenses $ 38,531 $ 17,686

The increase in Compensation G&A expenses during the three and nine months ended September 30, 2024, was due to higher compensation costs from a net increase in staffing from the development and growth of the Specialty Property & Casualty Insurance and Insurance Distribution segments, including the effect of Insurance Distribution acquisitions;

The increase in Compensation G&A expenses during the three months ended March 31, 2025, was due to higher compensation costs from a net increase in staffing from the development and growth of the Specialty Property & Casualty Insurance and Insurance Distribution segments, including the effect of Insurance Distribution acquisitions;

offset by lower current year period expenses for severance and incentive compensation.

Variances in Non-Compensation G&A expenses for the three and nine months ended September 30, 2024, as compared to the three

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

and nine months ended September 30, 2023, were driven by expenses associated with the strategic review and proposed sale of the Legacy Financial Guarantee Insurance segment, transaction expenses related to the acquisition of Beat, and growth of the Specialty Property & Casualty Insurance and Insurance Distribution segments;

offset by lower Legacy Financial Guarantee Insurance segment's legal defense costs.

For the three and nine months ended September 30, 2024, expenses attributable to the sale of AAC and acquisition of Beat aggregated $16 and $35 compared to $1 and $2 for the three and nine months ended September 30, 2023, respectively.

Intangible Amortization.

Insurance intangible amortization for the three and nine months ended September 30, 2024, was $6 and $25 an increase of $— and $7 as compared to the the three and nine months ended September 30, 2023.

The increase for the nine months ended September 30, 2024, was driven primarily by LFG de-risking activities.

Other intangible amortization for the three and nine months ended September 30, 2024, was $6, and $9 and $1 and $3 for the three and nine months ended September 30, 2023, respectively.

The increase in other intangible amortization for the three and nine months ended September 30, 2024 related to the Beat acquisition of $6.

Variances in Non-Compensation G&A expenses for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, were driven by integration expenses related to the acquisition of Beat, higher Corporate segment expenses related to M&A transactions and audit fees.

Intangible Amortization and Depreciation.

Intangible amortization for the three months ended March 31, 2025 and 2024, was $8,763 and $1,139, respectively.

The increase in other intangible amortization for the three months ended March 31, 2025 of $7,624 related to the Beat acquisition.

Interest Expense.

Interest expense relates primarily to the Legacy Financial Guarantee Insurance segment and includes accrued interest on the Tier 2 Notes (fully redeemed during the first quarter of 2023), surplus notes and other debt obligations.

Beginning in the third quarter of 2024, Ambac borrowed under a short-term credit facility to partially fund the purchase of 60% of Beat.

Interest expense under the credit facility is attributed to the Insurance Distribution segment.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Surplus notes $ 15 $ 16 $ 47 $ 47

Tier 2 Notes — — — 1

Other (principally Ambac UK) — — 1 1

Short-term borrowing 4 — 4 —

Total interest expense $ 20 $ 16 $ 52 $ 48

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

AAC intends to make these requests at least four times a year with respect to payment of a partial amount, as well as the full amount, of the principal and interest then due, unless otherwise directed by OCI.

OCI’s approval of AAC’s requests for surplus note payments may be granted or denied in OCI’s sole discretion.

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

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

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.

AAC requested OCI to authorize a full or partial payment of accrued interest due on the surplus notes along with a full or partial payment of outstanding principal of the surplus notes on June 7, 2024, and made a similar request in September 2024, but such requests were denied.

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

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

Total accrued and unpaid interest for surplus notes outstanding was $512 at September 30, 2024.

Interest expense for the three months ended March 31, 2025 was $5,454, related to the short-term debt used in funding the Beat acquisition, entered into during the third quarter of 2024.

The company had no debt or interest expenses during the three months ended March 31, 2024.

Provision for Income Taxes.

The provision for income taxes primarily relates to international operations and was $3 and $10 for the three and nine months ended September 30, 2024, compared to $1 and $7 for the three and nine months ended September 30, 2023, an increase of $2 for the quarter.

Results of Operations by Segment

Legacy Financial Guarantee Insurance

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Net premiums earned $ 6 $ 6 $ 19 $ 20

Net investment income 34 27 105 90

Net investment gains (losses), including impairments (1) 1 (1) (7)

Net gains (losses) on derivative contracts (1) 4 1 2

Other income 6 3 27 7

Total 44 41 151 112

Loss and loss expenses (benefit) 17 (86) (9) (71)

General and administrative expenses 14 35 58 87

Total 31 (50) 49 16

Earnings before interest, taxes, depreciation and amortization (1)

Interest expense 16 16 48 48

Depreciation — — 1 1

Intangible amortization 6 6 25 18

Pretax income (loss) $ (9) $ 69 $ 28 $ 29

Stockholders equity (2)

(1) Abbreviated as "EBITDA" in future references

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

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

The Legacy Financial Guarantee Insurance segment is in active runoff.

This will generally result in declining premiums earned, G&A expenses and intangible amortization.

The variability in the segment financial results is primarily driven by (i) change in loss and loss expenses resulting from, among other items, credit developments, interest rates and de-risking transactions (may also impact intangible amortization) and (ii) volatility from investments income (loss) resulting from changes in market conditions and other performance factors.

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

Net premiums earned.

Net premiums earned decreased $0 and $2 for the three and nine months ended September 30, 2024, compared to the same period in the prior year.

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

Other Revenue Items.

Net investment income increased $8 and $15 for the three and nine months ended September 30, 2024, compared to the prior year period, driven by higher fair value net gains on pooled investment funds and higher yields in fixed income.

Net investment gains (losses), including impairments declined $2 for the three months ended September 30, 2024, and improved $6 million for the nine months ended September 30, 2024, compared to the prior year periods, due to variances from foreign exchange and favorable variances in net realized gains on sales and credit impairment allowance adjustments.

Foreign exchange gains (losses) of $(5) and $2 for the three months ended September 30, 2024 and 2023, respectively, and $(6) and $(2) for the nine months ended September 30, 2024, respectively, relate primarily to US dollar denominated securities held by Ambac UK.

Net gains (losses) on derivatives for the three and nine months ended September 30, 2024, declined $5 and less than $1, respectively, compared to the prior year periods mostly driven by the impact of counterparty credit adjustments on certain derivative assets.

Additionally, the nine months ended September 30, 2023, included losses on positions held as partial hedges against interest rate risk elsewhere in the Legacy Financial Guarantee segment.

Ambac has exited the derivative positions that led to the 2023 losses.

See Consolidated Results above for further information about investment and derivative results.

Other income increased $3 and $20 for the three and nine months ended September 30, 2024, respectively.

The increases for the three and nine months ended September 30, 2024 compared to the prior year periods include $2 and $5, respectively, related to results of VIEs as discussed above under Consolidated Results - Income (Loss) on Consolidated Variable Interest Entities.

The increase for the nine months ended September 30, 2024 also included the termination of a postretirement plan;

the gain represents the amount of the accrued and deferred liabilities in excess of the final payment made under the plan.

Losses and Loss Adjustment Expenses (Benefit).

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Structured Finance $ 18 $ (80) $ (3) $ (59)

Domestic Public Finance — (8) 2 (7)

Other, including International Finance (2) 2 (7) (5)

Totals $ 17 $ (86) $ (9) $ (71)

Loss and loss adjustment expenses for the three months ended September 30, 2024, were largely driven by the negative impact of discount rates on the structured finance portfolio.

Loss and loss adjustment expenses (benefit) for the nine months ended September 30, 2024, were largely driven by the net positive impact of discount rates on the structured finance portfolio, and assumption changes in the international portfolio, partially offset by adverse development in the public finance portfolio.

Loss and loss expenses (benefit) for the three and nine months ended September 30, 2023, was largely driven by RMBS recoveries, the positive impact of discount rates on the RMBS portfolio and assumption changes in the international portfolio (nine months only).

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

G&A Expenses.

Segment G&A expenses decreased during the three and nine months ended September 30, 2024, as compared to the three and nine months ended September 30, 2023, primarily due to lower legal defense costs and compensation costs.

The provision for income taxes primarily relates to international operations and was $(617) for the three months ended March 31, 2025, compared to $130 for the three months ended March 31, 2024, a decrease of $747 for the quarter.

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

First Quarter 2025 Form 10-Q

Table f Contents

Results of Operations by Segment

Specialty Property and Casualty Insurance

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Gross premiums written $ 86,915 $ 96,422

3 unchanged sentences

Investment income 1,842 1,399

Net investment gains (losses), including impairments — — — —

Other income (1) (3)

7 unchanged sentences

Retention Ratio (1)

28.4% 32.0% 28.3% 23.6%

Loss and LAE Ratio (2)

74.4% 78.0% 78.4% 73.8%

Expense Ratio (3)

26.1% 28.5% 24.4% 38.5%

Combined Ratio (4)

100.5% 106.5% 102.8% 112.3%

Ambac's stockholders equity (5)

$ 137,241 $ 121,889

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

4 unchanged sentences

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

Twenty-four programs were authorized to issue policies as of September 30, 2024, including Everspan participating on two programs as a reinsurer.

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

Twenty-six programs were authorized to issue policies as of March 31, 2025, including Everspan participating on certain programs as a reinsurer.

As part of Everspan's focus on improving profitability and capital utilization, Everspan non-renewed certain programs, including a commercial auto program and an assumed non-standard personal auto program in the latter half of 2024, and a commercial auto and a general liability program in 1Q2025.

The non-renewals resulted in a reduction in gross and net written premiums, net premiums earned, losses and loss expenses incurred, and a shift in Everspan's retention ratio in the three months ended March 31, 2025, compared to March 31, 2024.

Partially offsetting these non-renewals are the continued growth in existing programs and addition of new programs.

EBITDA and pre-tax income has decreased in the three months ended March 31, 2025 compared to March 31, 2024, primarily due to the reduction in earned premium related to the non-renewal of these programs.

Consistent with its strategy to generate sustainable and profitable, long-term specialty property and casualty program insurance business with a focus on diverse classes of risks, Everspan may source programs as a reinsurer.

Accessing programs as a reinsurer provides Everspan the ability to diversify its risk profile (temporarily or long-term), efficiently manage its exposure limits and underwrite programs in a cost efficient manner, amongst other benefits.

Everspan may participate as a reinsurer on up to

30% of a program, which is in line with its strategy to generally retain up to 30% per program.

Everspan may participate as a reinsurer on up to 30% of a program, which is in line with its strategy to generally retain up to 30% per program.

Participation as a reinsurer will affect the retention ratio as Everspan's portion of assumed premiums is reflected fully in both Gross and Net Premiums Written.

Loss and loss expenses incurred increased for the three and nine months ended September 30, 2024, relative to the three and nine months ended September 30, 2023.

Everspan's loss ratio (including ULAE) was 74.4% for the three months ended September 30, 2024, versus 78.0% for the three months ended September 30, 2023, inclusive of prior accident years development of 0.2% and (1.8)%, respectively.

The change in the loss ratio was driven by current accident year reserve strengthening during the three months ended September 30, 2023 of 8.9%, primarily related to increased loss selections for commercial auto.

Partially offsetting the decrease in loss ratio from the three months ended September 30, 2023, was a personal nonstandard auto program (through assumed reinsurance) which became effective in October 2023.

Everspan's loss ratio may fluctuate as the inforce book of business scales and seeks to achieve benefits from diversification.

In addition to the decrease in the Loss and LAE ratio for the three months ended September 30, 2024, compared to September 30, 2023, was a decrease in the benefit to acquisition costs resulting from sliding scale commission arrangements with program partners.

Such benefit reduced the Specialty Property and Casualty Insurance segments expense ratio by 1.9% and 8.1% for the three months ended September 30, 2024 and 2023, respectively.

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

These sliding scale arrangements help mitigate losses, protect underwriting results and limit earnings volatility.

In third quarter 2024, Everspan and a commercial auto program partner agreed to non-renew an existing program where Everspan participated on a net retention basis.

However, Everspan continues to support the MGA via another commercial auto program which is fully ceded to a reinsurer.

The shift in the production from a participating program to a fully ceded program will result in a shift in future underwriting results to be within program fee revenue instead of net premiums earned and losses incurred.

Additionally during the third quarter 2024, as part of Everspan's insurance portfolio balancing, Everspan reduced its participation on an assumed reinsurance personal auto transaction effective October 2024.

The reduction of this program is expected to result in a lower net retention, lower net premiums earned and lower losses incurred.

Loss and loss expenses incurred may be adversely impacted by economic and social inflation.

The change in the loss ratio was driven by the shift in mix of business.

The three months ended March 31, 2025, contained minimal prior period loss development of 1.1% whereas the three months ended March 31, 2024, contained prior period development of 4.4%, which was driven by a personal nonstandard auto program (through assumed reinsurance) which has since been non-renewed.

Loss and loss expenses incurred, and Everspans's associated Loss and LAE ratio, may be adversely impacted by economic and social inflation.

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

1 unchanged sentence

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

Due to the inherent uncertainty underlying loss reserve estimates, the final

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

resolution of the estimated liability for loss and loss adjustment expenses will likely be higher or lower than the related loss reserves at the reporting date.

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

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

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

General and administrative costs were relatively flat for the three and nine months ended September 30, 2024, relative to the three and nine months ended September 30, 2023, as increases from the ramp up in Everspan's staffing and operations was mostly offset by the timing of incentive compensation accruals.

In addition to the decrease in the Loss and LAE ratio for the three months ended March 31, 2025, compared to March 31, 2024, there was a decrease in the benefit to acquisition costs resulting from sliding scale commission arrangements with program partners.

Such benefit reduced the Specialty Property and Casualty Insurance segments expense ratio by —% and (6.1)% for the three months ended March 31, 2025 and 2024, respectively.

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

These sliding scale arrangements help mitigate losses, protect underwriting results and limit earnings volatility.

General and administrative costs were higher for the three months ended March 31, 2025, relative to the three months ended March 31, 2024, due to impact of changes in short term incentive accruals and performance on long term incentive compensation

Ambac Financial Group, Inc.

First Quarter 2025 Form 10-Q

Table f Contents

Insurance Distribution

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Premiums placed $ 230,606 $ 90,096

2 unchanged sentences

Net commissions 26,406 7,907

Servicing and other fees 4,964 —

Investment income 376 50

Other revenue (1,113) 86

General and administrative expenses 18,550 2,921

5 unchanged sentences

Ambac's stockholders

(1) The Consolidated Statements of Comprehensive Income presents the sum of these items as General and Administrative Expenses.

$ 274,472 $ 105,565

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

2 unchanged sentences

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

The Insurance Distribution segment placed premiums for its carriers of approximately $145 and $288 for the three and nine months ended September 30, 2024, up $83 and $108 or 133% and 60%, respectively, as compared to the three and nine months ended September 30, 2023.

Higher premiums placed were driven by the acquisition of Beat effective July 31, 2024 and Riverton Insurance Agency in August 2023, as well as organic growth at All Trans Risk Solutions during the quarter.

The Insurance Distribution segment placed premiums for its carriers of approximately $230,606 for the three months ended March 31, 2025, up $140,510 or 156%, respectively, as compared to the three months ended March 31, 2024.

Higher premiums placed were mostly driven by the acquisition of Beat effective July 31, 2024.

The increase in premiums placed and changes to the mix of business written led to the growth in commission income and commission expense of 107% and 6%, respectively.

Business underwritten within our Insurance Distribution business can be seasonal which may result in revenue and earnings

concentrations in the first half of the calendar year.

Business underwritten within our Insurance Distribution business can be seasonal which may result in revenue and earnings concentrations in the first half of the calendar year.

As the Insurance Distribution business grows, we make additional acquisitions and launch additional de novo underwriting units, revenue and earnings concentrations may increase or may shift, perhaps meaningfully.

G&A Expenses.

G&A expenses for the three and nine months ended September 30, 2024, increased $9 as a result of the Beat acquisition in the third quarter of 2024.

G&A expenses for the three months ended March 31, 2025, increased $15,629 as a result of the Beat acquisition in the third quarter of 2024.

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

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

Corporate revenues totaled $587 and $2,145 for the three months ended March 31, 2025 and 2024, respectively.

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

Investment revenues comprised of net investment income and net investment gains (losses), including impairments were $597 and $2,192 in 2025 and 2024, respectively.

The decline from 2024 to 2025 is attributable to the use of liquid resources for the acquisition of Beat.

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

Corporate expenses were $14,650 and 10,712 for the three months ended March 31, 2025 and 2024, respectively, up $3,777.

Corporate expenses for the three months ended March 31, 2025 and 2024, included compensation expenses of $5,844 and $6,490 and non-compensation $8,806 and 4,222, respectively.

The increase in non-compensation corporate expenses is mainly related to higher expenses related to corporate development and audit fees.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

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

AFG's liquidity is primarily dependent on its net assets, excluding the operating subsidiaries that it owns, totaling $147 as of September 30, 2024, and secondarily on distributions, expense sharing payments from its operating subsidiaries and third party capital (e.g.

AFG's liquidity is primarily dependent on its net assets, excluding the operating subsidiaries that it owns, totaling $104,431 as of March 31, 2025, and secondarily on investment income, distributions, tax and expense sharing payments from its operating subsidiaries and third party capital (e.g.

from credit facilities and equity issuance).

2025 December 31, 2024

Cash and short-term investments $ 53,726 $ 74,423

Other investments (1)

29,487 28,117

Other net (liabilities) assets 21,218 16,674

Total $ 104,431 $ 119,214

(1) Includes strategic minority investments in insurance services businesses of $20,618 at March 31, 2025 and December 31, 2024..

The decrease in AFG net assets, excluding its equity investments in subsidiaries, during the first quarter of 2025 was driven primarily by net cash outflows from operating and interest expenses in addition to treasury stock purchases, partially offset by interest income and net distributions received from subsidiaries.

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

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

In connection with the acquisition, Cirrata incurred $150,000 of debt maturing in

Ambac Financial Group, Inc.

First Quarter 2025 Form 10-Q

Table f Contents

364 days funded by a global bank (the "Credit Facility").

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

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

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

The $4 reimbursement was approved by OCI and was paid to AFG during the second quarter of 2024.

As further described in Note 1.

Business and Basis of Presentation, AFG entered into a stock purchase agreement, 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.

The sale of AAC is expected to close in the fourth quarter of 2024 or the first quarter of 2025 and, accordingly, it is unlikely for AFG to receive this reimbursement in the future.

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

AFG may seek to extend the term of the Credit Facility as a precautionary measure in the event there were delays in the closing of the sale of AAC.

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

surplus notes).

• Subject to the approvals required for the sale of AAC as described in Note 1.

Business and Basis of Presentation, AFG will receive $420 of proceeds at closing less applicable legal, advisory and other expenses incurred in connection with the sale.

• Subject to the satisfaction of the conditions required for the sale of AAC as described in Note 5.

Discontinued Operation in the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, AFG will receive $420,000 of proceeds at closing less applicable legal, advisory and other expenses incurred in connection with the Sale.

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

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

Everspan is not expected to pay dividends in 2025.

Everspan does make tax payments to AFG in accordance with a Tax Sharing Agreement.

For the three months ended March 31, 2025, Everspan paid $1,736 of tax payments to AFG.

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

AFG received distributions

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

from Cirrata of $7.4 and $5.3 during the nine months ended September 30, 2024 and 2023.

AFG received distributions from Cirrata of $3,118 and $2,850 during the three months ended March 31, 2025 and 2024, respectively.

AFG's principal uses of liquidity are:

(i) the payment of G&A expenses, including costs to explore opportunities to grow and diversify Ambac, (ii) making capital investments to acquire, grow and/or capitalize new and/or existing businesses, including through the acquisition of noncontrolling interests as a result of the exercise of outstanding puts and/or calls and (iii) making investments in technology and other operational infrastructure to improve the operational effectiveness and efficiency of our business and to support their growth.

Funding puts, calls and other capital commitments could require payments from AFG, the magnitude of which may depend on the performance of the underlying businesses and other considerations, of approximately $350 through 2030.

(i) the payment of G&A expenses, including costs to explore opportunities to grow and diversify Ambac, (ii) making capital investments to acquire, grow and/or capitalize new and/or existing businesses, including through the acquisition of noncontrolling interests as a result of the exercise of outstanding puts and/or calls, and (iii) making investments in technology and other operational infrastructure to improve the operational effectiveness and efficiency of our business and to support its growth.

Funding puts, calls and other capital commitments could require payments from AFG, the magnitude of which will ultimately depend on the performance of the underlying businesses, whether or not the puts or calls are exercised, FX rates and other considerations of approximately $350,000 through 2030.

AFG seeks to fund these potential puts and calls from internal resources, but may seek to raise additional short-term or long-term funding or capital sources depending on a number of considerations, including distribution levels from subsidiaries, the potential for additional acquisitions, other capital investment demands, and other considerations.

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

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

However, events, opportunities, acquisitions, the exercise of puts and calls, the need to refinance outstanding debt, or other circumstances could require AFG to seek additional capital (e.g.

However, events, opportunities, acquisitions, the exercise of puts and calls, the need to refinance outstanding debt, or other circumstances could

require AFG to seek additional capital (e.g.

through the issuance of debt, equity or hybrid securities).

8 unchanged sentences

Operating Companies' Liquidity

Sources of liquidity for the Company’s insurance subsidiaries are funds generated from premiums;

recoveries on claim payments;

reinsurance recoveries;

investment income and maturities and sales of investments.

• See Note 6.

Insurance Contracts to the Consolidated Financial Statements included in Part I, Item 1., in this Form 10-Q for a summary of future gross financial guarantee premiums to be collected by AAC and Ambac UK.

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

Cash provided from these sources is used primarily for claim payments and commutations, loss expenses and acquisition costs (Specialty Property & Casualty Insurance segment only), debt service on outstanding debt (Legacy Financial Guarantee segment only), G&A expenses, reinsurance payments and purchases of securities and other investments, some of which may not be immediately convertible into cash.

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

OCI’s approval of AAC’s requests for surplus note payments may be granted or denied in OCI’s sole discretion.

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

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

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.

• As discussed more fully in "Results of Operations" above in this Management's Discussion and Analysis, AAC requested OCI to authorize a full or partial payment of accrued interest due on the surplus notes along with a full or partial payment of outstanding principal of the surplus notes on June 7, 2024, and made a similar request in September 2024, but such requests were denied.

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

AAC's future interest obligations on long-term debt include $512 of accrued and unpaid interest as of September 30, 2024, all or a portion of which would be payable on surplus notes if approved by OCI on or before the next scheduled payment date of June 7, 2025.

• AFS's remaining derivatives include interest rate swaps previously provided to asset-backed issuers and other entities in connection with their financings.

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

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

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

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

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

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

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

Insurance Distribution

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

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

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

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

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

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

Cash Held at Banks

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

Ambac's cash balances held at banks were $51,660 as of March 31, 2025, including cash of Ambac's insurance distribution subsidiaries held in regional banks of $37,538 as of March 31, 2025.

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

First Quarter 2025 Form 10-Q

Table f Contents

Consolidated Cash Flow Statement Discussion

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

Nine Months Ended September 30, 2024 2023

Three Months Ended March 31, 2025 2024

Cash provided by (used in):

4 unchanged sentences

Net cash flow $ 3,516 $ 5,363

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

Cash used in financing activities includes $0 and $113 from such AAC payments, for the nine months ended September 30, 2024 and 2023, respectively.

Operating activities

Net cash provided by operating activities during the nine months ended September 30, 2024 and 2023, was $28 and $112, respectively.

During the nine months ended September 30, 2023, Ambac received proceeds from a R&W settlement and repaid the remaining secured debt outstanding (net operating cash inflows of $90).

Operating cash flows in the nine months ended September 30, 2024 were positively impacted by the growth in the Specialty P&C Insurance and Insurance Distribution businesses and higher investment portfolio inflows, partially offset by transaction related costs for the acquisition of Beat and the sale of AAC.

Future operating flows will primarily be impacted by net premium collections and investment coupon receipts, G&A expenses, net claim and loss expense payments and interest payments on outstanding debt.

Financing Activities

Financing activities for the nine months ended September 30, 2024, included short-term borrowing of $147 in connection with the purchase of Beat, and paydowns and maturities of VIE debt obligations of $131.

Financing activities for the nine months ended September 30, 2023, included payments for redemption of Tier 2 Notes of $97 and paydowns and maturities of VIE debt obligations of $285 (including payments for the accelerations of the VIE trusts created from the Puerto Rico restructuring).

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

Since the second quarter of

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

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

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

All collateral obligations are currently met.

Collateral posted by AFS totaled a net amount of $53 (cash and securities collateral of $25 and $27, respectively), including independent amounts, under these contracts at September 30, 2024.

Obligations under the Credit Agreement drawn upon to fund the acquisition of shares in Beat 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 of all of the capital stock of Beat held by the Company.

Operating Activities for Continuing Operations

Operating cash flows during the three months ended March 31, 2025 and 2024, was $(12,612) and $7,071, respectively.

Operating cash flows for the three months ended March 31, 2025 were adversely impacted by G&A expenses paid and interest on short-term borrowing, partially offset by cash collections from both the specialty P&C and insurance distribution businesses.

Future operating flows will primarily be impacted by net premium collections, commission and fee income and investment income receipts, G&A expenses, commission expenses, net claim and loss expense payments and interest payments on debt.

Investing Activities for Continuing Operations

Investing activities for the three months ended March 31, 2025 were primarily driven by changes in short-term investments.

Future investing cash flows will be primarily dependent on the sale of AAC, potential acquisitions, the exercise of puts and calls related to non-controlling interests and the purchase and sale of securities.

Financing Activities for Continuing Operations

Financing activities for the three months ended March 31, 2025, included purchases of common stock held in treasury of $3,122.

Future financing cash flows will be primarily impacted by paydowns and maturities of debt, new borrowings, capital management activity and distribution to noncontrolling interests.

Cash Flows from Discontinued Operations

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

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

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

BALANCE SHEET

Total assets increased by $828 from December 31, 2023, to $9,256 at September 30, 2024, primarily due to the increase in intangible assets, goodwill, and other assets related to the Beat acquisition, and increases in premium receivables and reinsurance recoverables as a result of growth in the specialty P&C businesses.

Total liabilities increased by approximately $386 from December 31, 2023, to $7,383 as of September 30, 2024, primarily due to increase in short-term debt and other liabilities related to the Beat acquisition, higher loss and loss adjustment expense reserve and ceded premium payables from the specialty P&C businesses.

As of September 30, 2024, total Ambac Financial Group stockholders’ equity was $1,465, compared with total stockholders’ equity of $1,362 at December 31, 2023.

The increase is primarily driven by foreign currency translation gains of $51 and unrealized fixed maturity securities gains of $34 and the issuance of stock for the Beat acquisition of $29.

Total assets increased by $194,904 from December 31, 2024, to $8,253,282 at March 31, 2025, primarily due to the increase in reinsurance recoverables associated with the growth of in the specialty P&C businesses and the increase in Assets held-for-sale as further described below.

Total liabilities increased by approximately $178,960 from December 31, 2024, to $7,041,817 as of March 31, 2025, primarily due to increase in loss and loss adjustment expense reserve and ceded premium payables from the specialty P&C businesses and liabilities held-for-sale as further described below.

As of March 31, 2025, total Ambac Financial Group stockholders’ equity was $852,221, compared with total stockholders’ equity of $856,906 at December 31, 2024.

The increase is primarily driven by foreign currency translation gains of $36,220, unrealized fixed maturity securities gains of $18,606, offset by net loss of $44,737 and the retained earnings impact from the revaluation of NCI as described in Note 1.

Background and Business Description

Discontinued Operation:

Assets and Liabilities Held-for-Sale.

Assets held-for-sale increased to $6,392,004 at March 31, 2025, from $6,267,200 as December 31, 2024.

The increase is primarily due to the impact of exchange rates as the British Pound Sterling strengthened during the three months ended March 31, 2025 driving an increased value in British Pound Sterling assets partially offset by an increase in the valuation allowance for the loss on disposal of AAC of $14,496.

Liabilities held-for-sale increased to $6,003,908 at March 31, 2025, from $5,887,685 as December 31, 2024, primarily due to a the impact of exchange rates on balances denominated in British Pound Sterling.

Continuing Operations:

The following discusses changes in assets, liabilities and stockholders' equity, excluding assets and liabilities held-for-sale related to the pending sale of AAC, as of March 31, 2025, compared to December 31, 2024.

Ambac Financial Group, Inc.

First Quarter 2025 Form 10-Q

Table f Contents

Investment Portfolio

Ambac's investment portfolio is managed under established guidelines designed to meet the investment objectives of AAC, Everspan Group, Ambac UK and AFG.

Ambac's investment portfolio is managed under established guidelines designed to meet the investment objectives of Everspan Group, each of the Insurance Distribution business units and AFG.

Refer to "Description of the Business – Investments and Investment Policy" located in Part I.

Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, for further description of Ambac's investment policies and applicable regulations.

Ambac's investment policies and objectives do not apply to the assets of VIEs consolidated as a result of financial guarantees written by its insurance subsidiaries.

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

The following table summarizes the composition of Ambac’s investment portfolio, excluding VIE investments, at carrying value at September 30, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated

The following table summarizes the composition of Ambac’s investment portfolio, at carrying value at March 31, 2025 and December 31, 2024:

March 31, 2025 December 31, 2024

Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated

Fixed maturity securities $ 160,120 $ — $ 1,449 $ 161,569 $ 157,020 $ — $ — $ 157,020

Fixed maturity securities - trading — — — — — 27 — — — 27

Short-term 31,675 28,693 41,241 101,609 35,727 27,435 64,439 127,601

Other investments — 176 28,038 28,214 — 176 28,117 28,293

Fixed maturity securities pledged as collateral 27 — — — 27 27 — — — 27

Total investments $ 191,795 $ 28,869 $ 70,728 $ 291,392 $ 192,247 $ 27,611 $ 92,556 $ 312,914

$ 2,299 $ 199 $ 16 $ 119 $ 2,634 $ 2,310 $ 162 $ 4 $ 188 $ 2,664

(1) Includes investments denominated in non-US dollar currencies with a fair value of £347 ($464) and €21 ($23) as of September 30, 2024 and £342 ($436) and €25 ($27) as of December 31, 2023.

Ambac invests in various asset classes in its fixed maturity securities portfolio.

Other investments primarily consist of diversified interests in pooled funds.

Refer to Note 4.

Investments to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Form 10-Q for information about fixed maturity securities and pooled funds by asset class.

The following charts provide the ratings (1) distribution of the fixed maturity investment portfolio based on fair value at September 30, 2024 and December 31, 2023:

(1) Ratings are based on the lower of Moody’s or S&P ratings.

If ratings are unavailable from Moody's or S&P, Fitch ratings are used.

If guaranteed, rating represents the higher of the underlying or guarantor’s financial strength rating.

(2) Below investment grade and not rated bonds insured by Ambac represent 18% and 21% of the September 30, 2024, and December 31, 2023, combined fixed maturity portfolio, respectively.

Investments to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Form 10-Q for information about fixed maturity securities and other investments by asset class.

The following charts provide the ratings distribution of the fixed maturity investment portfolio based on fair value at March 31, 2025 and December 31, 2024.

Ratings represent the lower of

ratings provided by S&P or Moody's when ratings are available from both agencies.

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

First Quarter 2025 Form 10-Q

Table f Contents

Premium Receivables

Ambac's premium receivables increased to $342 at September 30, 2024, from $290 at December 31, 2023.

Ambac's premium receivables increased to $64,563 at March 31, 2025, from $57,222 at December 31, 2024.

The increase is primarily due to growth in the Specialty P&C Insurance Segment, including receivables related to the programs where Everspan participates as a reinsurer.

At September 30, 2024, Legacy Financial Guarantee Insurance and Specialty P&C premiums receivables were $227 and $114, respectively.

Premium receivables by payment currency were as follows:

Currency Premium Receivable in

Payment Currency Premium Receivable in

Dollars $ 262 $ 262

British Pounds £ 50 67

Euros € 11 12

Reinsurance Recoverable on Paid and Unpaid Losses

4 unchanged sentences

Those reinsurance counterparties that do not currently post collateral are well capitalized, highly rated, authorized capacity providers.

Ambac benefited from letters of credit and collateral amounting to approximately $76 from its reinsurers at September 30, 2024.

Ambac benefited from letters of credit and collateral amounting to approximately $67 from its reinsurers at March 31, 2025.

Additionally, while legacy liabilities from the recent Specialty P&C acquisitions were fully ceded to certain reinsurers, Everspan also benefits from an unlimited, uncapped indemnity from the respective sellers to mitigate any residual risk to these reinsurers.

As of September 30, 2024 and December 31, 2023, reinsurance recoverable on paid and unpaid losses were $311 and $195, respectively primarily due to growth in the Specialty P&C Insurance Segment.

Intangible Assets

Intangible assets primarily include (i) an insurance intangible asset that was established at AFG's emergence from bankruptcy (Legacy Financial Guarantee Insurance Segment) in 2013, representing the difference between the fair value and aggregate carrying value of the financial guarantee insurance and reinsurance assets and liabilities of $224 at September 30, 2024, (ii) intangible assets established as part of acquisitions in the Insurance Distribution business of $363 at September 30, 2024, and (iii) indefinite-lived intangible assets in the Specialty P&C business as part of its acquisitions of $11 at September 30, 2024.

As of September 30, 2024 and December 31, 2023, intangible assets were $598 and $307, respectively.

The increase is primarily driven by the intangible asset related to the acquisition of Beat of $312, partially offset by amortization of $33.

Loss and Loss Expense Reserves and Subrogation Recoverable

Loss and loss expense reserves are based upon estimates of the ultimate aggregate losses inherent in insurance policies issued to beneficiaries, excluding consolidated VIEs.

The evaluation process for determining the level of reserves is subject to certain estimates and judgments.

As of March 31, 2025 and December 31, 2024, reinsurance recoverable on paid and unpaid losses were $351,110 and $306,191, respectively primarily due to growth in the Specialty P&C Insurance Segment.

Intangible Assets, net of Accumulated Depreciation

Intangible assets primarily include (i) intangible assets established as part of acquisitions in the Insurance Distribution business of $333,848 at March 31, 2025 and (iii) indefinite-lived intangible assets in the Specialty P&C business as part of its acquisitions of $11,213 at March 31, 2025.

As of March 31, 2025 and December 31, 2024, intangible assets were $345,061 and $344,775, respectively.

The increase is driven by foreign exchange rates (appreciation of the British pound), partially offset by amortization of $8,763.

As of March 31, 2025 and December 31, 2024, goodwill totaled $429,314 and $418,234 respectively.

The increase is primarily driven by foreign exchange rates (appreciation of the British pound).

All of the goodwill was assigned to the Insurance Distribution segment.

Loss and Loss Adjustment Expense Reserves

Loss and loss adjustment expense reserves are estimates of the ultimate liability for unpaid losses and loss expenses for claims that have been reported and claims that have been incurred, but not yet reported as of the balance sheet date.

Loss and loss adjustment expense reserves by line of business were as follows as of March 31, 2025 and December 31, 2024

2025 December 31,

Line Gross Net Gross Net

Commercial auto $ 155,383 $ 27,608 $ 158,472 $ 28,720

Excess liability 65,845 9,070 50,248 6,571

General liability 44,208 9,051 35,211 8,286

Workers compensation 14,602 14,602 14,465 14,465

Non-standard personal auto 9,149 8,753 12,689 12,185

Professional Liability 23,373 1,812 17,698 1,807.00

Surety 10,558 — 11,217 6.00

Unallocated loss adjustment expense reserves 13,159 6,491 12,238 6,578

36,828 798 36,826 363

Loss and Loss Expense Reserves $ 373,105 $ 78,185 $ 349,064 $ 78,980

(1) Includes $34,724 and $0 loss and loss expense reserves on a gross and net of reinsurance basis at March 31, 2025 and $35,146 and $0 loss and loss expense reserves on a gross and net of reinsurance basis at December 31, 2024 related to legacy liabilities obtained from the acquisitions of Providence Washington Insurance Company, Greenwood Insurance Company and Consolidated Specialty Insurance Company.

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

The process for determining the level of loss and loss adjustment reserves is subject to certain estimates and judgments.

Refer to the "Critical Accounting Policies and Estimates" and “Results of Operations” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations, in addition to Basis of Presentation and Significant Accounting Policies and Loss Reserves sections included in Note 2.

1 unchanged sentence

Insurance Contracts, respectively, of the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, for further information on loss and loss expenses.

The loss and loss expense reserves, net of subrogation recoverables and before reinsurance as of September 30, 2024 and December 31, 2023, were $814 and $756, respectively.

Loss and loss adjustment expense reserves are included in the Unaudited Consolidated Balance Sheets as follows:

September 30, 2024:

December 31, 2023:

Specialty Property and Casualty Legacy Financial Guarantee Specialty Property and Casualty Legacy Financial Guarantee

Present Value of Expected

Net Cash Flows Unearned

Revenue Gross Loss and Loss Expense

Reserves Present Value of Expected

Net Cash Flows Unearned

Revenue Gross Loss and Loss Expense

Balance Sheet Line Item Gross Loss and Loss Expense

Reserves Claims and

Loss Expenses Recoveries Gross Loss and Loss Expense

Reserves Claims and

Loss Expenses Recoveries

Loss and loss expense reserves $ 323 $ 693 $ (63) $ (15) $ 938 $ 197 $ 779 $ (55) $ (28) $ 893

Subrogation recoverable — 8 (131) — (124) — 1 (139) — (137)

Totals $ 323 $ 700 $ (195) $ (15) $ 814 $ 197 $ 780 $ (194) $ (28) $ 756

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

Legacy Financial Guarantee Insurance:

Ambac has exposure to various bond types issued in the debt capital markets.

The bond types that have experienced significant claims, including through commutations, are residential mortgage-backed securities (“RMBS”), student loan securities and public finance securities.

These bond types represent 91% of our ever-to-date insurance claims recorded, with RMBS comprising 60%.

The table below indicates gross par outstanding and the components of gross loss and loss expense reserves related to policies in Ambac’s gross loss and loss expense reserves at September 30, 2024 and December 31, 2023:

September 30, 2024:

December 31, 2023:

Outstanding (1)

Present Value of Expected

Net Cash Flows Unearned

Revenue Gross Loss and Loss Expense

Reserves (1)(2)

Outstanding (1)

Present Value of Expected

Net Cash Flows Unearned

Revenue Gross Loss and Loss Expense

Reserves (1)(2)

Loss Expenses Recoveries Claims and

Loss Expenses Recoveries

Structured Finance $ 1,657 $ 621 $ (174) $ (7) $ 440 $ 1,860 $ 679 $ (172) $ (10) $ 497

Domestic Public Finance 940 78 (8) (8) 62 834 82 (8) (8) 66

Other, including International finance 138 1 (13) — (12) 1,144 15 (13) (10) (8)

Loss expenses — 1 — — 1 — 4 — — 4

Totals $ 2,736 $ 700 $ (195) $ (15) $ 491 $ 3,838 $ 780 $ (194) $ (28) $ 559

(1) Ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves were $320 and $26 respectively, at September 30, 2024, and $362 and $30, respectively at December 31, 2023.

Recoverable ceded loss and loss expense reserves are included in Reinsurance recoverable on paid and unpaid losses on the balance sheet.

(2) Loss reserves are included in the balance sheet as Loss and loss expense reserves or Subrogation recoverable dependent on if a policy is in a net liability or net recoverable position.

Variability of Expected Losses and Recoveries

Ambac’s management believes that the estimated future loss component of loss reserves (present value of expected net cash flows) are adequate to cover future claims presented, but there can be no assurance that the ultimate liability will not be higher than such estimates.

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

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

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

The possible net cash flows consider the highest stress scenario that was utilized in the development of our probability-weighted expected loss at September 30, 2024, and assumes an inability to execute any commutation transactions with issuers and/or investors.

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

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

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

See “Risk Factors” in Part I, Item 1A as well as the descriptions of "Variability of Expected Losses and Recoveries" in Part II, Item 7 of the Company's 2023 Annual Report on Form 10-K, and Part II, Item 1A "Risk Factors" of this Quarterly Report, for further discussion of the risks relating to future losses and recoveries that could result in more highly stressed outcomes.

The occurrence of these stressed outcomes individually or collectively would have a material adverse effect on our results of operations and financial condition and may result in materially adverse consequence for Ambac, including (without limitation)

impairing the ability of AAC to honor its financial obligations, particularly its outstanding surplus note and preferred stock obligations;

the initiation of rehabilitation proceedings against AAC;

decreased likelihood of AAC delivering value to AFG, through dividends or otherwise;

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

Structured Finance Variability

Changes to assumptions that could make our reserves under-estimated include an increase in interest rates, deterioration in housing prices, poor servicing, government intervention into the functioning of the mortgage market and the general effect of a weakened economy characterized by growing unemployment and wage pressures.

Projected losses in our RMBS exposures and related loss reserves, may increase or decrease in the future.

Possible stress case losses assume higher default rates, loss severities and lower prepayments.

Student Loans:

Changes to assumptions that could make our reserves under-estimated include, but are not limited to, increases in interest rates, default rates and loss severities on the collateral due to economic or other factors, including the economic impact from public health crises and/or natural or other catastrophic events.

Such factors may also include lower recoveries on defaulted loans or additional losses on collateral or trust assets, including as a result of any enforcement actions by the Consumer Finance Protection Bureau.

Structured Finance Variability:

Using the approaches described above, the possible increase in loss reserves for structured finance credits for which we have an estimate of expected loss at September 30, 2024, could be approximately $50 and there can be no assurance that losses may not exceed such amounts.

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

Domestic Public Finance Variability:

public finance portfolio consists of municipal bonds such as general and revenue obligations and lease and tax-backed obligations of state and local government entities;

however, the portfolio also includes a wide array of non-municipal types of bonds, including transactions with public and private elements, which generally finance infrastructure, housing and other public purpose facilities and interests, the largest sector of which is U.S.

military housing.

It is possible our loss reserves for public finance credits may be under-estimated if issuers are faced with prolonged exposure to adverse political, judicial, economic, fiscal or socioeconomic events or trends.

Additionally, our loss reserves may be under-estimated because of the local, regional or national economic impact from public health crises and/or natural or other catastrophic events.

Our experience with the city of Detroit's bankruptcy and Commonwealth of Puerto Rico's Title III proceedings as well as other municipal bankruptcies demonstrates the preferential treatment of certain creditor classes, especially public pensions.

The cost of pensions and the need to address frequently sizable unfunded or underfunded pensions is often a key driver of stress for many municipalities and their related authorities, including entities to whom we have exposure, such as Chicago's school district, the State of New Jersey and others.

Less severe treatment of pension obligations in bankruptcy may lead to worse outcomes for traditional debt creditors.

Variability of outcomes applies to even what are generally considered more secure municipal financings, such as dedicated sales tax revenue bonds that capture sales tax revenues for debt service ahead of any amounts being deposited into the general fund of an issuer.

In the case of the Puerto Rico COFINA sales tax bonds that were part of the Commonwealth of Puerto Rico's Title III proceedings, AAC and other creditors agreed to settle at a recovery rate equal to about 93% of pre-petition amounts owed on the Ambac insured senior COFINA bonds.

In the COFINA case, the senior bonds still received a reduction or "haircut" despite the existence of junior COFINA bonds, which received a recovery rate equal to about 56% of pre-petition amounts owed.

In addition, municipal entities may be more inclined to use bankruptcy to resolve their financial stresses if they believe preferred outcomes for various creditor groups can be achieved.

We expect municipal bankruptcies and defaults to continue to be challenging to project given the unique political, economic, fiscal, legal, governance and public policy differences among municipalities as well as the complexity, long duration and relative infrequency of the cases themselves in forums with a scarcity of legal precedent.

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

In certain cases, judicial decisions may be contrary to AAC's expectations or understanding of the law or its rights thereunder, which may lead to worse outcomes in Chapter 9 or similar proceedings than anticipated at the outset.

Another potentially adverse development that could cause the loss reserves on our public finance credits to be underestimated is deterioration in the municipal bond market, resulting from

reduced or limited access to alternative forms of credit (such as bank loans) or other exogenous factors, such as changes in tax law that could reduce certain municipal investors' appetite for tax-exempt municipal bonds or put pressure on issuers in states with high state and local taxes.

These factors could deprive issuers access to funding at a level necessary to avoid defaulting on their obligations.

For the public finance credits for which we have an estimate of expected loss at September 30, 2024, the sum of all the highest stress case loss scenarios is $190 and there can be no assurance that losses may not exceed such amounts.

Other Credits, including International Finance Variability:

It is possible our loss reserves on other types of credits, including those insured by Ambac UK, may be under-estimated because of various risks that vary widely, including the risk that we may not be able to recover or mitigate losses through our remediation processes.

For all other credits, including Ambac UK, for which we have an estimate of expected loss, the sum of all the highest stress case loss scenarios is approximately $45 greater than the loss reserves at September 30, 2024.

There can be no assurance that losses may not exceed such amounts.

Short and Long-term Debt

Short-term debt consists of a Credit Facility that was issued in the third quarter of 2024 by our insurance distribution segment, which is 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.

Long-term debt includes AAC surplus notes and the Ambac UK debt issued in connection with a commutation.

All long-term debt relates to the Legacy Financial Guarantee segment.

The carrying value of each of these as of September 30, 2024 and December 31, 2023 is below:

September 30,

2024 December 31, 2023

Short-term debt

Credit Facility $ 148 $ —

Total short-term debt $ 148 $ —

Long-term debt

Surplus notes $ 495 $ 491

Ambac UK debt 17 17

Total Long-term Debt $ 512 $ 508

The increase in long-term debt from December 31, 2023, resulted from accretion on the carrying value of surplus notes and Ambac UK debt.

Ambac borrowed under a short-term credit facility to provide partial funding of the acquisition of Beat in 2024.

The carrying value of this short term debt is $150,000 as of March 31, 2025 and December 31, 2024.

Commission Payable

Commission payables are commissions due to sub producers for placing insurance contracts on behalf of the MGAs and amounts due to UK Syndicates that provide advanced commissions to fund short term liquidity needs for MGAs.

The commission payable at March 31, 2025 and December 31, 2024 was $81,017 and $71,431.

The increase is primarily due to higher advance commissions due to Syndicates.

Redeemable Noncontrolling Interest (NCI)

The minority equity interests of Beat's majority owned MGA/Us were classified within nonredeemable NCI at December 31, 2024.

During the three months ended March 31, 2025, Ambac entered into put options on certain of these minority interests that are embedded in the underlying equity instruments.

As a result, the minority interests were reclassified from nonredeemable to redeemable and remeasured at fair value including the put options, increasing redeemable NCI by $42,180.

Other changes to redeemable NCI during the quarter relate primarily to allocation of results to the minority interests, revaluation to redemption value where applicable, reclassification of certain

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

VARIABLE INTEREST ENTITIES

Please refer to Note 9.

Variable Interest Entities to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Form 10-Q and Note 2.

Basis of Presentation and Significant Accounting Policies and Note 12.

Variable Interest Entities to the Consolidated Financial Statements, included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, for information regarding variable interest entities.

First Quarter 2025 Form 10-Q

Table f Contents

interests to nonredeemable due to the expiration of related put options, and the impact of foreign currency translation.

ACCOUNTING STANDARDS

1 unchanged sentence

Business and Basis of Presentation to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Form 10-Q for a discussion of new accounting pronouncements and the potential impact on Ambac’s financial condition and results of operations.

INSURANCE STATUTORY BASIS FINANCIAL RESULTS

STATUTORY BASIS FINANCIAL RESULTS

insurance subsidiaries prepare financial statements under accounting practices prescribed or permitted by its domiciliary state regulator (“SAP”) for determining and reporting the financial condition and results of operations of an insurance company.

The National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures manual (“NAIC SAP”) is adopted as a component of prescribed practices by each domiciliary state.

For further information, see "Ambac Assurance Statutory Basis Financial Results," in Part II, Item 7.

For further information, see "Everspan Indemnity Insurance Company," in Part II, Item 7.

"Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 9.

Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Ambac Assurance Corporation

AAC’s statutory policyholder surplus and qualified statutory capital (defined as the sum of policyholders surplus and mandatory contingency reserves) were $789 and $1,093 at September 30, 2024, respectively, as compared to $897 and $1,201 at December 31, 2023, respectively.

As of September 30, 2024, statutory policyholder surplus and qualified statutory capital included $519 principal balance of surplus notes outstanding and $115 liquidation preference of preferred stock outstanding.

These surplus notes (in addition to related accrued interest of $512 that is not recorded under statutory basis accounting principles);

preferred stock;

and all other liabilities, including insurance claims are obligations that, individually and collectively, have claims on the resources of AAC that are senior to AFG's equity and therefore impede AFG's ability to realize residual value and/or receive dividends from AAC.

The primary drivers to the net decrease in policyholder surplus were the statutory net loss of $43 for the nine months ended September 30, 2024 and an increase in investments that are non-admitted under statutory accounting.

AAC's statutory surplus and therefore AFG's ultimate ability to realize residual value and/or dividends from AAC is sensitive to multiple factors, including:

(i) loss reserve development, (ii) approval by OCI of payments on surplus notes, (iii) ongoing

interest costs associated with surplus notes, (iv) swap gains and losses at AFS, the financial position of which is supported by certain guarantees and financing arrangements from AAC, (v) first time payment defaults of insured obligations, which increase statutory loss reserves, (vi) commutations of insurance policies at amounts that differ from the amount of liabilities recorded, (vii) reinsurance contract terminations at amounts that differ from net assets recorded, (viii) changes to the fair value of pooled fund and other investments carried at fair value, (ix) realized gains and losses, including losses arising from other than temporary impairments of investment securities, (x) the ultimate residual value of Ambac UK, which may be impacted by numerous factors including foreign exchange rates, and (xi) future changes to prescribed practices by the OCI.

Everspan Indemnity Insurance Company

Everspan Indemnity Insurance Company’s statutory policyholder surplus was $117 at September 30, 2024, as compared to $108 at December 31, 2023.

The drivers within the period was net income at Everspan Indemnity Insurance Company, including its subsidiaries, of $7 during the nine months ended September 30, 2024, which includes a net gain related to Everspan's sale of CNIC of approximately $8 million.

Additionally, Everspan policyholders surplus increased due to changes in non-admitted assets.

AMBAC UK FINANCIAL RESULTS UNDER UK ACCOUNTING PRINCIPLES

Ambac UK is required to prepare financial statements under FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland." Ambac UK’s shareholder funds under UK GAAP were £515 at September 30, 2024, as compared to £489 at December 31, 2023.

At September 30, 2024, the carrying value of cash and investments was £549, a increase from £535 at December 31, 2023.

The increase in shareholders’ funds and cash and investments was primarily due to the continued receipt of premiums and investment gains, partially offset by foreign exchange losses, general and administrative expenses and tax payments.

Ambac UK is also required to prepare financial information in accordance with the Solvency II Directive.

The basis of preparation of this information is significantly different from both US GAAP and UK GAAP.

Available and eligible capital resources under Solvency II, to meet solvency capital requirements, were £448 at June 30, 2024, the most recently published position.

Eligible capital resources at June 30, 2024, were in comparison to regulatory capital requirements of £213.

Therefore, Ambac UK was in a surplus position in terms of compliance with applicable regulatory capital requirements by £235 at June 30, 2024.

Everspan Indemnity Insurance Company’s statutory policyholder surplus was $125,672 at March 31, 2025, as compared to $125,202 at December 31, 2024.

The increase in surplus was net income at Everspan Indemnity Insurance Company, including its subsidiaries, of $492 during the three months ended March 31, 2025.

NON-GAAP FINANCIAL MEASURES

In addition to reporting the Company’s quarterly financial results in accordance with GAAP, the Company is reporting non-GAAP financial measures:

EBITDA, Adjusted Net Income and Adjusted Book Value.

These amounts are derived from our consolidated financial information, but are not presented in our consolidated financial statements prepared in accordance with GAAP.We

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

present non-GAAP supplemental financial information because we believe such information is of interest to the investment community, and that it provides greater transparency and enhanced visibility into the underlying drivers and performance of our businesses on a basis that may not be otherwise apparent on a GAAP basis.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin, Organic Revenue Growth Rate (Insurance Distribution segment only), Adjusted Net Income and Adjusted Net Income Margin.

These amounts are derived from our consolidated financial information, but are not presented in our consolidated financial results.

We present non-GAAP supplemental financial information because we believe such information is of interest to the investment community, and that it provides greater transparency and enhanced visibility into the underlying drivers and performance of our businesses on a basis that may not be otherwise apparent on a GAAP basis.

We view these non-GAAP financial measures as important indicators when assessing and evaluating our performance on a segmented and consolidated basis and they are presented to improve the comparability of our results between periods by eliminating the impact of the items that may not be representative of our core operating performance.

These non-GAAP financial measures are not substitutes for the Company’s GAAP reporting, should not be viewed in isolation and may differ from similar reporting provided by other companies, which may define non-GAAP measures differently.

In connection with

the sale of AAC and the acquisition of Beat, management is considering making changes to the current non-GAAP measures which, if any, would occur in future reporting periods.

Beginning December 31, 2024, Ambac replaced the non-GAAP measure Adjusted Net Income with new non-GAAP measures Adjusted Net Income and Adjusted Net Income Margin and added Adjusted EBITDA and Adjusted EBITDA Margin to better align with other participants in the Property & Casualty insurance industry, including insurance carriers and other peers in the insurance distribution business.

The following paragraphs define each non-GAAP financial measure.

A tabular reconciliation of the non-GAAP financial measure and the most comparable GAAP financial measure is also presented below.

EBITDA — We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization of intangible assets.

The following table reconciles net income (loss) to the non-GAAP measure, EBITDA on a consolidation and segment basis for all periods presented:

Three Months Ended September 30, 2024 Three Months Ended September 30, 2023

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

Net income (loss) $ (13) $ 8 $ (7) $ (17) $ (29) $ 66 $ — $ 2 $ (2) $ 66

Interest expense 16 — 4 — 20 16 — — — 16

Income taxes 4 1 (1) (1) 3 3 — — (2) 1

Depreciation — — — — 1 — — — — —

Amortization of intangible assets 6 — 6 — 13 6 — 1 — 7

$ 13 $ 9 $ 2 $ (18) $ 6 $ 91 $ — $ 4 $ (4) $ 91

(1) EBITDA is prior to the impact of noncontrolling interests, and relates to subsidiaries where Ambac does not own 100% in the amounts, of $(0.3) and $0.6 for the three months ended September 30, 2024 and 2023, respectively.

These noncontrolling interests are in the Insurance Distribution segment.

Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023

Net income (loss)

$ 18 $ 9 $ (2) $ (33) $ (9) $ 21 $ (1) $ 7 $ (6) $ 21

EBITDA — EBITDA is net income (loss) before interest expense, income taxes, depreciation and amortization of intangible assets.

Adjusted EBITDA and Adjusted EBITDA Margin — We define Adjusted EBITDA as net income (loss) from continuing operations before interest expense, income taxes, depreciation, amortization of intangible assets, change in fair value of contingent consideration and certain items of income and expense, including share-based compensation expense, acquisition and integration related expenses, severance, and other exceptional or non-recurring items, including those related to raising capital.

We believe that adjusted EBITDA is an appropriate measure of operating performance because it eliminates the impact of income and expenses that may obfuscate business performance, and that the presentation of this measure enhances an investor's understanding of our financial performance.

Ambac Financial Group, Inc.

First Quarter 2025 Form 10-Q

Table f Contents

Three Months Ended March 31, 2025 Three Months Ended March 31, 2024

Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated

Net income (loss) (Continuing Operations) $ 1,425 $ (1,743) $ (14,172) $ (14,490) $ 1,715 $ 3,855 $ (8,938) $ (3,369)

Interest expense — 5,454 — 5,454 — — — —

Income taxes 11 1 (1) (1) 10 8 — — (1) 7

Income tax expense 78 (500) (195) (617) 106 118 (93) 131

Depreciation — 109 304 413 — 10 462 472

Amortization of intangible assets 25 — 9 — 33 18 — 3 — 21

Intangible amortization — 8,763 — 8,763 — 1,139 — 1,139

EBITDA 1,503 12,083 (14,063) (477) 1,821 5,122 (8,569) (1,627)

(1) EBITDA is prior to the impact of noncontrolling interests, and relates to subsidiaries where Ambac does not own 100% in the amounts, of $1.1 and $1.8 for the nine months ended September 30, 2024 and 2023, respectively.

These noncontrolling interests are in the Insurance Distribution segment.

Adjusted Net Income (Loss) — We define Adjusted Net Income (Loss) as net income (loss) attributable to common stockholders adjusted to reflect the following items:

(i) net investment (gains) losses, including impairments;

(ii) amortization of intangible assets;

(iii) litigation costs, including attorneys fees and other expenses to defend litigation against the Company, excluding loss adjustment expenses;

(iv) foreign exchange (gains) losses;

(v) workforce change costs, which primarily include severance and other costs related to employee terminations;

and (vi) net (gain) loss on extinguishment of debt.

Adjusted Net Income is also adjusted for the effect of the above items on both income taxes and noncontrolling interests.

The income tax effects are determined by applying the statutory tax rate in each jurisdiction that generate these adjustments.

The noncontrolling interest adjustments relate to subsidiaries where Ambac does not own 100%

Impact of noncontrolling interests — (5,000) — (5,000) — (920) — (920)

Ambac EBITDA 1,503 7,083 (14,063) (5,477) 1,821 4,202 (8,569) (2,547)

Net income margin 6.7 % (4.3) % (2414.3) % (23.1) % 5.8 % 21.6 % (416.9) % (6.8) %

Net income margin to Ambac shareholders 6.7 % (8.3) % (2414.3) % (25.7) % 5.8 % 17.6 % (416.9) % (8.2) %

EBITDA margin 7.1 % 29.5 % (2395.7) % (0.8) % 6.2 % 28.7 % (399.7) % (3.3) %

EBITDA margin to Ambac shareholders 7.1 % 17.3 % (2395.7) % (8.7) % 6.2 % 23.5 % (399.7) % (5.1) %

Acquisition and integration related expenses — — 682 682 — — 569 569

Equity-based compensation expense 86 — 1,574 1,660 51 — 2,129 2,180

Change in fair value of contingent considerations — — — — — — — —

Restructuring related expense — — — — — — — —

Severance and restructuring expense — 29 1,819 1,848 — — 134 134

Other non-operating (income) losses — — — — — — 48 48

Adjusted EBITDA $ 1,589 $ 12,112 $ (9,988) $ 3,713 $ 1,872 $ 5,122 $ (5,689) $ 1,304

Adjusted EBITDA attributable to Ambac shareholders $ 1,589 $ 7,112 $ (9,988) $ (1,287) $ 1,872 $ 4,202 $ (5,689) $ 384

Adjusted EBITDA Margin 7.5 % 29.5 % (1701.5) % 5.9 % 6.3 % 28.7 % (265.3) % 2.6 %

Adjusted EBITDA Margin to Ambac shareholders 7.5 % 17.3 % (1701.5) % (2.1) % 6.3 % 23.5 % (265.3) % 0.8 %

Organic Revenue Growth & Rate (Insurance Distribution Only.) — Organic revenue is based on commissions and fees for the relevant period by excluding (i) the first twelve months of commissions and fees generated from acquisitions and (ii) commissions and fees from divestitures (iii) and other items such as contingent commissions and the impact of changes in foreign exchange rates.

Organic revenue growth is the change in organic revenue period-to-period, with prior period results adjusted to (i) include commissions and fees that were excluded from organic revenue in the prior period and reached the twelve-month owned mark in the current period, and (ii) exclude commissions and fees related to divestitures from organic revenue.

Organic revenue growth rate to Total revenue growth rate, the most directly comparable GAAP measure, for each of the periods indicated is as follows (in percentages):

Three Months Ended March 31, 2025 2024 % Growth

Total Insurance Distribution revenue & growth percentage (1)

$ 40,998 $ 17,865 129.5 %

Acquired revenues (19,971)

Profit commission and contingent commission income (4,691) (1,182)

Total Organic Revenue & Growth Percentage $ 16,336 $ 16,683 (2.1) %

(1) Total Insurance Distribution revenue includes investment income.

Adjusted Net Income and Adjusted Net Income Margin — We define Adjusted net income as net income (loss) from continuing operations attributable to Ambac adjusted for amortization of intangible assets, change in fair value of contingent consideration and certain items of income and expense, including share-based compensation expense, acquisition and integration related expenses, severance and non-recurring income and loss items that, in the opinion of management, significantly affect the period-over-period assessment of operating results, and the related tax effect of those adjustments.

Per share amounts exclude any impact of revaluing non-controlling interests as otherwise reported under GAAP earnings per share.

We believe that adjusted net income is an appropriate measure of operating performance because it eliminates the impact of income and expenses that may obfuscate business performance.

Ambac Financial Group, Inc.

Third Quarter 2024 Form 10-Q

The following table reconciles net income (loss) attributable to common stockholders to the non-GAAP measure, Adjusted net income:

Three Months Ended September 30,

($ in millions, except share data) $ Amount Per Share $ Amount Per Share

Net income (loss) attributable to common shareholders $ (28) $ (0.63) $ 66 1.41

Net investment (gains) losses, including impairments 1 0.03 (1) (0.02)

Intangible amortization 13 0.27 7 0.15

Litigation costs 2 0.04 21 0.44

Foreign exchange (gains) losses (4) (0.09) 1 0.01

Workforce change costs — — — —

Pretax adjusted net income (loss) (16) $ (0.38) 94 $ 1.99

Income tax effects (2) (0.04) — 0.01

Net (gains) attributable to noncontrolling interests (2) (0.04) — —

Adjusted Net Income (Loss) $ (19) $ (0.46) $ 94 $ 2.00

Nine Months Ended September 30,

($ in millions, except share data) $ Amount Per Share $ Amount Per Share

Net income (loss) attributable to common shareholders $ (8) $ (0.23) $ 19 $ 0.41

Net investment (gains) losses, including impairments (3) (0.06) 7 0.15

First Quarter 2025 Form 10-Q

Table f Contents

Three Months Ended March 31,

Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated

Net income (loss) (Continuing Operations) $ 1,425 $ (1,743) $ (14,172) $ (14,490) $ 1,715 $ 3,782 $ (8,976) $ (3,479)

Acquisition and integration related expenses — — 682 682 — — 569 569

Intangible amortization — 8,763 — 8,763 — 1,139 — 1,139

Litigation costs 13 0.27 37 0.79

Foreign exchange (gains) losses (3) (0.07) — —

Workforce change costs — — 1 0.02

Pretax adjusted net income (loss) 32 $ 0.62 85 $ 1.81

Equity-based compensation expense 86 — 1,574 1,660 51 — 2,129 2,180

Change in fair value of contingent considerations — — — — — — — —

Restructuring related expense — — — — — — — —

Severance and restructuring expense — 29 1,819 1,848 — — 134 134

Other non-operating (income) losses — — — — — — 48 48

Gain on sale of CNIC — — — — — — — —

Write-down of Majesco — — — — — — — —

(Gains) losses related to minority interest strategy — — — — — — 48 48

{describe} — — — — — — — —

Adjusted net income (loss) before tax and NCI 1,511 7,049 (10,097) (1,537) 1,766 4,921 (6,096) 591

Income tax effects — — — — — — — —

Net (gains) attributable to noncontrolling interests (2) (0.05) (1) (0.01)

Adjusted Net Income (Loss) $ 27 $ 0.52 $ 83 $ 1.77

Adjusted Book Value .

Adjusted book value is defined as Total Ambac Financial Group, Inc.

stockholders’ equity as reported under GAAP, adjusted for after-tax impact of the following:

• Insurance intangible asset:

Elimination of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting.

This adjustment ensures that all financial guarantee contracts are accounted for within adjusted book value consistent with the provisions of the Financial Services—Insurance Topic of the ASC.

• Net unearned premiums and fees in excess of expected losses:

Addition of the value of the unearned premium revenue ("UPR") on financial guarantee contracts, in excess of expected losses, net of reinsurance.

This non-GAAP adjustment presents the economics of UPR and expected losses for financial guarantee contracts on a consistent basis.

In accordance with GAAP, stockholders’ equity reflects a reduction for expected losses only to the extent they exceed UPR.

However, when expected losses are less than UPR for a financial guarantee contract, neither expected losses nor UPR have an impact on stockholders’ equity.

This non-GAAP adjustment adds UPR in excess of expected losses,

net of reinsurance, to stockholders’ equity for financial guarantee contracts where expected losses are less than UPR.

This adjustment is only made for financial guarantee contracts since such premiums are non-refundable.

• Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income:

Elimination of the unrealized gains and losses on the Company’s investments that are recorded as a component of accumulated other comprehensive income (“AOCI”), net of income taxes.

Ambac has a significant U.S.

tax net operating loss (“NOL”) that is offset by a full valuation allowance in the GAAP consolidated financial statements.

As a result of this, tax planning strategies and other considerations, we utilized a 0% effective tax rate for non-GAAP operating adjustments to Adjusted Book.

The following table reconciles Total Ambac Financial Group, Inc.

stockholders’ equity to the non-GAAP measure Adjusted Book Value on a dollar amount and per share basis, for all periods presented:

September 30, 2024 December 31, 2023

($ in millions, except share data) $ Amount Per Share $ Amount Per Share

Total Ambac Financial Group, Inc.

stockholders’ equity $ 1,465 $ 30.89 $ 1,362 $ 30.13

Insurance intangible asset (224) (4.73) (245) (5.43)

Net unearned premiums and fees in excess of expected losses 161 3.40 162 3.59

Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income (13) (0.28) 20 0.45

Adjusted book value 1,389 $ 29.28 $ 1,299 $ 28.74

The increase in Adjusted Book Value since December 31, 2023, was primarily attributable the strengthening of the British Pound and the issuance on stock in connection with the acquisition of Beat for $29.

Adjusted net income (loss) before NCI 1,511 7,049 (10,097) (1,537) 1,766 4,921 (6,096) 591

Net (income) loss attributable to noncontrolling interest — (4,500) — (4,500) — (920) — (920)

Adjusted net income (loss) attributable to common shareholders $ 1,511 $ 2,549 $ (10,097) $ (6,037) $ 1,766 $ 4,001 $ (6,096) $ (329)

(1) Other non-operating expense includes one time add-backs related to gain on sale of CNIC, partially offset by losses related to minority interest strategy and write down of certain capitalized software.

Three Months Ended March 31,

Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated

Net income (loss) margin 6.7 % (4.3) % (2414.3) % (23.1) % 5.8 % 21.2 % (418.7) % (7.0) %

Adjusted Net income (loss) attributable to Ambac stockholders margin 7.1 % 17.2 % (1720.1) % (2.4) % 6.0 % 27.5 % (284.3) % 1.2 %

Quantitative and Qualitative Disclosure About Market Risk

As of September 30, 2024, there are no material changes in the market risks that the Company is exposed to compared to December 31, 2023.

As of March 31, 2025, there are no material changes in the market risks that the Company is exposed to compared to December 31, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis