What changed in this filing

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Item 1A. Risk Factors

2025-08-07 compared with 2025-05-12 · 91 added, 1 removed, 3 unchanged (97% of the section changed)

2 unchanged sentences

Please also see the section entitled “Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995” in this quarterly report on Form 10-Q.

There have been no material changes to the risk factors we have disclosed in the “Risk Factors” section of our aforementioned Annual Report on Form 10-K.

There have been no material changes to the risk factors we have disclosed in the “Risk Factors” section of our aforementioned Annual Report on Form 10-K, except as noted below.

Risks Related to the Sale of AAC

The sale of the common stock of Ambac Assurance Corporation may not be completed as anticipated, or at all.

The closing of the AAC Sale is conditioned on, among other things, the receipt of specified regulatory approvals.

Regulatory approvals may not be received or may lapse, or the receipt or renewal of such approvals may be substantially delayed, due to objections, litigation, the need for additional process, information or review, or other factors.

It is also possible that one or more other conditions to the closing of the AAC Sale is not satisfied, or that the parties are prevented from closing by law or by order of a court or other governmental authority.

In addition, the purchase agreement relating to the AAC Sale (the "Purchase Agreement") provides for certain termination rights.

Buyer and AFG may terminate the Purchase Agreement by mutual written agreement at any time prior to the closing date.

In addition, either Buyer or AFG may terminate the Purchase Agreement at any time prior to the closing by giving written notice to the other party if

• the closing has not been consummated on or before December 31, 2025 (the "End Date");

provided, however, that if the closing has not occurred solely due to the failure to obtain applicable governmental and regulatory approvals from the authorities including, but not limited to, the OCI, the End Date will be automatically extended for an additional ninety (90) days and the parties agree to continue to use their respective reasonable best efforts to satisfy such conditions to closing;

provided, further, that the right to terminate the Purchase Agreement for the foregoing is not available to any party whose breach of any provision of the Purchase Agreement results in the failure of the closing to be consummated;

• (i) applicable law makes the consummation of the closing illegal or otherwise prohibited or (ii) any judgment, injunction, order or decree of any governmental authority enjoins Buyer and AFG from consummating the closing.

The Purchase Agreement may be terminated by Buyer by written notice to AFG if a breach of any representation or warranty or failure to perform any covenant or agreement shall have occurred that would cause certain conditions not to be satisfied, and such breach is not cured within sixty (60) days of written notice to AFG or is incapable of being cured by the End Date.

Additionally, the Purchase Agreement may be terminated by Buyer if at any time the AFG Board of Directors effects an Ambac Board Recommendation Change (as defined in the Purchase Agreement).

The Purchase Agreement may be terminated by AFG by written notice if a breach of any representation or warranty or failure to perform any covenant or agreement shall have occurred that would cause certain conditions not to be satisfied, and such breach is not cured within sixty (60) days of written notice to Buyer or is incapable of being cured by the End Date.

The total proceeds realized from the AAC Sale are contingent upon satisfaction of various closing conditions.

There can be no assurance that the conditions will be satisfied.

Any delay in satisfying the closing conditions may increase the risk that the

Ambac Financial Group, Inc.

Second Quarter 2025 Form 10-Q

Table o f Contents

AAC Sale will be terminated or reduce the benefits we expect to achieve.

Risks Related to the Company's Business

Catastrophic events may cause volatility of net income and comprehensive income primarily through changes to loss reserves, which may not be adequate to cover potential losses, and declines in revenues.

Revenue may be adversely impacted by reduced business activity and lower sliding scale and profit commissions.

Catastrophic events, whether natural or man-made, including natural disasters and environmental and public health events that result in material disruption of economic activity, loss of human life or significant property damage, can have a materially negative impact on our financial and operational performance.

Public health crises and/or natural disasters can cause economic and financial disruptions that may adversely affect our business and results of operations.

The objective of establishing loss reserve estimates is not to, and our loss reserves do not, reflect worst possible outcomes.

As a result of inherent uncertainties in the estimates and judgments made to determine loss reserves, there can be no assurance that either actual losses will not exceed such reserves or that our reserves will not materially change over time as circumstances, events, our assumptions, or our models change.

Everspan may be exposed to losses arising out of unpredictable catastrophic events both natural and man-made.

These events include hurricanes, earthquakes, windstorms, floods, wildfires, and severe winter weather, terrorist attacks, wars, political unrest, explosions, cyber-attacks, nuclear, biological, chemical or radiological events and infrastructure failures.

A severe single catastrophe or a series of such events could result in losses exceeding Everspan’s reinsurance protection and may have a material adverse impact on our results of operations or financial condition.

Catastrophic events can lead to significant volatility in the markets in which we operate in addition to the global financial markets.

Disruptions to these markets could result in a decline in business activity, increased claims, reduced underwriting capacity from insurance companies, reinsurers and other capital providers upon which our P&C businesses are reliant.

Catastrophic events may also interrupt the operations of our agents and business partners that distribute our P&C insurance products.

Profit commissions and contingent commissions related to certain of our P&C business lines may also be adversely impacted by catastrophic losses.

Individually and/or collectively, these results may have a material adverse impact on our results of operations and financial condition.

These events could result in decreased business activity, increased claims and losses, and reduced underwriting capacity from our capacity providers potentially making it more difficult for Everspan and our MGAs to place coverage.

Moreover, such disasters may disrupt public and private infrastructure, including communication networks and financial systems, which could disrupt our normal business operations.

Any increases in loss ratios due to natural or man-made disasters could impact our profit or contingent commissions.

Further, we use internally developed and third-party vendor tools and models to assess exposure to losses, including catastrophic losses.

However, these tools are subject to inherent limitations and may not accurately predict future losses or loss development.

Limitations in these tools and models may adversely affect our results of operations and financial condition.

Our Insurance Distribution businesses, results of operations, financial condition and liquidity may be materially adversely affected by certain potential claims or proceedings.

Our owned MGA/Us and insurance brokerage operating subsidiaries are subject to various potential claims and other proceedings, including those relating to alleged errors and omissions in connection with the placement or servicing of insurance and/or the provision of services in the ordinary course of business, of which we cannot, and likely will not be able to, predict the outcome with certainty.

Because our MGA/Us and insurance brokerage operating subsidiaries often assist customers with matters involving substantial amounts of money, including the placement of insurance and the handling of related claims, customers may assert, errors and omissions and, other claims against all or part of the amounts in question.

Also, the failure of an insurer with whom our MGA/Us and insurance brokerage operating subsidiaries place business could result in errors and omissions claims against it by its customers, which could adversely affect Ambac’s results of operations and financial condition.

Claimants may seek large damage awards, and these claims may involve potentially significant legal costs and damages.

In addition, regardless of monetary costs, these matters could have a material adverse effect on our reputation and cause harm to carrier, customer or employee relationships, or divert personnel and management resources.

Risks Related to the Capital, Liquidity and Credit Markets

AFG and the Insurance Distribution business have substantial indebtedness, which could adversely affect our financial condition, operational flexibility and our ability to obtain financing in the future

We financed the acquisition of Beat in part through the issuance of $150,000 of new indebtedness, which is guaranteed by AFG (the “Credit Facility”).

The debt incurred under the Credit Facility matures on December 31, 2025.

The obligations of AFG and its subsidiaries under the Credit Facility are secured on a first-priority basis by (i) a pledge of all of the capital stock of Everspan Holdings, LLC and (ii) a pledge of all of the capital stock of Beat.

The Company intends to pay off the Credit Facility with the proceeds of the AAC Sale.

In the event that the AAC Sale did not occur, due to factors described elsewhere in these Risk Factors or for any other reason, the Company would need to seek to refinance the Credit Facility through the public or private credit markets.

Alternatively the Company would seek to raise additional capital or restructure the debt.

There is no guaranty that the Company could refinance or restructure the Credit Facility or raise additional capital at commercially reasonable terms or at all.

In addition, if the Company were able to refinance or restructure the Credit Facility or raise additional capital it may incur a higher rate of interest or suffer more restrictive covenants,

Ambac Financial Group, Inc.

Second Quarter 2025 Form 10-Q

Table o f Contents

which could cause a material adverse impact on the Company’s results of operations and financial condition.

Furthermore, raising additional capital through the issuance of equity would depend on market and economic conditions, dilute the ownership of existing stockholders and potentially diminish the ability of the Company to access the capital markets in the future.

Moreover, raising additional capital through the sale of assets would depend on market and economic conditions;

the availability of buyers;

the requirements and conditions of local law, including regulatory restrictions;

and other factors that may result in the Company or a party enforcing rights against the Company to be unable to receive proceeds sufficient to discharge the Company’s obligations.

Because of these and other factors beyond our control, the Company may be unable to pay or discharge the principal or interest on the indebtedness incurred under the Credit Facility on economic terms or at all, which would materially impair the value of the Company.

The Credit Facility includes covenants that restrict our ability to manage capital resources by limiting, among other actions, the issuance of additional debt or capital stock;

the creation of liens;

the disposition of assets;

engaging in transactions with affiliates;

making restricted payments, including dividends and the purchase or redemption of capital stock;

and making acquisitions and other investments.

The Credit Facility also requires the prepayment of the borrowings thereunder with proceeds of certain debt or equity issuances and certain asset sales, including the AAC Sale.

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

The Company’s substantial indebtedness could have other significant consequences for our financial condition and operational flexibility.

For example, it could:

• increase our vulnerability to general adverse economic, competitive and industry conditions;

• limit our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes on satisfactory terms or at all;

• require the Company to dedicate a substantial portion of its cash flow from operations to the payment of interest on its indebtedness, thereby reducing the funds available for operations and to fund the execution of key strategies;

• limit or restrict the Company from making strategic acquisitions or cause us to make non-strategic divestitures;

• limit the Company's ability, or increase the costs, to refinance its indebtedness or repay indebtedness due to ongoing interest payment obligations;

• limit our ability to attract and retain key employees.

While restrictive covenants in the Credit Facility may limit the amount of additional indebtedness the Company may incur, we may obtain waivers of those restrictions and incur additional indebtedness in the future.

In addition, if the Company incurred indebtedness, its ability to make scheduled payments on, or refinance, any such indebtedness may depend on the ability of our subsidiaries to make distributions or pay dividends, which in turn will depend on their future operating performance and contractual, legal and regulatory restrictions on the payment of

distributions or dividends to which they may be subject.

There can be no assurance that any such dividends or distributions would be made.

This could further exacerbate the risks associated with the Company’s substantial leverage.

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 1A. Risk Factors