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Item 1A. Risk Factors

2026-03-04 compared with 2025-03-06 · 235 added, 402 removed, 191 unchanged (77% of the section changed)

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Background and Business Description to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K unless otherwise indicated.

Octave Specialty Group, Inc.

2025 Form 10-K

Table of Contents ,

Our risk factors are organized in the following sections

Risks Related to AFG Common Shares 10

Risk Related to Sale of AAC 11

Risk Related to the Company's Business 12

Risks Related to Octave Common Shares 11

Risks Related to the Company's Business 11

Risks Related to Capital, Liquidity and Credit Markets 19

Risks Related to Legacy Discontiued Operations 20

Risks Related to AFG Common Shares

The price per share of AFG's common stock may be subject to a high degree of volatility, including significant price declines.

Although AFG's common stock is listed on the New York Stock Exchange ("NYSE"), there can be no assurance as to the liquidity of the trading market or the price at which such shares can be sold.

Risks Related to OSG Common Shares

The price per share of OSG's common stock may be subject to a high degree of volatility, including significant price declines.

Although OSG's common stock is listed on the New York Stock Exchange ("NYSE"), there can be no assurance as to the liquidity of the trading market or the price at which such shares can be sold.

The price of the shares may decline substantially in response to a number of events or circumstances, including but not limited to:

• adverse developments in our financial condition or results of operations;

• changes in the actual or perceived risk within our insured portfolio;

• changes to regulatory status;

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• adverse changes in analysts’ recommendations regarding our stock;

• market perceptions of our success, or lack thereof, in pursuing and implementing our Specialty Property and Casualty Insurance and Insurance Distribution businesses and our new business strategy more generally;

• the impact or perceived impact of any acquisition, dispositions or other strategic transactions, including entry into a new line of business, on the value or long-term prospects of the Company;

• failure to receive regulatory approval for the sale of our Legacy Financial Guarantee ("LFG") business, or failure to complete the sale of our LFG business for any other reason;

• market perceptions of our success, or lack thereof, in building and managing our Specialty Property and Casualty Insurance and ID businesses and our business strategy and tactics more generally;

• perceptions regarding management guidance or forecast and changes to such guidance or forecasts;

• the impact or perceived impact of any acquisition, disposition or other strategic transaction, including entry into a new line of business or the value or long-term prospects of the Company;

• adverse developments in the industries and markets in which we operate, including the property and casualty insurance, underwriting and brokerage industries, or the fixed income and equity capital markets;

• adverse market and/or economic conditions, such as those caused by a recession or inflation, which increase our risk of loss on insurance policies and depress the value and/or liquidity of our investments and other assets;

• adverse developments in current or future litigations;

• adverse developments in current or future litigation;

• results and actions of other participants in our industries.

The price of AFG's shares may also be affected by the risks described below.

Investments in AFG's common stock may be subject to a high degree of volatility.

Ambac is planning to further develop and expand its Specialty Property and Casualty Insurance and Insurance Distribution businesses;

however, such plans may not be realized, or if realized, may not create value and may negatively impact our financial results.

Ambac is planning to further develop and expand its Specialty Property and Casualty Insurance and Insurance Distribution

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

Such plans may involve additional acquisitions of assets or existing businesses and the development of businesses through new or existing subsidiaries.

Currently, it is not possible to fully predict the future prospects or other characteristics of such businesses.

We may not be able to successfully identify opportunities, attract specialized underwriting and other talent, and operationalize new Insurance Distribution businesses in a timely or cost-efficient manner.

While we expect to conduct business, financial and legal due diligence in connection with the evaluation of any future business or acquisition opportunities, there can be no assurance our due diligence will identify every matter that could have a material adverse effect on us.

Efforts to pursue certain business opportunities may be unsuccessful or require significant financial or other resources, which could have a negative impact on our growth plans, operating results and financial condition.

To implement our growth strategy, we must be able to meet our capital needs, expand our systems and our internal controls effectively, allocate our human resources optimally, identify and hire qualified employees and effectively integrate any acquisitions we make in our effort to achieve growth.

No assurance can be given that Ambac will successfully execute its plans for new business, generate any earnings or value from new businesses or be able to successfully integrate any such business into our current operating structure.

The failure to manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations.

Our ability to successfully manage ongoing organizational changes could impact our business results, where the level of costs and/or disruption may be significant and change over time, and the benefits may be less than we originally expect.

Should changes in Ambac’s circumstances or financial condition or in the political, economic and/or legal environment occur, there can be no assurance that all or any part of our strategy and/or initiatives will not be abandoned or amended to take account of such changes.

Any such adjustment or abandonment may have a material adverse effect on our securities.

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.

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 April 4, 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 AAC Sale will be terminated, or reduce the benefits we expect to achieve.

The AAC Sale and the other transactions contemplated by the Purchase Agreement, whether or not completed, may adversely affect the retained business.

Transactions such as the AAC Sale are often subject to lawsuits by stockholders.

It is possible that certain common stockholders or other stakeholders will commence or seek to commence litigation against Ambac or the Ambac Board.

Such litigation could result in substantial costs and divert management’s attention from other business concerns, which could adversely affect Ambac's specialty property and casualty insurance and its insurance distribution businesses that Ambac will continue to operate following the completion of the AAC Sale (the "Retained Business").

As a result of the AAC Sale, we may experience higher employee turnover and finding qualified replacements may be more difficult.

The loss of the services of members of our executive and/or senior management teams or our inability to hire and retain other talented personnel could delay or prevent us from succeeding in executing our strategies, which could negatively impact the Retained Business.

Further, while the completion of the AAC Sale is pending, we may be unable to attract and retain key personnel and our management’s focus and attention and employee resources may be diverted from operational matters.

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

If we fail to complete the AAC Sale and the other transactions contemplated by the Purchase Agreement, our business and financial performance may be adversely affected, including in the event Ambac is required to pay the Termination Fee.

The completion of the AAC Sale and the other transactions contemplated by the Purchase Agreement is subject to the satisfaction or waiver of various conditions, which may not be satisfied in a timely manner or at all.

If the AAC Sale is not completed, we will not recoup the costs incurred in connection with negotiating the AAC Sale and the other transactions.

Our directors, executive officers and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the AAC Sale, and we will have incurred significant third-party transaction costs, in each case, without any commensurate benefit, which may have a material and adverse effect on our stock price and results of operations.

Furthermore, if the AAC Sale and the other transactions contemplated by the Purchase Agreement are not completed, the announcement of the termination of the Purchase Agreement may adversely affect our relationships with our customers, business partners and employees, which could have a material adverse impact on our ability to effectively operate our business, and we may be required to pay the Termination Fee of $22,000 under certain circumstances, each of which could have further adverse effects on our business, results of operations and the trading price of AFG's common stock.

Additionally, we intend to use the proceeds of the AAC Sale to repay all or a portion of the debt used to fund the acquisition of 60% of the share capital of Beat Capital Partners Limited.

If we do not consummate the AAC Sale then we will need to repay or refinance such debt with other sources of funds, which may not be available on favorable terms or at all.

An inability to repay the debt used to fund the acquisition of Beat from proceeds of the AAC Sale or other sources, or an inability to refinance such debt on favorable terms or at all, may materially negatively affect our business and results of operations.

If the AAC Sale is not approved by AAC’s and Ambac UK’s regulators or if we fail to complete the AAC Sale for any other reason, there may not be any other offer from a potential acquiror that the AFG Board determines to be attractive.

If we fail to complete the AAC Sale, the Board of Directors of AFG, in discharging its fiduciary obligations to our stockholders, may evaluate other strategic alternatives including, but not limited to, continuing to operate AAC and the Legacy Financial Guarantee Insurance business for the foreseeable future or an alternative transaction relating to AAC or Ambac.

An alternative transaction, if available, may yield lower consideration or value than the proposed AAC Sale, be on less favorable terms and conditions than those contained in the Purchase Agreement and involve significant delay.

Any future sale of substantially all of Ambac’s property and assets within the meaning of Section 271 of the Delaware General Corporation Law and related case law or other similar transaction may be subject to stockholder approval, and there is

no guarantee that Ambac would be able to obtain such stockholder approval in favor of any such sale or other transaction.

If the Legacy Financial Guarantee Insurance business is not sold, there can be no assurance that we will realize value at least equivalent to the proceeds of the AAC Sale from the operation of the Legacy Financial Guarantee Insurance business over time, or any value;

nor can we predict the timeline for realizing value, if any, from the Legacy Financial Guarantee Insurance business in the absence of the AAC Sale.

The price of OSG's shares may also be affected by the risks described below.

Investments in OSG's common stock may be subject to a high degree of volatility.

Risks Related to the Company's Business

We are subject to reputational harm if companies with which we do business engage in negligent or fraudulent behaviors and damage to our reputation could materially adversely impact our business.

Our business depends on contractual and working relationships with insurance distribution partners, insurance carriers, reinsurers, policy holders and beneficiaries, third party administrators, and other agents and counterparties.

Our business depends on contractual and working relationships with insurance distribution partners, insurance carriers,

reinsurers, policyholders and beneficiaries, third party administrators, and other agents and counterparties.

We could suffer material financial loss, reputational harm and/or a loss of business prospects if a business partner, agent or counterparty engages in negligent or fraudulent conduct, whether directly in our relationship with them or indirectly as a result of their conduct in other business relationships.

Ambac may be adversely impacted by P&C industry market cycles.

Ambac’s P&C businesses are subject to market cycles.

Octave may be adversely impacted by P&C industry market cycles.

Octave’s businesses are subject to market cycles.

Premium pricing in the commercial property and casualty insurance markets has been historically based on underwriting capacity of insurance carriers, general economic conditions, inflation, and other factors.

In recent years, we have been in a “hard” market whereby carriers have been raising rates.

However, we have observed that in certain lines of business the rate of pricing increase has slowed or begun to decrease.

If carriers lower premium rates more broadly this would be referred to as a “softening” or “soft” market.

Given that Ambac generates revenue from both insurance premiums and commissions that are based on insurance premiums, our revenues are affected by the cyclicality of the markets in which we operate.

In recent years, we have been in a “hard” market whereby carriers and capacity/capital providers have been raising rates.

However, in certain lines of business pricing has begun to decrease, while in others, the rate of pricing increase has begun to slow as competition has begun to increase.

If carriers and capacity/capital providers lower premium rates more broadly this would be referred to as a “softening” or “soft” market.

Given that Octave generates revenue from both insurance premiums and commissions that are based on insurance premiums, our revenues are affected by the cyclicality of the markets in which we operate.

If we enter a soft market, absent mitigating factors, we may experience a reduction in revenues and profits.

Loss reserves may not be adequate to cover potential losses, including losses caused by catastrophic events, and changes in loss reserves may result in further volatility of net income and comprehensive income.

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.

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.

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

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

Such stresses could result in liquidity strains or permanent losses.

Everspan may be exposed to losses arising out of unpredictable catastrophic events.

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A severe catastrophe or a series of catastrophes 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 may cause significant volatility in the markets in which we operate in addition to the global financial markets.

Changing weather patterns have added to the unpredictability, frequency and severity of weather-related catastrophes incurred by the property and casualty insurance industry in recent years.

These changing weather patterns make it more difficult to predict and model catastrophic events, reducing our ability to accurately price exposure to such events and mitigate its risks.

Octave Specialty Group, Inc.

2025 Form 10-K

Table of Contents ,

Catastrophic events may cause significant volatility in the markets in which we operate.

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 my catastrophic losses.

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.

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

The models may not accurately predict future losses or loss development.

The models assume various conditions and probability scenarios and may not accurately predict future losses or measure losses currently incurred.

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

We could realize losses from our cash and investment accounts if one of the financial institutions we use fail or is taken over by regulators.

We maintain 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.

If one or more of these institutions were to fail or be taken over by their respective regulators, our access to these funds could be limited and we could experience liquidity problems and potential financial losses.

Ambac's cash balances held at banks was $36,190 thousand as of December 31, 2024, including cash of Ambac's insurance distribution subsidiaries held in regional banks of $35,552 thousand as of December 31, 2024.

We maintain cash and investment accounts, including premium trust accounts, at depository institutions in amounts in excess of the limits insured by the FDIC.

If one or more of these institutions were to fail or be taken over by federal regulators, our access to these funds could be limited and we could experience liquidity problems and potential financial losses.

Our risk management policies and practices may not adequately identify significant risks.

We have established risk management policies and practices which seek to mitigate losses within our insurance programs.

There can be no assurance that these policies and practices will be adequate to avoid future unexpected losses or adverse development within our existing loss reserves.

As described in Part I, Item 1, “Risk Management” in our Annual Report on Form 10-K for the year ended December 31, 2025, we have established risk management policies and practices which seek to mitigate our exposure to a variety of risks.

These policies and practices in the past have not insulated us from risks that were unforeseen and/or which had unanticipated loss severity, and such policies and practices may not do so in the future.

There can be no assurance that these policies and practices will be adequate to avoid future losses.

If we are not able to identify significant risks, we may not be able to timely mitigate such risks, thereby increasing the amount of losses to which we are exposed.

An inability to identify significant risks could also result in the failure to timely establish loss reserves that are sufficient in relation to such risks.

We operate within an enterprise risk management (“ERM”) framework designed to assess and monitor risks.

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We are subject to the risk of litigation and the outcome of proceedings we are or may become involved in could have a material adverse effect on our business, operations, financial position, profitability or cash flows.

It is not possible to predict the extent to which suits involving AFG or one or more other subsidiaries will be filed, and it is also not possible to predict the outcome of litigation.

Please refer to Note 19.

Commitments and Contingencies of the Unaudited Consolidated Financial Statements located in Part I, Item 1 in this Form 10-Q and Note 19:

Commitments and Contingencies in Part II, Item 8 in this Annual Report on Form 10-K for the year ended December 31, 2025, for a discussion on legal proceedings against Octave and its subsidiaries.

In the normal course of business, we are subject to regulatory and governmental investigations and civic actions, litigation and other forms of disputes in various domestic and foreign jurisdictions.

It is not possible to predict the extent to which litigation against OSG or one or more subsidiaries will be filed, and it is also not possible to predict the outcome of litigation.

It is possible that there could be unfavorable outcomes in existing or future proceedings.

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or enter into commercial disputes with its reinsurers, MGA/Us or TPAs regarding their respective contractual obligations and rights.

Under some circumstances, the results of such disputes or suits may lead to liabilities beyond those which are anticipated or reserved, including extra-contractual liabilities or liabilities in excess of policy limits.

Political developments may materially adversely affect our business.

Our insurance businesses and our results of operations can be materially affected by political developments at the federal, state, local or foreign government levels.

Government shutdowns, trade disputes, political turnover, judicial decisions, adverse changes in governmental funding, or poor public policy decision making could disrupt the national, international and local economies where we operate and/or have insured exposures.

Risks include adverse changes in rules, regulations, compliance requirements, employment practices, taxes, business services and currencies.

We operate in in a highly regulated industry and our business will be negatively affected if we are not able to anticipate and keep pace with rapid changes in government laws and regulations or if government laws and regulations impair our business or increase our costs.

Specialty Property and Casualty Insurance subsidiaries are highly regulated as insurance carriers in the States of their domicile and the jurisdictions in which they are licensed.

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

owned MGA/Us and insurance brokerage subsidiaries are also required to maintain certain entity-level licenses in those jurisdictions and/or the international countries in which they operate, as well as licenses of individual officers or representatives that are essential to their ability to conduct business.

Under some circumstances, the results of such disputes or suits may lead to liabilities beyond those which are anticipated or reserved, including liabilities in excess of policy limits.

Regulatory developments may materially adversely affect our business.

Our Specialty Property and Casualty Insurance subsidiaries are highly regulated as insurance carriers in the States of their domicile and the jurisdictions in which they are licensed.

Our owned MGA/Us and insurance brokerage subsidiaries are also required to maintain certain entity-level licenses in those jurisdictions and/or the international countries in which they operate, as well as licenses of individual officers or representatives that are essential to their ability to conduct business.

Each of the foregoing must also comply with laws generally applicable to insurance entities, including those relating to governance, capital, and operational requirements.

Government laws and regulations applicable to our businesses develop and change rapidly in response to consumer demands and public policies.

State legislatures and insurance departments place increasing burdens on insurance carriers and producers with respect to matters such as cybersecurity, data privacy, management of technology, corporate governance, environmental and social issues, and enterprise risk management.

Such laws and regulations require substantial resources to ensure that the Company has appropriate and effective compliance programs in place.

State legislatures and insurance departments place increasing burdens on insurance carriers and producers with respect to matters such as cybersecurity, data privacy, artificial intelligence, management of technology, corporate governance, environmental and social issues, and enterprise risk management.

Such laws and regulations require substantial resources to ensure that the Company has appropriate and

Octave Specialty Group, Inc.

2025 Form 10-K

Table of Contents ,

effective compliance programs in place.

If we are unable to keep pace with changes in applicable law and regulations, or if we otherwise fail in our compliance efforts, the Company may be subject to fines, sanctions, governmental orders or modifications to business practices that individually or collectively impair our business or increase our costs, possibly materially.

In addition, the Company from time to time receives regulatory inquiries and requests for information, and its insurance carrier subsidiaries are subject to examination by regulatory authorities.

It is not possible to predict the extent to which additional regulatory inquiries or requests for information will be made, nor the outcome of inquiries, requests for information or examination, which exposes the Company to potential fines, sanctions, governmental orders or modifications to business practices that individually or collectively impair our business or increase our costs, possibly materially.

Our insurance subsidiaries are subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to regulatory action.

Our insurance subsidiaries are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws.

The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the NAIC, require our insurance subsidiaries to report the results of risk-based capital calculations to state regulators and the NAIC.

These risk-based capital standards provide for different levels of regulatory attention depending upon the ratio of an insurance company’s total adjusted capital, as calculated in accordance with NAIC guidelines, to its authorized control level risk-based capital.

Authorized control level risk-based capital is determined using the NAIC’s risk-based capital formula, which measures the minimum amount of capital that an insurance company needs to support its overall business operations.

An insurance company with total adjusted capital that is less than 200% of its authorized control level risk-based capital is at a company action level, which would require the insurance company to file a risk-based capital plan that, among other things, contains proposals of corrective actions the company intends to take that are reasonably expected to result in the elimination of the company action level event.

As of December 31, 2025, our insurance subsidiaries each maintained a risk-based capital ratio of over 700% and complied with the requirement of our state regulators.

In addition, our insurance subsidiaries are required to maintain certain minimum capital and surplus and to limit their written premiums to specified multiples of its capital and surplus.

Our insurance subsidiaries could exceed these ratios if their volume increases faster than anticipated or if their surplus declines due to catastrophe or non-catastrophe losses or excessive underwriting and operational expenses.

Any failure by our insurance subsidiaries to meet the applicable risk-based capital or minimum statutory capital requirements or the writings ratio limitations imposed by state law could subject our insurance subsidiaries to further examination or corrective

action imposed by state regulators, including limitations on our writing of additional business, state supervision or liquidation.

Any changes in existing risk-based capital requirements, minimum statutory capital requirements or applicable writings ratios may require us to increase our statutory capital levels, which we may be unable to do.

Everspan may not be successful in executing its business plans or may experience greater than expected insurance underwriting losses and/or reinsurance counterparty losses, which could result in losses material to Everspan's capital position, a downgrade of its AM Best rating and a loss of its franchise value.

Such events could have a material adverse impact on the value of AFG's shares.

Everspan is in the early stage of developing a portfolio of specialty insurance program business.

Its business plan entails establishing programs with program administrators, managing general agents and managing general underwriters ("MGA/Us"), with claims handled by TPAs.

Such events could have a material adverse impact on the value of OSG's shares.

Everspan is developing a portfolio of specialty insurance program business.

Its business plan entails establishing programs with program administrators, MGA/Us, with claims handled by TPAs.

The success of these programs is dependent upon the quality of insurance risk underwritten by the MGA/Us, the quality of underwriting and operational performance, as well as oversight, of the MGA/Us and TPAs by Everspan, the quality and creditworthiness of reinsurance obtained with respect to the underlying risks, loss experience over time, premium levels, competition and other factors, some of which are outside Everspan's control.

Should Everspan fail in executing its business plans or experience greater than expected losses due to operational issues, poor risk selection, default or failure to perform by reinsurers, failure to timely realize ultimate loss exposure, a departure of qualified MGA/Us from the industry, enhanced scrutiny from regulators or ratings agencies specific to the program business model, failure to collect amounts due to it or other factors, Everspan may suffer losses that are material to its capital position, a downgrade in its AM Best rating and/or a loss of its franchise value.

Any such outcomes could have a material adverse impact on the value of AFG's shares.

Any such outcomes could have a material adverse impact on the value of OSG's shares.

A downgrade in the AM Best financial strength rating of Everspan may negatively affect our business.

The financial strength of Everspan is evaluated by AM Best, which issues a "FSR", an important factor in establishing the competitive position of Everspan.

The financial strength of Everspan is evaluated by AM Best, which issues a Financial Strength Rating or "FSR," an important factor in establishing the competitive position of Everspan.

The FSR reflects AM Best’s opinion of Everspan's financial strength, operating performance, strategic position and ability to meet obligations to policyholders, and are not evaluations directed to investors.

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Failure of Everspan's Program Partners to properly market, underwrite or administer policies could adversely affect us.

The marketing, underwriting, administration and servicing of policies in our Specialty Property and Casualty Insurance business have been contracted to the MGA/Us with which Everspan transacts.

The marketing, underwriting, administration and servicing of policies in our Specialty Property and Casualty Insurance

Octave Specialty Group, Inc.

2025 Form 10-K

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business have been contracted to the MGA/Us with which Everspan transacts.

Any failure by the MGA/Us or TPAs to properly handle these functions could result in liability to us.

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Furthermore, any failure to properly handle the marketing, underwriting, administration and servicing of policies in our Specialty Property and Casualty Insurance business could also create regulatory issues or harm our reputation, which could materially and adversely affect our business, financial condition and results of operations.

If in our Specialty Property and Casualty Insurance business we are unable to accurately underwrite risks and charge competitive yet profitable rates to our clients and policyholders, our business, financial condition and results of operations may be adversely affected.

If, in our Specialty Property and Casualty Insurance business, we are unable to accurately underwrite risks and charge competitive yet profitable rates to our policyholders, our business, financial condition and results of operations may be adversely affected.

In general, the premiums for our Specialty Property and Casualty Insurance policies are established at the time a policy is issued and, therefore, before all of our underlying costs are known.

Like other property and casualty insurance companies, Everspan relies on estimates and assumptions in setting its premium rates.

Everspan relies on estimates and assumptions in setting its premium rates.

Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, loss adjustment expenses, acquisition costs and general and administrative expenses in order to earn a profit.

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Alternatively, Everspan could set its premiums too high, which could reduce its competitiveness and lead to lower policyholder retention, resulting in lower revenues.

Pricing is a highly

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

complex exercise involving the acquisition and analysis of historical loss data and the projection of future trends, loss costs, expenses, and inflation trends, among other factors, for each of Everspan's products in multiple risk tiers and many different markets.

Pricing is a highly complex exercise involving the acquisition and analysis of historical loss data and the projection of future trends, loss costs, expenses, and inflation trends, among other factors, for each of Everspan's products in multiple risk tiers and many different markets.

Everspan seeks to implement its pricing accurately in accordance with its assumptions.

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In the latter case, Everspan would have to accept an increase in exposure to risk, reduce the amount of business written by it or seek alternatives in line with Everspan's risk limits, all of which could adversely affect our business, financial condition and results of operations.

We may be adversely affected by failures in services or products provided by third parties.

We outsource and may further outsource certain technology and business process functions, and rely upon third-party vendors, agents and contractual counterparties for other essential services and information.

Outsourcing functions to third parties exposes us to increased risk related to service disruptions.

If we do not effectively develop, implement and monitor our vendor, agency and contractual counterparty relationships and the financial

condition of such third parties, if third party providers do not perform as anticipated, if we experience technological or other problems, or if vendor, agency or other contractual relationships relevant to our business process functions are terminated, we may not realize expected productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business.

Further, we may suffer financial losses if a counterparty defaults on a financial obligation to us, including with respect to insurance agency commissions which adjust over time.

Moreover, policyholders and claimants may suffer delays or lapses in service levels which may create extra-contractual exposures.

The increased risks identified above could expose us to disruption of service, monetary and reputational damages, competitive disadvantage and significant increases in compliance costs.

A material failure by an external service provider, information provider, agent or counterparty, or a material defect or default in the products, services or information provided thereby, could adversely affect our financial condition and results of operations.

Our outsourcing of certain technology and business process functions to third parties may expose us to increased risk related to data security, service disruptions or the effectiveness of our control system.

These risks could increase as vendors increasingly offer cloud-based software services rather than software services which can be run within our data centers or as we choose to move additional functions to the cloud.

Our insurance carriers are subject to reinsurance counterparty credit risk.

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or changes in law and regulation, or in the interpretation of laws and regulations, affects a reinsurance transaction.

These risks may be exacerbated to the extent that our insurance carrier subsidiaries' reinsurance recoverables are overly concentrated with one or a small subset of reinsurers.

The insolvency of one or more of our insurance carrier subsidiaries' reinsurers, or their inability or unwillingness to make timely payments if and when required under the terms of

Ambac Financial Group, Inc.

These risks may be exacerbated to the extent that our insurance carrier subsidiaries'

Octave Specialty Group, Inc.

2025 Form 10-K

Table of Contents ,

reinsurance contracts, could adversely affect our business, financial condition and results of operations.

reinsurance recoverables are overly concentrated with one or a small subset of reinsurers.

The insolvency of one or more of our insurance carrier subsidiaries' reinsurers, or their inability or unwillingness to make timely payments if and when required under the terms of reinsurance contracts, could adversely affect our business, financial condition and results of operations.

Everspan’s insurance carriers may be subject to counterparty credit risk associated with its MGA/U distribution partners.

Everspan may be subject to the risk that its MGA/U program partners fail to meet their financial obligations to Everspan or policyholders as it relates to premiums payable, return premiums, sliding scale commissions and return commissions.

This risk may be exacerbated to the extent that Everspan has financial obligations to its reinsurers under reinsurance agreements that do not absolve Everspan of for credit risk or non-payment by the MGA/U program partner.

This risk may be exacerbated to the extent that Everspan has financial obligations to its reinsurers under reinsurance agreements that do not absolve Everspan of credit risk or non-payment by the MGA/U program partner.

The insolvency of one or more of our MGA/U program partners, or their inability or unwillingness to make timely payments if and when required under the terms of program agreements, could adversely affect our business, financial condition and results of operations.

If actual claims exceed loss and loss adjustment expense reserves for Everspan, or if changes in the estimated level of loss and loss adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal/tort, regulatory and economic environments in which Everspan operates, our financial results could be materially and adversely affected.

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

While our reserving is estimated based on experience and using various actuarial methods and assumptions, our loss reserves may change materially based on future developments.

As a result of inherent uncertainties in the estimates and judgments made to determine loss reserves, there can be no assurance that 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.

Loss and loss adjustment expense reserves represent management estimates of what the ultimate settlement and administration of claims will cost.

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an erosion of the public sentiment towards insurers’ interpretation of coverage levels and limits;

and increased damage awards by juries, may make it difficult for Everspan to estimate loss reserves, establish adequate product pricing, and maintain a strong competitive position with consumers.

and increased damage awards by juries, may make it difficult for Everspan to estimate loss

reserves, establish adequate product pricing, and maintain a strong competitive position with consumers.

Moreover, the impact of catastrophic events may not be adequately reflected in claims reserves and, accordingly, could adversely impact results.

Catastrophic losses are caused by wind and hail, wildfires, tornadoes, hurricanes, tropical storms, earthquakes, severe freeze events, volcanic eruptions, terrorism, cyber attacks, civil unrest, and industrial accidents and other such events.

Catastrophic losses are caused by wind and hail, wildfires, tornadoes, hurricanes, tropical storms, earthquakes, severe freeze events, volcanic eruptions, terrorism, cyber-attacks, civil unrest, and industrial accidents and other such natural and man-made events.

We also face potential exposure to various types of new and emerging tort claims which were not known or anticipated when our insurance products were originally priced.

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Our ability to grow Everspan will depend in part on the addition of new Program Partners, and our ability to effectively onboard such new Program Partners could have an adverse effect on our business, financial condition and results of operations.

Our ability to grow Everspan will depend in part on the addition of new MGA/Us.

Our ability to grow Everspan will depend in part on the addition of new MGA/U partners.

If Everspan does not effectively and timely source, evaluate and onboard new MGA/Us, including assisting such MGA/Us to quickly resolve any post-onboarding matters and provide effective ongoing support, Everspan's ability to add new MGA/Us and its relationships with its existing Program Partners could be adversely affected.

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We compete with a large number of companies in the property and casualty insurance industry for underwriting premium.

During periods of intense competition for premium, in particular, our Specialty Property and Casualty Insurance and Insurance Distribution businesses may be challenged to maintain competitiveness with other companies that may seek to write policies without the same regard for risk and profitability targeted by our Specialty Property and Casualty Insurance and Insurance Distribution businesses.

During these times, it may be difficult for Everspan or our MGA/Us to grow or maintain premium volume without the unattractive options of lowering underwriting standards, sacrificing income, or both.

In addition, our Specialty Property and Casualty Insurance and Insurance Distribution businesses face competition from a wide range of specialty insurance companies, underwriting agencies and intermediaries that are significantly larger than our Specialty Property and Casualty Insurance and Insurance Distribution businesses are and that have significantly larger financial, marketing, management and other resources.

Some of these competitors also have longer standing and better established market recognition than Ambac's group companies.

The greater resources or market presence that these competitors possess may enable them to avoid or defray particular costs, employ greater pricing flexibility, have a higher tolerance for risk or loss, or exploit other advantages that may make it more difficult for us to compete.

We may incur increased costs in competing for underwriting revenues in this environment.

If we are unable to compete effectively in the markets in which our Specialty Property and Casualty Insurance and Insurance Distribution businesses operate or expand into, our underwriting revenues may decline, as well as overall business results.

Other competitive concerns include the entrance of technology companies into the insurance distribution business and the

Ambac Financial Group, Inc.

During periods of intense competition for premium, in particular, our Specialty Property and Casualty Insurance and ID businesses may be challenged to maintain competitiveness with other companies that may seek to write policies without the same regard for risk and profitability targeted by our Specialty Property and Casualty Insurance and ID businesses.

During these times, it may be difficult for Everspan or our MGA/Us to grow or maintain premium volume without lowering underwriting standards, sacrificing income, or both.

In addition, our Specialty Property and Casualty Insurance and ID businesses face competition from a wide range of specialty insurance companies, underwriting agencies and intermediaries, as well as diversified financial services companies that are significantly larger than our Specialty Property and Casualty Insurance and ID businesses are and that have significantly larger financial, marketing, management and other resources.

Octave Specialty Group, Inc.

2025 Form 10-K

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direct-to-consumer insurance carriers that do not utilize third party agents and brokers as production sources.

Some of these competitors also have longer standing and better established market recognition than Octave's group companies.

We may incur increased costs in competing for underwriting revenues in this environment.

If we are unable to compete effectively in the markets in which our Specialty Property and Casualty Insurance and ID businesses operate or expand into, our underwriting revenues may decline, as well as overall business results.

Other competitive concerns include the entrance of technology companies into the insurance distribution business and the direct-to-consumer insurance carriers that do not utilize third party agents and brokers as production sources.

Additionally, the insurance industry may experience consolidation, and therefore we may experience increased competition from insurance companies and the financial services industry, as a growing number of larger financial institutions increasingly, and aggressively, offer a wider variety of financial services, including insurance distribution services.

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The landscape of law and regulation governing these areas presents additional risk to the extent we are unable to timely adapt to ensure compliance.

Impairment of intangible assets and goodwill, resulting from acquisitions, could adversely affect our results of operations.

In connection with Ambac’s acquisition of insurance distribution businesses, Ambac recorded the fair value of identifiable intangible assets (primarily related to distribution relationships) and goodwill.

The intangible assets will be amortized over their remaining useful lives.

The Company will test intangible assets for impairment if certain events occur or circumstances change indicating that the carrying amount of the intangible asset may not be recoverable.

Goodwill will be tested for impairment annually or whenever events occur or circumstances change that may indicate impairment.

Intangible asset and goodwill impairments are driven by a variety of factors, which could include, among other things, declining future cash flows of the acquired business as addressed in other risk factors related to the Insurance Distribution Business.

We may be adversely affected by failures in services or products provided by third parties.

Outsourcing functions to third parties exposes us to increased risk related to service disruptions.

If we do not effectively develop, implement and monitor our vendor, agency and contractual counterparty relationships and the financial condition of such third parties, if third party providers do not perform as anticipated, if we experience technological or other problems, or if vendor, agency or other contractual relationships relevant to our business process functions are terminated, we may not realize expected productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business.

Further, we may suffer financial losses if a counterparty defaults on a financial obligation to us, including with respect to insurance agency commissions which adjust over time.

Moreover, policyholders and claimants may suffer delays or lapses in service levels

which may create extra-contractual exposures.

The increased risks identified above could expose us to disruption of service, monetary and reputational damages, competitive disadvantage and significant increases in compliance costs.

Impairment of intangible assets and goodwill could adversely affect our results of operations.

In connection with Octave’s acquisition of insurance distribution businesses (MGA/Us and brokers), Octave records the fair value of identifiable intangible assets (primarily related to distribution relationships) and goodwill.

The intangible assets are amortized over their remaining useful lives.

The Company tests intangible assets for impairment if certain events occur or circumstances change indicating that the carrying amount of the intangible asset may not be recoverable.

Goodwill is tested for impairment annually or whenever events occur or circumstances change that may indicate impairment.

If we determine an impairment has occurred, we are required to record an impairment charge equal to the excess of the asset's carrying value over its estimated fair value.

Any intangible asset or goodwill impairment could adversely affect the Company's operating results and financial condition.

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The commissions of our MGA/Us and insurance broker are derived from insurance policies underwritten on behalf of a limited number of capacity providers, including insurance and reinsurance companies, Lloyd’s syndicates and other capital providers.

Should one or more of these capacity providers terminate its arrangements with our Insurance Distribution businesses or otherwise decrease the amount of capacity provided, we may lose significant commission revenues or lose

significant business production while seeking other sources of capacity.

A number of our MGA/Us have material relationships with Lloyd’s Syndicates 4242, and to a lesser extent Cadenza Re Limited, which are risk carriers that are serviced by Ambac group entities.

Should one or more of these capacity providers terminate its arrangements with our ID businesses or otherwise decrease the amount of capacity provided, we may lose significant commission revenues or lose significant business production while seeking other sources of capacity.

A number of our MGA/Us have material relationships with Lloyd’s Syndicate 4242, and to a lesser extent Cadenza Re Limited, which are risk carriers that are serviced by Octave group entities.

A reduction in scale and/or appetite of these carriers, whether in response to underwriting performance, regulatory considerations, availability of underwriting capital support, or otherwise, may result in a loss of significant commission revenues.

Furthermore, these carriers form the cornerstone capacity for some of our MGA/Us new launches and hence a deterioration in their activities will further inhibit new MGA/U launches.

Furthermore, these carriers form the

Octave Specialty Group, Inc.

2025 Form 10-K

Table of Contents ,

cornerstone capacity for some of our MGA/Us new launches and hence a deterioration in their activities will further inhibit new MGA/U launches.

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

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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 that customers may assert, errors and omissions claims against it may arise alleging potential liability for 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.

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 Octave’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.

Acquiring new MGA/Us is core to our Insurance Distribution business strategy.

We may acquire additional MGA/Us as part of our Insurance Distribution business strategy.

Risks associated with such endeavors could adversely affect our growth and results of operations.

Acquisitions have been an important contributor of growth in the Insurance Distribution business and we believe that additional acquisitions will be important to future growth, building further operational scale and diversifying our sources of revenue.

Failure to successfully identify and complete acquisitions likely would result in us achieving slower growth and less operating scale.

Acquisitions have been an important contributor of growth in the ID business and we believe that additional acquisitions may be important to future growth, building further operational scale and diversifying our sources of revenue.

Failure to successfully identify and complete acquisitions may result in us achieving slower growth and less operating scale.

Moreover, the failure of acquisition targets to achieve anticipated revenue and earnings levels could result in slower than anticipated growth and result in intangible asset or goodwill impairment charges.

Ambac Financial Group, Inc.

Future growth of our Insurance Distribution business is highly dependent upon, amongst other items, our ability to launch de novo MGA/MGUs, which is highly dependent on our ability to attract insurance talent, operationalize new MGA/MGUs and compete for business.

The market for insurance underwriting talent and MGA/MGU leadership talent has become increasingly competitive.

If we are not able to attract and/or retain such talent to launch and maintain de novo MGA/MGUs, our ability to grow may be materially constrained and the intangible and goodwill assets we recorded in connection with the acquisition of Octave Ventures may become impaired.

Any such impairment could be materially adverse to our results of operations and financial

Even if we are able to attract underwriting and leadership talent to launch de novo MGA/MGUs, there can be no guarantees that each de novo MGA/MGU will be successful or that we will be able to operationalize each business.

Product and technological complexity have increased the challenges of starting de novo MGA/MGUs and could in the future increase the launch time and investment needed to improve the chances of success.

Competition for premium has also increased, particularly as market conditions have begun to soften in certain segments.

If markets continue to soften or such conditions spread to a broader set of risk classes, competition for premiums may increase further, making the launch of de novo MGA/MGU more challenging.

While Octave has access to managed capacity, de novo MGA/MGUs rely on access to insurance capacity for the risks they write.

If Octave were not able to source the capital needed to support the insurance risk underwritten by de novo MGA/MGUs, we would not be able to generate revenues to offset the expenses incurred to establish such de novo MGA/MGUs and we may experience losses.

Octave may not be able to realize expected synergies from acquisitions.

Octave’s assessment of acquisitions often includes an estimate of the value of revenue, expense and operating synergies that may be created from the acquisition.

If due to market, economic, technological, cultural, regulatory or other reasons Octave is not able to fully realize expected synergies or its valuation of such synergies otherwise proves incorrect, we may not realize the full expected value of an acquisition, which in turn may lead to lower than expected profits, material adverse results from operations and/or a weakened financial condition.

Octave is planning to further develop and expand its Specialty Property and Casualty Insurance and Insurance Distribution businesses;

however, such plans may not be realized, or if realized, may not create value and may negatively impact our financial results.

Octave is planning to further develop and expand its Specialty Property and Casualty Insurance and ID businesses.

Such plans may involve additional acquisitions of assets or existing businesses and the development of businesses through new or existing subsidiaries.

Currently, it is not possible to fully predict the future prospects or other characteristics of such businesses.

We may not be able to successfully identify opportunities, attract specialized underwriting and other talent, and operationalize new businesses in a timely or cost-efficient manner.

Efforts to pursue or develop certain business opportunities may be unsuccessful or require significant financial or other resources, which could have a negative impact on our growth plans, operating results and financial condition.

To implement our growth strategy, we must be able to meet our capital needs, expand and refine our systems and our internal controls effectively, allocate our human resources optimally, identify and hire qualified employees and effectively integrate any acquisitions we make in our effort to achieve growth.

No assurance can be given that Octave will successfully execute its plans for new business, generate any

Octave Specialty Group, Inc.

2025 Form 10-K

Table of Contents ,

Ambac may not be able to realize expected synergies from acquisitions.

Ambac’s assessment of acquisitions often includes an estimate of the value of revenue, expense and operating synergies that may be created from the acquisition.

If due to market, economic, technological, cultural, regulatory or other reasons Ambac is not able to fully realize expected synergies or its valuation of such synergies otherwise proves incorrect, we may not realize the full expected value of an acquisition, which in turn may lead to lower than expected profits, material adverse results from operations and/or a weakened financial condition.

Changes in law or in the functioning of the healthcare market could significantly impair our Accident & Health insurance business and therefore negatively impact Ambac’s financial condition and results of operations.

earnings or value from new businesses or be able to successfully integrate any such business into our current operating structure.

For example, on July 31, 2024, we acquired Beat Capital Partners (now known as Octave Ventures) and on October 31, 2025, we acquired ArmadaCorp Capital, LLC.

We have devoted, and will continue to devote, significant management attention and resources to integrating these acquired businesses and any others that we may acquire.

Potential challenges we may encounter as part of the integration process include the inability to achieve anticipated synergies and revenue growth, challenges in successfully managing customer relationships and integrating systems, the diversion of management attention and difficulties in integrating and retaining employees.

The failure to manage our growth effectively and to integrate our acquired businesses successfully could have a material adverse effect on our business, financial condition and results of operations.

Our inability to successfully manage ongoing organizational changes could adversely impact our business results.

We may experience higher levels of costs or disruption in managing these changes, which may cause the benefits derived from our business development strategy to be less than we originally expect.

Should changes in Octave’s circumstances or financial condition or in the political, economic and/or legal environment occur, there can be no assurance that all or any part of our strategy and/or initiatives will not be abandoned or adjusted to take account of such changes.

Any such adjustment or abandonment may have a material adverse effect on our securities.

Changes in law or in the functioning of the healthcare market could significantly impair our Accident & Health insurance business and therefore negatively impact Octave’s financial condition and results of operations.

Adoption of a single payer healthcare system or a public health insurance option would likely adversely impact the entire healthcare industry.

While our Accident & Health insurance business has historically demonstrated an ability to adjust its products to major changes in the healthcare industry, such business would likely be adversely impacted by such a material change in the U.S.

Our Accident & Health insurance business would likely be adversely impacted by such a material change in the U.S.

healthcare system particularly if private health insurance is eliminated, materially limited, or is rendered noncompetitive.

Material adverse developments to our Accident & Health insurance business would have a negative impact on Ambac's financial condition and results of operations which could be material.

Material adverse developments to our Accident & Health insurance business would have a negative impact on Octave's financial condition and results of operations which could be material.

Our Insurance Distribution businesses and their results of operations and financial condition may be adversely affected by conditions that result in reduced insurance capacity.

Our Insurance Distribution business results of operations depend on the capacity of insurance carriers (including Llyod’s of London), reinsurers and other capital providers to assume risk and provide coverage.

Our ID business results of operations depend on the capacity of insurance carriers (including Lloyd’s of London), reinsurers and other capital providers to assume risk and provide coverage.

Capacity among insurance carriers, reinsurers and other capital providers may diminish because of our performance or due to factors outside our control.

For example, capacity could be reduced by insurance companies failing or withdrawing from writing certain coverages that our Insurance Distribution businesses offer to their customers.

To the extent that reinsurance becomes less widely available or significantly more expensive, we may not be able to procure the amount or types of coverage that our customers desire and the coverage we are able to procure for our customers may be more expensive or limited.

Variations in commission income that results from the timing of policy renewals and the net effect of new and lost business production may have unexpected effects on our results of operations.

For example, capacity could be reduced by insurance companies failing or withdrawing from writing certain coverages that our ID businesses offer to their customers.

To the extent that reinsurance becomes less widely available or significantly more expensive, we may not be able to procure the amount or types of coverage that our customers

desire and the coverage we are able to procure for our customers may be more expensive or limited.

Variations in commission income that result from the timing of policy renewals and the net effect of new and lost business production may have unexpected effects on our results of operations.

Commission income can vary quarterly or annually due to the timing of policy renewals and the net effect of new and lost business production.

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Specifically, customers’ demand for insurance products can influence the timing of renewals, new business and lost business (which includes policies that are not renewed), and cancellations.

Quarterly and annual fluctuations in revenues based upon increases and decreases associated with

the timing of new business, policy renewals and payments from insurance companies may adversely affect our financial condition, results of operations and cash flows.

Variations in contingent commissions that results from the effects of insurance loss activity on portfolios may result in significant variations in revenues.

Quarterly and annual fluctuations in revenues based upon increases and decreases associated with the timing of new business, policy renewals and payments from insurance companies may adversely affect our financial condition, results of operations and cash flows.

Variations in contingent commissions that result from the effects of insurance loss activity on portfolios may result in significant variations in revenues.

Profit-sharing contingent commissions are paid by insurance companies based upon the profitability of the business placed with such companies.

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Due to, among other things, the inherent uncertainty of loss and changes in underwriting criteria by insurance companies, there will be a level of uncertainty related to the payment of profit-sharing contingent commissions.

Our P&C businesses rely on a limited number of retail and wholesale brokers to generate revenue and the loss of one or more of these key partners could adversely impact our results of operations and growth objectives.

Our relationship with retail and wholesale brokers and other trading partners (collectively, “Brokers”) are nonexclusive and may be discontinued at any time by either party.

In addition, any of these parties may change the terms of our relationship which would cause our commission expense to increase.

The loss of a Broker could reduce the number of submissions we receive which could result in reduced commission revenue.

Our business could also be harmed if we fail to develop relationships with new Brokers or other sources of business.

A reduction in the number of Brokers, whether as a result of the termination of relationships, consolidation or otherwise, may leave us more vulnerable to adverse changes in our relationships with other Brokers, particularly in geographies or lines of business where we offer insurance products through a relatively small number of Brokers.

System security risks, data protection breaches and cyber-attacks could adversely affect our business and results of operations.

We and our vendors and contractual counterparties rely on our information technology systems for many enterprise-critical functions and a prolonged failure or interruption of these systems for any reason could cause significant disruption to our operations and have a material adverse effect on our business, financial condition and operating results.

Octave Specialty Group, Inc.

2025 Form 10-K

Table of Contents ,

operations and have a material adverse effect on our business, financial condition and operating results.

Our information technology and application systems, as well as those of our vendors and contractual counterparties, may be vulnerable to threats from computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions.

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In addition, we may be required to incur significant costs to mitigate the damage caused by any security breach, or to protect against future damage.

Moreover, although we have incident response, disaster recovery and business continuity plans in place, we may not be able to adequately execute these plans in a timely fashion in the event of a disruption to our information technology and application systems.

Additionally, we are an acquisitive organization and the process of integrating the information systems of the businesses we acquire is complex and exposes us

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

to additional risk as we might not adequately identify weaknesses in the targets’ information systems, which could expose us to unexpected liabilities or make our own systems more vulnerable to attack.

Moreover, we may not be able to adequately execute our incident response, disaster recovery and business continuity plans in a timely fashion in the event of a disruption to our information technology and application systems.

Additionally, we are an acquisitive organization and the process of integrating the information systems of the businesses we acquire is complex and exposes us to additional risk as we might not adequately identify weaknesses in the targets’ information systems, which could expose us to unexpected liabilities or make our own systems more vulnerable to attack.

The application of innovative and solution-based technology is required to facilitate effective operations and to realize internal efficiencies;

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We rely substantially upon the services of our current executive and senior management teams.

In addition to these officers, we rely on key staff with insurance, underwriting, business development, credit, risk management, structured finance, investment, accounting, finance, legal, technology and other technical and specialized skills.

In addition to these officers, we rely on key staff with insurance, underwriting, business development, credit, risk management, investment, accounting, finance, legal, technology and other technical and specialized skills.

The market for qualified executives, senior managers and other employees has become very competitive.

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The loss of the services of members of our executive and/or senior management teams, our inability to hire and retain other talented personnel and/or the absence of effective management succession plans could delay or prevent us from succeeding in executing our strategies, which could negatively impact our business.

Our business could be negatively affected by actions of stakeholders whose interests may not be aligned with the broader interests of our stockholders.

Ambac could be negatively affected as a result of actions by stakeholders whose interests may not be aligned with the broader interests of our stockholders, and responding to any such actions could be costly and time-consuming, disrupt operations and divert the attention of management and employees.

Such activities could interfere with our ability to execute on our strategic plans.

Our business could be affected by actions of stakeholders with differing interests or objectives.

Octave could be affected by actions taken by stakeholders whose interests or objectives may differ from our strategic plans or from the interests of our stockholders, creditors or other stakeholders.

Responding to such actions could be costly and time-consuming, disrupt operations and divert the attention of management and employees.

In addition, these activities could interfere with our ability to execute on our strategic plans.

We are exposed to foreign exchange risk, which may adversely affect our financial condition and results of operation.

A significant portion of our Insurance Distribution business is operated out of the U.K where our functional currency is the British pound (“GBP”).

A significant portion of our ID business is operated out of the U.K where our functional currency is the British pound (“GBP”).

However, the majority of our revenues are generated in U.S.

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Risks Related to Capital, Liquidity and Credit Markets

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

Cirrata financed its 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 July 31, 2025.

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

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, 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.

Ambac Financial Group, Inc.

OSG and the Insurance Distribution business have outstanding indebtedness, resulting from the acquisition of ArmadaCorp on October 31, 2025, which could adversely affect our financial condition, operational flexibility and our ability to obtain financing in the future.

The Company funded a significant portion of the purchase price of ArmadaCorp Capital, LLC and its subsidiaries through new term loan and revolving credit facilities (the "Credit Facilities").

The Credit Facilities are secured by substantially all of the assets of, and the Company's ownership interests in, our ID businesses, and are guaranteed by OSG.

Octave Specialty Group, Inc.

2025 Form 10-K

Table of Contents ,

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 Credit Facilities include covenants that restrict our ability to manage capital resources by requiring maintenance of certain financial ratios and restricting indebtedness, liens, mergers, sales of assets, investments, restricted payments (such as dividends), and affiliate transactions, among other restrictions.

The Credit Facilities also require the prepayment of the borrowings thereunder with proceeds of certain asset sales, recovery events, issuances of indebtedness and indemnity payments.

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

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

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• 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.

While restrictive covenants in the Credit Facilities 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, our 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 applicable contractual, legal and regulatory restrictions on the payment of distributions or dividends.

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.

Our relationship with retail and wholesale brokers and other trading partners (collectively, “Brokers”) are nonexclusive and may be discontinued at any time by either party.

In addition, any of these parties may change the terms of our relationship which would cause our commission expense to increase.

The loss of a Broker could reduce the number of submissions we receive which could result in reduced commission revenue.

business could also be harmed if we fail to develop relationships with new Brokers or other sources of business.

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

The Company intends to service indebtedness under the Credit Facilities from earnings and cash flow generated by the ID businesses.

In the event the ID businesses fail to produce sufficient earnings and cash flow to pay the Company's indebtedness when due, the Company would need to seek to modify the terms of the Credit Facilities, refinance or restructure its indebtedness, or raise additional capital.

There can be no assurance that the Company will be able to adequately address a shortfall in its debt-servicing capacity through such measures on commercially reasonable terms or at all.

Moreover, if the Company were able to address a shortfall in its debt servicing capacity through one or more of these measures, it may incur substantial additional costs or burdens, including additional collateral or restrictions on its business, which could cause a material adverse impact on the Company's results of operations and financial condition.

Furthermore, raising additional capital to pay down debt through the issuance of equity or other debt would depend on market and economic conditions, may 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 its indebtedness on economic terms or at all, which would materially impair the value of the Company.

We may have future capital needs and may not be able to obtain third-party financing or raise additional third-party capital on acceptable terms, or at all.

4 unchanged sentences

If third-party financing is not available when needed, or is available on unfavorable terms, we may be unable to take advantage of business opportunities, respond to competitive pressures or effectively and efficiently manage our balance sheet, any of which could have a material adverse effect on our business, financial condition and results of operations.

Changes in prevailing interest rate levels and market conditions could adversely impact our business results and prospects.

Increases in prevailing interest rate levels can adversely affect the value of our investment portfolio and, therefore, our financial strength.

In the event that investments must be sold in order to pay claims, to pay debt obligations, or to meet other liquidity needs, such investments would likely be sold at discounted prices.

Our investment portfolios may also be adversely affected by credit rating downgrades, spread volatility and credit losses.

These losses may have a material adverse affect on our results of operations and financial condition.

Risks Related to the Discontinued Operations

AFG may not be able to realize value from AAC in the absence of a sale of AAC.

In the absence of a sale of AAC, the Company would continue to actively run-off the Discontinued Operations.

In that event, there could be no assurance that AFG would be able to realize residual value through receiving dividends from the continued run-off of AAC.

In the absence of a sale, AFG's ability to realize

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residual value from AAC would depend upon, amongst other considerations, AAC's ability to satisfy all of its obligations that are senior to AFG's equity interests, including obligations to policyholders, surplus note holders and preferred stock holders.

AAC's ability to satisfy all of its obligations that are senior to AFG's equity depends on a number of considerations, including its ability to recover losses previously paid;

avoid material losses from litigation;

mitigate losses from its insured portfolio, which is subject to significant risks and uncertainties, including as a result of varying potential perceptions of the value of AAC’s guarantees and securities;

realize material value from its investment in Ambac UK;

and repay and/or restructure its indebtedness in a timely manner such that accruing interest costs are manageable.

Increased loss development in the Discontinued Operations insured portfolios, or significant losses from litigation or other events or circumstances could prompt OCI to determine that it is in the best interests of policyholders to initiate rehabilitation proceedings with respect to AAC or to issue supervisory orders that impose restrictions on AAC.

If OCI were to decide to initiate rehabilitation proceedings with respect to AAC, adverse consequences could result, including, without limitation, the assertion of damages by counterparties, the acceleration of losses based on early termination triggers, the loss of control rights in insured transactions, and the loss of operational control to OCI.

The rehabilitator would act solely for the benefit of policyholders, which could result in material adverse consequences for our security holders and significantly reduce or eliminate any residual value of AAC for AFG.

Due to the foregoing considerations, the risk factors described herein, and applicable legal and contractual restrictions described elsewhere herein and in our Annual Report on Form 10-K, substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends.

AAC and Ambac UK are subject to credit and other risks in their insured portfolios;

we are also subject to risks associated with adverse selection as our insured LFG portfolios run off.

Performance of our insured LFG transactions, including (but not limited to) those backed by municipal, utility, sovereign/sub-sovereign, military housing and consumer risk such as mortgages and student loans, can be adversely affected by general economic conditions, such as recession, federal budget cuts, decisions of governmental authorities about utilizing assets or facilities, inflation, unemployment levels, underemployment, home price depreciation, increasing foreclosure rates, unavailability of consumer credit, mortgage product attributes, borrower and/or originator fraud or misrepresentations, and asset servicer performance and financial health.

While deterioration in the performance of transactions insured by AAC and Ambac UK may occur, the timing, extent and duration of any future deterioration of the credit markets is not predictable, as is the impact on potential claim payments and ultimate losses on the securities within our insured LFG portfolio.

Issuers of public finance obligations insured by AAC have reported, or may report, budget shortfalls, significantly underfunded pensions or other fiscal stresses that imperil their ability to pay debt service or will require them to significantly raise taxes and/or cut spending in order to satisfy their

Furthermore, over time, the consequences of poor public policy decisions by state and local governments or increases in tax burdens can impact demographic trends, such as out-migration from one state or municipality to another, that may negatively impact the creditworthiness of related issuers.

Some issuers of obligations insured by AAC have declared payment moratoriums, defaulted or filed for bankruptcy or similar debt adjustment proceedings, raising concerns about their ultimate ability or willingness to service the debt insured by AAC and AAC's ability to recover claims paid in the future.

If the issuers of the obligations in the public finance portfolio are unable to raise taxes, cut spending, or receive federal or state assistance, or if such issuers default or file for bankruptcy under Chapter 9 or for similar relief under other laws that allow for the adjustment of debts, AAC may experience liquidity claims and/or ultimate losses on those obligations, which could adversely affect the Company's business, financial condition and results of operations.

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.

As the runoff of the insured portfolio continues, the proportion of exposures we rate as below investment grade relative to the aggregate insured portfolio may increase, leaving the portfolio increasingly concentrated in higher risk exposures and heightening risks associated with large single risk exposures to particular issuers, losses caused by catastrophic events (including public health crises, terrorist acts and natural disasters), and losses in respect of different, but correlated, credit exposures.

These risks may result in greater volatility or have adverse effects on the Company's results from discontinued operations and on our financial condition.

LFG loss reserves are established when management has observed credit deterioration in its insured credits.

Loss reserves established with respect to our LFG insurance policies issued to beneficiaries are based upon estimates and judgments by management, including estimates and judgments with respect to the probability of default;

the severity of loss upon default;

management’s ability to execute policy commutations, restructurings and other loss mitigation strategies;

and estimated subrogation and other loss recoveries.

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

While our reserving scenarios reflect a wide range of possible outcomes (on a probability weighted basis), reflecting the uncertainty regarding future developments and outcomes, our loss reserves may change materially based on future developments.

As a result of inherent uncertainties in the estimates and judgments made to determine loss reserves, there can be no assurance that either the actual losses in our f inancial guarantee insurance portfolio will not exceed such reserves or that our reserves will

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not materially change over time as circumstances, our assumptions, or our models change.

Such stresses could result in liquidity strains or permanent losses.

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

AAC insures the obligations of a number of issuers, such as municipalities and securitization vehicles, including those backed by consumer loans such as mortgages and student loans, that may be substantially affected by the prolonged economic effects of pandemics, other public health crises, environmental events or natural disasters.

Municipalities and their authorities, agencies and instrumentalities, especially those dependent on narrow revenue streams flowing from particular economic activities, such as sales taxes, may suffer disproportionately, from depressed revenues due to the lingering negative economic impact brought about by such events.

In response to such events, the U.S.

Federal government and State governments and their agencies may adopt policies or guidelines to provide emergency relief to consumers, such as limiting debt collection efforts, encouraging or requiring extensions, modifications or forbearance with respect to certain loans and fees, and establishing foreclosure and eviction moratoriums.

These or similar types of emergency responses to future events may cause Ambac to experience higher losses in its insured portfolio.

Future environmental or other public health events and natural disasters can result in significant potential liabilities for issuers, that increase the potential for default on obligations insured by AAC and Ambac UK.

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

The models assume various conditions and probability scenarios and may not accurately predict future losses or measure losses currently incurred.

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

The ultimate impact of a catastrophic event on insurers and their obligations, and the economy in general, is by its very nature uncertain, and will be determined by a number of factors including, but not limited to, the depth and duration of a particular crisis;

the extent to which affected consumers, businesses, municipal entities and other debtors or sources of revenues recover from depressed economic circumstances, and the timelines for such recoveries;

the level and efficacy of government intervention or support for municipal entities, consumers, businesses and the financial markets via emergency relief measures;

the availability of insurance;

the availability of cost-effective financing;

management of public health crisis remediation efforts;

the effectiveness of other public or private crisis management efforts, mitigation measures or support;

and certain socio-economic variables, such as unemployment levels.

Consequently, if following such catastrophic events we do not have sufficient resources or financial flexibility, receive adequate measures of support or realize the appropriate level of economic recovery, our ultimate ability to operate could be materially impaired and we could suffer material permanent losses and therefore may have an adverse effect on our results of operations and financial condition.

Counterparties that service aspects of our business may be similarly impacted and, if their operations are impaired due to a catastrophe, it may be difficult or costly to us to find alternatives to such servicing capabilities.

We may not be able to effectively reduce LFG insured exposures;

measures taken to reduce risks may have an adverse effect on the Company's operating results or financial position.

In pursuing the objective of improving our financial position, we are seeking to terminate, commute, reinsure or otherwise reduce LFG insured exposures.

De-risking transactions may not be feasible or economically viable.

We cannot provide any assurance that any such transaction will be consummated in the future, or if it is, as to the timing, terms or conditions of any such transaction.

Even if we consummate one or more of such transactions, doing so may ultimately prove to be unsuccessful in creating value for any or all of our stakeholders and may negatively impact our operating results or financial position.

Our risk management policies and practices may not adequately identify significant risks.

We have established risk management policies and practices which seek to mitigate our exposure to credit risk in our legacy financial guarantee insured portfolio.

Ongoing surveillance of credit risks in our legacy financial guarantee insured portfolio is an important component of our risk management process.

These policies and practices in the past have not insulated us from risks that were unforeseen and which had unanticipated loss severity, and such policies and practices may not do so in the future.

There can be no assurance that these policies and practices will be adequate to avoid future losses.

If we are not able to identify significant risks, we may not be able to timely mitigate such risks, thereby increasing the amount of losses to which we are exposed.

An inability to identify significant risks could also result in the failure to timely establish loss reserves that are sufficient in relation to such risks.

We are subject to the risk of litigation and the outcome of proceedings we are or may become involved in could have a material adverse effect on our results from discontinued operations and our financial position.

AAC is defending or otherwise involved in various lawsuits relating to its LFG business.

It is not possible to predict the extent to which additional suits involving AAC or one or more other subsidiaries will be filed, and it is also not possible to predict the outcome of litigation.

It is possible that there could be unfavorable outcomes in existing or future proceedings.

Management may be unable to make meaningful or reasonable estimates of the amount or range of losses that could result from unfavorable outcomes or of the expenses that will be incurred in connection with such lawsuits.

Under some circumstances, adverse results in any such proceedings and/or the incurring of

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significant litigation or other expenses could be material to AAC's operating results and financial position.

The Settlement Agreement, Stipulation and Order and OCI's Runoff Capital Framework may impair AAC's ability to pursue its business strategies.

Pursuant to the terms of the Settlement Agreement, dated as of June 7, 2010, as amended (the "Settlement Agreement"), by and among AAC, Ambac Credit Products LLC ("ACP"), AFG and certain counterparties to credit default swaps with ACP that were guaranteed by AAC, and the Stipulation and Order among the OCI, AFG and AAC that became effective on February 22, 2024 (the “Stipulation and Order”), AAC must seek prior approval by OCI of certain corporate actions.

The Settlement Agreement and Stipulation and Order also includes covenants that restrict the operations of AAC which (i) in the case of the Settlement Agreement, remain in force until the surplus notes that were issued pursuant to the Settlement Agreement have been redeemed, repurchased or repaid in full, and (ii) in the case of the Stipulation and Order, remain in place until the OCI decides to relax such restrictions.

Certain of these restrictions may be waived with the approval of holders of surplus notes and/or OCI.

If AAC is unable to obtain the required consents under the Settlement Agreement and/or the Stipulation and Order, it may not be able to execute its planned business strategies.

In addition, the capital framework developed and implemented by OCI to assist OCI with making decisions related to capital management at AAC ("OCI's Runoff Capital Framework") and decisions based thereon are expected to affect AAC's ability to reduce financial leverage, pay dividends to AFG, and/or make payments on surplus notes or Auction Market Preferred Shares ("AMPS").

OCI has certain enforcement rights with respect to the Settlement Agreement and Stipulation and Order, and retains full discretion over the design of, and assumptions utilized in, OCI's Runoff Capital Framework and the implications thereof.

Disputes may arise over the interpretation of such agreements or instruments, the exercise or purported exercise of rights thereunder, the determinations made thereunder, or the performance of or failure or purported failure to adhere to the terms thereof.

Any such dispute could have material adverse effects on AAC, and the Company more broadly, whether through litigation, administrative proceedings, supervisory orders, failure to execute transactions sought by management, interference with corporate strategies, objectives or prerogatives, inefficient decision-making or execution, forced realignment of resources, increased costs, distractions to management, strained working relationships or otherwise.

Such effects would also increase the risk that OCI would seek to initiate rehabilitation proceedings or issue supervisory orders against AAC.

Political developments may materially adversely affect our business.

Our LFG insurance business and its results of operations can be materially affected by political developments at the federal, state, local or foreign government levels.

Government shutdowns, trade disputes, political turnover, judicial decisions, adverse changes in governmental funding, or poor public policy

decision making could disrupt the national, international and local economies where AAC and Ambac UK operate and/or have insured exposures.

Risks include adverse changes in rules, regulations, compliance requirements, employment practices, taxes, business services and currencies.

In addition, the LFG business is exposed to correlation risk as a result of the possibility that multiple credits, counterparties, portfolios or other insured risks may concurrently and/or consecutively experience losses or increased stress as a result of any such event or series of events.

The LFG business operates in in a highly regulated industry and our business will be negatively affected if we are not able to anticipate and keep pace with rapid changes in government laws and regulations or if government laws and regulations impair our business or increase our costs.

Government laws and regulations applicable to our businesses develop and change rapidly in response to consumer demands and public policies.

Such laws and regulations require substantial resources to ensure that the Company has appropriate and effective compliance programs in place.

Actions of the PRA and FCA could reduce the value of Ambac UK realizable by AAC, which would adversely affect our securityholders.

The LFG's international business is operated by Ambac UK, which is regulated by the Prudential Regulation Authority (“PRA”) for prudential purposes and the Financial Conduct Authority (“FCA”) for conduct purposes.

The terms of Ambac UK’s regulatory authority are now restricted and Ambac UK is in run-off.

Among other things, Ambac UK may not write any new business, and, with respect to any entity within the Ambac group of affiliates, commute, vary or terminate any existing financial guaranty policy, transfer certain assets, or pay dividends, without the prior approval of the PRA.

The PRA and FCA act generally in the interests of Ambac UK policyholders and will not take into account the interests of AAC or the securityholders of Ambac when considering whether to provide any such approval.

Accordingly, determinations made by the PRA and FCA, including with regards to their capital adequacy, in their capacity as Ambac UK’s regulators, could potentially result in adverse consequences for our securityholders and also reduce the value realizable by AAC for Ambac UK.

Ambac UK exceeded its required capital thresholds as of December 31, 2024.

AAC has substantial indebtedness, which could adversely affect its financial condition, operational

Ambac Financial Group, Inc.

Octave has significant obligations as the counterparty to several put contracts related to redeemable minority interests in our Insurance Distribution business.

Obligations under these put contracts may be material and may require Octave to raise third party capital to fund.

If a counterparty exercises a put right, we would be required to make a cash payment, which could be substantial, at a time when we may not have sufficient cash resources to fund all or a portion of such obligation.

As a result, we may be required to raise additional capital or liquidity to fund these obligations.

Raising additional capital or liquidity may be dilutive to shareholders or may be otherwise very expensive.

Raising the capital or liquidity to fund these obligations may have a material adverse effect on our results of operations and financial condition.

Alternatively, to fund the put payment, we may be forced to liquidate other assets, which may be less liquid exposing us to the risk of loss.

Our ability raise capital or liquidity would depend on market conditions at the time and

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flexibility and our ability to obtain financing in the future.

AAC is highly leveraged.

AAC’s ability to make payments on and/or refinance its surplus notes and to fund its operations will depend on its ability to generate substantial operating cash flow and on the performance of the LFG insured portfolio.

AAC’s cash flow generation will depend on receipt of premiums, investment returns, and dividends and capital distributions from Ambac UK, offset by policyholder claims, commutation payments, reinsurance premiums, and potential losses from litigation, operating and loss adjustment expenses, and interest expense, all of which may be subject to prevailing economic conditions and to financial, business and other factors, many of which are beyond our control and many of which may be event-driven.

There is substantial risk that AAC may not have the financial resources necessary to pay its surplus notes in full due to risks associated with its cash flow, insured portfolio, and other liabilities, as discussed elsewhere in these Risk Factors.

If AAC cannot pay its obligations from operating cash flow, it will have to take actions such as selling assets, restructuring or refinancing its surplus notes or seeking additional capital.

Any of these remedies may not, if necessary, be effected on commercially reasonable terms, or at all.

The value of assets to be sold will 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 AAC or a party enforcing rights against AAC to be unable to receive proceeds sufficient to discharge AAC's obligations.

Furthermore, the ability of creditors or claimants to realize upon any assets, may also be subject to bankruptcy and insolvency law limitations or similar limitations applicable in insurance company rehabilitation or liquidation proceedings.

Because of these and other factors beyond our control, AAC may be unable to pay or discharge the principal or interest on its surplus notes, which would impair AAC's value and the value of AFG.

Surplus note principal and interest payments cannot be made without the approval of the OCI, which OCI will grant or withhold in its sole discretion.

OCI's determinations about whether and when to authorize surplus note payments could materially impact the Company's financial position.

Ambac can provide no assurance as to when 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'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 AAC to dedicate a substantial portion of its cash flow from operations to the payment of surplus notes, thereby reducing the

funds available for operations and to fund the execution of key strategies, including the return of capital to AFG;

• limit AAC's ability, or increase the costs, to refinance surplus notes or repay surplus notes due to ongoing interest accretion;

• limit our ability to attract and retain key employees.

Despite current indebtedness levels, AAC may incur additional debt.

While restrictive covenants in certain of our contracts may limit the amount of additional indebtedness AAC may incur, we may obtain waivers of those restrictions and incur additional indebtedness in the future.

This could further exacerbate the risks associated with AAC's substantial leverage.

Revenues and cash flow will be adversely impacted by a decline in realization of installment premiums.

A significant percentage of LFG premium revenue is attributable to installment premiums.

The amount of installment premiums collected is declining along with the insured portfolio.

The amount of installment premiums actually realized could be further reduced due to factors such as early termination of insurance contracts, new reinsurance transactions, accelerated prepayments of underlying obligations or insufficiency of cash flows (by the premium paying entity).

The reduction in installment premiums will result in lower LFG revenues and cash flow in the future.

Changes in prevailing interest rate levels and market conditions could adversely impact LFG's business results and prospects.

there can be no assurance that we will be able to raise the capital necessary to fund these put obligations.

Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in the frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.

Factors such as business revenue, economic conditions, the volatility and strength of the capital markets, inflation and pandemics can all affect the business and economic environment.

These same factors affect our ability to generate revenue and profits.

In an economic downturn that is characterized by higher unemployment, declining spending and reduced corporate revenues, the demand for insurance products is adversely affected, which directly affects our premium levels and profitability.

Negative economic factors may also affect our ability to receive the appropriate rate for the risk we insure with our policyholders and may adversely affect the number of policies we can write, including with respect to our opportunities to underwrite profitable business.

In an economic downturn, our customers may have less need for insurance coverage, cancel existing insurance policies, modify their coverage, self-insure their risks, or not renew with us.

Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments, or not pay premiums on our policies when due.

These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.

Changes in prevailing interest rate levels and market conditions could adversely impact our business results and prospects.

Increases in prevailing interest rate levels can adversely affect the value of our investment portfolio and, therefore, our financial strength.

In the event that investments must be sold in order to pay claims, to pay debt obligations, to meet collateral posting requirements or to meet other liquidity needs, such investments would likely be sold at discounted prices.

Additionally, increasing interest rates would have an adverse impact on the legacy financial guarantee insured portfolio.

For example, increasing interest rates could result in higher claim payments in respect of defaulted obligations that bear floating rates of interest.

Higher interest rates can also lead to increased credit stress on consumer asset-backed transactions (as the securitized assets supporting a portion of these exposures are floating rate consumer obligations), slower prepayment speeds and resulting “extension risk” relative to such consumer asset-backed transactions in the LFG insured and investment portfolios, and decreased refinancing activity.

Decreasing interest rates could result in early terminations of financial guarantee insurance policies in respect of which AAC and Ambac UK are paid on an installment basis and do not receive a termination premium, thus reducing premium earned for these transactions.

Decreases in prevailing interest rates may also limit growth of, or reduce, investment income and may increase collateral requirements related to AAC's residual legacy customer interest rate swap portfolio.

Our investment portfolios may also be adversely affected by credit rating downgrades, ABS and RMBS prepayment speeds, foreign exchange movements, spread volatility, and credit losses.

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Our inability to realize the expected recoveries included in our financial statements could adversely impact our liquidity, financial condition and results of operations and the value of our securities.

We expect to recover material amounts of claims payments through cash flows in the securitization structures of transactions that AAC insures.

Realization of such expected recoveries is subject to various risks and uncertainties, including the rights and defenses of other parties with interests that conflict with AAC’s interests, the performance of the collateral and assets backing the obligations that AAC insures, the performance of servicers involved in securitizations in which AAC participates as insurer, as well as numerous regulatory, legal and compliance considerations and risks.

Adverse developments with respect to any of the factors described above may cause our recoveries to fall below expectations, which could have a material adverse effect on our financial condition, including our capital and liquidity, and may result in adverse consequences such as impairing the ability of AAC to honor its financial obligations, particularly its surplus notes and preferred stock obligations;

the initiation of rehabilitation proceedings against AAC;

eliminating or reducing the possibility 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.

The composition of the securities in our investment portfolio may expose us to greater risk than before we invested in alternative assets.

AAC and Ambac UK allocate a portion of their investment portfolios in below investment grade securities;

equities and alternative assets, such as hedge funds.

Investments in below investment grade securities, equities and alternative assets could expose AAC and/or Ambac UK to greater earnings volatility, increased losses and decreased liquidity in the investment portfolio.

Our risk to changes in interest rates and market conditions could be magnified in the event that the US or UK were to enter into an economic recession.

While interest rates may decline during a recession, credit and liquidity risks would be expected to increase which may cause us to experience losses in our investment portfolios.

These losses may have a material adverse effect on our results of operations and financial condition, particularly if any economic rescission were prolonged.

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-K

Item 1A. Risk Factors