OCTAVE SPECIALTY GROUP INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ($ and £ in thousands) The objectives of our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are to provide users of our consolidated financial statements with the following: • A narrative explanation from the perspective of management of our financial condition, results of operations, cash flows, liquidity and certain other factors that may affect future results; • Context to the unaudited consolidated financial statements; and • Information that allows assessment of the likelihood that past performance is indicative of future performance. The following discussion should be read in conjunction with our consolidated financial statements in Part I, Item 1 and the matters described under Part II, Item 1A Risk Factors in this Quarterly Report and under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024. Refer to Item 1. Business and Note 1. 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: Page Strategies to Enhance Shareholder Value 31 Overview 32 Critical Accounting Estimates 33 Results of Operations 33 Liquidity and Capital Resources 37 Balance Sheet 39 Accounting Standards 41 U.S. Insurance Statutory Basis Financial Results 41 Non-GAAP Financial Measures 41 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. 31 Second Quarter 2025 Form 10-Q Table o f Contents OVERVIEW AFG's subsidiaries/businesses are divided into two reportable segments with results for the three and six months ended June 30, 2025, and 2024, as follows: Three Months Ended June 30, 2025 Three Months Ended June 30, 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 Gross premiums written $ 96,247 96,247 $ 111,206 111,206 Net premiums written 15,207 15,207 32,289 32,289 Premiums placed $ 249,912 $ 249,912 $ 53,418 $ 53,418 Total revenues 21,390 33,041 $ 526 54,957 31,828 13,306 $ 5,904 51,037 Total expenses 20,770 43,214 13,949 77,931 32,925 12,049 20,812 65,786 Pretax income (loss) 620 (10,173) (13,423) (22,974) (1,097) 1,257 (14,908) (14,749) EBITDA (2) 620 4,698 (12,983) (7,663) (1,097) 2,404 (14,441) (13,135) Adjusted EBITDA 681 4,580 (7,771) (2,508) (1,023) 2,404 (1,562) (182) Net income (loss) attributable to Ambac shareholders 428 $ (7,738) $ (13,240) (20,548) (1,070) $ 1,035 $ (14,896) (14,932) EBITDA attributable to Ambac shareholders 620 2,513 (12,983) (9,848) (1,097) 1,974 (14,441) (13,565) Adjusted EBITDA attributable to Ambac common stockholders $ 681 2,519 $ (7,771) (4,569) $ (1,023) 1,974 $ (1,562) (612) Six Months Ended June 30, 2025 Six Months Ended June 30, 2024 Specialty Property and Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Specialty Property and Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Premiums placed $ 480,518 $ 480,518 $ 143,514 $ 143,514 Gross premiums written $ 183,162 $ 183,162 $ 207,628 $ 207,628 Net premiums written $ 33,212 $ 33,212 $ 58,536 $ 58,536 Total revenues $ 42,561 $ 74,039 $ 1,113 $ 117,713 $ 61,370 $ 31,171 $ 8,048 $ 100,588 Total expenses $ 40,439 $ 86,455 $ 28,901 $ 155,794 $ 60,649 $ 25,902 $ 32,025 $ 118,576 Pretax income (loss) $ 2,122 $ (12,416) $ (27,788) $ (38,081) $ 721 $ 5,269 $ (23,977) $ (17,988) EBITDA (2) $ 2,123 $ 16,781 $ (27,044) $ (8,140) $ 721 $ 7,565 $ (23,047) $ (14,762) Adjusted EBITDA $ 2,270 $ 16,692 $ (17,759) $ 1,205 $ 849 $ 7,526 $ (7,289) $ 1,122 Net income (loss) attributable to Ambac shareholders $ 1,852 $ (11,135) $ (27,410) $ (36,692) $ 644 $ 4,226 $ (23,871) $ (19,002) EBITDA attributable to Ambac shareholders $ 2,123 $ 9,576 $ (27,044) $ (15,345) $ 724 $ 6,215 $ (23,048) $ (16,112) Adjusted EBITDA attributable to Ambac common stockholders $ 2,270 $ 9,611 $ (17,759) $ (5,876) $ 849 $ 6,176 $ (7,289) $ (228) Sale of AAC On June 4, 2024, AFG entered into a stock purchase agreement (the "Purchase Agreement") with American Acorn Corporation (the “Buyer”), a Delaware corporation owned by funds managed by Oaktree Capital Management, L.P., pursuant to which and subject to the conditions set forth therein, AFG will sell all of the issued and outstanding shares of common stock of AAC, 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 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 Assurance UK Limited ("Ambac UK"). In connection with and pursuant to the 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. On July 3, 2025, the parties to the Purchase Agreement entered into a letter agreement pursuant to which, among other things, the parties entered into a new agreement with respect to the warrant and amended certain terms of the Investor Rights Agreement (as defined in the Purchase Agreement). The Buyer continues to pursue the final outstanding regulatory approval for the Sale, which would be received only after a hearing, currently scheduled for September 3, 2025, at or prior to which third parties would have an opportunity to object to the Sale. On or prior to August 4, 2025, representatives of certain holders of surplus notes issued by AAC filed motions to intervene in the proceedings. On July 28, 2025, the OCI staff published a memorandum including its recommendation that the Sale be approved. On July 3, 2025, AFG and the Buyer entered into an agreement to, among other matters, extend the term of the Purchase Agreement from July 3, 2025 to December 31, 2025 (subject to an automatic 90-day extension if regulatory approvals have not been obtained), to facilitate the timing of the hearing. The Buyer received approval for the change in control of Ambac UK from the U.K. Prudential Regulation Authority, which expires on October 24, 2025. Refer to 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 further details on the pending sale of AAC. Ambac Financial Group, Inc. 32 Second Quarter 2025 Form 10-Q Table o f Contents 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 six months ended June 30, 2025, and year ended December 31, 2024, was (67,456) and $(570,145), respectively. See Note 3. 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 June 30, 2025, amounted to $(86,828). SEC Final Rules on Climate Related Information On March 6, 2024, the U.S. Securities and Exchange Commission (“SEC”) adopted The Enhancement and Standardization of Climate-Related Disclosures for Investors ("Final Rule") , which will require registrants to disclose extensive climate-related information in their Form 10-K annual reports and registration statements. The Final Rule was scheduled to become effective May 28, 2024; however, the SEC has voluntarily stayed the rule’s effective date pending judicial review of legal challenges. 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. Depending on when the legal challenges are resolved, the compliance dates may be retained or delayed. Ambac is reviewing the Final Rule and is currently assessing our related compliance obligations and other effects on our operations. CRITICAL ACCOUNTING ESTIMATES Ambac’s Unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which require the use of material estimates and assumptions. 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. Results of Operations Consolidated Results A summary of our financial results is shown below: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Gross premiums written $ 96,247 $ 111,206 $ 183,162 $ 207,628 Net premiums written 15,207 32,289 33,212 58,536 Revenues: Net premiums earned $ 16,203 $ 27,054 $ 31,881 $ 52,633 Commissions 30,322 13,221 67,093 30,950 Servicing and other fees 4,472 — 9,436 — Program fees 3,497 3,328 7,149 5,895 Investment income 2,609 3,763 5,424 7,403 Other (2,146) 3,671 (3,270) 3,707 Expenses: Losses and loss adjustment expenses 10,978 23,024 21,474 42,379 Policy acquisition costs 3,699 5,399 7,540 9,823 Commissions 7,403 7,888 17,768 17,710 General and administrative 40,540 27,861 79,071 45,436 Intangible amortization and depreciation 9,741 1,614 18,917 3,228 Interest 5,570 — 11,024 — Total expenses 77,931 65,786 155,794 118,576 Provision (benefit) for income taxes from continuing operations (2,172) (30) (2,789) 100 Net income (loss) from continuing operations (20,802) (14,719) (35,292) (18,088) Net income (loss) from discontinued operations, net of income taxes (52,151) 14,182 Net income (loss) (72,953) (537) Net (gain) loss attributable to noncontrolling interest 254 (213) (1,400) (914) Net income (loss) attributable to shareholders $ (72,699) $ (750) $ (119,090) $ 19,320 Ambac's results for the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 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 and six months ended June 30, 2025, and 2024. Ambac Financial Group, Inc. 33 Second Quarter 2025 Form 10-Q Table o f Contents The following paragraphs describe the consolidated results of continuing operations of Ambac and its subsidiaries for the three and six months ended June 30, 2025, and 2024, respectively. Gross Premiums Written. Gross premiums written decreased $14,959 and $24,466 for the three and six months ended June 30, 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 decreased $17,082 and $25,325 for the three and six months ended June 30, 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 decreased $10,851 and $20,752 for the three and six months ended June 30, 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 and six months ended June 30, 2025, was $30,322 and $67,093 compared to $13,221 and $30,950 for the three and six months ended June 30, 2024. Commission income included profit commissions (based on underwriting performance) of $2,266 and $6,957 for the three and six months ended June 30, 2025, and $1,141 $2,323 and for the three and six months ended June 30, 2024, respectively. The increase was primarily driven by the inclusion of profit commissions earned by Beat following the acquisition in August 2024. For the three and six months ended June 30, 2025, commission expense of $7,403 and $17,768 compared to $7,888 and $17,710 in three and six months ended June 30, 2024, representing approximately 43% and 74% 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 $3,497 and $3,328 for the three and six months ended June 30, 2025, and 2024, 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 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 decreased $1,154 and $1,979 for the three and six months ended June 30, 2025 compared to the prior year periods 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 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 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 purchas e equity of certain development stage companies held by AFG. The net loss for the three and six months ended June 30, 2025, of $(2,146) and $(3,270) was driven primarily by foreign exchange losses on non-functional currency operations. Net gains for the three and six months ended June 30, 2025 w ere driven by gains from the conversion and early settlement of certain convertible notes, including make-whole payments, partially offset by a write-down in carrying value on an investment in preferred securities that are carried at cost less impairments and net foreign exchange losses. Losses and Loss Adjustment Expenses (Benefit). Loss and loss adjustment expenses incurred decreased $12,046 and $20,905 for the three and six months ended June 30, 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. Ambac Financial Group, Inc. 34 Second Quarter 2025 Form 10-Q Table o f Contents General and Administrative Expenses (G&A). The following table provides a summary of G&A expenses for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Compensation $ 22,782 $ 11,083 $ 45,669 $ 21,630 Non-compensation 17,756 16,792 33,401 23,932 Total G&A expenses $ 40,539 $ 27,875 $ 79,070 $ 45,562 The increase in Compensation G&A expenses during the three and six months ended June 30, 2025, was due to higher compensation costs due to Insurance Distribution acquisitions; offset by lower current year period expenses for performance incentive compensation. Non-Compensation G&A expenses for the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024, were driven up by integration expenses related to the acquisition of Beat offset by lower Corporate segment expenses related to M&A transactions. Cost related to restructuring due to the sale of AAC for the three and six months ended June 30, 2025 were $2,918 and $4,737, respectively, and for the three and six months ended June 30, 2024 were $5,203 and $5,337, respectively. Intangible Amortization and Depreciation. Intangible amortization for the three and six months ended June 30, 2025, was $9,212 and $17,975 compared to $967 and $2,278 in the comparable prior year periods. The increase in other intangible amortization for the three and six months ended June 30, 2025 related to the Beat acquisition. Interest Expense. Interest expense for the three and six months ended June 30, 2025 was $5,570 and $11,024, 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 and six months ended June 30, 2024. Provision for Income Taxes. The provision (benefit) for income taxes primarily relates to international operations and was $(2,172) and $(2,789) for the three and six months ended June 30, 2025, compared to $(30) and $100 for the three and six months ended June 30, 2024. Results of Operations by Segment Specialty Property and Casualty Insurance Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Gross premiums written $ 96,247 $ 111,206 $ 183,162 $ 207,628 Net premiums written 15,207 32,289 33,212 58,536 Revenues: Net premiums earned $ 16,203 $ 27,054 $ 31,881 $ 52,633 Program fees 3,497 3,328 7,149 5,895 Investment income 1,748 1,465 3,590 2,864 Other income (58) (19) (59) (22) Total 21,390 31,828 42,561 61,370 Expenses: Losses and loss expenses incurred 10,978 23,024 21,474 42,379 Amortization of deferred acquisition costs, net 3,699 5,399 7,540 9,823 General and administrative expenses 6,093 4,502 11,425 8,446 Total 20,770 32,925 40,439 60,648 EBITDA $ 620 $ (1,097) $ 2,122 $ 722 Pretax income (loss) $ 620 $ (1,097) $ 2,122 $ 721 Retention Ratio (1) 15.8% 29.0% 18.1% 28.2% Loss and LAE Ratio (2) 67.8% 85.1% 67.4% 80.5% Expense Ratio (3) 38.9% 24.3% 37.1% 23.5% Combined Ratio (4) 106.7% 109.4% 104.5% 104.0% Ambac's stockholders equity (5) $ 140,919 $ 119,775 (1) Retention ratio is defined as net premiums written divided by gross premiums written (2) Loss and LAE ratio is defined as losses and loss expenses incurred divided by net premiums earned (3) Expense Ratio is defined as acquisition costs and general and administrative expenses, reduced by program fees divided by net premiums earned (4) Combined ratio is defined as Loss and LAE ratio plus Expense Ratio (5) Represents Ambac stockholders equity in the Specialty Property and Casualty Insurance segment, including intercompany eliminations. The Specialty Property and Casualty Insurance segment has grown significantly since underwriting its first program in May 2021. Twenty-four programs were authorized to issue policies as of June 30, 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 and six months ended June 30, 2025, compared to three and six months ended June 30, 2024. Partially offsetting these non-renewals are the continued growth in existing programs and addition of new programs. EBITDA and pre-tax income increased in the three and six months ended June 30, 2025 Ambac Financial Group, Inc. 35 Second Quarter 2025 Form 10-Q Table o f Contents compared to June 30, 2024, primarily resulting from lower losses incurred due the non-renewal of certain programs in 2025 and lower loss reserve strengthening in 2025 versus 2024. This is partially offset by a 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 select 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. 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. The change in the loss ratio was driven by the shift in mix of business. The three and six months ended June 30, 2025, contained minimal prior years loss strengthening of 1.0% and 1.0%, respectively driven primarily by excess liability loss experience, whereas the three and six months ended June 30, 2024, contained prior years loss strengthening of 6.9% and 5.7%, respectively, which was primarily driven by commercial auto loss experience on programs which have since been non-renewed. Loss and loss expenses incurred, and Everspan'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. Going forward, we may not be able to offset the impact of inflation on our loss costs with sufficient price increases. The estimation of loss reserves may also be more difficult during extreme events, such as a pandemic, or during the persistence of volatile or uncertain economic conditions, due to, amongst other reasons, unexpected changes in behavior of judiciaries, claimants and policyholders, including fraudulent reporting of exposures and/or losses. Due to the inherent uncertainty underlying loss reserve estimates, the final resolution of the estimated liability for loss and loss adjustment expenses will likely be higher or lower than the related loss reserves at the reporting date. In addition, our estimate of losses and loss expenses may change. These additional liabilities or increases in estimates, or a range of either, could vary significantly from period to period. In addition to the decrease in the Loss and LAE ratio for the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 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 2.6% and 5.6% for the three months ended June 30, 2025 and 2024, respectively and 1.3% and 5.9% for the six months ended June 30, 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 and six months ended June 30, 2025, relative to the three and six months ended June 30, 2024, due to the mix and net increase of headcount movement, the impact of changes to premium tax accruals ($0.9 million for the three and six months ended June 30, 2026) and legal expenses partially offset by reduced performance on long term incentive compensation. Insurance Distribution Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Premiums placed $ 249,912 $ 53,418 $ 480,518 $ 143,514 Commission income $ 30,322 $ 13,221 $ 67,093 $ 30,950 Commission expense 7,403 7,888 17,768 2,278 Net commissions 22,919 5,333 49,325 28,672 Servicing and other fees 4,472 — 9,436 — Investment income 340 77 716 127 Other revenue (2,093) 8 94 Expenses: General and administrative expenses 20,940 3,008 39,489 5,893 EBITDA 4,698 2,410 16,782 7,568 Interest expense 5,570 — 11,024 — Depreciation — 14 8 — Intangible amortization 9,301 1,139 18,064 1,301 Pretax income (loss) $ (10,173) $ 1,257 $ (12,416) $ 7,283 Ambac's stockholders equity (1) $ 302,273 $ 104,618 (1) Represents the share of Ambac stockholders equity for each subsidiary within the Insurance Distribution segment, including intercompany eliminations. Ambac's Insurance Distribution businesses are compensated for their services primarily by commissions paid by insurance carriers for underwriting, structuring and/or administering polices. Commission revenues are usually based on a percentage of the premiums placed. In addition, we are eligible to receive profit sharing contingent commissions on certain programs based on the underwriting results of the policies placed with carriers, which may cause some variability in revenue and earnings. Insurance Distribution pre-tax loss for the three and six months ended June 30, 2025, was $(10,173) and $(12,416) compared to $1,257 and $5,269 for the three and six months ended June 30, 2024. The decrease was primarily driven by an increase in intangible amortization and interest expense related to the Beat acquisition. During the three months and six months ended June 30, 2025, Insurance Distribution results were negatively impacted by foreign exchange losses, intangible amortization and interest expense related to the Beat acquisition. Post the sale of AAC, which is expected to close in the third quarter of 2025, the short-term debt used to partially finance the Beat acquisition will be repaid and the associated interest expense will no longer be incurred. The Insurance Distribution segment placed premiums for its carriers are shown below: Ambac Financial Group, Inc. 36 Second Quarter 2025 Form 10-Q Table o f Contents Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Premiums Placed $ 249,912 $ 53,418 $ 480,518 $ 143,514 Increase over prior period $ 196,494 $ 337,004 As a percent 367.8 % 234.8 % Higher premiums placed were mostly driven by the acquisition of Beat effective July 31, 2024. For the three months ended June 30, 2025, the increase in premiums placed and changes to the mix of business written led to the growth in commission income and commission expense of 129% and (6)%, respectively. Business underwritten within our Insurance Distribution business can be seasonal which may result in revenue and earnings concentrations from period to period. 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 for the three and six months ended June 30, 2025, are $20,940 and $39,489 an increase over three and six months ended June 30, 2024 of 17,932 and $33,596, respectively, as a result of the Beat acquisition in the third quarter of 2024. Corporate Corporate consists of our holding company and shared services operations ("Corporate"). Corporate provides financial, technological and human resources to Ambac's two segments and is responsible for the function of AFG as a publicly traded company. Corporate revenues totaled $526 and $5,904 for the three months ended June 30, 2025 and 2024, respectively and $1,113 and $8,048 for the six months ended June 30, 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 $521 and $6,757 for the three months ended June 30, 2025 and 2024, respectively and $1,118 and $8,949 for the six months ended June 30, 2025 and 2024, respectively. The declines from 2024 to 2025 are attributable to the use of liquid resources for the acquisition of Beat and net investment gains of $4,536 in the three and six months ended June 30, 2024 related to certain of AFG's strategic investments in MGA/Us.. 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 $13,506 and $20,351 for the three months ended June 30, 2025 and 2024, respectively and $28,901 and $32,025 for the six months ended June 30, 2025 and 2024. Corporate expenses were lower for the three and six months ended June 30, 2025 compared to three and six months ended June 30, 2024 mainly due to lower expenses related to corporate development and the sale of AAC. LIQUIDITY AND CAPITAL RESOURCES Holding Company Liquidity 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 $84,922 as of June 30, 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). June 30, 2025 December 31, 2024 Cash and short-term investments $ 44,863 $ 74,423 Other investments (1) 29,560 28,117 Other net (liabilities) assets 10,499 16,674 Total $ 84,922 $ 119,214 (1) Includes strategic minority investments in insurance services businesses of $20,618 at June 30, 2025, and December 31, 2024.. The decrease in AFG net assets, excluding its equity investments in subsidiaries, during the first six months 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 $150,000 of debt maturing in 364 days funded by a global bank (the "Credit Facility"). Repayment of debt under the Credit Facility is guaranteed by AFG. AFG is required to repay this debt upon the closing of the sale of AAC or otherwise refinance such short-term debt with longer-term debt. On June 10, 2025, AFG entered into an agreement to extend the maturity date of the Credit Facility from July 31, 2025, to the earlier of (a) December 31, 2025, and (b) the date that is the three-month anniversary of the termination of the Purchase Agreement. • AFG's acquisition of Beat was partially funded by AAC's co-investment in the amount of $62,000. Upon the close of the AAC sale, AFG will purchase AAC's co-investment at a price resulting in a 7.5% rate of return per annum to 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 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. Ambac Financial Group, Inc. 37 Second Quarter 2025 Form 10-Q Table o f Contents • 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 2025. Everspan makes tax payments to AFG in accordance with a Tax Sharing Agreement. For the six months ended June 30, 2025, Everspan paid $1,744 in tax payments to AFG. • Cirrata does not have any regulatory restrictions on its ability to make distributions. AFG received distributions from Cirrata of $3,118 and $4,650 during the six months ended June 30, 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 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 $300,000 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. through the issuance of debt, equity or hybrid securities). The Credit Facility includes covenants that restrict our ability to manage capital resources by limiting, among other actions, the issuance of debt or capital stock; the creation of liens; the disposition of assets; engaging in transactions with affiliates; making restricted payments, including dividends and the purchase or redemption of capital stock; and making acquisitions and other investments. The Credit Facility also requires the prepayment of the borrowings thereunder with proceeds of certain debt or equity issuances and certain asset sales. These requirements will impact our financial and operational flexibility while the Credit Facility remains in place. Operating Companies' Liquidity Insurance Sources of liquidity for Everspan are primarily through funds generated from premiums, reinsurance recoveries, fees, investment income and maturities and sales of investments. Cash provided from these sources is used primarily for claim payments, loss expenses, acquisition costs, operating expenses, reinsurance payments and purchases of securities and other investments. Everspan manages its liquidity risk by projecting cash flows and maintaining specified levels of cash and short-term investments at all times. It is the opinion of the Company’s management that the insurance subsidiaries’ near term liquidity needs will be adequately met from the sources described above. Insurance Distribution The liquidity requirements of our Insurance Distribution subsidiaries are met primarily by funds generated from commission (both base and profit commissions) and fees. Base commissions and fees are generally received monthly, whereas profit commissions are received only if the business underwritten is profitable. Cash provided from these sources is used primarily for commissions paid to sub-producers, operating expenses and distributions to AFG and other members. 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 $36,407 as of June 30, 2025, including cash of Ambac's insurance distribution subsidiaries held in regional banks of $35,085 as of June 30, 2025. Consolidated Cash Flow Statement Discussion The following table summarizes the net cash flows for the periods presented. Six Months Ended June 30, 2025 2024 Cash provided by (used in): Operating activities $ (10,463) $ 27,481 Investing activities 18,030 (19,826) Financing activities (9,747) (1,732) Foreign exchange impact on cash and cash equivalents 475 (65) Net cash flow $ (1,705) $ 5,858 Operating Activities for Continuing Operations Operating cash flows during the six months ended June 30, 2025 and 2024, was $(10,463) and $27,481, respectively. Operating cash flows for the six months ended June 30, 2025, were adversely impacted by G&A expenses paid and interest on short-term borrowing, an increase in reinsurance recoverable, 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. Ambac Financial Group, Inc. 38 Second Quarter 2025 Form 10-Q Table o f Contents Investing Activities for Continuing Operations Investing activities for the six months ended June 30, 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 six months ended June 30, 2025, included purchases of common stock of $3,301. Future financing cash flows will be primarily impacted by paydowns and maturities of debt, new borrowings, capital management activity and distributions 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 $464,008 from December 31, 2024, to $8,522,386 at June 30, 2025, primarily due to the increase in reinsurance recoverables associated with the growth of the specialty P&C businesses and the increase in Assets held-for-sale as further described below. Total liabilities increased by approximately $440,821 from December 31, 2024, to $7,303,678 as of June 30, 2025, primarily due to an 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 June 30, 2025, total Ambac Financial Group stockholders’ equity was $859,839, compared with total stockholders’ equity of $856,906 at December 31, 2024. The increase was primarily driven by foreign currency translation gains of $107,877 (net of the NCI impact of $25,827) and unrealized fixed maturity securities gains of $13,959, offset by a net loss of $119,090. Discontinued Operation: Assets and Liabilities Held-for-Sale. Assets held-for-sale increased to $6,592,417 at June 30, 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 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 $67,456. Liabilities held-for-sale increased to $6,213,024 at June 30, 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 June 30, 2025, compared to December 31, 2024. Investment Portfolio Ambac's investment portfolio is managed under established guidelines designed to meet the investment objectives of Everspan Group and AFG. The Insurance Distribution businesses investments are limited to money market funds and U.S. Government Treasury bonds. 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. The following table summarizes the composition of Ambac’s investment portfolio, at carrying value at June 30, 2025, and December 31, 2024: June 30, 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 $ 159,879 $ — $ 1,456 $ 161,335 $ 157,020 $ — $ — $ 157,020 Short-term 34,998 32,949 34,773 102,720 35,727 27,435 64,439 127,601 Other investments — 89 28,104 28,193 — 176 28,117 28,293 Total investments $ 194,877 $ 33,038 $ 64,333 $ 292,248 $ 192,247 $ 27,611 $ 92,556 $ 312,914 Ambac invests in various asset classes in its fixed maturity securities portfolio. 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 other investments by asset class. Ambac Financial Group, Inc. 39 Second Quarter 2025 Form 10-Q Table o f Contents The following charts provide the ratings distribution of the fixed maturity investment portfolio based on fair value at June 30, 2025, and December 31, 2024. Ratings represent the lower of ratings provided by S&P and Moody's when ratings are available from both agencies. Premium Receivables Ambac's premium receivables increased to $71,875 at June 30, 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. Commission and fees receivable Ambac's commission and fee receivables increased to $72,619 at June 30, 2025, from $55,377 at December 31, 2024. The increase is primarily due to growth in the Insurance Distribution Segment and the Beat acquisition. Reinsurance Recoverable on Paid and Unpaid Losses Ambac has reinsurance in place pursuant to surplus share treaty and facultative agreements. As of June 30, 2025, and December 31, 2024, reinsurance recoverable on paid and unpaid losses were $376,445 and $306,191, respectively, increasing primarily due to growth in the Specialty P&C Insurance Segment. To minimize its exposure to losses from reinsurers, Ambac (i) monitors the financial condition of its reinsurers; (ii) is entitled to receive collateral from its reinsurance counterparties under certain reinsurance contracts; and (iii) has certain cancellation rights that can be exercised in the event of rating agency downgrades of a reinsurer (among other events and circumstances). 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 $67,265 from its reinsurers at June 30, 2025. Additionally, while legacy liabilities from 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. Intangible Assets, net of Accumulated Depreciation Intangible assets primarily include (i) intangible assets established as part of acquisitions in the Insurance Distribution business of $324,636 at June 30, 2025 and (iii) indefinite-lived intangible assets in the Specialty P&C business as part of its acquisitions of $11,213 at June 30, 2025. As of June 30, 2025, and December 31, 2024, intangible assets were $353,904 and $344,775, respectively. The increase is driven by foreign exchange rates (appreciation of the British pound), partially offset by amortization of $17,975. Goodwill As of June 30, 2025, and December 31, 2024, goodwill totaled $451,808 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. Liabilities Loss and Loss Adjustment Expense Reserves Loss and loss adjustment expense reserves are estimates of the ultimate liability for unpaid losses and loss expenses for claims that have been reported and claims that have been incurred, but not yet reported as of the balance sheet date. Loss and loss adjustment expense reserves by line of business were as follows as of June 30, 2025, and December 31, 2024 June 30, 2025 December 31, 2024 Line Gross Net Gross Net Commercial auto $ 148,616 $ 25,255 $ 158,472 $ 28,720 Excess liability 74,404 10,772 50,248 6,571 General liability 52,081 10,428 35,211 8,286 Workers compensation 16,604 16,604 14,465 14,465 Non-standard personal auto 7,051 6,656 12,689 12,185 Professional Liability 27,853 2,020 17,698 1,807 Surety 12,250 — 11,217 6 Unallocated loss adjustment expense reserves 14,066 5,898 12,238 6,578 Other (1) 31,044 922 36,826 363 Loss and Loss Expense Reserves $ 383,969 $ 78,555 $ 349,064 $ 78,980 (1) Includes $27,629 and $0 loss and loss expense reserves on a gross and net of reinsurance basis at June 30, 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 Ambac Financial Group, Inc. 40 Second Quarter 2025 Form 10-Q Table o f Contents 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. Basis of Presentation and Significant Accounting Policies and Note 8. 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. Short and Long-term Debt Ambac borrowed under a short-term credit facility to provide partial funding of the acquisition of Beat in 2024. The carrying value of this short term debt is $150,000 as of June 30, 2025, and December 31, 2024. This short-term debt will be repaid from the proceeds of the sale of AAC. 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. Commission payable at June 30, 2025, and December 31, 2024 was $96,875 and $71,431, respectively. 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 three and six months ended June 30, 2025, relate primarily to the allocation of financial results to the minority interests, revaluation to redemption value where applicable, reclassification of certain interests to nonredeemable due to the expiration of related put options, the exercise of certain put options and the impact of foreign currency translation. ACCOUNTING STANDARDS Please refer to Note 1. 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. U.S. STATUTORY BASIS FINANCIAL RESULTS AFG's U.S. insurance subsidiaries prepare financial statements under accounting practices prescribed or permitted by its domiciliary state regulator (“SAP”) for determining and reporting the financial condition and results of operations of an insurance company. The National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures manual (“NAIC SAP”) is adopted as a component of prescribed practices by each domiciliary state. For further information, see "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. Everspan Indemnity Insurance Company Everspan Indemnity Insurance Company’s (EIIC) statutory policyholder surplus was $126,488 at June 30, 2025, as compared to $125,202 at December 31, 2024. The increase in surplus was driven by net income at Everspan Indemnity Insurance Company, including its subsidiaries, of $1,093 during the six months ended June 30, 2025. Each of Everspan's insurance carriers are a direct or indirect wholly-owned subsidiary of EIIC and therefore are included in EIIC's statutory policyholder surplus. NON-GAAP FINANCIAL MEASURES In addition to reporting the Company’s quarterly financial results in accordance with GAAP, the Company is reporting non-GAAP financial measures: EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin, Organic Revenue Growth Rate (Insurance Distribution segment only), Adjusted Net Income and Adjusted Net Income Margin. These amounts are derived from our consolidated financial information, but are not presented in our consolidated financial results. We present non-GAAP supplemental financial information because we believe such information is of interest to the investment community, and that it provides greater transparency and enhanced visibility into the underlying drivers and performance of our businesses on a basis that may not be otherwise apparent on a GAAP basis. We view these non-GAAP financial measures as important indicators when assessing and evaluating our performance on a segmented and consolidated basis and they are presented to improve the comparability of our results between periods by eliminating the impact of the items that may not be representative of our core operating performance. These non-GAAP financial measures are not substitutes for the Company’s GAAP reporting, should not be viewed in isolation and may differ from similar reporting provided by other companies, which may define non-GAAP measures differently. Beginning December 31, 2024, Ambac replaced the non-GAAP measure Adjusted Net Income with new non-GAAP measures Adjusted Net Income and Adjusted Net Income Margin and added Adjusted EBITDA and Adjusted EBITDA Margin to 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. Ambac Financial Group, Inc. 41 Second Quarter 2025 Form 10-Q Table o f Contents EBITDA — EBITDA is net income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization of intangible assets. EBITDA Margin — EBITDA divided by total revenues. 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. Three Months Ended June 30, 2025 Three Months Ended June 30, 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) $ 428 $ (7,992) $ (13,240) $ (20,802) $ (1,070) $ 1,248 $ (14,896) $ (14,719) Adjustments: Add: Interest expense — 5,570 — 5,570 — — — — Add: Income tax expense 192 (2,181) (183) (2,172) (27) 9 (12) (30) Add: Depreciation — — 440 440 — 14 461 475 Add: Intangible amortization — 9,301 — 9,301 — 1,139 — 1,139 EBITDA 620 4,698 (12,983) (7,663) (1,097) 2,404 (14,441) (13,135) Add: Impact of noncontrolling interests — (2,185) — (2,185) — (430) — (430) EBITDA to shareholders 620 2,513 (12,983) (9,848) (1,097) 1,974 (14,441) (13,565) Net income margin 2.0 % (24.2) % (2517.1) % (37.9) % (3.4) % 9.4 % (252.3) % (28.8) % Net income margin to Ambac shareholders 2.0 % (23.4) % (2517.1) % (37.4) % (3.4) % 9.4 % (252.3) % (28.8) % EBITDA margin 2.9 % 14.2 % (2468.3) % (13.9) % (3.4) % 18.1 % (244.6) % (25.7) % EBITDA margin to Ambac shareholders 2.9 % 7.6 % (2468.3) % (17.9) % (3.4) % 14.8 % (244.6) % (26.6) % Add: Acquisition and integration related expenses — 375 399 774 — — 10,404 10,404 Add: Equity-based compensation expense 61 67 1,895 2,023 74 — 1,747 1,821 Add: Severance and restructuring expense — 31 2,918 2,949 — — 5,203 5,203 Add: Other non-operating (income) losses — (591) — (591) — — (4,475) (4,475) Adjusted EBITDA $ 681 $ 4,580 $ (7,771) $ (2,508) $ (1,023) $ 2,404 $ (1,562) $ (182) Adjusted EBITDA attributable to Ambac shareholders $ 681 $ 2,519 $ (7,771) $ (4,569) $ (1,023) $ 1,974 $ (1,562) $ (612) Adjusted EBITDA Margin 3.2 % 13.9 % (1477.4) % (4.6) % (3.2) % 18.1 % (26.5) % (0.4) % Adjusted EBITDA Margin to Ambac shareholders 3.2 % 7.6 % (1477.4) % (8.3) % (3.2) % 14.8 % (26.5) % (1.2) % Ambac Financial Group, Inc. 42 Second Quarter 2025 Form 10-Q Table o f Contents Six Months Ended June 30, 2025 Six Months Ended June 30, 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) $ 1,852 $ (9,735) $ (27,410) $ (35,292) $ 642 $ 5,142 $ (23,871) $ (18,088) Adjustments: Add: Interest expense — 11,024 — 11,024 — — — — Add: Income tax expense 270 (2,681) (378) (2,789) 79 127 (106) 100 Add: Depreciation — 109 744 853 — 21 926 947 Add: Intangible amortization — 18,064 — 18,064 — 2,278 — 2,278 EBITDA 2,123 16,781 (27,044) (8,140) 721 7,565 (23,047) (14,762) Add: Impact of noncontrolling interests — (7,205) — (7,205) — (1,350) — (1,350) EBITDA to shareholders 2,123 9,576 (27,044) (15,345) 724 6,215 (23,048) (16,112) Net income margin 4.4 % (13.1) % (2462.9) % (30.0) % 1.0 % 16.5 % (296.6) % (18.0) % Net income margin to Ambac shareholders 4.4 % (15.0) % (2462.9) % (31.2) % 1.1 % 16.4 % (296.6) % (18.0) % EBITDA margin 5.0 % 22.7 % (2430.0) % (6.9) % 1.2 % 24.3 % (286.4) % (14.7) % EBITDA margin to Ambac shareholders 5.0 % 12.9 % (2430.0) % (13.0) % 1.2 % 19.9 % (286.4) % (16.0) % Add: Acquisition and integration related expenses — 375 1,081 1,456 — — 10,973 10,973 Add: Equity-based compensation expense 147 67 3,469 3,683 125 — 3,876 4,001 Add: Severance and restructuring expense — 60 4,737 4,797 — — 5,337 5,337 Add: Other non-operating (income) losses — (591) — (591) — — (4,427) (4,427) Adjusted EBITDA $ 2,270 $ 16,692 $ (17,759) $ 1,205 $ 849 $ 7,526 $ (7,289) $ 1,122 Adjusted EBITDA attributable to Ambac shareholders $ 2,270 $ 9,611 $ (17,759) $ (5,876) $ 849 $ 6,176 $ (7,289) $ (228) Adjusted EBITDA Margin 5.3 % 22.5 % NM (4.6) % 1.4 % 24.1 % NM 1.1 % Adjusted EBITDA Margin to Ambac shareholders 5.3 % 13.0 % NM (8.3) % 1.4 % 19.8 % NM (0.2) % 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 June 30, 2025 2024 % Growth Total Insurance Distribution revenue & growth percentage (1) $ 33,041 $ 13,306 148.3 % Less: Acquired revenues (18,923) Less: Profit commission and contingent commission income (2,266) (1,141) Total Organic Revenue & Growth Percentage $ 11,852 $ 12,165 (2.6) % Six Months Ended June 30, 2025 2024 % Growth Total Insurance Distribution revenue & growth percentage (1) $ 74,039 $ 31,171 137.5 Less: Acquired revenues (38,893) — Less: Profit commission and contingent commission income (6,957) (2,323) Total Organic Revenue & Growth Percentage $ 28,189 28,848 (2.3) % (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. 43 Second Quarter 2025 Form 10-Q Table o f Contents Three Months Ended June 30, 2025 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) $ 428 $ (7,992) $ (13,240) $ (20,802) $ (1,070) $ 1,248 $ (14,896) $ (14,719) Adjustments: Add: Acquisition and integration related expenses — 375 399 774 — — 10,404 10,404 Add: Intangible amortization — 9,301 — 9,301 — 1,139 — 1,139 Add: Equity-based compensation expense 61 67 1,895 2,023 74 — 1,747 1,821 Add: Severance and restructuring expense — 31 2,918 2,949 — — 5,203 5,203 Add: Other non-operating (income) losses — (591) — (591) — — (4,475) (4,475) Adjusted net income (loss) before tax and NCI 489 1,191 (8,028) (6,348) (996) 2,387 (2,017) (627) Income tax effects (15) (1,892) 15 (1,892) — — — — Adjusted net income (loss) before NCI 474 (701) (8,013) (8,240) (996) 2,387 (2,017) (627) Net (income) loss attributable to noncontrolling interest — (2,312) — (2,312) — (430) — (430) Adjusted net income (loss) attributable to shareholders $ 474 $ (3,013) $ (8,013) $ (10,552) $ (996) $ 1,957 $ (2,017) $ (1,057) Three Months Ended June 30, 2025 2024 Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Net income (loss) margin 1.9 % (24.0) % (11927.9) % (37.4) % (3.4) % 9.4 % (252.3) % (28.8) % Adjusted Net income (loss) attributable to Ambac stockholders margin 2.1 % (9.0) % (7218.9) % (19.0) % (3.1) % 14.7 % (34.2) % (2.1) % Six Months Ended June 30, 2025 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) $ 1,852 $ (9,735) $ (27,410) $ (35,292) $ 642 $ 5,142 $ (23,871) $ (18,088) Adjustments: Add: Acquisition and integration related expenses — 375 1,081 1,456 — — 10,973 10,973 Add: Intangible amortization — 18,064 — 18,064 — 2,278 — 2,278 Add: Equity-based compensation expense 147 67 3,469 3,683 125 — 3,876 4,001 Add: Severance and restructuring expense — 60 4,737 4,797 — — 5,337 5,337 Add: Other non-operating (income) losses — (591) — (591) — — (4,427) (4,427) Adjusted net income (loss) before tax and NCI 2,000 8,240 (18,123) (7,883) 770 7,308 (8,113) (36) Income tax effects (15) (1,892) 15 (1,892) — — — — Adjusted net income (loss) before NCI 1,985 6,348 (18,108) (9,775) 770 7,308 (8,113) (36) Net (income) loss attributable to noncontrolling interest — (6,812) — (6,812) — (1,350) — (1,350) Adjusted net income (loss) attributable to common shareholders $ 1,985 $ (464) $ (18,108) $ (16,587) $ 770 $ 5,958 $ (8,113) $ (1,386) Six Months Ended June 30, 2025 2024 Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Net income (loss) margin 8.3 % (29.2) % (24695.5) % (63.4) % 1.1 % 16.1 % (296.6) % (18.1) % Adjusted Net income (loss) attributable to Ambac stockholders margin 8.9 % (1.4) % (16315.3) % (29.8) % 1.3 % 19.1 % (100.8) % (1.4) % Item 3. Quantitative and Qualitative Disclosure About Market Risk As of June 30, 2025, there are no material changes in the market risks that the Company is exposed to compared to December 31, 2024.