AMBAC FINANCIAL GROUP, INC.
2024 ANNUAL REPORT
3
FINANCIAL HIGHLIGHTS
Net Loss From
Continuing 0perations
($59) MILLION
+89%
+70%
Adjusted
EBITDA
$9 MILLION
Three-Year
Premium CAGR
89%
Shareholders’
Equity
$857 MILLION
REVENUE FROM
CONTINUING OPERATIONS
(in millions)
$54
2022
2023
2024
$125
$236
MGA
PARTNERS
17
2022
2023
2024
27
46
+74%
P&C PREMIUM
PRODUCTION
(in millions)
$282
2022
2023
2024
$504
$876
-5%
EVERSPAN
COMBINED RATIO
158%
107%
102%
2022
2023
2024
Insurance Distribution Platform
Program Insurance Carrier
1
2024 was a transformational year for Ambac marked by two
milestone transactions. First, we announced the sale of our
legacy ´nancial guarantee business to funds managed by
Oaktree Capital Management for $420 million. Second, we
acquired Beat Capital Partners, a London-based incubator of
MGAs that gives our distribution business a global footprint.
Combined, these two transactions will revolutionize our
go-forward business.
The sale of Ambac Assurance Corporation (AAC) and Ambac Assurance UK (AUK) to Oaktree represents the
´nal step in our transition to a leading, growth-focused property and casualty insurance platform. This was the
culmination of years of targeted efforts to optimize the insured portfolio and maximize recoveries in order to
best position us for a strategic review, the result of which was a full sale of Ambac’s legacy ´nancial guarantee
business. Selling AAC and AUK enables us to focus solely on building a pro´table property and casualty
insurance platform that will continue to deliver long-term value for our shareholders.
The Beat acquisition brought immediate scale and breadth to our distribution platform, bolstering our position
as a leading MGA and delegated authority platform. With its proven capabilities as an MGA incubator and its
experienced leadership team, Beat is expected to deliver strong organic growth into the future and will be
instrumental in helping us achieve our 2028 goal of $80-90 million of adjusted EBITDA to Ambac shareholders.
Our success is predicated on the strength of our team and our ability to foster an innovative and collaborative
culture that allows us to attract top talent. The Beat acquisition demonstrates our success in that regard. Beat is
led by John Cavanagh, whose 40-year career has included C-suite roles at multiple international brokers. During
2024 we also partnered with Mike Miller, the former president of an E&S carrier, to launch Pivix Specialty Insurance
and Peter McKeegan, a former senior program insurance executive, to launch Tara Hill Insurance Services.
As we look ahead, we are excited for the future and believe our specialty insurance platform is well positioned
for long-term success.
A MESSAGE FROM OUR CEO
DEAR FELLOW SHAREHOLDERS,
ªAs we reµect on 2024, I am immensely proud
of the accomplishments achieved by our team.
We have laid a robust foundation, and the
opportunities that lie ahead are even more
promising. Our commitment to innovation and
excellence distinguishes us, providing a truly
unique value proposition for both our MGA
partners and investors. With the closing of the sale
of our legacy ´nancial guarantee business, our
differentiation will become even more pronounced,
positioning us for greater success in the future.”
2
Cirrata nearly quadrupled in size last year, growing from four businesses to 19. With the
addition of Beat Capital Partners, a well-known MGA incubator, our distribution division is
poised for growth and continues to attract premier underwriting teams looking to launch
or scale businesses with our support.
No aspect of our business changed as dramatically
in 2024 as Cirrata. Between the acquisition of Beat’s
existing portfolio and the launch of six de novo MGAs,
we added 15 MGAs to our distribution platform in 2024
and increased revenue 93% to nearly $100 million.
Cirrata earned approximately $20 million of Adjusted
EBITDA and $13 million of Adjusted EBITDA to Ambac
common shareholders. On a consolidated basis, its
Adjusted EBITDA margin was 20%. That number
reµects nearly 500 basis points of margin headwind
from the costs associated with launching six new
MGAs. As we scale, those costs will become less
material to our overall performance. We also expect
to make meaningful improvements to the Adjusted
EBITDA margin from organic growth, economies
of scale, further technology-led ef´ciencies, and
business synergies. We view organic growth as a key
performance indicator of our business, and in 2024 our
organic growth was 5.4%. Beat is not reµected in that
number, but will be included in our organic revenue
base beginning in the second half of 2025.
MGAs cannot grow without risk capital. While we have
always had managed capacity through Everspan and
strong relationships with external insurers and reinsurers,
the Beat acquisition expanded our access to risk capital,
as Beat manages two Lloyd’s syndicates and a Bermuda
reinsurer. Having access to such a broad range of
managed capacity is a strategic differentiator for Cirrata.
It enables us to leverage the overall depth and breadth
of insurance, reinsurance and ILS markets as well as the
duration of third-party capacity to the platform.
The Cirrata platform entered 2025 with more than
$1.5 billion of committed third-party capacity from a
diversi´ed panel of insurers, reinsurers, private capital,
and pension funds. Over 60% of that support has been
behind us for four or more years, which we view as
external validation of the quality of the underwriting
of our MGAs.
Our efforts are supported within a market environment
where, broadly speaking, we continue to see the overall
E&S market performing well. The move towards risk
specialization and E&S business continues across our
industry, and that specialization supports the growth of
the MGA market.
CIRRATA
INSURANCE DISTRIBUTION PLATFORM
REVENUE UP 93%
in 2024
BEAT CAPITAL PARTNERS
Acquired August 1
Adjusted EBITDA Margin(1) of 20%
GENERATING $20 MILLION
(2)
of Adjusted EBITDA in 2024
REVENUE & ADJUSTED EBITDA
(in millions)
$100
$80
$60
$40
$20
(Adjusted EBITDA)
$0
$20
$16
$12
$8
$4
$0
2021
2022
2023
2024
$26
$31
$52
$99
Revenue
Adjusted EBITDA
(1) EBITDA/Net Insurance Distribution Revenues (2) Represents 100% inclusive of non-controlling interests
$494 MILLION
of Premium Placed, Up 114% Over 2022
The Cirrata portfolio consists of a broad array of distribution and underwriting businesses focused on specialty
lines of insurance. Our diversified platform includes high-growth, global, and predominantly fee-based businesses
that specialize in niche classes of risk. Cirrata provides top-tier underwriting and management teams with the
tools, resources, and investment needed to grow, achieve superior returns, and create long-term value.
GET TO KNOW
OUR COMPANIES
Commercial Property
Specialty Commercial Auto
Multiline & Alternative Risk
Marine & International Broker
Multiline P&C
Environmental Liability
Accident & Health
Credit & Risk Transfer
Errors & Omissions
Professional Liability
Commercial Property
Excess & Surplus Lines
Property
D&O & Financial Lines
Upstream & Downstream Energy
Management & Professional Liability
Financial & Professional Liability
Accident & Health
3
4
In just its third full year of operation, Everspan was named 2024 Fronting Carrier of the
Year by Insurance Insider, which is a testament to both its growth and its strong reputation
in the program insurance market. Everspan remains committed to program oversight and
underwriting excellence, as evidenced by its improved combined ratio.
EVERSPAN
PROGRAM INSURANCE CARRIER
Everspan had a strong year, generating gross
premium written of $383 million, a 40% increase
over 2023. It also increased its statutory surplus 16%
to $125 million. Everspan’s full-year combined ratio
of 101.6% was an improvement of 490 basis points
over the prior year, and its 96.5% combined ratio
in the fourth quarter marked its second quarterly
underwriting pro´t. We expect to see continued
improvement in the combined ratio as the platform
progresses towards critical scale.
Everspan’s underwriting performance was the result
of its concerted effort to adjust to market conditions
and rebalance capital allocation in support of our
future business growth. Portfolio diversi´cation was
also a key area of focus for Everspan in 2024, as the
business sought to expand and diversify its MGA
program partners. At year-end, Everspan had 27
program partners, up from 23 a year ago. It maintains
a strong pipeline of internal and external program
opportunities, which we believe will further our goals
to diversify the portfolio, support growth, reduce our
combined ratio, and deliver strong future ROEs.
As a long-term partner of the program sector,
Everspan believes disciplined underwriting is critical
to the health of the market. Therefore, it holds ´rm to
its underwriting guidelines. Since launching in 2021,
Everspan has accepted just 5% of the programs it
has received. It is selective by choice—a strategy that
has earned it the trust of both reinsurers and MGAs.
Everspan’s reputation for excellence was recognized
at the Insurance Insider US Honors, where a panel of
industry executives voted it Fronting Carrier of the
Year for 2024.
We are exceptionally proud of what the Everspan
team achieved in 2024 and expect their contributions
to remain signi´cant moving forward.
$383 MILLION
of GPW in 2024, Up 40%
Shareholders’ Equity
$133 MILLION
Combined Ratio
101.6%
2024 GPW
68% E&S vs 32% Admitted
27
MGA Programs
GROSS PREMIUM WRITTEN (GPW)
& NUMBER OF PROGRAMS
(in millions)
$400
(program #)
$300
$200
$100
$0
30
24
18
12
6
2021
2022
2023
2024
$273
$383
$146
$13
Gross Premium Written
# of Programs
5
CONCLUSION
DELIVERING LONG-TERM VALUE CREATION
As we reµect on 2024, I am immensely proud of the
accomplishments achieved by our team. We have laid
a robust foundation, and the opportunities that lie
ahead are even more promising. Our commitment to
innovation and excellence distinguishes us, providing
a truly unique value proposition for both our MGA
partners and investors. With the closing of the sale
of our legacy ´nancial guarantee business, our
differentiation will become even more pronounced,
positioning us for greater success in the future.
Finally, I want to express my gratitude to you, our
shareholders, for your ongoing support throughout
the year. I also want to thank our Board, Executive
Management team, and employees for their continued
commitment to our strategic vision.
Sincerely,
y,
Claude LeBlanc
President and Chief Executive Of´cer
$80-$90 MILLION
Adjusted EBITDA to
Ambac Shareholders
2028 GOAL
Q Expanding our Insurance Distribution
business based on deep domain
knowledge in specialty and niche
classes of risk that generate attractive
margins at scale. This will be achieved
through acquisitions, strategic
investments, establishing new
businesses “de novo,” and organic
growth and diversi´cation, supported
by a centralized, technology-led shared
services offering.
Q Growing our Specialty Property and
Casualty Insurance business to generate
underwriting pro´ts from a diversi´ed
portfolio of commercial and personal
liability risks accessed primarily through
program administrators.
The Company’s primary goal is to
maximize long-term shareholder value
through the execution of targeted
strategies for its Insurance Distribution
and Specialty Property and Casualty
Insurance businesses. Insurance
Distribution and Specialty Property
and Casualty Insurance strategic
priorities include:
STRATEGIC
PRIORITIES
6
JEFFREY S. STEIN (3)
Chairman
Founder and Managing Partner
of Stein Advisors LLC
CLAUDE LeBLANC
President and
Chief Executive Of´cer
ROBERT B. EISMAN
Senior Managing Director,
Chief Accounting Of´cer
and Controller
STEPHEN M. KSENAK
Senior Managing Director
and General Counsel
DAVID BARRANCO
Senior Managing Director,
Head of Risk Management
DAN McGINNIS
Senior Managing Director
and Chief Operating Of´cer
IAN D. HAFT (1)*, (4)
Chief Executive Of´cer
of Surgis Capital LLC
and Chief Financial Of´cer
of Electric Monster Media, Inc.
MICHAEL D. PRICE (1), (2), (4)
Former President and
Chief Executive Of´cer of
Platinum Underwriters Holdings, Ltd.
CLAUDE LeBLANC
President and
Chief Executive Of´cer
KRISTI A. MATUS (1), (2)*
Former Chief Financial Of´cer
and Chief Operating Of´cer
of Buckle Agency LLC
JOAN LAMM-TENNANT (2), (3), (4)*
Founder and Former
Chief Executive Of´cer of
Blue Marble Microinsurance
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Governance and Nominating Committee
(4) Member of Strategy Committee
*Chair of Committee
DAVID TRICK
Executive Vice President,
Chief Financial Of´cer
and Treasurer
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
LISA G. IGLESIAS (1), (3)*
Executive Vice President
General Counsel of Unum Group
R. SHARON SMITH
Executive Vice President
and Chief Strategy Of´cer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2024
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:
1-10777
AMBAC FINANCIAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware
13-3621676
(State of incorporation)
(I.R.S. employer identification no.)
One World Trade Center
New York
NY
10007
(Address of principal executive offices)
(Zip code)
(212)
658-7470
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbols
Name of each exchange on which registered
Common Stock, par value $0.01 per share
AMBC
New York Stock Exchange
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”and"emerging growth company" in Rule
12b-2 of the Exchange Act): (Check one):
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the Registrant as of the close of business on June 28, 2024 was $551,243,693. As of
March 4, 2025, there were 46,242,182 shares of Common Stock, par value $0.01 per share, were outstanding.
Documents Incorporated By Reference
Portions of the Registrant’s Proxy Statement related to its annual meeting of stockholders are incorporated by reference in this Form 10-K in response to
Part III Items 10, 11, 12, 13, and 14.
[This page intentionally left blank]
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995 ..............................................................
1
Item Number
Page
Item Number
Page
PART I
PART II (CONTINUED)
1
Business ........................................................................
2
Balance Sheet ................................................................
40
Introduction ...................................................................
2
Accounting Standards ...................................................
43
Description of the Business ..........................................
2
U.S. Statutory Basis Financial Results ..........................
43
Enterprise Risk Management ........................................
7
Non-GAAP Financial Measures ....................................
43
Available Information ...................................................
8
7A Quantitative and Qualitative Disclosures about
Market Risk ...................................................................
46
Insurance Regulatory Matters and Other Restrictions ..
8
8
Financial Statements and Supplementary Data .............
48
Investments and Investment Policy ..............................
9
9
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ...........................
98
Employees .....................................................................
10
9A Controls and Procedures ................................................
98
1A Risk Factors ...................................................................
10
9B
Other Information ..........................................................
98
1B Unresolved Staff Comments .........................................
25
PART III
1C Cybersecurity ................................................................
25
10
Directors, Executive Officers and Corporate
Governance ....................................................................
99
2
Properties .......................................................................
26
11
Executive Compensation ...............................................
99
3
Legal Proceedings .........................................................
26
12
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ............
99
4
Mine Safety Disclosures ................................................
26
13
Certain Relationships and Related Transactions, and
Director Independence ..................................................
99
PART II
14
Principal Accountant Fees and Services .......................
99
5
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities .......................................................................
27
PART IV
6
Reserved ........................................................................
28
15
Exhibits, Financial Statement Schedules ......................
99
7
Management’s Discussion and Analysis of Financial
Condition and Results of Operations ............................
28
Schedule I—Summary of Investments ..........................
104
Overview .......................................................................
29
Schedule II—Condensed Financial Information of
Registrant (Parent Company Only) ...............................
105
Critical Accounting Policies and Estimates .................
30
Schedule III—Supplementary Insurance Information ..
110
Results of Operations ....................................................
34
16
Form 10-K Summary ....................................................
110
Liquidity and Capital Resources ...................................
39
SIGNATURES .....................................................................
111
[This page intentionally left blank]
CAUTIONARY STATEMENT PURSUANT TO THE
PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
In this Annual Report, we have included statements that may
constitute “forward-looking statements” within the meaning of the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Words such as “estimate,” “project,” “plan,” “believe,”
“anticipate,” “intend,” “planned,” “potential” and similar expressions,
or future or conditional verbs such as “will,” “should,” “would,”
“could,” and “may,” or the negative of those expressions or verbs,
identify forward-looking statements. We caution readers that these
statements are not guarantees of future performance. Forward-looking
statements are not historical facts, but instead represent only our
beliefs regarding future events, which may by their nature be
inherently uncertain and some of which may be outside our control.
These statements may relate to plans and objectives with respect to
the future, among other things which may change. We are alerting
you to the possibility that our actual results may differ, possibly
materially, from the expected objectives or anticipated results that
may be suggested, expressed or implied by these forward-looking
statements. Important factors that could cause our results to differ,
possibly materially, from those indicated in the forward-looking
statements include, among others, those discussed under “Risk
Factors” in Part I, Item 1A in this Annual Report on Form 10-K.
Any or all of management’s forward-looking statements here or in
other publications may turn out to be incorrect and are based on
management’s current belief or opinions. Ambac Financial Group’s
(“AFG”) and its subsidiaries’ (collectively, “Ambac” or the
“Company”) actual results may vary materially, and there are no
guarantees about the performance of Ambac’s securities. Among
events, risks, uncertainties or factors that could cause actual results to
differ materially are: (1) the high degree of volatility in the price of
AFG’s common stock; (2) failure to consummate the proposed sale of
all of the common stock of Ambac Assurance Corporation (“AAC”)
and the transactions contemplated by the related stock purchase
agreement (the “Sale Transactions”) in a timely manner or at all; (3)
disruptions from the proposed Sale Transactions, including from
litigation, that may harm Ambac’s business, including current plans
and operations; (4) potential adverse reactions or changes to business
relationships resulting from the announcement or completion of the
proposed Sale Transactions; (5) uncertainty concerning the
Company’s ability to achieve value for holders of its securities from
the specialty property and casualty insurance business, the insurance
distribution business, or related businesses; (6) inadequacy of reserves
established for losses and loss expenses and the possibility that
changes in loss reserves may result in further volatility of earnings or
financial results; (7) risks historically reported by the Company with
respect to the legacy financial guarantee business, which may
continue to affect the Company if the Sale Transactions are not
consummated; (8) credit risk throughout Ambac’s business, including
but not limited to exposures to reinsurers and insurance distribution
partners; (9) the Company’s inability to generate the significant
amount of cash needed to service its debt and financial obligations,
and its inability to refinance its indebtedness; (10) the Company’s
substantial indebtedness could adversely affect the Company’s
financial condition and operating flexibility; (11) the Company may
not be able to obtain financing, refinance its outstanding indebtedness,
or raise capital on acceptable terms or at all due to its substantial
indebtedness and financial condition; (12) greater than expected
underwriting losses in the Company’s specialty property and casualty
insurance business; (13) failure of specialty insurance program
partners to properly market, underwrite or administer policies; (14)
inability to obtain reinsurance coverage or charge rates for insurance
on expected terms; (15) loss of key relationships for production of
business in specialty property and casualty and insurance distribution
businesses or the inability to secure such additional relationships to
produce expected results; (16) the impact of catastrophic public
health, environmental or natural events, or global or regional
conflicts; (17) the risk that the Company’s risk management policies
and practices do not anticipate certain risks and/or the magnitude of
potential for loss; (18) restrictive covenants in agreements and
instruments that impair Ambac’s ability to pursue or achieve its
business strategies; (19) disagreements or disputes with the
Company’s insurance regulators; (20) failure of a financial institution
in which we maintain cash and investment accounts; (21) adverse
impacts from changes in prevailing interest rates; (22) events or
circumstances that result in the impairment of our intangible assets
and/or goodwill that was recorded in connection with Ambac’s
acquisitions; (23) the risk of litigation, regulatory inquiries,
investigations, claims or proceedings, and the risk of adverse
outcomes in connection therewith; (24) the Company’s ability to
adapt to the rapid pace of regulatory change; (25) actions of
stakeholders whose interests are not aligned with broader interests of
Ambac's stockholders; (26) system security risks, data protection
breaches and cyber attacks; (27) failures in services or products
provided by third parties; (28) political developments that disrupt the
economies where the Company has insured exposures or the markets
in which our insurance programs operate; (29) our inability to attract
and retain qualified executives, senior managers and other employees,
or the loss of such personnel; (30) fluctuations in foreign currency
exchange rates; (31) failure to realize our business expansion plans,
including failure to effectively onboard new program partners, or
failure of such plans to create value; (32) greater competition for our
specialty property and casualty insurance business and/or our
insurance distribution business; (33) loss or lowering of the AM Best
rating for our property and casualty insurance company subsidiaries;
(34) disintermediation within the insurance industry or greater
competition from technology-based insurance solutions or non-
traditional insurance markets; (35) adverse effects of market cycles in
the property and casualty insurance industry; (36) variations in
commission income resulting from timing of policy renewals and the
net effect of new and lost business production; (37) variations in
contingent commissions resulting from the effects insurance losses;
(38) reliance on a limited number of counterparties to produce
revenue in our specialty property and casualty insurance and
insurance distribution businesses; (39) changes in law or in the
functioning of the healthcare market that impair the business model of
our accident and health managing general underwriter; (40)
difficulties in identifying appropriate acquisition or investment
targets, properly evaluating the business and prospects of acquired
businesses, businesses in which we invest, or targets, integrating
acquired businesses into our business or failures to realize expected
synergies from acquisitions or new business investments; (41) failure
to realize expected benefits from investments in technology; (42)
harmful acts and omissions of our business counterparts; and (43)
other risks and uncertainties that have not been identified at this time.
Ambac Financial Group, Inc.
1
2024 Form 10-K
PART I
Item 1.
Business
INTRODUCTION
Ambac Financial Group, Inc. ("AFG"), headquartered in New
York City, is a financial services holding company incorporated
in the State of Delaware on April 29, 1991. References to
“Ambac,” the “Company,” “we,” “our,” and “us” are to AFG
and its subsidiaries, as the context requires. Ambac operates two
principal businesses:
• Insurance Distribution — Ambac's specialty property and
casualty ("P&C") insurance distribution business includes
Managing General Agents, Underwriters and other
appointed
and
delegated
underwriting
businesses
(collectively "MGAs" or "MGA/Us"), an insurance broker,
and other distribution and underwriting businesses.
Insurance Distribution includes Beat Capital Partners
Limited, which was acquired on July 31, 2024. At
December 31, 2024, Ambac's insurance distribution
platform operates in the following lines of business:
accident & health, specialty auto, other professional,
marine & energy, niche specialty risks, property,
reinsurance, professional director's & officers ("D&O") and
other specialty lines.
• Specialty Property & Casualty Insurance — Ambac's
Specialty Property & Casualty Insurance program business
currently includes five carriers (collectively, “Everspan”).
Everspan
carriers
have
an
A.M.
Best
rating
of
'A-' (Excellent) which was affirmed on June 13, 2024.
The Company reports these two business operations as
segments; see Note 3. Segment Information for further
information.
Ambac has entered into an agreement to sell Ambac Assurance
Corporation ("AAC") and its wholly owned subsidiaries,
including Ambac Assurance UK Limited (“Ambac UK”) and
Ambac Financial Services LLC ("AFS"), pursuant to the stock
purchase agreement, dated June 4, 2024 (the "Purchase
Agreement"), with American Acorn Corporation ("Buyer"), a
Delaware corporation owned by funds managed by Oaktree
Capital Management, L.P. (the "AAC Sale"). The assets and
liabilities of AAC and its subsidiaries (collectively "the
Discontinued Operation") that will be transferred in the sale are
classified as held-for-sale, and their results presented as
discontinued operations. The carrying value of held-for-sale
assets and liabilities, and consequently the expected loss on
disposal, are subject to variability through the closing date of the
AAC Sale. Material changes to the carrying value of held-for-
sale assets and liabilities could arise from changes in estimates
of financial guarantee losses and loss adjustment expense
reserves, including subrogation recoverable, as well as from
changes in the valuation of invested assets and other financial
instruments carried at fair value and other operating results of
AAC and its subsidiaries. Refer to Note 5. Discontinued
Operation to the Consolidated Financial Statements included in
Item 8 of this Annual Report on Form 10-K for further
information about the sale of AAC. Unless otherwise noted,
information in Item 1 of this Annual Report on Form 10-K
relates solely to the continuing operations of Ambac and does
not include information related to the discontinued operations
and held-for-sale assets and liabilities of AAC. For additional
information about AAC's business, risk management and
insurance regulatory matters, refer to Ambac's Annual Report on
Form 10-K for the year ended December 31, 2023.
AFG, on a standalone basis, had $119 million in net assets
(excluding its investment in subsidiaries) and net operating loss
carry-forwards of $3.6 billion ($2.0 billion of which is allocated
to AAC and will transfer with AAC in connection with its sale)
at December 31, 2024. See Schedule II for more information on
the holding company.
Strategies to Enhance Shareholder Value
The Company's primary goal is to maximize long-term
shareholder value through the execution of targeted strategies
for its Insurance Distribution and Specialty Property and
Casualty Insurance businesses. Insurance Distribution and
Specialty Property and Casualty Insurance strategic priorities
include:
• Expanding our Insurance Distribution business based on
deep domain knowledge in specialty and niche classes of
risk which generate attractive margins at scale. This will be
achieved through acquisitions, strategic investments,
establishing new businesses “de-novo,” and organic growth
and diversification supported by a centralized technology
led shared services offering
• Growing our Specialty Property and Casualty Insurance
business to generate underwriting profits from a diversified
portfolio of commercial and personal liability risks
accessed primarily through program administrators.
DESCRIPTION OF THE BUSINESS
P&C Industry Overview
We operate within the $968 billion U.S. P&C insurance market
with a particular focus on the commercial MGA/U program
market both on an Admitted and Excess & Surplus Lines
("E&S") basis.
Admitted and E&S Insurance
Insurance carriers sell commercial P&C products in the United
States through one of two markets: the Admitted market and the
E&S market.
The Admitted insurance market, which has highly regulated
rates and policy forms, is more consistent in price and coverage.
In the E&S market, there is increased flexibility in pricing, terms
and conditions in response to evolving market dynamics, and
E&S carriers can tailor insurance products to facilitate coverage
that would not otherwise be attainable. This flexibility lends
itself to providing solutions for unique risks, which has driven
meaningful growth within the E&S market over the last decade,
exceeding the growth rate of the Admitted market.
According to data from AM Best, the E&S market generated
over $115 billion of direct written premium in 2023 an increase
Ambac Financial Group, Inc.
2
2024 Form 10-K
of 17.4% over the prior year and and represents nearly 12% of
the industry direct premium volume. The E&S market is more
heavily focused in commercial lines and accounted for over 23%
of total commercial direct written premium for the first time in
2023. Over the last five years the E&S market has more than
doubled from $56 billion to over $115 billion in 2023, a 15.5%
compound annual growth rate compared to 7.4% for the overall
P&C industry.
Everspan presently has four admitted carriers, which are wholly-
owned at December 31, 2024: Everspan Insurance Company;
Greenwood
Insurance
Company;
Consolidated
Specialty
Insurance Company and Providence Washington Insurance
Company. Everspan Indemnity Insurance Company ("Everspan
Indemnity"), an E&S carrier, which is eligible to write business
in all U.S. states and territories, is also part of Everspan.
MGA/U Program Market
It is estimated by Conning, Inc. ("Conning") that U.S. MGA/Us
generated over $100 billion of premium in 2023. We believe
there are significant advantages to the MGA/U business model
when it comes to capturing the opportunity in the E&S market
and propelling profitable growth. MGA/Us are specialized types
of insurance agents or brokers that are vested with underwriting
authority from an insurer, administering programs and
negotiating contracts on their behalf. This is a particularly useful
vehicle for P&C insurers as MGA/Us tend to participate in the
E&S market where specialized expertise is needed to underwrite
policies. Additionally, MGA/Us are cost effective means for an
insurer or reinsurer to access or grow a particular class of
business they find attractive given the MGA/U already possesses
product expertise and distribution capabilities.
According to data from Conning, the MGA/U sector is one of
fastest growing segments of the U.S. P&C insurance market
with 2023 direct premium written of $82 billion, an increase of
14% over the prior year, and loss ratios consistently lower than
the P&C sector overall. In 2023, Conning identified over 800
MGAs in the U.S. market with nearly 350 additional MGAs not
counted in that group as their premium production falls below
the 5% statutory filing threshold. We believe the growth in the
MGA/U and program space is likely to continue as the industry
continues its move towards increased specialization.
Specialty Property and Casualty Insurance
Everspan’s strategy is to generate sustainable and profitable
long-term specialty property and casualty program business with
a focus on diverse classes of commercial and personal liability
risks across an expanding roster of MGA/U partners.
As a specialty property and casualty program group, Everspan
may retain a percentage of the business it underwrites.
Everspan's management team has significant years of experience
in the program insurance and reinsurance sectors and has long-
standing and broad relationships with MGA/Us, reinsurers,
brokers, producers and third-party claims administrators
("TPAs").
Everspan
sources
business
through
program
administrators and managing general agents, reinsurers, brokers,
producers and others. Subject to Everspan's operational
oversight, Everspan engages these third parties to market and
administer policies and handle claims within defined authorities
on Everspan's behalf.
Everspan is focused on generating strong underwriting results
and stable fee income as part of its specialty program business
model.
For the year ended December 31, 2024, Everspan generated
$382,771 thousand of gross written premium, of which Everspan
retained approximately 23.2%, including assumed written
premiums. Everspan retained approximately 12.0% of its direct
written premiums, with the balance primarily ceded to quota
share reinsurers.
Everspan may retain up to 30% of risk on each direct program
and will reinsure the remainder to reinsurers and other providers
of risk capital. These reinsurers may be domestic and foreign
reinsurers and institutional risk investors (capacity providers).
While underwriting direct business produced by MGA/Us is
Everspan's primary means of distribution, Everspan also1
selectively assumes reinsurance to further its goal of writing a
diversified book of specialty P&C business while managing its
exposure limits. For example, the Company would evaluate,
and may write certain lines, including those with catastrophe
risk or Workers’ Compensation on an assumed basis. Everspan
may participate as a reinsurer on up to 30% of a program, which
is in line with its strategy to retain up to 30% of risk per
program. Participation as a reinsurer will affect the retention
ratio as Everspan's portion of assumed premiums is reflected
fully in both Gross and Net Written Premiums.
The following table sets forth gross written premiums (direct
and assumed) by line of business for the years ended December
31, 2024 and 2023:
($ in thousands)
Year Ended December 31,
2024
2023
Excess liability ..................................................... $
95,827
$
40,549
Commercial auto liability ....................................
78,238
121,946
General liability ...................................................
77,767
27,143
Surety ..................................................................
34,794
26,267
Workers Compensation .......................................
28,294
19,512
Non-standard personal auto .................................
20,186
20,080
Commercial auto physical damage ......................
1,480
12,057
Other ....................................................................
46,185
5,733
Gross written premiums ....................................... $
382,771
$
273,287
Everspan purchases reinsurance to manage its net retention on
individual risks and overall exposure to losses, while providing
it with the ability to offer policies with sufficient limits to meet
producer and policyholder needs. Generally, reinsurance
contracts are specific to a program and are renewed annually, at
which time they are subject to renegotiation. The key
contractual provisions include, but are not limited to, those
relating to the scope of business reinsured, ceding commissions,
required reports to reinsurers, dispute resolution, any required
collateral, and Everspan's termination rights when, among other
triggers, a reinsurer defaults (such as by failing to collateralize
its obligations when required) or its financial strength falls
below an agreed level. Everspan’s ceded reinsurance contracts
do not legally discharge Everspan from its primary liability for
the full amount of the policies, and Everspan will be required to
pay the loss and bear collection risk if a reinsurer fails to meet
its obligations under the reinsurance agreement.
Ambac Financial Group, Inc.
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2024 Form 10-K
Everspan mitigates this credit risk by selecting well capitalized,
highly rated, authorized capacity providers, or requiring that the
capacity provider post collateral, typically in the form of letters
of credit issued by or trust accounts in the custody of NAIC-
qualified financial institutions, to secure the reinsured risks.
The following graph shows our reinsurance carriers' AM Best
rating based on share of ceded premium for the year ended
December 31, 2024:
A++
12%
A+
43%
A
17%
A-
9%
NR
18%
Note - NR represents reinsurance carriers not rated by AM Best.
Generally, under the terms of reinsurance contracts with such
carriers the reinsurer is required to post collateral to Everspan.
See Note 8. Insurance Contracts to the Consolidated Financial
Statements included in Part II, Item 8 in this Annual Report on
Form 10-K for further information on reinsurance recoverables,
including the evaluation for credit impairments.
Competitive Strengths:
Specialty Property and Casualty Insurance is a competitive
industry. Everspan believes that it can successfully operate in
this industry in part based upon the following competitive
strengths.
• Experience — Everspan has an experienced leadership
team across underwriting, pricing, claims, and business
development with an average tenure of over 30 years in the
insurance industry.
• Underwriting Focused Strategy — Everspan is driven by
underwriting
performance,
which
is
achieved
via
evaluation and monitoring of MGA/U partners from our in-
house pricing actuaries, claims executives, and program
managers. This underwriting focus also aides in achieving
and maintaining support from reinsurance partners.
• Risk Appetite — Everspan may retain up to 30% of the risk
it underwrites. This meaningful participation serves to align
interests with our reinsurers.
• Commitment to Program Distribution — Everspan does
not have any direct distribution capability as it is
committed to the program market distributed through
MGA/Us. As a result, Everspan does not have channel
conflicts which would compete with programs partners in
underwriting business.
• Nimble Platform — A simplified organizational structure
which allows Everspan to be efficient and quick in
responding to the needs of program partners as well as
finding customized solutions. We believe this provides a
competitive advantage to the more traditional competitors
in the market.
• Aligned Ownership — Everspan has a stable ownership
structure which is equally focused on long-term value
creation based on strong underwriting performance. This
alignment of interest and strategic vision allows Everspan
to leverage resources across Ambac and access capital for
future initiatives.
Competition:
Everspan faces competition from program business market
participants such as Accelerant, Clear Blue, Core Specialty,
Fortegra, Obsidian, Sutton National, State National, Transverse,
and Trisura. Most of these entities have both admitted and E&S
carriers. Competition may take the form of lower program fees,
broader coverages, greater product flexibility, higher coverage
limits, greater customer service or higher financial strength
ratings by independent rating agencies. Few barriers exist to
prevent existing insurers from entering target markets within the
property and casualty industry. Market conditions and capital
capacity influence the degree of competition at any point in
time. A number of competitors to Everspan have announced or
are rumored to be exploring plans for strategic alternatives.
Exploring strategic alternatives may be triggered by the
objectives of owners (like private equity funds), weak financial
performance, capital and capacity shortfalls or valuation
considerations, amongst a number of other reasons. The impact
of consolidation amongst program market carriers on Everspan
is hard to predict and may have adverse or favorable
consequences.
During periods of excess underwriting capacity, as defined by
the availability of capital, competition can result in lower pricing
and less favorable policy terms and conditions for insurers.
During periods of reduced underwriting capacity, pricing and
policy terms and conditions are generally more favorable for
insurers. Historically, the performance of the property and
casualty insurance industry has tended to fluctuate in cyclical
periods of price competition and excess underwriting capacity,
followed by periods of high premium rates and shortages of
underwriting capacity. At any given time, Everspan's portfolio
of insurance products could experience varying combinations of
these characteristics. This cyclical market pattern can be more
pronounced in the specialty insurance and reinsurance markets
in which Everspan competes than in the standard insurance
market. For the last several years the property and casualty
industry has been in a period of high premium rates with a
shortage of underwriting capacity. While not anticipated to end
in the short-term, this cyclical period will eventually end,
perhaps unexpectedly. The end of this favorable cycle could
have negative consequences for Everspan's growth and
profitability prospects.
Business Acquisition and Program Partner Selection:
With our focus on generating long-term underwriting
profitability, we are selective in adding new program partners.
We look for program partners that share our vision of
underwriting
performance
and
return
expectations
and
consequently are selective about with whom we partner. As of
December 31, 2024, we have 27 programs with 24 MGA/Us. In
Ambac Financial Group, Inc.
4
2024 Form 10-K
2024 approximately 190 submissions were evaluated and we
agreed to contract 8 new programs including seven new MGA/
Us and one MGA/U with an existing relationship, while
renewing or extending eighteen programs with seventeen
incumbent MGA/Us. Included in 2024 renewed programs is one
executed via assumed reinsurance. At times is will be necessary
to exit or discontinue certain programs when then risk profile or
performance no longer meet our underwriting expectations or
tolerances.
As noted above, most of Everspan’s programs are sourced either
from MGA/Us or through other third parties, such as reinsurance
brokers, that are seeking to provide customized insurance
solutions that require a carrier with a high rating from AM Best.
Everspan works with MGA/Us that leverage both data and
technology to streamline or improve the underwriting process.
Everspan may also source programs as a reinsurer. Accessing
programs as a reinsurer provides Everspan the ability to
diversify its risk profile, efficiently manage its exposure limits
and underwrite programs in a cost efficient manner, amongst
other benefits.
For each new opportunity that Everspan chooses to evaluate, an
initial evaluation of the MGA/U is conducted, including an
assessment of its underwriting approach, philosophy, size,
quality of management, past performance, future performance
targets and, above all, compatibility with Everspan’s operating
model, risk appetite, and existing book of business. Everspan
conducts substantial due diligence on all program partners led
by the Underwriting Risk Committee, which is chaired by
Everspan’s Chief Underwriting Officer. As part of the diligence
process, Everspan works closely with potential MGA/Us to
design program underwriting guidelines, ongoing reporting and
auditing requirements. Everspan also typically requires the
producing partner to retain underwriting risk or otherwise align
incentives with program underwriting performance.
Additionally, as part of the diligence process for each program,
Everspan will perform a review of the claims management
function, typically performed by a TPA, which in some cases are
managed by the MGA/U or producing partner. Diligence
focuses on claims handling and litigation management,
compliance, finance, governance, staff and vendor management,
data and IT.
After due diligence is completed and acceptable reinsurers are
identified, each program is presented to the Underwriting Risk
Committee for final approval. The Underwriting Risk
Committee will consider recommendations made by the credit
subcommittee regarding the financial strength of the MGA/Us
and/or reinsurers.
Ongoing Monitoring:
For active programs, Everspan authorizes MGA/Us to
underwrite and bind coverages in accordance with approved
underwriting guidelines and delegates authority to the TPA for
claims adjustment and payment. Everspan monitors each MGA/
U and TPA’s adherence to the agreed upon underwriting and
claims guidelines. Everspan will conduct periodic reviews of
loss experience, rate levels, reserves and the overall financial
health of the MGA/U and TPA and hold monthly underwriting
meetings with both the MGA/U and TPA. Underwriting and
claims data is provided by the MGA/Us and TPAs monthly.
Additionally, Everspan conducts underwriting, claims and
accounting audits, generally on-site, at least once a year for
MGA/U and TPA partners which administer a material amount
of Everspan's business. Everspan determines whether it will
continue to participate on a program no less than annually,
generally at the anniversary date of the program. The renewal
process entails an assessment, with Underwriting Risk
Committee
participation,
of
the
program's
operating
performance, profitability, and available reinsurance capacity.
Everspan maintains the right to terminate relationships with its
MGA/Us and TPAs. Reasons to terminate a relationship include
an inability to produce targeted underwriting results, writing
exposures outside of agreed upon risk tolerances, delinquency in
meeting reporting requirements, a change of strategic direction,
or failure to meet collateral or other commitments to Everspan.
Ratings:
Everspan carriers have an AM Best financial strength ratings
("FSR") of 'A-' (Excellent) and Financial Strength Category of
Class VIII. Risk is shared among the Everspan carriers via a
reinsurance agreement and an intercompany pooling agreement
(the "Everspan Pool"). We view this rating and financial size
category as a competitive advantage in the marketplace. Ratings
are an important factor in assessing Everspan’s competitive
position, operation capabilities and risk management in the
insurance industry.
Insurance Distribution
Ambac’s Insurance Distribution business, Cirrata Group
("Cirrata"), has a strategy to build a diversified portfolio of
MGA/Us and other insurance distributors covering various P&C
products. Ambac plans to grow its existing Insurance
Distribution business using several strategies, including (i)
organic growth, (ii) acquisitions and/or partnerships, and (iii)
hiring experienced underwriting teams to incubate start-up ("de-
novo") MGA/Us. Ambac continuously evaluates, and is
currently evaluating, opportunities to acquire businesses and
assets for its Insurance Distribution business, some of which
may be material to our financial condition and operations and/or
may involve raising capital to finance the acquisition. Key
criteria for acquisitions and underwriting teams include a track
record of profitability and a seasoned management team.
Insurance underwritten through Ambac's MGA/Us may utilize
Everspan as an insurance carrier, but are not required to do so,
depending on strategic and operational considerations.
Ambac Financial Group, Inc.
5
2024 Form 10-K
The following table sets forth Cirrata's premiums placed by line
of business:
($ in thousands)
Year Ended December 31,
2024
2023
A&H
$ 122,596
$ 130,556
Other professional
63,615
12,496
Property
56,402
—
Professional D&O
55,789
—
Specialty Auto
49,838
62,425
Niche Specialty Risks
36,984
—
Reinsurance
30,202
—
Marine & Energy
24,864
19,437
Misc. Specialty
53,082
5,691
Premiums placed
$ 493,372
$ 230,605
Cirrata's portfolio at December 31, 2024, includes the following
entities:
Xchange Benefits, LLC ("Xchange") — Ambac owns an 80%
controlling interest in Xchange. Xchange operates through
specialty producers in accident and health ("A&H") sectors
across the U.S. which are typically not targeted by large direct
writers and to whom Xchange can provide customized offerings.
Xchange conducts business through approximately eleven
insurance carriers and dozens of agents and other distributors.
Xchange's main products for which it is delegated underwriting
authority by insurance carriers include: Employer Stop Loss
("ESL"), Limited Benefit Medical ("LM"), Short-term Medical
("STM"), Travel and Reinsurance ("Xchange Re").
All Trans Risk Solutions, LLC ("All Trans") — Effective
November 1, 2022, Ambac acquired an 85% controlling interest
in All Trans. All Trans is a full service managing general
underwriter
with
delegated
underwriting
authority
in
commercial automobile insurance for specific "for-hire" auto
classes; principally private school bus operators. In 2024, All
Trans launched a new program primarily focussed on charter
buses. All Trans' track record of performance has allowed the
company to maintain a consistent panel of insurance carriers and
client relationships, several of which go back over 25 years.
Capacity Marine Corporation ("Capacity Marine") —
Effective November 1, 2022, Ambac acquired an 80%
controlling interest in Capacity Marine. Capacity Marine is a
wholesale and retail brokerage and reinsurance intermediary
specializing in more sophisticated marine and international risk
in expsoures such as ports, terminals, and stevedores.
Riverton Insurance Agency, Corp. ("Riverton") — Effective
August 1, 2023, Ambac acquired an 80% controlling interest in
Riverton. Riverton offers professional liability insurance
programs to licensed architects, engineers, construction
managers and real estate professionals. Riverton's retail agency
places professional liability for real estate agents with various
markets.
Beat Capital Partners Limited ("Beat") — Effective July
31, 2024, Ambac acquired approximately 60% controlling
interest in Beat, a London-based insurance underwriting and
MGA/U platform. Beat specializes in incubating de-novo MGA/
Us by partnering with leading underwriting teams and providing
such teams with funding, infrastructure and risk capital through
access to two managed Lloyd's syndicates. Beat's 15 majority-
owned MGA/Us (Beat typically owns between 60% and 80% of
each MGA/U) offer alternative risk binders, global direct and
facultative property, directors and officers, credit, professional
errors and omissions, energy, environmental and accident and
health.
In addition to existing MGA/Us and acquisitions, de-novo
MGA/U formations primarily through Beat, will be a core
element of the Insurance Distribution segment's growth strategy.
Cirrata's businesses are compensated for their services primarily
by commissions paid by insurance carriers for underwriting,
structuring and/or administering polices and, in some cases for
managing claims under agency agreements. Commission
revenues are usually based on a percentage of the premiums
placed. The businesses are also eligible to receive profit sharing
contingent commissions on certain programs based on the
underwriting results of the policies they write, which may cause
some variability in revenue and earnings recognition.
Commission revenues experience seasonality during the year
which can lead to concentrations of revenues and earning in
certain quarters, including the first quarter of each year. Given
recent acquisitions and potential de-novo launches, this
seasonality may become more muted over time.
Expenses at Cirrata include commissions the businesses pay to
their independent agents/producers, compensation for their
management and staff, general overhead and intangible asset
amortization from acquisitions. Commission expenses are a
variable cost as we pay a percentage of premiums written to the
agents/producers.
Insurance Distribution generated gross commission revenue and
net commission revenue (commissions less commission
expenses) during the years ended December 31, 2024 and 2023
as shown below.
($ in thousands)
December 31,
2024
2023
Gross commissions
$ 143,305 $ 51,282
Net Commissions
51,147
21,816
Commission revenue and expense growth will be driven by the
businesses' continued expansion and diversification of its
products across regions, products, distribution partners and
carriers.
Competitive Strengths:
• Strategic operator — Ambac is a strategic operator with
MGA/Us and Programs at the center of our business. This
allows for the MGA/U principals the confidence and
freedom to focus building their business without distraction
of either subsequent ownership change or de-emphasis of
the sector.
• Partnership model — Our partnership based model is
built around having MGA/U principals maintain ownership
or direct economic alignment to the performance of their
respective business. We believe this direct economic
Ambac Financial Group, Inc.
6
2024 Form 10-K
connection is valuable in attracting both producing top-tier
underwriting and attracting top underwriting talent who
share an entrepreneurial mindset.
• Aligned & managed capacity — By maintaining direct
access to rated and licensed insurance capacity our
Insurance Distribution can accelerate the time to launch
new MGA/Us.
• Shared services platform — One of the challenges new
MGA/Us face while scaling their business is managing the
increasing
administrative
burden.
Our
Insurance
Distribution offers a range of shared services across IT,
HR, and Finance which both provide economies of scale
for these functions and allow for the principals to focus
their efforts on building the franchise.
• Deep specialty domain knowledge — Our Insurance
Distribution businesses are anchored by a deep specialty
domain knowledge in their respective classes of business.
This knowledge is key to generating the underwriting
results necessary to maintain long-standing carrier
relationships.
• Long standing carrier relationships — Our MGA/Us
strive towards long and durable carrier relationships
supported by a focus on underwriting profitability. P&C
insurance is a cyclical industry with opportunistic players
entering and exiting the business. We believe that growing
multi-year carrier relationships are evidence of the value
created by our MGA/Us, a value which we believe should
sustain through routine market cycles.
• Strong
distribution
relationships
—
Distribution
relationships provide value in several ways. First, carrier
and capital partners are looking for both underwriting
expertise and distribution access when working with
MGA/Us. In addition, the quality of distribution
relationships helps in allowing our MGA/Us access to
higher quality risks from the wholesale and retail agents
which we believe over time will help produce better
underwriting results.
Competition:
The MGA/U insurance sector is highly fragmented and
competitive, and firms actively compete with Cirrata's
businesses for customers and insurance carrier capacity. Our
main competitors in this segment include other MGA/U
aggregators (such as Amynta), wholesale brokers (such as Ryan
Specialty) and insurance carriers that choose to write insurance
without the assistance of MGA/Us. Given our competitive
strengths we believe that we can compete effectively in this
sector of the market.
ENTERPRISE RISK MANAGEMENT
The Company's policies and procedures relating to risk
assessment and risk management are overseen by its Board of
Directors. The Board of Directors takes an enterprise-wide
approach to risk management oversight that is designed to
support the Company's business plans at a level of risk
considered by the Board to be reasonable. A fundamental part of
risk assessment and risk management is not only understanding
the risks the Company faces and what steps management is
taking to manage those risks, but also understanding what level
of risk is appropriate for the Company. The Board of Directors
periodically reviews the Company's business plan, factoring risk
management into account. It also approves the Company's risk
appetite statements, which articulate the Company's tolerance
for certain risks and describes the general types of risk that the
Company accepts, within certain parameters, or attempts to
avoid.
While the Board of Directors has the ultimate oversight
responsibility for the risk management process, various
committees of the Board also have responsibilities related to risk
assessment and risk management, and management has
responsibility for managing the risks to which the Company is
exposed and reporting on such matters to the Board of Directors
and applicable Board committees.
• The Audit Committee oversees the management of risks
associated with the integrity of Ambac’s financial
statements and its compliance with legal and regulatory
requirements. In addition, the Audit Committee discusses
policies with respect to risk assessment and risk
management, including major financial risk exposures and
the steps management has taken to monitor and control
such exposures. The Audit Committee reviews with
management, internal auditors and independent auditors
Ambac's critical accounting policies, Ambac's system of
internal controls over financial reporting and the quality
and appropriateness of disclosure and content in the
financial
statements
and
other
external
financial
communications.
• The Compensation Committee oversees the management of
risk primarily associated with our ability to attract,
motivate and retain quality talent (particularly executive
talent) and with setting financial incentives that do not
motivate undue risk-taking.
• The Governance and Nominating Committee oversees the
management of risk primarily associated with Ambac’s
ability to attract and retain quality directors, Ambac’s
corporate governance programs and practices and our
compliance therewith, including integration of ESG and
sustainability policies, practices and goals into the
Company's business strategy and decision making.
Additionally, the Governance and Nominating Committee
oversees the processes for evaluation of the performance of
the Board of Directors and its committees each year and
considers risk management effectiveness as part of its
evaluation. This committee also reviews succession plans
for Ambac's executive officers, including the Chief
Executive Officer. The Governance and Nominating
Committee also performs oversight of the business ethics
and compliance program, and reviews compliance with
Ambac’s Code of Business Conduct.
• The Strategy Committee oversees the management of
strategic plans and initiatives.
The Board of Directors receives quarterly updates from Board
committees and the Board provides guidance to individual
committee activities, as appropriate.
In order to assist the Board of Directors in overseeing Ambac’s
risk management, Ambac uses enterprise risk management, a
Ambac Financial Group, Inc.
7
2024 Form 10-K
company-wide process that involves the Board of Directors,
management and other personnel in an integrated effort to
identify, assess and manage a broad range of risks (e.g., credit,
financial, legal, liquidity, market, model, operational, regulatory,
reputational and strategic) that may affect the Company’s ability
to execute on its corporate strategies and fulfill its business
objectives. The Enterprise Risk Committee (“ERC”), which is a
management committee, is comprised of executive and senior
level management responsible for assisting in the management
of the Company’s risks on an individual and aggregate basis.
The ERC produces the relevant risk management information
for executive and senior management and the Board of
Directors.
Ambac management has established other management
committees to assist in managing the risks throughout the
enterprise. These committees will meet monthly or as needed
on an ad hoc basis.
• The Disclosure Committee's objective is to assist the CEO
and CFO in their responsibilities to design, establish,
maintain and evaluate the effectiveness of disclosure
controls and procedures. Members of the Disclosure
Committee include the CEO, CFO, Chief Accounting
Officer, General Counsel, Chief Operating Officer, Head of
Risk Management and senior managers from finance and
legal.
• The Everspan Underwriting Risk Committee's objective is
to provide oversight of the active underwriting operations
of Everspan, develop underwriting parameters, and assist
the Boards of the Everspan companies in overseeing the
integrity and effectiveness of Everspan’s underwriting risk
management framework. Members of the committee
include the CEO, key members of Everspan management
and other senior managers or advisors of Ambac.
Additionally, a Reinsurance and Program Administrator
Credit Risk sub-committee was established at the direction
of the Underwriting Risk Committee to assist with the
management of credit risk emanating from ceded
reinsurance and program administrators.
• Subsidiary Boards of Directors. Each of Ambac's
subsidiaries has an Ambac management-led Board charged
with overseeing the strategy, performance and operations of
such subsidiary. These subsidiaries include Everspan as
well as each of our MGA/Us. Many of these Boards are
led by Executive Management of AFG and, in other
instances, senior management from throughout the
organization. Occasionally, our subsidiary boards may also
include independent members that are not employees of
Ambac or its subsidiaries. Many of our MGA/U
subsidiaries also maintain Underwriting Committees to
oversee the underwriting quality and risk management of
such underwriting unit. These Underwriting Committees
provide regular updates to their respective Boards of
Directors.
The Company’s Enterprise Risk Management efforts build upon
the foundation of an effective internal control environment. The
design of any risk management or control system must reflect
the fact that there are resource constraints, and the benefits must
be considered relative to their costs. As a result, the possibility
of material financial loss remains regardless of the Company’s
Enterprise Risk Management efforts. An investor should
carefully consider the risks and all of the other information set
forth in this annual report, including the discussions included in
Item 1A. Risk Factors, Item 7A. Quantitative and Qualitative
Disclosures About Market Risk, and Item 8. Financial
Statements and Supplementary Data.
AVAILABLE INFORMATION
Our Internet address is www.ambac.com. We make available
through the investor relations section of our web site, annual
reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, and any amendments to those
reports, filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, as well as
proxy statements, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the U.S.
Securities and Exchange Commission. Our Investor Relations
Department can be contacted at Ambac Financial Group, Inc.,
One World Trade Center, 41st Floor, New York, New York
10007, Attn: Investor Relations; telephone: 212-208-3222;
email: ir@ambac.com. The reference to our website address
does not constitute inclusion or incorporation by reference of the
information contained on our website in this Annual Report on
Form 10-K or other filings with the SEC and the information
contained on our website is not part of this document.
INSURANCE REGULATORY MATTERS AND
OTHER RESTRICTIONS
Regulatory Matters
Everspan Indemnity and its wholly owned subsidiary, Everspan
Insurance Company ("Everspan Insurance") are domiciled in the
state of Arizona and are therefore subject to the insurance laws
and regulations of the State of Arizona and regulated by the
Arizona Department of Insurance and Financial Institutions as
domestic insurers. The subsidiaries of Everspan Insurance are
domiciled in various States and are therefore subject to the
insurance laws and regulations of their respective domiciliary
States and regulated by the insurance departments of those
States as domestic insurers. Everspan Insurance and its
subsidiaries are also subject to the insurance laws and
regulations of the other jurisdictions in which they are licensed
and operate as foreign insurers in such jurisdictions. See Note 9.
Insurance Regulatory Restrictions to the Consolidated Financial
Statements included in Part II, Item 8 in this Annual Report on
Form 10-K for further information on regulatory restrictions.
The Insurance Distribution businesses, like other MGA/Us,
program administrators and brokers, may be subject to licensing
requirements and regulation by insurance regulators in various
states and other applicable regulatory jurisdictions in which they
conduct business.
Beat and its UK domiciled entities are subject to the UK
Companies Act 2006 as well as to insurance laws and
regulations of the UK and other jurisdictions in which they
operate. Additionally, some of the Beat subsidiaries, while not
regulated entities, must act in line with the regulations of the
Financial Conduct Authority and Prudential Regulation
Authority as appointed representatives of regulated entities.
Ambac Financial Group, Inc.
8
2024 Form 10-K
Beat's subsidiary, Alcor Underwriting Bermuda, is domiciled in
Bermuda and is subject to the insurance laws and regulations of
Bermuda and regulated by the Bermuda Monetary Authority
(the "BMA").
Regulation of Change in Control
Under applicable insurance law, any acquisition of control of
AFG, or any other direct or indirect acquisition of control of its
insurance carrier subsidiaries, requires the prior approval (or
non-disapproval) of the domiciliary regulator of the acquired
company (or, in the case of AFG, the domiciliary regulators of
its insurance carrier subsidiaries). “Control” is generally defined
as the direct or indirect power to direct or cause the direction of
the management and policies of a person. Any purchaser of 10%
or more of the outstanding voting stock of a corporation is
presumed to have acquired control of that corporation and its
subsidiaries unless the applicable insurance regulator, upon
application, determines otherwise. For purposes of this test,
AFG believes that a holder of common stock having the right to
cast 10% or more of the votes which may be cast by the holders
of all shares of common stock of AFG would be presumably
deemed to have control of AFG's insurance carrier subsidiaries
within the meaning of applicable insurance laws and
regulations, although insurance regulators may in their
discretion deem control not to exist where, for example, control
is disclaimed by a passive investor.
With respect to the AAC Sale, the Buyer submitted an
application for the proposed acquisition of control of AAC to the
Wisconsin Office of the Commissioner of Insurance ("OCI")
and is awaiting approval of the acquisition by the OCI. The
Buyer received approval for the change in control of Ambac UK
from the U.K. Prudential Regulation Authority, which expires
on April 30, 2025.
Under the UK Companies Act, people with significant control
(PSCs), defined as a person or entity holding more than 25% of
the shares in the relevant company, must be reported to
Companies House.
Additionally, any change in control of Beat would need to be
approved by Lloyds of London, the BMA and any applicable
U.S. regulators.
Dividend Restrictions, Including Contractual
Restrictions
Everspan Companies:
Everspan Indemnity, Everspan Insurance and its subsidiaries are
subject to regulatory restrictions on their ability to pay
dividends, and do not have sufficient earned surplus at this time
to pay ordinary dividends under the insurance laws and
regulations of their respective States of domicile. Furthermore,
certain subsidiaries of Everspan Insurance were restricted from
paying dividends to Everspan Insurance until January 1, 2025.
Currently, Everspan Insurance’s subsidiaries, other than
Greenwood Insurance Company, do not have sufficient surplus
to pay dividends. Ambac does not have any plans to seek
dividends from Everspan so that surplus may accumulate to
support Everspan's growth.
Cirrata Companies:
Ambac's MGA/U subsidiaries are not restricted from paying
dividends or partner distributions (collectively "Distributions")
to their owners or partners, including Cirrata, which is 100%
owned by AFG. Ambac's established MGA/Us historically have
paid Distributions equating to the majority of their individual
EBITDA, subject to working capital, taxes and other capital
needs, on a quarterly basis. Newly formed de-novo MGA/Us are
not expected to make regular distributions to their partners until
they become profitable and generate free cash flow on a steady
and/or predictable basis.
INVESTMENTS AND INVESTMENT POLICY
As of December 31, 2024, the consolidated investments of
Ambac's continuing operations had an aggregate fair value of
approximately $312,915 thousand. Investments are primarily
managed by third party investment management firms overseen
internally. All investments are made in accordance with the
general objectives, policies, and guidelines for investments
approved by the Board of Directors of the applicable subsidiary.
These policies and guidelines include liquidity, credit quality,
diversification and duration objectives and are periodically
reviewed and revised as appropriate.
As of December 31, 2024, the Everspan group investment
portfolio had an aggregate fair value of approximately $192,747
thousand. The investment objective is to achieve the highest
risk-adjusted after-tax return on a diversified investment
portfolio consistent with the respective company's risk tolerance
while employing active asset/liability management practices to
satisfy all operating and strategic liquidity needs. In addition to
internal investment policies and guidelines, the investment
portfolio of each company is subject to limits on the types and
quality of investments imposed by applicable insurance laws and
regulations of the jurisdictions in which it is licensed. The Board
of Directors of each respective subsidiary approves any changes
to the respective investment policies.
As of December 31, 2024, AFG (parent company only,
excluding investments in subsidiaries) investment portfolio had
an aggregate carrying value of approximately $92,556 thousand,
including $64,439 thousand of short-term investments carried at
fair value. The primary investment objective is to preserve
capital for strategic uses while maximizing income. The
investment portfolio is subject to internal investment guidelines.
Such guidelines set forth minimum credit rating requirements
and credit risk concentration limits.
As of December 31, 2024, the Insurance Distribution investment
portfolio had an aggregate fair value of approximately 27611
thousand, primarily consisting of money market funds.
Ambac Financial Group, Inc.
9
2024 Form 10-K
The following table provide certain information concerning the
consolidated investments of Ambac:
2024
2023
Investment Category
($ in thousands)
December 31,
Carrying
Value
Weighted
Average
Yield (1)
Carrying
Value
Weighted
Average
Yield (1)
Corporate securities
$ 89,192
3.3 %
$ 87,991
3.3 %
U.S. government
obligations
40,995
3.3 %
38,522
2.8 %
Municipal obligations
14,083
3.1 %
8,711
2.0 %
Asset-backed securities
8,203
4.9 %
—
— %
Residential mortgage-
backed securities
2,446
5.0 %
—
— %
Commercial mortgage-
backed securities
2,101
5.8 %
—
— %
Short-term investments
127,601
3.7 %
200,510
5.3 %
Total fixed maturity-
available-for-sale
284,621
3.5 %
335,734
4.4 %
Other investments (2)
28,294
— %
18,317
— %
Total
$ 312,915
3.5 %
$ 354,051
4.4 %
(1)
Yields are stated on a pre-tax basis, based on average amortized
cost for both long and short term fixed-maturity investments.
(2)
Other investments consist of equity interests in development stage
insurance MGA's and pooled investment funds. Refer to Note 6.
Investments of the Consolidated Financial Statements included in
Part II, Item 8 in this Annual Report on Form 10-K for further
information about Other investments.
EMPLOYEES
As of December 31, 2024, Ambac had 195 employees in the
United States and 185 employees within the United Kingdom
and Bermuda. Our 2024 voluntary turnover rate was
approximately 6.5%. Ambac considers its employee relations to
be satisfactory.
Ambac’s focus has been on identifying and retaining key talent
through individual development programs following skills
assessments. Ambac’s succession planning has identified
internal candidates that could fill executive management and
senior management positions as the need arises. The Company
continues to rely on compensation components (such as salary,
long-term incentive plan awards, deferred cash awards and
short-term incentive plan awards) to support employee retention
and discourage excessive risk taking. The Company incorporates
performance metrics as part of the annual short-term incentive
bonus offering with increased bonus potential for exceptional
results. We utilize third-party benchmark data to establish
market-based compensation levels. We believe that our current
compensation and incentive levels reflect high performance
expectations as part of our merit pay philosophy. The targeted
use of long-term equity incentive plan awards for key talent is
an important element of Ambac’s long-term retention strategy.
Item 1A. Risk Factors ($ in thousands)
Capitalized terms used but not defined in this section shall have
the meanings ascribed thereto in Part I, Item 1 in this Annual
Report on Form 10-K or in Note 1. 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.
Our risk factors are organized in the following sections
Page
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 Capital, Liquidity and Credit Markets .
19
Risks Related to Discontinued 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. 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;
• changes in investors’ or analysts’ valuation measures for our stock;
• 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;
• 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; and
• 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.
10
2024 Form 10-K
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 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; or
• (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.
11
2024 Form 10-K
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.
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. 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.
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. 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, 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.
12
2024 Form 10-K
Public health crises and/or natural disasters can cause economic
and financial disruptions that may adversely affect, our business
and results of operations.
Everspan may be exposed to losses arising out of unpredictable
catastrophic events. These include natural catastrophes and other
disasters, such as hurricanes, earthquakes, windstorms, floods,
wildfires, and severe winter weather. Catastrophes can also
include man-made disasters, such as terrorist attacks and other
destructive acts, war, political unrest, explosions, cyber-attacks,
nuclear, biological, chemical or radiological events and
infrastructure failures. 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. 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. 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. 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.
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. 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.
We operate within an enterprise risk management (“ERM”)
framework designed to assess and monitor risks. However, no
assurance can be given that we will effectively identify, review,
monitor or manage all relevant risks. Nor can we provide
assurance that our ERM framework will result in us accurately
identifying all risks and adequately limiting our exposures based
on our assessments. Any ineffectiveness in our controls or
procedures or failure to manage these risks may have an adverse
effect on our results of operations and financial condition.
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. 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 significant litigation or other
expenses could be material to our business, operations, financial
position, profitability or cash flows.
Everspan may be subject to disputes with policyholders
regarding the scope and extent of coverage offered under
Everspan's policies; be required to defend claimants in suits
against its policyholders for covered liability claims; face
allegations of improper claims handling; 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.
Our U.S. 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
Ambac Financial Group, Inc.
13
2024 Form 10-K
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. 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.
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. 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.
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 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.
Everspan's FSR is subject to periodic review, and the criteria
used in the rating methodologies are subject to change. All of
the insurance companies that comprise Everspan are rated
"A-" (Excellent). A downgrade in Everspan's FSR could make it
more difficult to sell insurance policies and Everspan's
distribution channels may cease to transact with them, which
would adversely affect our business, financial condition and
results of operations.
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. Any failure by the MGA/Us or TPAs to
properly handle these functions could result in liability to us.
Even though the MGA/Us and TPAs with which Everspan
transacts may be required to indemnify Everspan for any such
liability or monetary losses, there are risks for which indemnity
may be insufficient or entirely unavailable if, for example, the
relevant program partner becomes insolvent or is otherwise
unable to pay us. 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.
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. 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. The rate environment is also subject to
market cycles, which can be difficult to predict and make it
difficult to adequately price risk. If Everspan does not accurately
assess the risks that it assumes, it may not charge adequate
premiums to cover its losses and expenses, which would
adversely affect our results of operations and our profitability.
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.
14
2024 Form 10-K
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. Everspan's ability to undertake
these efforts successfully and, as a result, to accurately price its
policies, is subject to a number of risks and uncertainties,
including insufficient or unreliable data; incorrect or incomplete
analysis of available data; uncertainties generally inherent in
estimates and assumptions; failure to implement appropriate
actuarial projections and ratings formulas or other pricing
methodologies; regulatory constraints on rate increases; failure
to accurately estimate investment yields and the duration of
liabilities
for
losses
and
loss
adjustment
expenses;
disagreements with reinsurers or the MGA/Us with whom
Everspan transacts as to the adequacy of pricing assumptions;
and unanticipated court decisions, legislation or regulatory
action.
If Everspan is unable to obtain reinsurance coverage at
reasonable prices or on terms that adequately protect it,
we may be required to bear increased risks or reduce the
level of our underwriting commitments.
Everspan purchases reinsurance as part of its overall risk
management strategy. While reinsurance does not discharge our
insurance subsidiaries from their obligations to pay claims for
losses insured under their insurance policies, it does make the
reinsurer liable to them for the reinsured portion of the risk. At
the inception of a new program, Everspan generally acts as an
issuing carrier and reinsures a majority of such risk to third
parties in contracts that are generally subject to term limitations
or termination rights. Everspan may be unable to maintain its
current reinsurance arrangements or to obtain other reinsurance
in adequate amounts and at favorable rates, particularly if
reinsurers become unwilling or unable to support our specialty
property and casualty business in the future. Additionally,
market conditions beyond our control may impact the
availability and cost of reinsurance and could have an adverse
effect on our business, financial condition and results of
operations. A decline in the availability of reinsurance may
increase the cost of reinsurance and materially and adversely
affect our business prospects. Everspan may, at certain times, be
forced to incur additional costs for reinsurance or may be unable
to obtain sufficient reinsurance on acceptable terms or from
reinsurers which satisfy Everspan's criteria as acceptable
security. 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. Their reinsurers may not pay
on losses in a timely fashion, or at all.
Our insurance carrier subsidiaries purchase reinsurance to
transfer part of the risk they have underwritten to reinsurance
companies in exchange for part of the premium they receive in
connection with the risk. Although reinsurance makes reinsurers
liable to our carriers for the risk transferred or ceded to the
reinsurers, it does not relieve our insurance carrier subsidiaries
of their liabilities to policyholders. Accordingly, our insurance
carrier subsidiaries are exposed to credit risk with respect to
their reinsurers, especially to the extent reinsurance receivables
are not sufficiently secured by collateral or do not benefit from
other credit enhancements. Our insurance carrier subsidiaries
also bear the risk that they are unable to receive, or there is a
substantial delay in receiving, the reinsurance recoverable for
any reason, including that the terms of the reinsurance contract
do not reflect the intent of the parties to the contract; there is a
disagreement between the parties as to their intent; the terms of
the contract cannot be legally enforced; the terms of the contract
are interpreted by a court or arbitration panel differently than
intended by our insurance carrier subsidiaries; the reinsurance
transaction performs differently than our insurance carrier
subsidiaries anticipated due to a flawed design of the
reinsurance structure, terms or conditions; 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.
15
2024 Form 10-K
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.
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.
Loss
and
loss
adjustment
expense
reserves
represent
management estimates of what the ultimate settlement and
administration of claims will cost. These estimates are
developed using common and industry accepted actuarial
techniques. Nevertheless, the process of estimating loss and loss
adjustment expense reserves involves a high degree of judgment
and is subject to a number of variables, which can be affected by
internal and external events, such as changes in claims handling,
changes in loss cost trends, catastrophic events and social
inflation.
Elevated social inflation trends are likely to continue. Social
inflation, which includes increased litigation, partially supported
by access to litigation financing; changes in social norms; 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.
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.
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.
The impact of many of these items on ultimate costs for claims
and claim adjustment expense reserves could be material and is
difficult to estimate.
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. 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. Additionally, Everspan's
reputation with potential new MGA/Us could be damaged if it
fails to effectively onboard MGA/Us with whom it has signed
definitive legal agreements. Such reputational damage could
make it more difficult for Everspan to attract new and retain
existing program partners, which could have an adverse effect
on our business, financial condition and results of operations.
We compete with a large number of companies in the
property
and
casualty
insurance
industry
for
underwriting premium.
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.
16
2024 Form 10-K
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. While we collaborate
and compete in these segments on a fee-for-service basis, we
cannot be certain that such alternative markets will provide the
same level of insurance coverage or profitability as traditional
insurance markets.
Technological changes to the way insurance is distributed,
underwritten, and administered also present competitive risks.
For example, our competitive position could be impacted if we
are unable to cost-effectively deploy technology, such as
machine learning and artificial intelligence, which collects and
analyzes large sets of data to make underwriting or other
decisions, or if our competitors collect and use data which we do
not have the ability to access or use. In addition, usage-based
methods of determining premiums (e.g., telematics) can impact
product pricing and design and are becoming an increasingly
important competitive factor. 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. Any
intangible asset or goodwill impairment could adversely affect
the Company's operating results and financial condition.
Our Insurance Distribution businesses derive a
significant portion of their commission revenues from a
limited number of insurance companies and Lloyd's
syndicates, the loss of any of which could result in lower
commissions or loss of business production.
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. 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.
Our Insurance Distribution businesses, results of
operations, financial condition and liquidity may be
materially adversely affected by certain potential claims
or proceedings.
Our owned MGA/Us and insurance brokerage operating
subsidiaries are subject to various potential claims and other
proceedings, including those relating to alleged errors and
omissions in connection with the placement or servicing of
insurance and/or the provision of services in the ordinary course
of business, of which we cannot, and likely will not be able to,
predict the outcome with certainty. Because our MGA/Us and
insurance
brokerage
operating
subsidiaries
often
assist
customers with matters involving substantial amounts of money,
including the placement of insurance and the handling of related
claims 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. 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. 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. 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.
17
2024 Form 10-K
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.
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. 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.
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. 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.
Commission income can vary quarterly or annually due to the
timing of policy renewals and the net effect of new and lost
business production. We do not solely control the factors that
cause these variations. 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.
Profit-sharing contingent commissions are paid by insurance
companies based upon the profitability of the business placed
with such companies. In the past these commissions have
accounted for a significant amount of total commissions and
fees. 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.
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. 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. Computer
hackers may be able to penetrate our network’s system security,
or the network's security system of a vendor or contractual
counterparty, and misappropriate or compromise confidential
information, create system disruptions or cause shutdowns. The
ability of hackers to infiltrate and compromise our and our
vendors' and contractual counterparties' information systems or
the contents thereof may be enhanced by generative artificial
intelligence, which may be more difficult to detect and defend.
In addition to our own confidential information, we and our
vendors and contractual counterparties sometimes receive and
are required to protect confidential information obtained from
third parties (including us in the case of a vendor or contractual
counterparty) and personally identifiable information of
individuals. To the extent any disruption or security breach
results in a loss or damage to our data (or the data of a vendor or
contractual counterparty on which we rely), or inappropriate
disclosure of our confidential information or that of others, or
personally identifiable information of individuals, it could cause
significant financial losses that are either not, or not fully,
insured against, cause damage to our reputation, affect our
relationships with third parties, lead to claims against us, result
in regulatory action, or otherwise have a material adverse effect
on our business or results of operations. 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.
18
2024 Form 10-K
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; however, the
investment required in technology may not yield
sufficient returns and the implementation of new or
modified technology may be a material distraction to
management.
Our business performance and growth plans could be negatively
affected if we are not able to, among other things, gain internal
efficiencies through the application of effective technology
across our businesses, integrate operations, and/or innovate
product and operational solutions. Conversely, investments in
internal systems or innovative product offerings may fail to
yield sufficient return to cover their investment. To the extent
our investments in technology fail to provide sufficient returns
or achieve their stated business objectives, we may experience
lower productivity and/or operational effectiveness, which could
adversely impact our financial results and prevent us from
meeting our strategic objectives.
Our ability to attract and retain qualified executives,
senior managers and other employees or the loss of any
of these personnel could negatively impact our business.
Our ability to execute on our business strategies depends on the
retention and recruitment of qualified executives and other
professionals. 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. The market for qualified
executives, senior managers and other employees has become
very competitive. As a result of competition for talent 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, 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.
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”). However, the majority of our revenues
are generated in U.S. dollars (“USD”). As a result, movements
in the rate of exchange between GBP and USD may materially
distort our financial results and cause losses that are not
attributable to the underlying business. We frequently hedge
this foreign exchange risk through forward contracts; however,
these hedges may not completely negate the adverse impact of
foreign exchange movements.
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.
19
2024 Form 10-K
The Credit Facility includes covenants that restrict our ability to
manage capital resources by limiting, among other actions, the
issuance of additional debt or capital stock; the creation of liens;
the disposition of assets; engaging in transactions with affiliates;
making restricted payments, including dividends and the
purchase or redemption of capital stock; and making
acquisitions and other investments. The Credit Facility also
requires the prepayment of the borrowings thereunder with
proceeds of certain debt or equity issuances and certain asset
sales, including the AAC Sale. These requirements will impact
our financial and operational flexibility while the Credit Facility
remains in place.
The Company’s substantial indebtedness could have other
significant consequences for our financial condition and
operational flexibility. For example, it could:
• increase our vulnerability to general adverse economic,
competitive and industry conditions;
• limit our ability to obtain additional financing in the future
for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes on
satisfactory terms or at all;
• require the Company to dedicate a substantial portion of its
cash flow from operations to the payment of interest on its
indebtedness, thereby reducing the funds available for
operations and to fund the execution of key strategies;
• limit or restrict the Company from making strategic
acquisitions or cause us to make non-strategic divestitures;
• limit the Company's ability, or increase the costs, to
refinance its indebtedness or repay indebtedness due to
ongoing interest payment obligations; and
• limit our ability to attract and retain key employees.
While restrictive covenants in the Credit Facility may limit the
amount of additional indebtedness the Company may incur, we
may obtain waivers of those restrictions and incur additional
indebtedness in the future. In addition, if the Company incurred
indebtedness, its ability to make scheduled payments on, or
refinance, any such indebtedness may depend on the ability of
our subsidiaries to make distributions or pay dividends, which in
turn will depend on their future operating performance and
contractual, legal and regulatory restrictions on the payment of
distributions or dividends to which they may be subject. There
can be no assurance that any such dividends or distributions
would be made. This could further exacerbate the risks
associated with the Company’s substantial leverage.
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.
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.
An inability to obtain third-party debt financing or raise
additional third-party capital, when required by us or when
business conditions warrant, could have a material adverse
effect on our business, financial condition and results of
operations, and could adversely impact our ability to achieve our
strategic objectives. Our financial condition, the Risk Factors
described elsewhere herein, as well as other factors, may
constrain our financing abilities. Our ability to secure third-
party financing will depend upon our future operating
performance, regulatory conditions, the availability of credit
generally, economic conditions and financial, business and other
factors, many of which are beyond our control. The market
conditions and the macroeconomic conditions that affect our
business could have a material adverse effect on our ability to
secure third-party financing on favorable terms, if at all.
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 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
Ambac Financial Group, Inc.
20
2024 Form 10-K
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
obligations. 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.
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.
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 financial guarantee insurance
portfolio will not exceed such reserves or that our reserves will
Ambac Financial Group, Inc.
21
2024 Form 10-K
not materially change over time as circumstances, our
assumptions, or our models change.
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.
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
Ambac Financial Group, Inc.
22
2024 Form 10-K
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. 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. 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.
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.
Ambac Financial Group, Inc.
23
2024 Form 10-K
AAC has substantial indebtedness, which could
adversely affect its financial condition, operational
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; and
• 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.
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.
Ambac Financial Group, Inc.
24
2024 Form 10-K
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.
Item 1B. Unresolved Staff Comments — No matters
require disclosure.
Item 1C. Cybersecurity
The Company is exposed to diverse cybersecurity risks that have
the potential to significantly impact our business operations,
financial standing, and reputation. We seek to identify, assess,
and manage these risks, with the aim of safeguarding our critical
systems and information, and employ a documented process to
respond in the event of a cybersecurity incident. This approach
includes regular evaluations of our information systems and
infrastructure
to
identify
vulnerabilities
and
potential
weaknesses through the use of system monitoring tools, as well
as monitoring industry trends, threat intelligence, and emerging
risks to anticipate and proactively assess potential threats. We
engage third-party cybersecurity experts to conduct penetration
testing, vulnerability scans, and risk assessments, informed by
the NIST (National Institute of Standards and Technology)
Cybersecurity Framework guidelines or ISO (International
Organization for Standardization) 27001 standard, to increase
the likelihood that system risks are identified.
To identify potential risks, Ambac or a third party vendor
engaged by the Company also assesses the security measures of
vendors and third-party service providers that have access to the
Company’s information systems and sensitive data. Each review
involves an initial risk assessment of the provider, and initial
and periodic reviews of the provider's cybersecurity program to
evaluate security standards, access controls and security
measures. The Company generally requires vendors and third
party service providers to report to the Company any
cybersecurity incidents involving the providers’ systems that
could affect the Company, or to have cybersecurity incident
notice requirements in their cybersecurity programs.
Our approach to managing cybersecurity risks includes
implementing cybersecurity measures such as selective use of
encryption, firewalls, data loss prevention, security monitoring,
endpoint detection and response, anti-spam and anti-phishing
email security, and intrusion detection systems to fortify our
defenses. We conduct mandatory annual employee cybersecurity
training programs and frequent simulated phishing campaigns to
enhance cybersecurity knowledge and practices across the
organization. Ambac maintains an incident response plan that is
updated regularly to respond to changes in the organization,
risks and laws. Ambac also conducts an annual test to restore
business critical systems and data from back-ups. We have
established reporting processes and escalation pathways for our
business units and functions to identify, assess and manage
potential cybersecurity incidents in a timely manner. Once an
incident is identified, the Chief Information Security Officer
(“CISO”) (with the assistance of the IT team) will begin the
investigation to determine the level of risk of the event and the
appropriate response.
The Board of Directors of the Company oversees the
management of risks from cybersecurity threats through its
review of quarterly reports from the CISO on the status of the
Company’s cybersecurity preparedness; updates on information
systems; and any cybersecurity threats of which management
has become aware. In addition the Board receives periodic
cybersecurity awareness training.
The Company’s technology staff and CISO conduct weekly
meetings to review: (i) implementation of new security
measures, (ii) results of existing technical system monitoring
tools to identify any potential risk and propose remediation, as
necessary; (iii) newly disclosed software patch updates to assess
risks and set patch implementation priorities; and (iv) threat
intelligence
from
various
organizations,
such
as
the
Cybersecurity and Infrastructure Security Agency, to assess
risks and suggest security measures, as necessary. Cybersecurity
risk is also included in the Company’s Enterprise Risk
Management (“ERM”) process that involves senior management
and other personnel in the identification, assessment and
management of a broad range of risks (including cybersecurity
risks) that could affect the Company’s ability to execute on its
corporate strategy and fulfill its business objectives. The
Company’s Chief Operating Officer and Chief Information
Officer provide input and updates to the Enterprise Risk
Committee (comprised of members of management) on
cybersecurity preparedness and emerging risks. The Enterprise
Risk Committee produces the relevant risk management
information for executive and senior management and the Board
Ambac Financial Group, Inc.
25
2024 Form 10-K
of Directors, which receives ERM updates on a quarterly basis.
The Chief Operating Officer and Chief Information Officer are
also members of the Company's Disclosure Committee and
provide updates on cybersecurity threats and emerging risks to
the Disclosure Committee prior to the filing of each quarterly
report on Form 10-Q and annual report on Form 10-K.
The Company’s Chief Information Officer and CISO bring over
35 years of combined experience in the technology and
cybersecurity space. The Chief Information Officer has served
as a chief information officer and chief technology officer of
both private and public institutions for the past 10 years and was
responsible for the IT operations and cybersecurity practices of
those institutions. The CISO is a certified cybersecurity
professional and technologist. He holds an active ISO/ANSI-
accredited cybersecurity certification and has experience
managing security programs across multiple industries,
including financial services and insurance. Other credentials
among Ambac’s IT staff include a Certified Information
Systems Security Professional certification and a Masters
Degree in cybersecurity risk and management.
Ambac and its subsidiaries are subject to various U.S. Federal
and state laws and regulations with respect to privacy, data
protection and cybersecurity that require financial institutions,
including insurance companies and agencies, to safeguard
personal and other sensitive information, and may provide for
notice of their practices relating to the collection, disclosure and
processing of personal information, disclosure of cybersecurity
risk management practices, reporting of cybersecurity incidents,
and implementation of governance practices. For example, the
National Association of Insurance Commissioners (“NAIC”)
adopted the NAIC Insurance Data Security Model Law (#668)
(“NAIC Model Law”) that creates rules for insurers and other
covered entities addressing data security and the investigation
and notification of cybersecurity events involving unauthorized
access to, or the misuse of, certain nonpublic information. This
includes maintaining an information security program based on
ongoing risk assessment, overseeing third-party service
providers, investigating data breaches and notifying regulators
of a cybersecurity event. Legislation based on the NAIC Model
Law has been enacted in many states and may be enacted in
other states. Certain of our subsidiaries, as insurance companies
and agencies licensed in the State of New York, are also
required to comply with the New York Department of Financial
Services (“NYDFS”) cybersecurity regulation, which establishes
requirements for covered financial services institutions to
implement a cybersecurity program designed to protect the
confidentiality, integrity and availability of information systems
of regulated entities, and information stored on those systems.
The
regulation
imposes
a
governance
framework
for
cybersecurity program, risk based minimum standards for
technology systems for data protection, monitoring and testing,
third-party service provider reviews, security incident response
and reporting to NYDFS of certain security incidents, annual
certifications of regulatory compliance to NYDFS, and other
requirements. Recent amendments to the NYDFS cybersecurity
regulation impose additional security requirements and new
governance obligations.
The California Consumer Privacy Act, went into effect in
January 2020, and provides additional privacy rights for
California residents, and in November 2020, California further
expanded privacy rights for California residents by enacting the
California Privacy Rights Act, which became effective January
1,
2023.
Several
other
states
have
enacted
similar
comprehensive privacy laws. We anticipate federal and state
regulators to continue to enact legislation related to privacy and
cybersecurity, which may require additional compliance
investments and changes to policies, procedures and operations.
The federal Health Insurance Portability and Accountability Act
of 1996 and its implementing regulations (“HIPAA”) impose
minimum standards on covered entities, such as health insurers,
for the privacy and security of protected health information
(“PHI”). The Health Information Technology for Economic and
Clinical Health Act, enacted in 2009 (“HITECH”) provides for
the extension of certain privacy and security provisions of
HIPAA to business associates of covered entities that handle
electronic PHI. Xchange specializes in accident and health
insurance and is a business associate of the health insurers
carriers it partners with, making it subject to compliance with
the provisions of HITECH and HIPAA applicable to business
associates.
In the United Kingdom, data protection is governed by the UK
General Data Protection Regulation 2016/679 and the UK Data
Protection Act of 2018 (together the “UK GDPR”), which
requires companies to manage the access and transfer of
personal information of UK residents. The Company’s affiliates
licensed and doing business in the UK are subject to compliance
with the provisions of the UK GDPR.
Item 2.
Properties
The executive office of Ambac is located at One World Trade
Center, New York, New York 10007, and consists of 46,927
square feet of office space, under a sublease agreement that
expires in January 2030. Ambac continues to hold a lease at
One State Street Plaza, New York that expires in December
2029 (25,871 square feet) that has been sublet through its
expiration date.
Operations of each of our segments are carried out either in our
executive office at One World Trade Center or in other leased
offices under operating leases in Florida, New Jersey, New
York, Indiana, North Carolina, Georgia, Bermuda and London
England. The lease terms typically do not exceed ten years in
length.
In the opinion of the Company’s management, the Company’s
properties are adequate and suitable for its business as presently
conducted and are adequately maintained.
Item 3.
Legal Proceedings
Refer to Notes to the Consolidated Financial Statements—Note
19. Commitments and Contingencies included in Part II, Item 8
in this Annual Report on Form 10-K for a discussion on legal
proceedings against Ambac.
Item 4.
Mine Safety Disclosures — Not applicable.
Ambac Financial Group, Inc.
26
2024 Form 10-K
PART II
Item 5.
Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
($ in thousands, except per share amounts)
Market Information
The Company 's common stock trades on the NYSE under the
symbol “AMBC".
Holders
On March 4, 2025, there were 27 stockholders of record of
AFG’s common stock.
Dividends
The Company did not pay cash dividends on its common stock
during 2024 and 2023. Information concerning restrictions on
the payment of dividends from Ambac's insurance subsidiaries is
set forth in Item 1 above under the caption “Dividend
Restrictions, Including Contractual Restrictions" and in Note 9.
Insurance Regulatory Restrictions to the Consolidated Financial
Statements included in Part II, Item 8 in this Annual Report on
Form 10-K.
Purchases of Equity Securities By the Issuer and
Affiliated Purchasers
When restricted stock unit awards issued by Ambac vest or
settle, they become taxable compensation to employees. For
certain awards, shares may be withheld to cover the employee's
portion of withholding taxes. In the fourth quarter of 2024,
Ambac purchased shares from employees that settled restricted
stock units to meet employee tax withholdings.
On March 29, 2022, our Board of Directors approved a share
repurchase program authorizing up to $20,000 in share
repurchases, with an expiration date of March 31, 2024. On May
5, 2022, the Board of Directors authorized an additional $15,000
share repurchase. This program expired on March 31, 2024.
On November 12, 2024, Ambac’s Board of Directors authorized
a share repurchase program, under which Ambac may
opportunistically repurchase up to $50,000 of the Company’s
common shares at management’s discretion over the period
ending on December 31, 2026. From November 1, 2024,
through December 31, 2024, AFG repurchased 937,141 shares
for $11,698.5 at an average purchase price of $12.48 per share.
Shares purchased from employees to satisfy withholding taxes,
as described above, do not count towards utilization under the
Company's share repurchase program.
The following table summarizes Ambac's share purchases
during the fourth quarter of 2024.
($ in thousands)
Oct-2024
Nov-2024
Dec-2024
Fourth
Quarter
2024
Total Shares
Purchased
887
—
—
887
Average Price Paid
Per Share
$
11.26
$
—
$
—
$
11.26
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan
—
585,000
352,141
937,141
Maximum Dollar
Value That may Yet
be Purchased Under
the Plan
$
—
$
42,713
$
37,674
$
37,674
When restricted stock unit awards issued by Ambac vest or
settle, they become taxable compensation to employees. For
certain awards, shares may be withheld to cover the employee's
portion of withholding taxes. In the fourth quarter of 2024,
Ambac purchased shares from employees that settled restricted
stock units to meet employee tax withholdings.
The following table shows shares repurchased by year.
($ in thousands,
except per share)
Year Ended December 31,
2022
2023
2024
Shares repurchased
1,605,316
325,068
937,141
Total cost
$
14,217
$
4,510
$
11,698
Average purchase price per share
$
8.86
$
13.88
$
12.48
Unused authorization amount
$
38,302
Ambac Financial Group, Inc.
27
2024 Form 10-K
Stock Performance Graph
The following graph compares the performance of an investment in our common stock from the close of business on December 31, 2019,
through December 31, 2024, with the Russell 2000 Index and S&P Completion Index. The graph assumes $100 was invested on December
31, 2019, in our common stock at the closing price of $21.57 per share and at the closing price for the Russell 2000 Index and S&P
Completion Index. It also assumes that dividends (if any) were reinvested on the date of payment without payment of any commissions.
The performance shown in the graph represents past performance and should not be considered an indication of future performance.
Ambac Financial Group, Inc.
Russell 2000 Index
S&P Completion Index
2019
2020
2021
2022
2023
2024
$0
$50
$100
$150
$200
$250
December 31,
2019
2020
2021
2022
2023
2024
Ambac Financial Group, Inc.
$100
$71
$75
$81
$76
$59
Russell 2000 Index
$100
$119
$135
$106
$122
$134
S&P Completion Index
$100
$131
$146
$105
$130
$150
Item 6.
[Reserved]
Item 7.
Management’s Discussion and Analysis of
Financial Condition and Results of
Operations ($ and £ in thousands)
The objectives of our Management’s Discussion and Analysis of
Financial Condition and Results of Operations (“MD&A”) are to
provide users of our consolidated financial statements with the
following:
• A
narrative
explanation
from
the
perspective
of
management of our financial condition, results of
operations, cash flows, liquidity and certain other factors
that may affect future results;
• Context to the consolidated financial statements; and
• Information that allows assessment of the likelihood that
past performance is indicative of future performance.
Unless otherwise noted, this Management's Discussion and
Analysis of Financial Condition and Results of Operations
relates solely to our continuing operations and does not include
the operations of our Legacy Financial Guarantee business. See
"Sale of AAC" below and Note 5. Discontinued Operations of
the Notes to Consolidated Financial Statements under Part II,
Item 8 of this Annual Report on Form 10-K for additional
information about the divestiture of the Legacy Financial
Guarantee business.
The following discussion should be read in conjunction with our
consolidated financial statements in Item 8 of this Report and
the matters described under Item 1A. Risk Factors in this
Annual Report on Form 10-K for the year ended December 31,
2024. Refer to Part I, Item 1. Introduction - Description of the
Business, for a description of our business and our key strategies
to achieve our primary goal to maximize shareholder value.
Ambac Financial Group, Inc.
28
2024 Form 10-K
Organization of Information
MD&A includes the following sections:
Page
Strategies to Enhance Shareholder Value .......................
29
Overview ..........................................................................
29
Critical Accounting Policies and Estimates ....................
30
Results of Operations ......................................................
34
Liquidity and Capital Resources .....................................
39
Balance Sheet ..................................................................
40
Accounting Standards .....................................................
43
Non-GAAP Financial Measures ......................................
43
Strategies to Enhance Shareholder Value
The Company's primary goal is to maximize long-term
shareholder value through the execution of targeted strategies
for its Insurance Distribution and Specialty Property and
Casualty Insurance businesses.
Insurance Distribution and Specialty Property and Casualty
Insurance strategic priorities include:
• Expanding our Insurance Distribution business based on
deep domain knowledge in specialty and niche classes of
risk which generate attractive margins at scale. This will be
achieved through acquisitions, strategic investments,
establishing new businesses “de-novo,” and organic growth
and diversification supported by a centralized technology
led shared services offering
• Growing our Specialty Property and Casualty Insurance
business to generate underwriting profits from a diversified
portfolio of commercial and personal liability risks
accessed primarily through program administrators.
OVERVIEW
The Company's continuing operations include two segments, financial highlights of which are summarized below along with other recent
developments.
Year Ended December 31, 2024
Year Ended December 31, 2023
Specialty
Property &
Casualty
Insurance
Insurance
Distribution
Corporate &
Other
Total
Specialty
Property &
Casualty
Insurance
Insurance
Distribution
Corporate &
Other
Total
Premiums placed
$
493,372
$
493,372
$
230,606
$
230,606
Gross premiums written
$
382,771
382,771
$
273,287
273,287
Net premiums written
88,682
88,682
79,824
79,824
Total revenues
126,320
99,236
10,259
235,815
64,101
51,546
9,080
124,728
Total expenses
114,098
107,045
74,516
295,660
63,718
44,257
40,974
148,949
Pretax income (loss)
12,222
(7,809)
(64,257)
(59,845)
383
7,289
(31,894)
(24,221)
Net income (loss)
10,469
(6,881)
(62,509)
(58,921)
335
7,133
(30,701)
(23,232)
EBITDA
12,222
19,656
(62,396)
(30,518)
383
11,483
(30,858)
(18,991)
Adjusted EBITDA
5,136
19,904
(16,397)
8,643
1,017
11,483
(18,380)
(5,879)
Net income (loss) attributable to Ambac
shareholders
10,471
(7,244)
(62,509)
(59,282)
334
5,815
(30,701)
(24,551)
EBITDA attributable to Ambac
shareholders
12,222
13,208
(62,396)
(36,966)
383
9,381
(30,858)
(21,093)
Adjusted EBITDA attributable to Ambac
common stockholders
5,136
13,456
(16,397)
2,195
1,017
9,381
(18,380)
(7,981)
Sale of AAC
On June 4, 2024, AFG entered into a stock purchase agreement
with American Acorn Corporation (the “Buyer”), a Delaware
corporation owned by funds managed by Oaktree Capital
Management, L.P., pursuant to which and subject to the
conditions set forth therein, AFG will sell all of the issued and
outstanding shares of common stock of AAC, a wholly-owned
subsidiary of AFG, to Buyer for aggregate consideration of $420
in cash (the "AAC Sale"). The terms of the AAC Sale as
contemplated by the stock purchase agreement provide that, at
the closing of the AAC Sale (the “Closing”), Buyer will acquire
complete common equity ownership of AAC and all of its
wholly owned subsidiaries, including Ambac UK. In connection
with and pursuant to the stock purchase agreement, AFG has
agreed to issue to Buyer a warrant exercisable for a number of
shares of common stock, par value $0.01, of AFG representing
9.9% of the fully diluted shares of AFG’s common stock as of
March 31, 2024, pro forma for the issuance of the warrant. The
warrant will have an exercise price per share of $18.50 with a
six and a half-year term from the date of issuance and will be
immediately exercisable. Concurrent with the sale, AFG will
purchase AAC's co-investment in the holding company
established to purchase Beat, for an amount equal to AAC's
$62,000 investment plus 7.5% per annum thereon.
Management has determined that the pending sale of AAC and
its wholly-owned subsidiaries meets the criteria to be disclosed
as discontinued operations beginning in the fourth quarter of
2024. The loss on disposal recognized in the fourth quarter of
2024 was $570,145. Refer to Note 5. Discontinued Operations
for additional information about the sale of AAC.
Ambac Financial Group, Inc.
29
2024 Form 10-K
Purchase of Beat Capital Partners
On June 4, 2024, AFG entered into a share purchase agreement
(the “Beat Purchase Agreement”), by and among AFG, Cirrata
V LLC, a Delaware limited liability company and an indirect
wholly owned subsidiary of AFG (the “Purchaser”), certain
sellers set forth therein (the “Sellers”) and Beat, pursuant to
which the Purchaser purchased from the Sellers approximately
60% of the entire issued share capital of Beat, for total
consideration, as of the closing date, of approximately $281,493,
of which approximately $252,264 was paid in cash and the
remainder of which was satisfied through the issuance of
2,216,023 shares of AFG common stock. The acquisition closed
with an effective date of July 31, 2024. Beat’s management
team and Bain Capital Credit LP (together, the “Rollover
Shareholders”) each retained approximately 20% of Beat’s
issued share capital immediately after closing. Refer to Note 4.
Business Combination for further details on the acquisition of
Beat.
Sale of Consolidated National Insurance Company
On January 12, 2024, Everspan Insurance Company entered into
a Stock Purchase Agreement with Hagerty Insurance Holdings,
Inc., to sell its ownership interests in Consolidated National
Insurance Company ("CNIC"), which was one of Everspan's
admitted carriers. The closing of this transaction occurred on
September 1, 2024, resulting in a gain of approximately $7,504.
The sale of CNIC will not have any adverse impact on the
group's operations or growth prospects.
SEC Final Rules on Climate Related Information
On March 6, 2024, the U.S. Securities and Exchange
Commission
(“SEC”)
adopted
The
Enhancement
and
Standardization of Climate-Related Disclosures for Investors
("Final Rule"), which will require registrants to disclose
extensive climate-related information in their Form 10-K annual
reports and registration statements. The Final Rule was
scheduled to become effective May 28, 2024; however, the SEC
has voluntarily stayed the rule’s effective date pending judicial
review of legal challenges.
The compliance dates for accelerated filers for annual reports or
registration statements that include financial statements for the
year ending December 31 are phased in from 2026 through
2031. Depending on when the legal challenges are resolved, the
compliance dates may be retained or delayed.
Ambac is reviewing the Final Rule and is currently assessing our
related compliance obligations and other effects on our
operations.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
Ambac's Consolidated Financial Statements have been prepared
in accordance with GAAP. This section highlights accounting
estimates management views as critical because they are most
important to the portrayal of the Company's financial condition;
and require management to make difficult and subjective
judgments regarding matters that are inherently uncertain and
subject to change. These estimates are evaluated on an on-going
basis considering historical developments, political events,
market conditions, industry trends and other information. There
can be no assurance that actual results will conform to estimates
and that reported results of operations will not be materially
adversely affected by the need to make future accounting
adjustments to reflect changes in these estimates from time to
time.
Management has identified the following critical accounting
policies and estimates: (i) valuation of specialty property and
casualty losses and loss adjustment expense reserves,
(ii) valuation of financial guarantee loss and loss adjustment
expense reserves, and (iii) business combinations including
identification and valuation of intangible assets. Management
has discussed each of these critical accounting policies and
estimates with the Audit Committee, including the reasons why
they are considered critical and how current and anticipated
future
events
impact
those
determinations.
Additional
information about these policies can be found in Note 2. Basis of
Presentation and Significant Accounting Policies to the
Consolidated Financial Statements included in Part II, Item 8 in
this Form 10-K.
Valuation of Specialty Property and Casualty Losses
and Loss Expense Reserves
The specialty property and casualty insurance segment consist of
Everspan-affiliated carriers. Loss and loss adjustment expense
reserves represent management's estimate of the ultimate
liability for unpaid losses and loss expenses for claims that have
been reported and claims that have been incurred, but not yet
reported ("IBNR") as of the balance sheet date.
Loss and loss adjustment expense reserves by line of business
were as follows as of December 31, 2024 and December 31,
2023:
2024
Line
Gross
Net
Case
IBNR
Total
Case
IBNR
Total
Commercial Auto
$ 66,092 $ 92,379 $ 158,471
$ 12,532 $ 16,188 $ 28,720
Excess and General
Liability
7,111
78,348
85,459
1,317
13,540
14,857
Workers
Compensation
6,640
7,825
14,465
6,640
7,825
14,465
Non-standard
Personal Auto
10,393
2,296
12,689
10
2
12,000
Surety
1,176
10,041
11,217
—
—
—
ULAE (1)
—
12,238
12,238
—
6,578
6,578
Other (2)
8,639
45,884
54,523
111
2,066
2,177
Loss and Loss
Expense Reserves
$ 100,051 $ 249,011 $ 349,062
$ 30,600 $ 48,197 $ 78,797
(1)
Unallocated loss adjustment expenses.
(2)
Includes 35146 and $0 total loss and loss expense reserves on a
gross and net of reinsurance basis related to legacy liabilities
obtained from the acquisitions of Providence Washington
Insurance Company, Greenwood Insurance Company and
Consolidated Specialty Insurance Company. All legacy liabilities
remain obligations of affiliates of the sellers through reinsurance
and contractual indemnities.
Ambac Financial Group, Inc.
30
2024 Form 10-K
2023
Line
Gross
Net
Case
IBNR
Total
Case
IBNR
Total
Commercial Auto
$ 44,370 $ 62,635 $ 107,005
$
8,969 $ 12,945 $ 21,913
Excess and General
Liability
1,604
21,261
22,865
204
3,722
3,925
Workers
Compensation
2,571
2,675
5,246
2,571
2,675
5,246
Non-standard
Personal Auto
3,323
2,520
5,843
3,074
2,062
5,136
Surety
650
4,113
4,763
—
—
—
ULAE (1)
—
6,085
6,085
—
4,527
4,527
Other (2)
10,034
35,248
45,282
—
41
41
Loss and Loss
Expense Reserves
$ 62,552 $ 134,537 $ 197,089
$ 14,817 $ 25,971 $ 40,788
(1)
Unallocated loss adjustment expenses.
(2)
Includes $43,751 and $0 total loss and loss expense reserves on a
gross and net of reinsurance basis related to legacy liabilities
obtained from the acquisitions of Providence Washington
Insurance
Company,
Greenwood
Insurance
Company,
Consolidated National Insurance Company and Consolidated
Specialty Insurance Company. All legacy liabilities remain
obligations of affiliates of the sellers through reinsurance and
contractual indemnities.
Loss and loss adjustment expense reserves, evaluated at a
program and line of business level, are estimated based upon
experience and using a variety of actuarial methods and are
subject to the impact of future changes in factors such as claim
severity and frequency, underwriting and claims practices,
changes in social and economic conditions including the impact
of inflation, legal and judicial developments, medical cost trends
and upward trends in damage awards. The key assumptions used
to arrive at the best estimate of loss reserves are the expected
loss ratios and loss development factors representing reported
and paid loss emergence patterns. Our actuarial methods may
also rely on external data, such as industry loss ratios, loss
development factors, or trend factors. The initial estimate for an
accident year is generally based on an exposure-based method
using the loss ratio projection method. The loss ratio projection
method develops an initial estimate of ultimate claims and claim
adjustment expenses for an accident year by multiplying earned
premium for the accident year by a projected loss ratio. The
projected loss ratio is determined by analyzing prior period
experience, and adjusting for loss cost trends, rate level
differences, mix of business changes and industry loss ratios and
other known or observed factors influencing the accident year
relative to prior accident years.
The loss and loss adjustment expense reserves estimate may be
based on a judgmental weighting of estimates produced from
multiple estimation and analysis methods considered. The
method(s) selected and weighted are those that are believed to
produce the most accurate estimate at that particular evaluation
date. The following estimation and analysis methods are
principally used by the Company’s engaged independent
actuarial specialists to estimate the ultimate cost of loss and loss
adjustment expenses. These estimation and analysis methods
are typically referred to as conventional actuarial methods.
• The paid loss development method assumes that the future
change (positive or negative) in cumulative paid losses for
a given cohort of claims will occur in a stable, predictable
pattern from year-to-year, consistent with the pattern
observed in past cohorts.
• The case incurred development method is the same as the
paid loss development method, but is based on cumulative
case-incurred losses rather than paid losses.
• The Bornhuetter-Ferguson method uses an initial estimate
of ultimate losses for a given product line reserve
component, typically expressed as a ratio to earned
premium. The method assumes that the ratio of additional
claim activity to earned premium for that component is
relatively stable and predictable over time and that actual
claim activity to date is not a credible predictor of further
activity for that component. The method is used most often
for more recent accident years where claim data is sparse
and/or volatile, with a transition to other methods as the
underlying claim data becomes more voluminous and
therefore more credible.
The actuarial results provide a range of estimated losses by
program and line of business including a low, central and high
estimate of losses and loss expenses. Management typically
selects the respective midpoint loss ratio between the actuarial
determined central and high estimate for its active programs and
lines of business for each respective accident year when
recording loss and loss adjustment expense reserves. Beginning
December 31, 2024, management decided to set loss reserves
for programs that are in runoff at the high end of the respective
actuarial loss ranges, given these program can experience greater
loss volatility than active programs.
Since the reserves are based on estimates, the ultimate liability
may be more or less than such reserves. Ambac's actuarial
evaluation at December 31, 2024 provided a range of losses
incurred. Losses at the low end of the range would be below our
recorded gross and net loss expense reserves by approximately
$33,400 and $6,900, respectively at December 31, 2024, and
losses at the high end of the range would exceed our recorded
gross and net loss and loss adjustment expense reserve by
approximately $4,500 and $1,000, respectively at December 31,
2024. This range reflects low and high reasonable reserve
estimates determined after using judgment to adjust the
methods, factors, and assumptions selected within the internal
reserve review. This approach produces a range of reasonable
reserve estimates but does not represent a distribution of all
possible outcomes.
Additionally, changes in assumptions such as loss development
patterns and expected loss ratios can result in variability in
actuarial estimates.
• For the loss development pattern we considered the impact
of the reported incurred losses developing faster or slower
than expected in our projections. For every 1.0% slower or
faster the losses develop, we would expected our net
indicated reserves to increase or decrease, respectively, by
approximately 0.8%. If our reported loss development
pattern was 5% slower, the net indicated reserves would be
approximately 4% higher. If our reported loss development
pattern was 5% faster, the net indicated reserves would be
approximately 4% lower.
• For the expected losses we utilize industry benchmark loss
ratios and internal pricing loss ratios applied to earned
premium. For every 1.0% higher or lower the expected
losses are, we would expected our net indicated reserves to
Ambac Financial Group, Inc.
31
2024 Form 10-K
increase or decrease by approximately 0.55%. If our
expected losses were 5% higher, the net indicated reserves
would be approximately 3% higher. If our expected losses
were 5% lower, the net indicated reserves would be
approximately 3% lower.
Consequently, final outcomes may be greater or less than the
estimates. The extent of the range and variability of loss and
loss adjustment expense reserves could be further impacted by
future changes in factors discussed above. See “Risk Factors” in
Part I, Item 1A in this Annual Report on Form 10-K.
Valuation of Legacy Financial Guarantee Losses and
Loss
Expense
Reserves
(including
Subrogation
Recoverables)
The legacy financial guarantee ("LFG") business includes the
activities of AAC and its wholly owned subsidiaries, including
Ambac UK, and are reported as discontinued operations in the
Consolidated
Financial
Statements.
Refer
to
Note
5.
Discontinued
Operations
to
the
Consolidated
Financial
Statements, included in Part II, Item 8 in this Annual Report on
Form 10-K for a discussion of the pending sale of these entities
to the Buyer. As a result of the pending sale, the LFG loss and
loss adjustment expense reserves and subrogation recoverable
assets (collectively defined as "loss reserves") discussed in this
section are reported within liabilities held-for-sale and assets-
held-for sale, respectively, on the consolidated balance sheet.
A loss reserve is recorded on the balance sheet on a policy-by-
policy basis at the present value ("PV") of expected net claim
cash outflows or expected net recovery cash inflows, discounted
at risk-free rates. The estimate for future net cash flows
considers the likelihood of all possible outcomes that may occur
from missed principal and/or interest payments on the insured
obligation. This estimate also considers future recoveries related
to contractual or subrogation-related cash flows.
The evaluation process for expected future net cash flows is
subject to estimates and judgments regarding the probability of
default by the issuer of the insured security, the probability of
negotiation or settlement outcomes (which may include
commutation, litigation and other settlements, and/or a
refinancing), the probability of restructuring outcomes (which
may include payment moratoriums, debt haircuts and/or
subsequent recoveries) and the expected loss severity of credits
for each insurance contract.
As the probability of default for an individual credit increases
and/or the severity of loss given a default increases, our loss
reserve for that insured obligation will also increase. Political,
economic, environmental, credit or other unforeseen events
could have an adverse impact on default probabilities and loss
severities. The loss reserves for many transactions are derived
from the issuer’s creditworthiness. For public finance issuers,
loss reserves will consider not only creditworthiness, but also
political dynamics and economic status and prospects. The loss
reserves for transactions which have no direct issuer support,
such as most structured finance exposures, including RMBS and
student loan exposures, are derived from the default activity and
the estimated loss given default of the underlying collateral
supporting the transactions. In addition, many transactions have
a combination of issuer/entity and collateral support. Loss
reserves reflect our assessment of the transaction’s overall
structure, support and expected performance. Loss reserve
volatility will be a direct result of the credit performance of our
insured portfolio, including the number, size, bond types and
quality of credits included in our loss reserves; our ability to
execute workout strategies and commutations; economic and
market conditions; and management's judgments with regards to
the current performance and future developments within the
insured portfolio. The number and severity of credits included in
our loss reserves depend to a large extent on transaction specific
attributes, but will generally increase during periods of
economic stress and decline during periods of economic
prosperity. Reinsurance contracts may mitigate future loss
reserve volatility. While Ambac currently has minimal exposure
ceded to reinsurers on financial guarantee credits with loss
reserves, the existing reinsurance contracts would reduce future
volatility to the extent loss reserves are established on those
risks ceded to reinsurers. Loss reserve volatility will also be
materially impacted by changes in interest rates from period to
period.
The table below indicates the gross par outstanding and gross
loss reserves (including loss expenses) related to policies in
Ambac’s Financial Guarantee loss and loss adjustment expense
reserves at December 31, 2024 and 2023:
Gross Par
Outstanding
Gross Loss
and Loss
Adjustment
Expense
Reserves
December 31, 2024
Structured Finance
$
1,612,056
$
424,073
Domestic Public Finance
834,370
58,688
Other
138,199
(10,625)
Loss expenses
—
(8,932)
Totals
$
2,584,625
463,204
December 31, 2023
Structured Finance
$
1,859,786
496,541
Domestic Public Finance
834,123
66,381
Other
1,144,195
(7,831)
Loss expenses
—
3,549
Totals
$
3,838,104
558,640
See Note 5. Discontinued Operation to the Consolidated
Financial Statements, included in Part II, Item 8 in this Annual
Report on Form 10-K for a description of the cash flow and
statistical methodologies used to develop loss reserves. The
majority of our large loss reserves utilize the cash flow method
of reserving. Various cash flow scenarios are developed to
represent the range of possible outcomes and resultant future
claim payments and timing. Scenarios and probabilities of each
are adjusted regularly to reflect changes in status, outlook and
our analysis and views. Significant judgment is used to develop
the cash flow assumptions and related probabilities, and there
can be no certainty that the scenarios or probabilities will not
deviate materially from ultimate outcomes.
• In some cases, such as RMBS and student loans, cash flow
projections include the modeling of a securitization's cash
flows to determine the resources available to pay debt
service on our insured obligations. During 2023, Ambac
revised the model it uses to project RMBS collateral losses
Ambac Financial Group, Inc.
32
2024 Form 10-K
considering the seasoning of our RMBS exposure and
management’s view that the most relevant determinant of
prospective collateral performance is borrower payment
status (e.g., loan status being current, delinquent,
foreclosure, REO, etc.). Key assumptions impacting student
loan cash flow models include projected loan defaults,
recoveries and interest rates. During 2023, we revised our
approach to projecting future defaults to both reflect the
student loan collateral's seasoning and generally stable
performance.
• In other cases, such as many public finance exposures, we
consider the issuer's overall ability and willingness to pay
as it relates to the existing fiscal, economic, legal,
restructuring and/or political framework relevant to a
particular exposure or group of exposures. We then
develop multiple scenarios where issuer debt service is
paid, missed and/or haircut with claims paid then factor in
any projected recovery amount (and potential variability of
the recovery amount) and the timing thereof. There is no
certainty our assumptions as to scenarios or probabilities
will not be subject to material changes as developments
occur.
• In estimating loss reserves, we may also incorporate
scenarios which represent the potential outcome of
remediation strategies. Remediation scenarios could
include (i) a potential refinancing of the transaction by the
issuer; (ii) the issuer’s ability to redeem outstanding
securities at a discount, thereby increasing the structure’s
ability to absorb future losses; and (iii) our ability to
terminate, restructure or commute the policy in whole or in
part. The remediation scenarios and the related probabilities
of occurrence vary by policy depending on ongoing and
expected discussions and negotiations with issuers and/or
investors.
Variability of Expected Losses and Recoveries
Management believes loss reserves (present value of expected
cash flows, net of recoveries) are adequate to cover future claim
payments, but there can be no assurance that the ultimate
liability will not be higher than such estimates.
While our LFG loss reserves reflect our judgment regarding
issuers’ financial flexibility to adapt to adverse markets, they
may not adequately capture sudden, unexpected or protracted
uncertainty
that
adversely
affects
market
conditions.
Accordingly, it is possible that our estimated loss reserves, gross
of reinsurance, for financial guarantee insurance policies could
be understated. We have attempted to identify possible cash
flows related to losses and recoveries using more stressful
assumptions than the probability-weighted outcome recorded.
The possible net cash flows consider the highest stress scenario
that was utilized in the development of our probability-weighted
expected loss at December 31, 2024, and assumes an inability to
execute any commutation transactions with issuers and/or
investors. Such stress scenarios are developed based on
management’s view about all possible outcomes relating to
losses and recoveries. In arriving at such view, management
makes considerable judgments about the possibility of various
future events. Although we do not believe it is possible to have
stressed outcomes in all cases, it is possible that we could have
stress case outcomes in some or even many cases. See “Risk
Factors” in Part I, Item 1A in this Annual Report on Form 10-K
for further discussion of the risks relating to future losses and
recoveries that could result in more highly stressed outcomes.
The occurrence of these stressed outcomes individually or
collectively would have a material adverse effect on our results
of operations and financial condition and may result in
materially adverse consequence for Ambac, including (without
limitation) impairing the ability of AAC to honor its financial
obligations, particularly its outstanding surplus note and
preferred stock obligations; the initiation of rehabilitation
proceedings against AAC; and a significant drop in the value of
securities issued or insured by AAC. The possible increase in
loss reserves for which we have an estimate of expected loss at
December 31, 2024, could be approximately $265,000.
Business Combinations
The acquired entities comprising the Insurance Distribution
segment primarily represent business combinations that were
accounted for under the acquisition method of accounting. The
acquisition method requires us to allocate the total consideration
transferred for each acquisition to the assets acquired, liabilities
assumed and noncontrolling ("NCI") interests based on their fair
values as of the date of acquisition, including identifiable
intangible assets. The allocation of the consideration utilizes
significant estimates in determining the fair values of net assets
acquired, which primarily consist of customer relationship
intangible assets, redeemable NCI interests and nonredeemable
NCI interests.
The valuation method used to determine customer relationship
intangible assets was the multi period excess earnings method
"(MPEEM"), which quantifies the residual (or excess) cash
flows generated by the intangible asset and discounts those cash
flows to their present value. The significant assumptions used in
determining the fair value of customer relationships include
estimated revenue growth, customer attrition rates, operating
margins, and discount rate. These estimates directly impact the
amount of identified intangible assets recognized and the related
amortization expense in future periods. As of December 31,
2024 and 2023, an aggregate of $333,562 and $47,289,
respectively, of acquired intangible assets, net of accumulated
amortization, was recorded on the Consolidated Balance Sheets,
of which $323,720 and $44,585, respectively, represented
customer relationships.
The valuation method to determine the fair value of redeemable
NCI interests and related put and call options was the Monte
Carlo Simulation. The significant fair value assumptions used in
the simulation include the exercise thresholds, EBITDA
forecasts, discount rate and long-term growth rate. The valuation
method to determine the fair value of nonredeemable NCI
interests, which do not contain put or call options, was the
discounted cash flow approach. The significant fair value
assumptions used in the model include estimated long term
revenue and expense forecasts and the discount rate.
The excess of purchase price over the fair value of assets
acquired, liabilities assumed, and NCI interests (both
redeemable and nonredeemable) is recorded as goodwill. We
may refine our estimates and make adjustments to the assets
Ambac Financial Group, Inc.
33
2024 Form 10-K
acquired and liabilities assumed over a measurement period, not
to exceed one year from the date of acquisition.
Intangible asset impairment and useful life evaluation
We review acquired finite-lived intangible assets that are being
amortized for impairment whenever events or changes in
circumstance indicate that their carrying amount may not be
recoverable. Qualitative factors considered include any adverse
developments in regulation, unfavorable market conditions, or
the extent to which an asset will be utilized. We do not believe
there will be a material change in the estimates or assumptions
used to calculate impairments or useful lives of amortizable
intangible assets. However, if actual results are not consistent
with our estimates and assumptions, we may be exposed to an
acceleration of amortization or impairment losses that could be
material.
Goodwill impairment evaluation
We perform the impairment assessment of goodwill at the
reporting unit level within our Insurance Distribution segment
on an annual basis or more frequently if circumstances indicate a
possible impairment. The impairment test may first consider
qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying
amount.
Examples
of
qualitative
factors
include,
macroeconomic conditions, industry and market considerations,
cost factors, overall financial performance, entity-specific
events, events affecting reporting units and sustained changes in
our stock price. If results of the qualitative assessment indicate a
more likely than not determination or if we elect not to perform
a qualitative assessment, a quantitative test is performed by
comparing the estimated fair value using an income approach or
market approach for each reporting unit with its estimated
carrying value. For the 2024 annual impairment evaluation, we
performed a qualitative assessment for certain reporting units
and for other reporting units we elected to bypass the qualitative
evaluation and perform quantitative tests. There was no
goodwill impairment for any of the reporting units.
Under the quantitative assessment, the determination of fair
value includes assumptions, which are considered Level 3
inputs, that are subject to risk and uncertainty. We consider
different valuation approaches in the quantitative assessment.
The income approach uses discounted cash flows which are
dependent on subjective factors including the timing of future
cash flows, the underlying margin projection assumptions,
future growth rates and the discount rate. The market approach
uses valuation multiples and is dependent on subjective factors
including the determination of industry market multiples and
EBITDA forecasts. Additionally, to corroborate our estimated
fair value, we perform a market capitalization reconciliation to
determine if the implied control premium is reasonable. If our
assumptions or estimates in our fair value calculations change or
if any of the above subjective factors vary from what was
expected, this may impact our impairment analysis and result in
a decline in fair value that may trigger future impairment
charges.
RESULTS OF OPERATIONS
The following discussion of results of operations for the years
ended December 31, 2024, 2023 and 2022 should be read along
with the financial statements included in this Annual Report on
Form 10-K.
Net loss from continuing operations for the years ended
December 31, 2024, 2023 and 2022, was $58,921, $23,232 and
$35,244, respectively. The net loss variance in 2024 compared
to 2023 was primarily driven by: (i) higher costs related to
acquisitions and integrations of 26821, (ii) higher restructuring
costs of 7600, (iii) higher intangible amortization of 13450 and
(iv) interest expense on short-term debt of 9379, partially offset
by higher Everspan income, including the 7500 gain on the sale
of CNIC, and continuing growth of Insurance Distribution
business.
The net loss variance in 2023 compared to 2022 was primarily
driven by higher net investment income of 8655 and growth of
both the Specialty Property and Casualty Insurance and
Insurance Distribution businesses flowing from higher net
premiums earned of 38042 from Everspan and higher
commission income of 20586 from Insurance Distribution.
A summary of our financial results is shown below:
Year Ended December 31,
2024
2023
2022
Revenues:
Net premiums earned
$
99,005
$
51,911
$
13,869
Commission income
92,023
51,281
30,695
Program fees
13,506
8,437
3,095
Net investment income
14,448
13,159
4,503
Net investment gains (losses),
including impairments
(497)
19
(62)
Net gains (losses) on derivative
contracts
4,016
(279)
935
Other income
13,314
200
577
Expenses:
Losses and loss adjustment
expenses
72,626
36,712
9,071
Policy acquisition costs
23,666
10,557
2,535
Commission expense
40,876
29,465
17,641
General and administrative
expenses
129,166
66,985
56,278
Intangible amortization
17,602
4,152
2,921
Interest expense
9,379
—
—
Provision (benefit) for income
taxes from continuing operations
(924)
(989)
(462)
Net income (loss) from continuing
operations
(58,921)
(23,232)
(35,244)
Net income (loss) from
discontinued operations, net of
income taxes
(497,167)
28,183
557,364
Net income (loss)
(556,088)
4,951
522,120
Less: net (gain) loss attributable
to NCI
(361)
(1,319)
(871)
Plus: gain on purchase of auction
market preferred shares
—
—
1,131
Net income (loss) attributable to
Ambac shareholders
$ (556,449)
$
3,632
$
522,380
Ambac Financial Group, Inc.
34
2024 Form 10-K
Ambac's results for the year ended December 31, 2024
compared to the year ended December 31, 2023, and for the year
ended December 31, 2023 compared to the year ended
December 31, 2022 were impacted by the following:
• Ambac's acquisitions within the Insurance Distribution
segment have a significant impact on the comparability of
results between 2024, 2023 and 2022. Effective July 31,
2024, Ambac acquired 60% of Beat. Effective August 1,
2023, Ambac acquired 80% of Riverton. Effective
November 1, 2022, Ambac acquired 85% of All Trans and
80% of Capacity Marine.
• In the fourth quarter of 2024, the pending sale of AAC was
determined
to
qualify
for
discontinued
operations
presentation, resulting in a loss from disposal of $570,145
reported within loss from discontinued operations in 2024.
The income (loss) from discontinued operations were
(497,167), 28,183 and 557,364 for the years ended
December 31, 2024, 2023 and 2022. Refer to Note 5.
Discontinued Operation for further details of these
amounts.
The following describes the consolidated results of continuing
operations of Ambac and its subsidiaries for 2024, 2023 and
2022.
Gross Premiums Written. Gross premiums written
increased $109,484 for the year ended December 31, 2024, and
$126908 for the year ended December 31, 2023, compared to
the comparable prior year periods, as shown below.
Year Ended December 31,
2024
2023
2022
Gross Premiums Written
$ 382,771
$ 273,287
$ 146,379
Growth is primarily driven by the number and size of active
programs. As of December 31, 2024, 2023, and 2022 we had
27, 23 and 14 programs across approximately ten lines of
business, with a focus on the casualty sector and minimal
property exposure.
Net Premiums Written. Net premiums written increased
$8,858 for the year ended December 31, 2024 and 51270 for the
year ended December 31, 2023, compared to the comparable
prior year periods, as shown below:
Year Ended December 31,
2024
2023
2022
Net Premiums Written
$
88,682
$
79,824
$
28,554
Growth in net premiums written will typically track gross
premiums written, but will also be impacted by the percentage
of each program Everspan retains. Everspan typically retains up
to 30% of each program. For the years ended December 31,
2024, 2023 and 2022, Everspan retained 23%, 29% and 17% of
gross written premiums, respectively. The increased retention
rate in 2023 compared to 2022 was driven by Everspan's
participation on two assumed reinsurance transactions which
have an effective retention rate of 100%. Everspan exited one of
those programs in the fourth quarter of 2024, which contributed
to the decline in retention rate in 2024 as compared to 2023.
Net Premiums Earned. Net premiums earned for the year
ended December 31, 2024, increased by $47,094 or 90.7% and
for the year ended December 31, 2023, increased $38,042 or
274% compared to the respective priority years, as shown
below.
Year Ended December 31,
2024
2023
2022
Net Premiums Earned
$
99,005
$
51,911
$
13,869
The increase in net premiums earned was driven by the growth
in net premiums written.
Commission Income and Commission Expense. The
Insurance Distribution business earns commission income as a
percentage of the premium it place with insurance, reinsurance
and other capacity providers. In some cases, the Insurance
Distribution business will also earn profit commissions based on
the underwriting performance of the business that it underwrites
Profit commissions by their nature may be volatile whereas base
commissions tend to be more steady.
Commission income was $92,023 and $51,281 for the years
ended December 31, 2024 and 2023, respectively. The increase
was driven by organic growth in premiums placed as well as the
acquisition of Beat in July 2024 and Riverton in August of 2023.
Commission expense will largely track changes in gross
commission.
For the year ended December 31, 2024 and December 31, 2023
commission expense was $40,876 and $29,465 representing
approximately 43 and 56 of commission income in each
respective period. The decrease in commission expense relative
to commission income in 2024 relative to 2023 is primarily a
result of the acquisition of Beat. When third parties are paid
commissions to obtain business, the majority of Beat's
commission income is reported net of any distribution and
commission expenses, due to the nature of its program
agreements. The majority of the Insurance Distribution
Segment's other MGA/Us report their commission income gross
of distribution and commission expenses.
Commission income was $51,281 compared to $30695 for the
years ended December 31, 2023 and 2022, respectively. Growth
was primarily driven by acquisitions during each of the periods
including Riverton in August 2023 and All Trans and Capacity
Marine in November 2022. For the year ended December 31,
2023 commission expense was $29,465 compared to $17641 for
the year Ended December 31, 2022, representing approximately
57 of commission income in both periods.
Program Fees. Program fee revenues were $13,506, $8,437
and $3,095 for the years ended December 31, 2024, 2023 and
2022, respectively. Program fee revenues represent the
recognition of ceding commissions in excess of direct
acquisition costs received from reinsurers and minimum fees
received from MGA/Us until related programs reach certain
levels of premium ceded. Program fees are charged as a
percentage of premiums ceded to reinsurers as a component of
total ceding commissions. The growth is a function of higher
premiums ceded to reinsurers; driven by the growth in premiums
written.
Ambac Financial Group, Inc.
35
2024 Form 10-K
Net Investment Income. Net investment income consists of
interest income, including the net effect of discount accretion
and premium amortization, from fixed maturity securities
classified as available-for-sale and net gains (losses) on pooled
investment funds which are reported under the equity method.
These funds and certain other investments are reported in Other
investments on the Consolidated Balance Sheets. For further
information about investment funds held, refer to Note 6.
Investments to the Consolidated Financial Statements, included
in Part II, Item 8 in this Annual Report on Form 10-K.
Net investment income was $14,448, $13,159, and $4,503 for
the years ended years ended December 31, 2024, 2023 and
2022, respectively.
Net investment income increased in 2024 compared to 2023 due
to higher average yields and growth of the Everspan investment
portfolio, partially offset by lower average net short term
investment balances resulting from the acquisition of Beat, and
lower returns on fund investments.
The increase in 2023 compared to 2022 resulted primarily from
higher yields and a larger consolidated investment portfolio,
following AFG's sale of intercompany debt obligations (which
were eliminated in consolidation) in late 2022.
Net
Investment
Gains
(Losses),
including
Impairments. Net investment gains (losses) were $(497),
$19, and $(62) during the years ended December 31, 2024, 2023
and 2022. During 2024, the net loss included credit impairments
of $(6,516) on certain minority investments in development
stage companies held by AFG, offset by realized gains of $6,016
arising from the redemption and conversion of convertible notes.
Other gains (losses) related to sales in connection with routine
portfolio management.
Net Gains (Losses) on Derivative Contracts. Net gains
(losses) on derivative contracts include results from FX forward
contracts used to manage currency risk within the Insurance
Distribution segment, as well as by AFG to protect against
currency fluctuations leading up to the purchase of Beat. Results
also include changes in the fair value of warrants to purchase
equity of certain development stage companies held by AFG.
Net derivatives gains in 2024 were driven by gains on AFG's FX
forwards partially offset by fair value losses on owned warrants.
Results for 2023 and 2022 reflect fair value changes on the
warrants. There were no FX forward contracts in 2023 or 2022.
Losses and Loss Adjustment Expenses (Benefit).
Losses and loss adjustment expenses increased $35,914 for the
year ended December 31, 2024, compared to the prior year. The
increase was primarily due to the growth of the business.
Everspan's loss and LAE ratio was 73.4% and 70.7% for the
years ended December 31, 2024 and 2023, respectively,
inclusive of prior years adverse development of 4.7% and 0.3%,
respectively. The shift in the loss and LAE ratio was driven by
commercial auto loss experience in the prior accident years and
a higher selected loss ratio for programs in runoff. In the fourth
quarter of 2024 management decided to set loss reserves for
programs that are runoff at the high end of the actuarial loss
range, given these program can experience greater loss volatility
than active programs. This change to set runoff reserves at the
high end of the range resulted in a 1 percentage point increase in
the loss and LAE ratio for the year ended December 31, 2024
compared to our prior reserving method. Everspan's loss and
LAE ratio will vary based on changes in the lines of business
underwritten
and
retained,
loss
reserving
policy,
loss
development trends, inflation rates and other economic and
industry specific factors. The increase in the loss and LAE ratio
for the year ended December 31, 2024, compared to December
31, 2023, was partially offset by a benefit to acquisition costs as
a result of sliding scale commission arrangements with program
partners. Certain Everspan programs were structured to include
sliding scale commission arrangements within a loss ratio range.
These sliding scale arrangements help to partially mitigate net
income volatility. Such benefit reduced the Specialty Property
and Casualty Insurance segments expense ratio by 0.8% and
3.2% for the years ended December 31, 2024 and 2023,
respectively.
Loss and loss expenses incurred increased for the year ended
December 31, 2023, relative to the year ended December 31,
2022, primarily due to the growth of the business. Everspan's
loss and LAE ratio was 70.7% and 65.4% for the years ended
December 31, 2023 and 2022, respectively, inclusive of prior
years adverse development of 0.3% and 0.2%, respectively. The
shift in the loss and LAE ratio was primarily driven by
commercial auto loss experience in the current accident year and
the addition of non-standard personal auto and workers
compensation programs through assumed reinsurance. The
increase in the loss and LAE ratio for the year ended December
31, 2023, compared to the year ended December 31, 2022, was
partially offset by a benefit to acquisition costs as a result of
sliding scale commission arrangements with program partners.
Such benefit reduced the Specialty Property and Casualty
Insurance segments expense ratio by 3.2% and 1.3% for the
years ended December 31, 2023 and 2022, respectively.
Loss and loss adjustment expenses incurred may be adversely
impacted by increasing economic and social inflation,
particularly within the commercial auto business. The impact of
inflation on ultimate loss reserves is difficult to estimate,
particularly in light of recent disruptions to the judicial system,
supply chain, labor markets and the potential impact of the
imposition of trade tariffs. In addition, going forward, we may
not be able to offset the impact of inflation on our loss costs
with sufficient price increases. The estimation of loss reserves
may also be more difficult during extreme events, such as a
pandemic, or during the persistence of volatile or uncertain
economic conditions, due to, amongst other reasons, unexpected
changes in behavior of judicial decisions, claimants and
policyholders, including fraudulent reporting of exposures and/
or losses. Due to the inherent uncertainty underlying loss reserve
estimates, the final resolution of the estimated liability for loss
and loss adjustment expenses will likely be higher or lower than
the related loss reserves at the reporting date. In addition, our
estimate of losses and loss expenses may change. These
additional liabilities or increases in estimates, or a range of
either, could vary significantly from period to period.
General and Administrative Expenses ("G&A"). The
following table provides a summary of G&A expenses for the
periods presented:
Ambac Financial Group, Inc.
36
2024 Form 10-K
Year Ended December 31,
2024
2023
2022
Compensation
$
64,346
$
48,468
$
39,159
Non-compensation
64,820
18,517
17,119
Total
$
129,166
$
66,985
$
56,278
The increase in 2024 compared to 2023 was primarily due to the
following:
• Higher compensation costs of $15,878 primarily due to
acquired MGAs in the Insurance Distribution segment
partially offset by the favorable variance from the impact of
performance factor adjustments on incentive compensation
expense.
• Higher non-compensation costs of $46,303, driven
primarily by higher acquisition related costs of 26821,
restructuring costs of $6,990 in anticipation of the sale of
AAC, higher Insurance Distribution expenses of $7,707
driven mostly by the increased scale of the business, and
and the write-down of certain capitalized software costs.
Growth in Specialty Property and Casualty Insurance also
contributed to higher overall costs.
The increase in G&A expenses in 2023 compared to 2022 was
primarily due to the following:
• Higher compensation costs associated with acquisitions and
the growth of the Insurance Distribution and Specialty
Property and Casualty Insurance businesses, and the
adverse variance from the impact of performance factor
adjustments on incentive compensation expense.
• Higher non-compensation expenses related to acquisitions
in the Insurance Distribution segment.
Intangible Amortization. Intangible amortization was
$17,603, $4,152 and $2,921 for the years ended years ended
December 31, 2024, 2023 and 2022; all increases relate to
acquisitions within the Insurance Distribution segment.
Interest Expense. Interest expense for the year ended
December 31, 2024 was $9,379, related to the short-term debt
used in funding the Beat acquisition. No interest expense was
incurred in the company's continuing operations for the year
ended December 31, 2023 and 2022.
Provision for Income Taxes. The provision for income
taxes (benefit) from continuing operations for the years ended
December 31, 2024, 2023 and 2022, was $(924), $(989) and
$(462) , respectively.
At December 31, 2024, the Company had approximately
$3,615,708 of U.S. Federal net ordinary operating loss
carryforwards, including approximately $1,663,087 at AFG.
Results of Operations by Segment
Specialty Property and Casualty Insurance
Year Ended December 31,
2024
2023
2022
Gross premiums written
$ 382,771
$ 273,287
$ 146,379
Net premiums written
88,682
79,824
28,554
Revenues:
Net premiums earned
$ 99,005
$ 51,911
$ 13,869
Net investment income
6,399
3,795
1,605
Net investment gains (losses),
including impairments
1
(36)
(46)
Program fees
13,506
8,437
3,095
Other income
7,409
(6)
(58)
Total
126,320
64,101
18,465
Expenses:
Losses and loss adjustment
expenses
72,626
36,712
9,071
Policy acquisition costs
23,666
10,557
2,535
General and administrative
expenses
17,806
16,449
13,205
Net (gain) loss attributable to
NCI interest
2
(1)
15
EBITDA
12,222
$
383
$ (6,346)
Pretax income (loss) from
continuing operations
$ 12,222
$
383
$ (6,346)
Retention Ratio (1)
23.2 %
29.2 %
19.5 %
Loss and LAE Ratio (2)
73.4 %
70.7 %
65.4 %
Expense Ratio (3)
28.2 %
35.8 %
91.2 %
Combined Ratio (4)
101.6 %
106.5 %
156.6 %
Ambac's stockholders equity (5)
$ 133,266
$ 121,678
$ 112,363
(1)
Retention ratio is defined as net premiums written divided by gross
premiums written.
(2)
Loss and LAE ratio is defined as losses and loss expenses incurred
divided by net premiums earned.
(3)
Expense Ratio is defined as acquisition costs and general and
administrative expenses, reduced by program fees, divided by net
premiums earned.
(4)
Combined ratio is defined as Loss and LAE ratio plus Expense
Ratio.
(5)
Represents Ambac stockholders equity in the Specialty Property
and
Casualty
Insurance
segment,
including
intercompany
eliminations.
The Specialty Property and Casualty Insurance segment has
grown significantly since underwriting its first program in May
2021. Twenty-seven programs were authorized to issue policies
as of December 31, 2024. The growth in both the number and
size of these programs has contributed to the increase in gross
and net premiums written, net premiums earned, program fees,
losses and loss adjustment expenses incurred and amortization
of deferred acquisition costs. Additionally, EBITDA and pre-
tax income has increased since 2022 due to the growth of the
business and, in 2024, due to the gain on sale of CNIC, resulting
in a gain of approximately $7,500 The combined ratios have
decreased since 2022 as Everspan has begun to gain scale,
diversify its book of net insured business and benefit from
sliding scale commissions that helped to partially moderate
changes in the loss and LAE ratio.
Ambac Financial Group, Inc.
37
2024 Form 10-K
G&A Expenses General and administrative costs increased
for the year ended December 31, 2024, relative to the year ended
December 31, 2023, primarily resulting from the growth in
Everspan's staffing and operations. The impact of growing
operations was muted in 2023 compared to 2022 by costs
incurred in 2022 in connection with the acquisition of additional
shell insurance companies.
Insurance Distribution
Year Ended December 31,
2024
2023
2022
Premiums placed
$
493,372
$
230,606
$
135,467
Commission income
$
92,023
$
51,281
$
30,695
Commission expense
40,876
29,465
17,641
Net commissions
51,147
21,816
13,054
Net investment income
787
64
—
Net gains (losses) on derivatives
106
—
—
Other income (expense)
6,320
200
715
Expenses:
General and administrative
expenses
38,707
10,598
6,293
EBITDA
19,653
11,483
7,476
Depreciation
8
42
31
Intangible amortization
17,602
4,152
2,921
Pretax income (loss)
$
(7,809) $
7,289
$
4,524
Ambac's stockholders equity (1)
$
276,886
$
105,377
$
92,802
(1)
Represents the share of Ambac stockholders equity for each
subsidiary within the Insurance Distribution segment, including
intercompany eliminations.
Ambac's Insurance Distribution companies are compensated for
their services primarily by commissions paid by insurance
carriers for underwriting, structuring and/or administering
polices and, in some cases, the managing of claims under an
agency agreement. Commission revenues are usually based on a
percentage of the premiums placed. In addition, we are eligible
to receive profit sharing contingent commissions on certain of
its programs based on the underwriting results of the policies it
places with the carrier, which may cause some variability in
revenue and earnings.
The Insurance Distribution segment placed premiums for its
carriers of approximately $493,372 for the year ended December
31, 2024, up $262,766 or 114% as compared to the year ended
December 31, 2023. The increase was primarily driven by
acquisitions and organic growth. Premiums placed were
approximately $230,606 for the year ended December 31, 2023,
up $95,139 or 70% compared to the year ended December 31,
2022. The increase was primarily driven by acquisitions and
organic growth.
The Insurance Distribution pretax loss for the year ended
December 31, 2024, was ($7,810), down $15,098 or 207%,
compared to year ended December 31, 2023. The decrease was
primarily driven by an increase in intangible amortization and
interest expense related to acquisitions. Pretax income for the
year end December 31, 2023, was $7,288, up $2,765 or 61%
compared to December 31, 2022. The increase was primarily
driven by an increase in commission income due to acquisitions
and organic growth.
The Insurance Distribution EBITDA for the year ended
December 31, 2024 was $19,653, up $8,170 or 71% compared
to the year ended December 31, 2023. The increase was
primarily driven by increase in commission income due to
acquisitions and organic growth. The EBITDA for the year
ended December 31, 2023, was $11,483, up $4,007 or 54%
compared to the year ended December 31, 2022. The increase
was primarily driven by increase in commission income due to
acquisitions and organic growth.
Insurance Distribution businesses may experience seasonal
impacts on their revenues and operations. For example,
Employer Stop Loss business, our largest A&H line of business,
has seasonality in January and July, which results in revenue and
earnings concentrations in the first and third quarters each
calendar year. Seasonal impacts on the Insurance Distribution
segment, and therefore Ambac's results, may increase or
decrease over time depending on the relative growth of certain
classes of business as well as acquisitions.
G&A Expenses General and administrative expenses for the
year ended December 31, 2024, increased as compared to the
year ended December 31, 2023, as a result of the addition of the
operating expenses of Riverton and Beat, which were acquired
in August 2023 and August 2024, respectively. General and
Administrative expenses for the year ended December 31, 2023,
increased as compared to the year ended December 31, 2022, as
a result of the addition of the operating expenses of All Trans
and Capacity Marine which were both acquired in November
2022, and Riverton acquisition in August 2023.
Corporate
Corporate consists of our holding company and shared services
operations
("Corporate").
Corporate
provides
financial,
technological and human resources to Ambac's two segments
and is responsible for the function of AFG as a publicly traded
company.
Corporate revenues totaled $10,259 and $9,080 and $3,737 for
the years ended December 31, 2024, 2023 and 2022,
respectively. Corporate revenue is mostly generated from
investment of AFG's liquid resources and investment results
from its previously made strategic investments, including certain
investments in MGA/Us and an insurtech fund. Investment
revenues comprised of net investment income and net
investment gains (losses), including impairments were $6,764,
$9,353 and $2,883 in 2024, 2023 and 2022, respectively. The
decline from 2023 to 2024 is attributable to the use of liquid
resources for the acquisition of Beat. The increase from 2022
to 2023 reflected higher short-term yields and investment of
funds that were in intercompany investments for part of 2022.
Corporate also had net derivative gains in 2024 of 3910 related
to FX hedging of the purchase price of Beat. The remainder of
Corporate revenues in the periods were driven by derivative
gains and losses on a warrant to purchase equity of a minority
owned MGA/U.
As a result of the Company reporting the results of operations of
AAC as discontinued operations, certain corporate costs charged
to AAC have been reported in Net income from continuing
operations and included in Corporate expenses for all years
presented. Corporate expenses were $74,516 for the year ended
Ambac Financial Group, Inc.
38
2024 Form 10-K
December 31, 2024, up $33,542 from the year ended December
31, 2023. Corporate expenses for the year ended 2024 and 2023
included compensation expenses of $25,791 and $29,664 and
non-compensation and depreciation expense of 48725 and
$11,310, respectively. The increase in non-compensation
corporate expenses from 2023 to 2024 mainly related to higher
acquisition related costs of 26821 including legal and advisory
fees associated with the Beat acquisition, restructuring costs of
$6,990 in anticipation of the sale of AAC, and the write-down of
certain capitalized software costs.
Corporate expenses were $40,974 for the year ended 2023, up
$3,353 for the year ended 2022. The increase in Corporate
expenses from 2022 to 2023 mainly related to compensation
from growing the Cirrata businesses. Corporate expenses for the
year ended 2023 and 2022 included compensation expenses of
$29,664 and $26842 and non-compensation and depreciation
expense of $11,310 and $10,779, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Holding Company Liquidity
AFG is a holding company organized as a legal entity separate
and distinct from its operating subsidiaries. AFG’s liquidity is
primarily dependent on its net assets, excluding the operating
subsidiaries that it owns, totaling $119,214 as of December 31,
2024, and $146,583, as of December 31, 2023, and secondarily
on investment income, distributions, tax and expense sharing
payments from its operating subsidiaries and third party capital
(e.g. from credit facilities and equity issuance).
December 31,
2024
2023
Cash and short-term investments
$
74,423
$
96,563
Other investments (1)
28,117
32,392
Other net assets
16,674
17,628
Total
$ 119,214
$ 146,583
(1)
Includes strategic debt and minority equity investments in
insurance services businesses of $20,617 and $26,420 at December
31, 2024 and 2023, respectively.
The decrease in AFG net assets, excluding its equity investments
in subsidiaries, during 2024 was driven by net cash outflows for
the acquisition of Beat Capital Partners Limited ("Beat"),
transaction costs associated with the sale of AAC, and other
operating expenses, partially offset by interest income and
distributions received from Insurance Distribution subsidiaries.
• Effective July 31, 2024, AFG closed the acquisition of a
60% controlling interest in Beat. In connection with the
acquisition, Cirrata incurred $150,000 of debt maturing in
364-days funded by a global bank (the "Credit Facility").
Repayment of debt under the Credit Facility is guaranteed
by AFG. AFG is required to repay this debt upon the
closing of the sale of AAC or otherwise refinance such
short-term debt with longer-term debt. The Credit Facility
includes covenants that restrict our ability to manage
capital resources by limiting, among other actions, the
issuance of debt or capital stock; the creation of liens; the
disposition of assets; engaging in transactions with
affiliates; making restricted payments, including dividends
and the purchase or redemption of capital stock; and
making acquisitions and other investments. The Credit
Facility also requires the prepayment of the borrowings
thereunder with proceeds of certain debt or equity issuances
and certain asset sales. These requirements will impact our
financial and operational flexibility while the Credit
Facility remains in place.
• Everspan's ability to make future dividend payments will
mostly depend on its future profitability relative to its
capital needs to support growth. Everspan is not expected
to pay dividends in the near term.
• Under an inter-company cost allocation agreement, AFG is
reimbursed by its subsidiaries, including AAC through the
date of its sale, for a portion of certain operating costs and
expenses
• If AFG were to not sell AAC, its ability to receive
dividends from AAC and the timing of any such potential
dividends would depend on receipt of regulatory approval
and the satisfaction of certain obligations senior to AFG's
equity interest.
• Cirrata does not have any regulatory restrictions on its
ability to make distributions. AFG received distributions
from Cirrata of $10,739 and $8,032 during the years ended
December 31, 2024 and 2023.
Subject to the required approvals for the sale of AAC as
described in Note 5. Discontinued Operation, AFG will receive
proceeds of $420,000. From the proceeds, AFG, is required to
purchase AAC's co-investment ($62,000 plus a 7.5% return from
the date of funding) in Cirrata V LLC, the holding company
established to acquire Beat, repay the Credit Facility ($150,000
plus any accrued and unpaid interest) and pay other transaction
expenses.
AFG's principal uses of liquidity are: (i) the payment of
operating expenses, including interest on indebtedness and costs
to explore opportunities to grow and diversify Ambac and (ii)
making capital investments to acquire, grow and/or capitalize
new and/or existing businesses; such capital investments include
investments in technology to support the efficient operation of
our Specialty Property and Casualty Insurance and Insurance
Distribution businesses.
• Funding puts, calls and other capital commitments could
require payments from AFG, the magnitude of which may
depend on the performance of the underlying businesses
and other considerations, of approximately $358,000
through 2030.
• AFG may also provide short-term financial support,
primarily in the form of loans, to its operating subsidiaries
to support their operating requirements. AFG supported
the development of the Specialty Property and Casualty
Insurance business, and its acquisitions, with cash
contributions of $6,000 to the Everspan group of
companies during the year ended December 31, 2023.
In the opinion of the Company’s management, the net assets of
AFG are currently sufficient to meet AFG’s current liquidity
requirements. However, events, opportunities or circumstances
could arise that may cause AFG to seek additional capital (e.g.
through the issuance of debt, equity or hybrid securities).
Ambac Financial Group, Inc.
39
2024 Form 10-K
Operating Companies' Liquidity
Insurance:
Sources of liquidity for Everspan are primarily through funds
generated from premiums, reinsurance recoveries, fees,
investment income and maturities and sales of investments.
Cash provided from these sources is used primarily for claim
payments, loss expenses, acquisition costs, operating expenses,
reinsurance payments and purchases of securities and other
investments.
Everspan manages its liquidity risk by projecting cash flows and
maintaining specified levels of cash and short-term investments
at all times. It is the opinion of the Company’s management that
the insurance subsidiaries’ near term liquidity needs will be
adequately met from the sources described above.
Insurance Distribution:
The liquidity requirements of our Insurance Distribution
subsidiaries are met primarily by funds generated from
commission (both base and profit commissions) and fees. Base
commissions and fees are generally received monthly, whereas
profit commissions are received only if the business
underwritten is profitable. Cash provided from these sources is
used primarily for commissions paid to sub-producers, operating
expenses and distributions to AFG and other members.
Consolidated Cash Flow Statement Discussion
The following table summarizes the net cash flows for
continuing operations for the periods presented.
Year Ended December 31,
2024
2023
2022
Cash provided by (used in):
Operating activities
$
762
$
36,948
$
70,368
Investing activities
(166,371)
(26,679)
(41,162)
Financing activities
194,219
(10,986)
(19,235)
Net cash flow
$
28,610
$
(717) $
9,971
Operating Activities for Continuing Operations
Operating cash flows during the year ended December 31, 2024
were adversely impacted by transaction related costs for the
acquisition of Beat and the sale of AAC, together with interest
payments on Cirrata's short term borrowing. Operating cash
flows for the year ended December 31, 2023, were lower than
2022 primarily due to the receipt of accrued interest in
connection with the sale of AAC surplus note investments
during 2022, partially offset by growth in the Everspan and
Cirrata businesses.
Future operating cash flows will primarily be impacted by net
premium collections, investment coupon receipts, fee and net
commission revenues, operating expenses, net claim and loss
expense payments and debt interest payments.
Investing Activities for Continuing Operations
Investing activities for the year ended December 31, 2024,
included net cash used in the Beat acquisition of $243,776 and
net cash proceeds from the sale of CNIC of $14,119.
Investing activities for the years ended December 31, 2023, and
December 31, 2022 included net cash used in MGA/U
acquisitions of $6,953 and $18,442, respectively.
Financing Activities for Continuing Operations
Financing activities for the year ended December 31, 2024,
included borrowing of $147,000 under a short-term credit
facility and receipt of a $62,000 co-investment from AAC
(discontinued operation) to fund the acquisition of Beat and
share repurchases of $11,698. Concurrent with the AAC Sale,
AFG will purchase AAC's co-investment for an amount equal to
AAC's $62,000 investment plus 7.5% per annum thereon.
Financing activities for the years ended December 31, 2023, and
December 31, 2022, included share repurchases of $4,510 and
$14,217, respectively.
Cash Flows from Discontinued Operations
Cash flows pertaining to discontinued operations are reported
separately on the Consolidated Statements of Cash Flows. The
primary driver of the cash flows from discontinued operations
was the continued run-off of the financial guarantee business.
Since the agreement to sell AAC, the operations have been
substantially separated and the potential impacts on future
liquidity to the continuing operations are expected to be
insignificant.
BALANCE SHEET
Total assets decreased by approximately $369,942 from
December 31, 2023, to $8,058,378 at December 31, 2024,
(decrease of $1,249,256 related to discontinued operation,
partially offset by an increase of $879,314 from continuing
operations).
Total liabilities decreased by approximately $133,770 from
December 31, 2023, to $6,862,857 as of December 31, 2024,
(decrease of $654,181 relating to discontinued operation,
partially offset by an increase of $520,411 from continuing
operations).
As of December 31, 2024, total stockholders’ equity was
$1,054,661, compared with total stockholders’ equity of
$1,414,614 at December 31, 2023. This decrease was primarily
the result of the net loss attributable to common stockholders
for the year ended December 31, 2024 of $556,449 and
translation losses on the consolidation of AFG's foreign
subsidiaries of $22,156, partially offset by increases to
nonredeemable NCI of $149,095 due to the Beat acquisition,
adjustments to the redemption value of redeemable NCI of
$53,210 and the issuance of common stock for the Beat
acquisition of $29,229.
Ambac Financial Group, Inc.
40
2024 Form 10-K
Discontinued Operation:
Assets and Liabilities Held-for-Sale. Assets held-for-sale
decreased to $6,267,200 at December 31, 2024, from
$7,516,456 as December 31, 2023. The decrease is primarily
due to the recording of a valuation allowance for the loss on
disposal of AAC of $570,145 and a decrease in VIE assets of
$523,974. Liabilities held-for-sale decreased to $5,887,685 at
December 31, 2024, from $6,541,866 as December 31, 2023,
primarily due to a decrease in VIE liabilities of $511,689. VIE
assets and liabilities decreased primarily due to paydowns and
the impact of exchange rates on balances denominated in British
Pound Sterling.
Continuing Operations:
The following discusses changes in assets, liabilities and
stockholders' equity, excluding assets and liabilities held-for-
sale related to the pending sale of AAC, as of December 31,
2024, compared to December 31, 2023.
Ambac's acquisition of a controlling interest in Beat had a
significant impact on the comparability of the balance sheet
between December 31, 2024 and December 31, 2023. Refer to
Note 4. Business Combination to the Consolidated Financial
Statements included in this Annual Report on Form 10-K for
details of the assets and liabilities acquired at the acquisition
date.
Assets:
Investment Portfolio
Ambac's investment portfolio is managed under established guidelines designed to meet the investment objectives of Everspan and AFG.
Invested assets of the Cirrata companies consist solely of cash, short-term investments and other money market funds. Refer to
"Description of the Business — Investments and Investment Policy" in this Annual Report on Form 10-K located in Part I. Item 1, for
further description of Ambac's investment policies and applicable regulations.
The following table summarizes the composition of Ambac’s investment portfolio, at carrying value at December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
Specialty
Property &
Casualty
Insurance
Insurance
Distribution
Corporate &
Other
Consolidated
Specialty
Property &
Casualty
Insurance
Insurance
Distribution
Corporate &
Other
Consolidated
Fixed maturity securities
$
157,020
$
—
$
—
$
157,020
$
121,304
$
—
$
13,920
$
135,224
Short-term
35,727
27,435
64,439
127,601
41,172
3,651
155,688
200,511
Other investments
—
176
28,117
28,293
—
—
18,316
18,316
Total investments
$
192,747
$
27,611
$
92,556
$
312,914
$
161,976
$
3,651
$
187,924
$
354,051
Refer to Note 6. Investments to the Consolidated Financial Statements in this Annual Report on Form 10-K located in Part II. Item 8 for
information about the composition of fixed maturity securities and other investments by asset class.
Ambac Financial Group, Inc.
41
2024 Form 10-K
The following charts provide the ratings distribution of the fixed
maturity investment portfolio based on fair value at
December 31, 2024 and 2023. Ratings represent the lower of
ratings provided by S&P or Moody's when ratings are available
from both agencies.
December 31, 2024
AAA
46%
AA
22%
A
18%
BBB
14%
December 31, 2023
AAA
56%
AA
18%
A
14%
BBB
8%
NR
4%
Premium Receivables. Ambac's premium receivables
increased to $57,222 at December 31, 2024, from $45,893 at
December 31, 2023. As further discussed in Note 8. Insurance
Contracts to the Consolidated Financial Statements, in this
Annual Report Form 10-K located in Part II. Item 8, the increase
is primarily due to growth in the Specialty Property and
Casualty Insurance Segment. All premium receivables are in a
payment currency of U.S. Dollars.
Reinsurance Recoverable on Paid and Unpaid Losses.
Ambac has reinsurance in place pursuant to quota share, surplus
share treaty and facultative agreements. To minimize its
exposure to losses from reinsurers, Ambac (i) monitors the
financial condition of its reinsurers; (ii) is entitled to receive
collateral from its reinsurance counterparties under certain
reinsurance contracts; and (iii) has certain cancellation rights
that can be exercised in the event of rating agency downgrades
of a reinsurer (among other events and circumstances). For those
reinsurance counterparties that do not currently post collateral,
Ambac’s reinsurers are well capitalized, highly rated, authorized
capacity providers. Ambac benefited from letters of credit and
collateral amounting to approximately $62,792 from its
reinsurers at December 31, 2024.
As of December 31, 2024 and 2023, reinsurance recoverable on
paid and unpaid losses were $306,191 and $164,997,
respectively, an increase driven from the growth of the Specialty
Property and Casualty Insurance Segment.
Intangible Assets, net of accumulated depreciation.
Intangible assets includes (i) intangible assets established as part
of the acquisition of Xchange in 2020, All Trans and Capacity
Marine in 2022, Riverton in 2023 and Beat in 2024; and (ii)
indefinite-lived intangible assets established as part of the
acquisition of admitted carriers in both 2021 and 2022.
As of December 31, 2024 and 2023, net intangible assets
totaled $344,775 and 61,403, respectively. The increase is
driven by intangibles established from the acquisition of Beat,
partially offset by amortization and foreign currently translation.
Goodwill. As of December 31, 2024 and 2023, goodwill
totaled $418,235 and $69,694 respectively. The increase is
primarily driven by the acquisition of Beat and goodwill of
$357,316. All of the goodwill was assigned to the Insurance
Distribution segment.
Liabilities:
Loss and Loss Adjustment Expense Reserves. Loss and
loss adjustment expense reserves are estimates of the ultimate
liability for unpaid losses and loss expenses for claims that have
been reported and claims that have been incurred, but not yet
reported as of the balance sheet date.
Loss and loss adjustment expense reserves by line of business
were as follows as of December 31, 2024 and 2023.
December 31,
2024
December 31,
2023
Line
Gross
Net
Gross
Net
Commercial Auto
$
158,471 $
28,720
$
107,005 $
21,913
Excess and General Liability
85,459
14,857
22,865
3,925
Workers Compensation
14,465
14,465
5,246
5,246
Non-standard personal auto
12,689
12,000
5,843
5,136
Surety
11,217
—
4,763
—
ULAE
12,238
6,578
6,085
4,527
Other (1)
54,523
2,177
45,282
41
Loss and Loss Expense Reserves
$
349,062 $
78,797
$
197,089 $
40,788
(1)
Includes 35146 and $0 loss and loss expense reserves on a gross
and net of reinsurance basis at December 31, 2024 and $43,751
and $0 loss and loss expense reserves on a gross and net of
reinsurance basis at December 31, 2023 related to legacy liabilities
obtained from the acquisitions of Providence Washington
Insurance Company, Greenwood Insurance Company and
Consolidated Specialty Insurance Company. All legacy liabilities
remain obligations of affiliates of the sellers through reinsurance.
The process for determining the level of loss and loss adjustment
expense reserves is subject to certain estimates and judgments.
Refer to the "Critical Accounting Policies and Estimates" and
“Results of Operations” sections of Management’s Discussion
and Analysis of Financial Condition and Results of Operations,
in addition to Basis of Presentation and Significant Accounting
Policies and Loss Reserves sections included in Note 2. Basis of
Presentation and Significant Accounting Policies and Note 8.
Insurance Contracts, respectively, to the Consolidated Financial
Statements included in Part II, Item 8 in this Annual Report on
Form 10-K, for further information on loss and loss adjustment
expenses.
Ambac Financial Group, Inc.
42
2024 Form 10-K
Short-term Debt. Ambac borrowed under a short-term credit
facility to provide partial funding of the acquisition of Beat in
2024. The carrying value of this short term debt is $150,000 as
of December 31, 2024. Ambac had no debt related to its
continuing operations as of December 31, 2023.
Commission Payable. Commission payables are commissions
due to sub producers for placing insurance contracts on behalf of
the MGAs and amounts due to UK Syndicates that provide
advanced commissions to fund short term liquidity needs for
MGAs. The commission payable at December 31, 2024 and
December 31, 2023 was $71,431 and $6,932. The increase is
primarily due to higher advance commissions due from
Syndicates.
Redeemable Noncontrolling Interest. The increase during
2024 was the net result of the remeasurement of the redemption
value of put options provided to minority owners (NCI interest
holders) of Cirrata entities acquired as if the put was exercised
on December 31, 2024 and new put options issued during the
acquisition of Beat during 2024. No put options are exercisable
at December 31, 2024.
ACCOUNTING STANDARDS
Please refer to Note 2. Basis of Presentation and Significant
Accounting Policies to the Consolidated Financial Statements,
included in Part II, Item 8 in this Annual Report Form 10-K for
a discussion of the impact of recent accounting pronouncements
on Ambac’s financial condition and results of operations.
U.S. STATUTORY BASIS FINANCIAL RESULTS
AFG's U.S. insurance subsidiaries prepare financial statements
under accounting practices prescribed or permitted by its
domiciliary state regulator (“SAP”) for determining and
reporting the financial condition and results of operations of an
insurance company. The National Association of Insurance
Commissioners (“NAIC”) Accounting Practices and Procedures
manual (“NAIC SAP”) is adopted as a component of prescribed
practices by each domiciliary state. For further information, see
Note 9. Insurance Regulatory Restrictions to the Consolidated
Financial Statements included in Part II, Item 8 in this Annual
Report Form 10-K.
Everspan Indemnity Insurance Company
Everspan
Indemnity
Insurance
Company’s
statutory
policyholder surplus was $125,235 at December 31, 2024, as
compared to $108,051 at December 31, 2023.
The significant changes to policyholder surplus for the year
ended December 31, 2024, were net income at Everspan
Indemnity Insurance Company, including its subsidiaries, of
$13,516 during the year ended December 31, 2024, primarily
driven by the gain on sale of Consolidated National Insurance
Company and continued growth of Specialty Property and
Casualty Insurance Segment.
The significant differences between GAAP and SAP are that
under SAP:
• Investment grade fixed maturity investments are stated at
amortized cost and certain below investment grade fixed
maturity investments are reported at the lower of amortized
cost or fair value. Under GAAP, all fixed maturity
investments are reported at fair value.
• Majority owned subsidiaries are not consolidated; rather,
the equity basis of accounting is utilized and the carrying
values of these investments are subject to admissibility
tests. The carrying values of Providence Washington
Insurance Company, Greenwood Insurance Company,
Consolidated
National
Insurance
Company,
and
Consolidated Specialty Insurance Company include a
goodwill component representing the acquisition cost in
excess of the related entity's statutory surplus. Goodwill is
amortized over ten years under SAP. Under GAAP, the
initial acquisition of the companies were recorded as asset
acquisitions, which required i) all net assets to initially be
recorded at fair value and ii) the acquisition costs in excess
of the fair value of net assets to be allocated to the bases of
certain types of assets based on their relative fair values, if
applicable. Acquired assets include intangible assets with
indefinite lives. Such assets are not amortized, but their
estimated useful lives are reevaluated each reporting
period. No goodwill is recorded for asset acquisitions.
• Acquisition costs and ceding commissions, other than
excess ceding commissions, are expensed or recognized at
the time of a transaction. Under GAAP, acquisition costs
and ceding commissions are deferred and recognized over
the life of the related transaction.
• Unearned premiums and loss reserves are presented net of
ceded amounts, while under GAAP, they are reflected gross
of ceded amounts.
NON-GAAP FINANCIAL MEASURES
In addition to reporting the Company’s quarterly financial
results in accordance with GAAP, the Company is reporting
non-GAAP financial measures: EBITDA, Adjusted EBITDA
and Adjusted EBITDA Margin, Organic Revenue Growth Rate
(Insurance Distribution segment only), Adjusted Net Income and
Adjusted Net Income Margin. These amounts are derived from
our consolidated financial information, but are not presented in
our consolidated financial results.
We present non-GAAP supplemental financial information
because we believe such information is of interest to the
investment community, and that it provides greater transparency
and enhanced visibility into the underlying drivers and
performance of our businesses on a basis that may not be
otherwise apparent on a GAAP basis. We view these non-GAAP
financial measures as important indicators when assessing and
evaluating our performance on a segmented and consolidated
basis and they are presented to improve the comparability of our
results between periods by eliminating the impact of the items
that may not be representative of our core operating
performance. These non-GAAP financial measures are not
substitutes for the Company’s GAAP reporting, should not be
viewed in isolation and may differ from similar reporting
provided by other companies, which may define non-GAAP
measures differently.
Beginning December 31, 2024, Ambac replaced the non-GAAP
measure Adjusted Net Income with new non-GAAP measures
Adjusted Net Income and Adjusted Net Income Margin and
Ambac Financial Group, Inc.
43
2024 Form 10-K
added Adjusted EBITDA and Adjusted EBITDA Margin to
better align with other participants in the Property & Casualty
insurance industry, including insurance carriers and other peers
in the insurance distribution business.
The following paragraphs define each non-GAAP financial
measure. A tabular reconciliation of the non-GAAP financial
measure and the most comparable GAAP financial measure is
also presented below.
EBITDA — EBITDA is net income (loss) from continuing
operations before interest expense, income taxes, depreciation
and amortization of intangible assets.
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA as net income (loss) from
continuing operations before interest expense, income taxes,
depreciation, amortization of intangible assets, change in fair
value of contingent consideration and certain items of income
and expense, including share-based compensation expense,
acquisition and integration related expenses, severance, and
other exceptional or non-recurring items, including those related
to raising capital. We believe that adjusted EBITDA is an
appropriate measure of operating performance because it
eliminates the impact of income and expenses that may
obfuscate business performance, and that the presentation of
this measure enhances an investor's understanding of our
financial performance.
Year Ended December 31,
2024
2023
2022
Specialty
Property
&
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Consoli-
dated
Specialty
Property
&
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Consoli-
dated
Specialty
Property
&
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Consoli-
dated
Net income (loss)
from continuing
operations
$ 10,469
$
(6,881)
$ (62,509)
$ (58,921)
$
335
$
7,133
$ (30,701)
$ (23,232)
$ (6,345)
$
4,524
$ (33,422)
$ (35,244)
Adjustments:
Interest expense
—
9,379
—
9,379
—
—
—
—
—
—
—
—
Income taxes
1,753
(928)
(1,748)
(924)
48
156
(1,193)
(989)
(1)
—
(462)
(462)
Depreciation
—
481
1,864
2,345
—
42
1,036
1,078
—
31
841
872
Intangible
amortization
—
17,602
—
17,602
—
4,152
—
4,152
—
2,921
—
2,921
EBITDA (1)
$ 12,222
$
19,653
$ (62,393)
$ (30,518)
$
383
$
11,483
$ (30,858)
$ (18,991)
$ (6,346)
$
7,476
$ (33,043)
$ (31,913)
Add: Impact of
noncontrolling
interests
—
(6,448)
—
(6,448)
—
(2,102)
—
(2,102)
—
(1,463)
—
(1,463)
Ambac EBITDA
12,222
13,208
(62,396)
(36,966)
383
9,381
(30,858)
(21,093)
(6,347)
6,013
(33,043)
(33,377)
Net income margin
8.3 %
(6.9) %
(609.2) %
(25.0) %
0.5 %
13.8 %
(338.1) %
(18.6) %
(34.4) %
14.4 %
(894.1) %
(65.7) %
Net income margin to
Ambac common
stockholders
8.3 %
(7.3) %
(609.2) %
(25.1) %
0.5 %
11.3 %
(338.1) %
(19.7) %
(34.3) %
11.6 %
(894.1) %
(67.4) %
EBITDA margin
9.7 %
19.8 %
(608.1) %
(12.9) %
0.6 %
22.3 %
(339.8) %
(15.2) %
(34.4) %
23.8 %
(884.0) %
(59.5) %
EBITDA margin to
Ambac common
stockholders
9.7 %
13.3 %
(608.1) %
(15.7) %
0.6 %
18.2 %
(339.8) %
(16.9) %
(34.4) %
19.1 %
(884.0) %
(62.3) %
Add: Acquisition and
integration related
expenses
—
—
27,388
27,388
—
—
567
567
—
—
593
593
Add: Equity-based
compensation
expense
414
—
8,941
9,355
634
—
11,632
12,266
208
—
11,024
11,232
Add: Severance and
restructuring expense
—
248
7,352
7,600
—
—
—
—
481
—
—
481
Add: Other non-
operating (income)
losses
(7,500)
—
2,318
(5,182)
—
—
279
279
—
—
(935)
(935)
Adjusted EBITDA
5,136
19,904
(16,397)
8,643
1,017
11,483
(18,380)
(5,879)
(5,658)
7,476
(22,361)
(20,543)
Adjusted EBITDA
attributable to
Ambac common
stockholders
5,136
13,456
(16,397)
2,195
1,017
9,381
(18,380)
(7,981)
(5,658)
6,013
(22,361)
(22,006)
Adjusted EBITDA
Margin
4.1 %
20.1 %
(159.8) %
3.7 %
1.6 %
22.3 %
(202.4) %
(4.7) %
(30.6) %
23.8 %
(598.2) %
(38.3) %
Adjusted EBITDA
Margin to Ambac
common stockholders
4.1 %
13.6 %
(159.8) %
0.9 %
1.6 %
18.2 %
(202.4) %
(6.4) %
(30.6) %
19.1 %
(598.2) %
(41.0) %
Organic Revenue Growth (Insurance Distribution
only)
Organic revenue is based on commissions and fees for the
relevant period by excluding (i) the first twelve months of
commissions and fees generated from acquisitions and (ii)
commissions and fees from divestitures (iii) and other items
such as contingent commissions, profit commissions and the
impact of changes in foreign exchange rates.
Organic revenue growth is the change in organic revenue
period-to-period, with prior period results adjusted to (i) include
commissions and fees that were excluded from organic revenue
in the prior period and reached the twelve-month owned mark in
the current period, and (ii) exclude commissions and fees related
to divestitures from organic revenue.
Ambac Financial Group, Inc.
44
2024 Form 10-K
Organic revenue growth rate to Total revenue growth rate, the most directly comparable GAAP measure, for each of the periods indicated
is as follows (in percentages):
Year Ended December 31,
Year Ended December 31,
2024
2023
% Growth
2023
2022
% Growth
Total Insurance Distribution revenue (1)
$
99,236
$
51,546
48.1 % $
51,546
$
31,410
64.1 %
Less: Acquired revenues
(45,202)
—
(16,446)
—
Less: Profit commission and contingent commission income
(4,273)
(4,489)
(4,489)
(3,745)
Total Organic Revenue & Growth Percentage
$
49,761
$
47,057
5.4 % $
30,611
$
27,665
10.6 %
(1)
Total Insurance Distribution revenue includes investment income.
Adjusted Net Income and Adjusted Net Income Margin
We define Adjusted net income as net income (loss) from continuing operations attributable to Ambac adjusted for amortization of
intangible assets, change in fair value of contingent consideration and certain items of income and expense, including share-based
compensation expense, acquisition and integration related expenses, severance and non-recurring income and loss items that, in the opinion
of management, significantly affect the period-over-period assessment of operating results, and the related tax effect of those adjustments.
Per share amounts exclude any impact of revaluing non-controlling interests as otherwise reported under GAAP earnings per share. We
believe that adjusted net income is an appropriate measure of operating performance because it eliminates the impact of income and
expenses that may obfuscate business performance.
Specialty
Property
&
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Consoli-
dated
Specialty
Property
&
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Consoli-
dated
Specialty
Property &
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Consoli-
dated
Net income (loss)
(Continuing
Operations)
$
10,469
$
(6,881)
$ (62,509)
$ (58,921)
$
335
$
7,133
$ (30,701)
$ (23,232)
$
(6,346)
$
4,524
$ (33,422)
$ (35,244)
Adjustments:
Add: Acquisition
and integration
related expenses
—
—
27,388
27,388
—
—
567
567
—
—
593
593
Add: Intangible
amortization
—
17,602
—
17,602
—
4,152
—
4,152
—
2,921
—
2,921
Add: Equity-
based
compensation
expense
414
—
8,941
9,355
634
—
11,632
12,266
208
—
11,024
11,232
Add: Severance
and restructuring
expense
—
248
7,352
7,600
—
—
—
—
481
—
—
481
Add: Other non-
operating income
(losses) (1)
(7,500)
—
2,318
(5,182)
—
—
279
279
—
—
(935)
(935)
Adjusted net
income (loss) before
tax and NCI
3,383
10,969
(16,510)
(2,158)
969
11,285
(18,223)
(5,968)
(5,657)
7,445
(22,740)
(20,952)
Income tax effects
—
—
—
—
—
—
—
—
—
—
—
—
Adjusted net
income (loss) before
NCI
3,383
10,969
(16,510)
(2,158)
969
11,285
(18,223)
(5,968)
(5,657)
7,445
(22,740)
(20,952)
Net (income) loss
attributable to NCI
—
(6,448)
—
(6,448)
—
(2,102)
—
(2,102)
—
(1,463)
—
(1,463)
Adjusted net
income (loss)
attributable to
Ambac
stockholders
$
3,383
$
4,521
$ (16,510)
$
(8,606)
$
969
$
9,183
$ (18,223)
$
(8,070)
$
(5,657)
$
5,982
$ (22,740)
$ (22,415)
Year Ended December 31,
2024
2023
2022
(1)
Other non-operating expense includes one time add-backs related to gain on sale of CNIC, partially offset by losses related to minority interest strategy
and write down of certain capitalized software costs.
Year Ended December 31,
2024
2023
2022
Specialty
Property &
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Consoli-
dated
Specialty
Property &
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Consoli-
dated
Specialty
Property &
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Consoli-
dated
Net income (loss) margin
8.3 %
(6.9) %
(609.2) %
(25.0) %
0.5 %
13.8 %
(338.1) %
(18.6) %
(34.4) %
14.4 %
(894.1) %
(65.7) %
Adjusted Net income
(loss) attributable to
Ambac stockholders
margin
2.7 %
4.6 %
(160.9) %
(3.6) %
1.5 %
17.8 %
(200.7) %
(6.5) %
(30.6) %
19.0 %
(608.3) %
(41.8) %
Ambac Financial Group, Inc.
45
2024 Form 10-K
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk ($ in thousands)
Market risk represents the potential for loss due to adverse
changes in the fair value of financial instruments, as a result of
changes in market rates and prices, such as interest rates
(inclusive of credit spreads), foreign currency exchange rates
and other relevant market rate or price changes. Market risk is,
in part, a function of the markets in which the underlying assets
are traded. The Company’s market risk sensitive financial
instruments are primarily entered into for purposes other than
trading. As discussed further below, the Company’s primary
market risk exposures include those from changes in interest
rates, foreign currency exchange rates and equity values of
limited partnership and other alternative investments. The
nature and extent of the Company's exposures to these market
risks vary significantly between AAC and its subsidiaries, which
are presented as discontinued operations, and the continuing
operations of the Company.
• The primary market risks for fixed maturity and short-term
investment securities are interest rate risk and foreign
exchange rate risk. Ambac’s investment portfolio includes
securities denominated both in U.S. dollars and foreign
currencies, which are sensitive to changes in interest rates
and foreign currency exchange rates. Our fixed maturity
investments are generally classified as available for sale,
with the effect of market movements recognized
immediately through Other comprehensive income, or
through Net income when securities are sold or when an
impairment charge is recorded.
• Ambac also invests in limited partnerships and other
alternative investments, primarily consisting of diversified
pooled investment funds, which are reported as Other
investments. These funds are subject to equity value
changes driven primarily by changes to their respective net
asset value (“NAV”). Ambac’s share of the changes of the
equity value of the funds is reported through Net income.
• Although the long-term debt obligations of AAC and
Ambac UK are reported at amortized cost and not adjusted
for fair value changes, changes in interest rates could have
a material impact on their fair value, though with no direct
impact on our consolidated financial statements. For
additional information about Ambac’s long-term debt
obligations, Note 5. Discontinued Operation to the
Consolidated Financial Statements included in Part II, Item
8 in this Annual Report on Form 10-K.
Ambac utilizes various systems, models and sensitivity
scenarios to monitor and manage market risk. These models
include estimates, made by management, which utilize current
and historical market information. This market information is
considered in management’s judgments about adverse sensitivity
scenarios that are reasonably possible to occur in the near-term.
The impact of these scenarios do not consider the possible
simultaneous movement in other market rates or prices, actions
of management or other factors that could lessen or worsen
actual results. For these reasons, the valuation results from these
models could differ materially from amounts actually realized in
the market.
Market Risk Sensitivities — Continuing Operations
Interest Rate Risk. Financial instruments within Ambac's
continuing operations for which fair value may be affected by
changes in interest rates consist primarily of fixed maturity
investment securities. Increases to interest rates would result in
declines in the fair value of our fixed maturity investment
portfolio. Ambac performs scenario testing to measure the
potential for losses in volatile markets. These scenario tests
include parallel and non-parallel shifts in the benchmark interest
rate curve. The fair value sensitivity of Ambac's short-term debt
is not material due to its floating rate coupon and maturity of
July 31, 2025. For additional information about Ambac’s short-
term debt see Note 12. Debt to the Consolidated Financial
Statements included in Part II, Item 8 in this Annual Report on
Form 10-K.
The following table summarizes the estimated change in fair
value of our fixed maturity investment portfolio from a
hypothetical immediate increase in interest rates of 100 basis
points across the yield curve as of December 31, 2024 and 2023:
December 31,
2024
2023
Fair value of fixed maturity and short-term
investments
$ 284,621
$ 335,735
Pre-tax impact of 100 basis point increase in
interest rates
Decrease in dollars
$
(4,952)
$
(3,558)
As a percent of fair value
2 %
1 %
Foreign Currency Risk. Ambac's Insurance Distribution
subsidiary, Beat Capital Partners Limited, has short-term
investments denominated in British pounds sterling and is a
party to foreign exchange forward contracts at December 31,
2024. These financial instruments would experience fair value
losses if the U.S. dollar strengthened relative to the British
pounds sterling. The following table summarizes the estimated
decrease in fair value of these financial instruments assuming
immediate 20% strengthening of the U.S. dollar relative to the
British pounds sterling as of December 31, 2024 and 2023:
December 31,
2024
2023
Fair value of investments denominated in
currencies other than the U.S. dollar
$
16,604
$
—
Pre-tax loss from 20% strengthening of the
U.S. dollar
$
(3,321) $
—
Fair value of FX forward contracts
$
(317) $
—
Pre-tax loss from 20% strengthening of
the U.S. dollar
$
(3,936) $
—
Equity Sensitivity. Ambac’s investment portfolio includes a
partnership interest in a private equity fund. The table below
summarizes the decrease in fair value of Ambac’s pooled fund
investment that would occur assuming an immediate and
uniform 10% decline in NAV of the fund. The selection of a
10% fair value stress is made only as an illustration of the
hypothetical impact of adverse market movements on Ambac’s
investments with equity value sensitivity. Actual market shocks
could have materially different results.
December 31,
2024
2023
Fair value of investments in pooled funds
$
7,499
$
5,817
Pre-tax impact of 10% decline in NAV of the
funds
$
(750) $
(582)
Ambac Financial Group, Inc.
46
2024 Form 10-K
Market Risk Sensitivities — Discontinued Operations
Interest Rate Risk. Financial instruments for which fair
value may be affected by changes in interest rates consist
primarily of fixed maturity investment securities, long-term debt
and interest rate derivatives. Increases to interest rates would
result in declines in the fair value of our fixed maturity
investment portfolio. Interest rate increases would also have a
negative economic impact on expected future claim payments
within the financial guarantee portfolio, primarily related to
RMBS and student loan policies. Conversely, interest rate
increases would generally lower the fair value of our long-term
debt obligations. Ambac performs scenario testing to measure
the potential for losses in volatile markets. These scenario tests
include parallel and non-parallel shifts in the benchmark interest
rate curve. We also monitor our interest rates exposure through
periodic reviews of projected cash flows and durations of our
asset and liability positions.
The following table summarizes the estimated change in fair
value of our fixed maturity investment portfolio from a
hypothetical immediate increase in interest rates of 100 basis
points across the yield curve as of December 31, 2024 and 2023:
December 31,
2024
2023
Fair value of fixed maturity investment (1)
$ 1,436,817
$ 1,484,473
Pre-tax impact of 100 basis point increase in
interest rates
Decrease in dollars
$ (50,461)
$
(46,759)
As a percent of fair value
3 %
3 %
(1)
Excludes investments in distressed Ambac-insured securities and
securities held by VIEs consolidated as a result of Ambac’s
financial guarantees.
The following table presents the impact on the fair value of our
long-term debt obligations and interest rate derivatives of a
hypothetical immediate decrease in interest rates of 100 basis
points across the yield curve as of December 31, 2024 and 2023:
December 31,
2024
2023
Fair value of long-term debt including
accrued interest (1)
$ (739,963)
$ (697,183)
Pre-tax impact of 100 basis point decrease in
interest rates
Increase in dollars
$ (14,651)
$
(24,037)
As a percent of fair value
2 %
3 %
Fair value of interest rate derivative net
assets (liabilities) (1)
$
(6,260)
$
(9,593)
Pre-tax impact of 100 basis point decrease in
interest rates
Pre-tax loss from change in fair value in
dollars
$
(3,053)
$
(3,995)
(1)
Excludes long-term debt and derivative instruments of VIEs
consolidated as a result of Ambac’s financial guarantees.
Foreign Currency Risk. Ambac has fixed maturity
investments and investments in pooled funds denominated in
currencies other than the U.S. dollar, primarily British pounds
sterling and Euro. These financial instruments are primarily
invested assets of Ambac UK and are held in consideration of
non-U.S. dollar exposure in the financial guarantee insurance
portfolio and operations of Ambac UK. The adverse fair value
impact of a stronger U.S. dollar relative to other currencies on
investment holdings would be directionally offset by the
economic benefits to non-U.S. dollar financial guarantees and
other risk exposures. The following table summarizes the
estimated decrease in fair value of these financial instruments
assuming immediate 20% strengthening of the U.S. dollar
relative to the foreign currencies as of December 31, 2024 and
2023:
December 31,
2024
2023
Fair value of investments denominated in
currencies other than the U.S. dollar (1)
$
344,513
$
463,336
Pre-tax impact of 20% strengthening of the
U.S. dollar
$
(68,903) $
(92,667)
(1)
Excludes investments in distressed Ambac-insured securities and
securities held by VIEs consolidated as a result of Ambac’s
financial guarantees.
Equity Sensitivity. Ambac’s investment portfolio includes
equity and partnership interests in pooled funds with diverse
asset holdings and strategies. The table below summarizes the
decrease in fair value of Ambac’s pooled fund investments that
would occur assuming an immediate and uniform 10% decline
in NAV of the funds. The selection of a 10% fair value stress is
made only as an illustration of the hypothetical impact of
adverse market movements on Ambac’s investments with equity
value sensitivity. Actual market shocks could have materially
different aggregate results and would likely not have a uniform
impact on all funds given the diversity of the funds’ holdings
and strategies.
December 31,
2024
2023
Fair value of investments in pooled funds
$
495,045
$
456,981
Pre-tax impact of 10% decline in NAV of the
funds
$
(49,504) $
(45,698)
Ambac Financial Group, Inc.
47
2024 Form 10-K
Item 8.
Financial Statements and Supplementary Data
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Account Firm KPMG LLP, New York, NY, PCAOB ID 185
49
Consolidated Financial Statements
Consolidated Balance Sheets ....................................................
52
Consolidated Statements of Stockholders’ Equity ....................
54
Consolidated Statements of Total Comprehensive Income
(Loss) .........................................................................................
53
Consolidated Statements of Cash Flows ...................................
55
Notes to Consolidated Financial Statements
Note 1. Background and Business Description .......................
56
Note 11. Goodwill and Intangible Assets ..................................
86
Note 2. Basis of Presentation and Significant Accounting
Policies .......................................................................
56
Note 12. Debt .............................................................................
87
Note 3. Segment Information ...................................................
65
Note 13. Revenues from Contracts with Customers ..................
87
Note 4. Business Combination ................................................
67
Note 14. Comprehensive Income ...............................................
88
Note 5. Discontinued Operation .............................................
68
Note 15. Net Income Per Share ..................................................
89
Note 6. Investments ................................................................
74
Note 16. Income Taxes ..............................................................
89
Note 7. Fair Value Measurements ..........................................
76
Note 17. Employment Benefit Plans ..........................................
91
Note 8. Insurance Contracts .....................................................
80
Note 18. Leases ..........................................................................
93
Note 9. Insurance Regulatory Restrictions...............................
84
Note 19. Commitments and Contingencies ................................
94
Note 10. Derivative Instruments ...............................................
86
Note 20. Quarterly Information (Unaudited) .............................
97
Ambac Financial Group, Inc.
48
2024 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Ambac Financial Group, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Ambac Financial Group, Inc. and
subsidiaries' (the Company) internal control over financial
reporting as of December 31, 2024, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2024, based on criteria established
in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of
December 31, 2024 and 2023, the related consolidated
statements of total comprehensive income (loss), stockholders’
equity, and cash flows for each of the years in the three-year
period ended December 31, 2024, and the related notes and
financial statement schedules I, II and III (collectively, the
consolidated financial statements), and our report dated March
6, 2025 expressed an unqualified opinion on those consolidated
financial statements.
The Company acquired Beat Capital Partners Limited during
2024, and management excluded from its assessment of the
effectiveness of the Company’s internal control over financial
reporting as of December 31, 2024, Beat Capital Partners
Limited’s internal control over financial reporting associated
with total assets of 1% and total revenues of 17% included in the
consolidated financial statements of the Company as of and for
the year ended December 31, 2024. Our audit of internal control
over financial reporting of the Company also excluded an
evaluation of the internal control over financial reporting of Beat
Capital Partners Limited.
Basis for Opinion
The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures
as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial
Reporting
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
New York, New York
March 6, 2025
Ambac Financial Group, Inc.
49
2024 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Ambac Financial Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets
of Ambac Financial Group, Inc. and subsidiaries (the Company)
as of December 31, 2024 and 2023, the related consolidated
statements of total comprehensive income (loss), stockholders’
equity, and cash flows for each of the years in the three-year
period ended December 31, 2024, and the related notes and
financial statement schedules I, II and III (collectively, the
consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of
December 31, 2024 and 2023, and the results of its operations
and its cash flows for each of the years in the three-year period
ended December 31, 2024, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial
reporting as of December 31, 2024, based on criteria established
in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 6, 2025 expressed an
unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We
believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matters
The critical audit matters communicated below are matters
arising from the current period audit of the consolidated
financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on
the consolidated financial statements, taken as a whole, and we
are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Estimate of loss and loss adjustment expense reserves
As discussed in Notes 2 and 8 to the consolidated financial
statements, the loss and loss adjustment expense reserves
(reserves) for Specialty Property and Casualty policies represent
the Company’s estimate of the ultimate liability for unpaid
losses and loss expenses for claims that have been reported and
claims that have been incurred but not yet reported as of the
balance sheet date. The reserves are estimated based upon
experience and using a variety of actuarial methods. The
Company’s reserves balance at December 31, 2024 was
$349,062 thousand.
We identified the assessment of the estimate of reserves for
Specialty Property and Casualty policies as a critical audit
matter. The assessment of the Company’s selected methods and
key assumptions used to develop the estimate of reserves
required complex auditor judgment due to the significant
measurement uncertainty. Key assumptions included loss
development factors, expected loss ratios, and the weighting of
actuarial methods when more than one was used. Specialized
actuarial skills and knowledge were required to evaluate the
actuarial method or methods and key assumptions used.
The following are the primary procedures we performed to
address the critical audit matter. With the assistance of actuarial
professionals, when appropriate, we evaluated the design and
tested the operating effectiveness of certain internal controls
over the Company’s reserving process. This included controls
over the Company’s process to develop the Company’s estimate
of reserves based on actuarial methodologies and key
assumptions employed by the Company’s actuaries. We
involved actuarial professionals with specialized skills and
knowledge, who assisted in:
• for certain programs, evaluating the Company’s key
assumptions and methods for consistency with actuarial
standards of practice
• for certain programs, developing an independent range of
reserves using methods and assumptions consistent with
actuarial standards of practice and comparing it to the
Company’s recorded reserves
• for certain programs, assessing the position in the range and
the year-over-year movements of the Company’s recorded
reserves within the independent range of reserves
Ambac Financial Group, Inc.
50
2024 Form 10-K
Valuation of customer relationship intangibles for the Beat
reporting unit
As discussed in Note 4 to the consolidated financial statements,
on July 31, 2024, the Company completed the acquisition of
60% of Beat Capital Partners (Beat) for a purchase price of
$281,278 thousand. The acquisition was accounted for as a
business combination using the acquisition method of
accounting, which required the Company to allocate the total
consideration transferred to the assets acquired, liabilities
assumed, and noncontrolling interests based on their fair values
at the date of acquisition. As part of the transaction, the
Company acquired a customer relationships intangible asset
with an acquisition date fair value of $303,331 thousand, which
was valued using the multi-period excess earnings method.
We identified the assessment of the acquisition date fair value of
the customer relationships intangible asset as a critical audit
matter. Subjective auditor judgment and the involvement of
valuation professionals with specialized skills and knowledge
were required to assess the discount rate assumption used to
estimate the acquisition date fair value for the customer
relationships intangible asset due to the degree of measurement
uncertainty associated with this assumption.
The following are the primary procedures we performed to
address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls
related to the Company’s acquisition date valuation process.
This included a control over the development of the discount
rate used to value the customer relationships intangible asset.
We involved valuation professionals with specialized skills and
knowledge, who assisted in evaluating the Company’s discount
rate assumption used for the customer relationships intangible
asset by independently developing a range of discount rates
based on publicly available market data for comparable entities
and comparing that range to the Company’s discount rate.
Estimate of loss and loss adjustment expense reserves and
subrogation recoverable
As described in Note 5 to the consolidated financial statements,
the Company estimates financial guarantee loss and loss
adjustment expense reserves and subrogation recoverable (loss
reserves) on a policy-by-policy basis based upon the present
value of expected net claim cash outflows or expected net
recovery cash inflows, discounted at risk-free rates. Expected
net claim cash outflows represent the present value of expected
claim cash outflows, less the present value of expected recovery
cash inflows. For such policies, a loss and loss adjustment
expense reserves liability is recorded for the present value of
expected net claim cash outflows in excess of the related
unearned premium revenue. Expected net recovery cash inflows
represent the present value of expected recovery cash inflows,
less the present value of expected claim cash outflows. For such
policies, a subrogation recoverable asset is recorded. As of
December 31, 2024, the Company recorded loss and loss
adjustment expense reserves of $577,167 thousand and
subrogation recoverable of $113,962 thousand within Liabilities
held-for-sale and Assets held-for-sale, respectively.
We identified the evaluation of loss adjustment reserves as a
critical audit matter. The evaluation encompassed the
assessment of the loss reserves methodologies, including those
methods used to estimate the following assumptions: (1) credit
worthiness of the issuer of the insured security, (2) the
likelihood of possible outcomes regarding the probability of
default by the issuer of the insured security, (3) the expected loss
severity for each insurance policy, and (4) the probability of
remediation, settlement and restructuring outcomes. The
evaluation of the methods and the impact of these assumptions
required specialized skills and subjective and complex auditor
judgment due to a high level of estimation uncertainty.
The following are the primary procedures we performed to
address this critical audit matter. With the assistance of credit
risk and valuation professionals with specialized industry
knowledge and experience, we evaluated the design and tested
the operating effectiveness of certain internal controls related to
the Company's estimation of loss reserves. This included
controls related to the determination of the assumptions and the
sources of data and the analysis of the loss reserves. We
involved credit risk professionals with specialized skills and
knowledge, who assisted in assessing the individual issuer
ratings and credit classifications for certain policies by
evaluating the financial performance of the issuer of the insured
security and underlying collateral. We also involved valuation
professionals with specialized skills and knowledge, who
assisted in:
• evaluating the methods used to estimate loss reserves for
compliance with U.S. generally accepted accounting
principles,
• evaluating, for certain policies, the assumptions, including:
the likelihood of possible outcomes regarding the
probability of default by the issuer of the insured security;
the expected loss severity for each insurance policy; and,
the probability of remediation, settlement and restructuring
outcomes, and the sources of data and assumptions used in
the calculation of loss reserves by comparing to the
Company’s internal experience and related historical and
industry trends.
/s/ KPMG LLP
We have served as the Company’s auditor since 1985.
New York, New York
March 6, 2025
Ambac Financial Group, Inc.
51
2024 Form 10-K
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data) December 31,
2024
2023
Assets:
Investments:
Fixed maturity securities, at fair value (amortized cost of $162,124 and $141,179)
$
157,020
$
135,224
Short-term investments, at fair value (amortized cost of $127,588 and $200,506)
127,601
200,510
Other investments (at cost, except for $7,499 and $5,817 at fair value)
28,294
18,317
Total investments
312,915
354,051
Cash and cash equivalents (including $17,669 and $11,881 of restricted cash)
47,275
19,223
Premium receivables
57,222
45,893
Commission and fees receivable
55,377
9,419
Reinsurance recoverable on paid and unpaid losses
306,191
164,997
Deferred ceded premium
148,300
110,407
Deferred acquisition costs
8,572
10,960
Intangible assets, less accumulated amortization
344,775
61,403
Goodwill
418,234
69,694
Other assets
92,317
65,817
Assets held-for-sale
6,267,200
7,516,456
Total assets
$
8,058,378
$
8,428,320
Liabilities and Stockholders’ Equity:
Liabilities:
Unearned premiums
$
182,446
$
154,878
Loss and loss adjustment expense reserves
349,062
197,089
Ceded premiums payable
53,002
29,666
Deferred program fees and reinsurance commissions
7,500
5,777
Commissions payable
71,431
6,932
Deferred taxes
70,135
—
Short-term debt
150,000
—
Accrued interest payable
2,560
—
Other liabilities
89,036
60,419
Liabilities held-for-sale
5,887,685
6,541,866
Total liabilities
6,862,857
6,996,627
Commitments and contingencies (See Note 19)
Redeemable noncontrolling interest
140,860
17,079
Stockholders’ equity:
Preferred stock, par value $0.01 per share; 20,000,000 shares authorized shares; issued and outstanding shares—none
—
—
Common stock, par value $0.01 per share; 130,000,000 shares authorized; issued shares: 48,875,167 and 46,659,144
489
467
Additional paid-in capital
331,007
291,761
Accumulated other comprehensive income (loss)
(188,436)
(160,047)
Retained earnings
742,185
1,246,048
Treasury stock, shares at cost: 2,368,194 and 1,463,774
(28,339)
(16,573)
Total Ambac Financial Group, Inc. stockholders’ equity
856,906
1,361,656
Nonredeemable noncontrolling interest
197,755
52,958
Total stockholders’ equity
1,054,661
1,414,614
Total liabilities, redeemable noncontrolling interest and stockholders’ equity
$
8,058,378
$
8,428,320
See accompanying Notes to Consolidated Financial Statements
Ambac Financial Group, Inc.
52
2024 Form 10-K
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Total Comprehensive Income (Loss)
Revenues:
Net premiums earned
$
99,005
$
51,911
$
13,869
Commission income
92,023
51,281
30,695
Program fees
13,506
8,437
3,095
Net investment income
14,448
13,159
4,503
Net investment gains (losses), including impairments
(497)
19
(62)
Net gains (losses) on derivative contracts
4,016
(279)
935
Other revenue
13,314
200
577
Total revenues and other income
235,815
124,728
53,612
Expenses:
Losses and loss adjustment expenses
72,626
36,712
9,071
Policy acquisition costs
23,666
10,557
2,535
Commission expense
40,876
29,465
17,641
General and administrative expenses
129,166
66,985
56,278
Depreciation expense
2,345
1,078
872
Intangible amortization
17,602
4,152
2,921
Interest expense
9,379
—
—
Total expenses
295,660
148,949
89,318
Pretax income (loss) from continuing operations
(59,845)
(24,221)
(35,706)
Provision (benefit) for income taxes from continuing operations
(924)
(989)
(462)
Net income (loss) from continuing operations
(58,921)
(23,232)
(35,244)
Net income (loss) from discontinued operations, net of tax (including loss on disposal of $570,145 in
2024)
(497,167)
28,183
557,364
Net income (loss)
(556,088)
4,951
522,120
Less: net (gain) loss attributable to noncontrolling interest
(361)
(1,319)
(871)
Plus: gain on purchase of auction market preferred shares
—
—
1,131
Net income (loss) attributable to Ambac shareholders
$
(556,449) $
3,632
$
522,380
Net income (loss) attributable to Ambac shareholders
Continuing operations
$
(59,282) $
(24,551) $
(36,115)
Discontinued operations
(497,167)
28,183
558,495
Total
$
(556,449) $
3,632
$
522,380
Other comprehensive income (loss), after tax
Net income (loss)
$
(556,088) $
4,951
$
522,120
Unrealized gains (losses) on securities, net of income tax provision (benefit) of $1,295, $2,095 and
$(6,264)
(939)
51,184
(225,341)
Gains (losses) on foreign currency translation, net of income tax provision (benefit) of $0, $0 and $0
(22,156)
40,132
(84,520)
Credit risk changes of fair value option liabilities, net of income tax provision (benefit) of $(118), $177
and $79
(356)
(88)
340
Changes to postretirement benefit, net of income tax provision (benefit) of $0, $0 and $0
(4,939)
1,569
(933)
Total other comprehensive income (loss), net of income tax
(28,390)
92,797
(310,454)
Total comprehensive income (loss), net of income tax
(584,478)
97,748
211,666
Less: net (gain) loss attributable to noncontrolling interest
(361)
(1,319)
(871)
Less: (gain) loss on foreign currency translation attributable to noncontrolling interest
3,074
—
—
Plus: gain on purchase of auction market preferred shares
—
—
1,131
Total comprehensive income (loss) attributable to Ambac shareholders
$
(581,765) $
96,429
$
211,926
Net income (loss) from continuing operations per share attributable to Ambac shareholders
Basic
$
(0.13) $
(0.43) $
(0.74)
Diluted
$
(0.13) $
(0.43) $
(0.74)
Net income (loss) from discontinued operations per share attributable to Ambac shareholders
Basic
$
(10.58) $
0.62
$
12.22
Diluted
$
(10.58) $
0.62
$
12.22
Net income (loss) per share attributable to Ambac shareholders
Basic
$
(10.71) $
0.18
$
11.48
Diluted
$
(10.71) $
0.18
$
11.48
Weighted average number of common shares outstanding:
Basic
46,969,708
45,636,649
45,719,906
Diluted
46,969,708
45,636,649
45,719,906
(Dollars in thousands, except share data) Year Ended December 31,
2024
2023
2022
See accompanying Notes to Consolidated Financial Statements
Ambac Financial Group, Inc.
53
2024 Form 10-K
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Ambac Financial Group, Inc.
($ in thousands)
Total
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Common
Stock Held in
Treasury, at
Cost
Nonredeemable
Noncontrolling
Interest
Balance at December 31, 2021
$ 1,098,073
$
—
$
465
$ 256,906
$
57,611
$ 726,054
$
(2,931) $
59,968
Total comprehensive income
(loss)
210,794
(310,454)
521,248
Stock-based compensation
17,408
17,408
Cost of shares (acquired) issued
under equity plan
(3,568)
(5,446)
1,878
Cost of shares repurchased
(14,217)
(14,217)
Changes to NCI
2,504
2,504
Sale or NCI in subsidiary
2,173
172
2,001
Issuance of common stock
2
2
Purchase of Ambac Assurance
auction market preferred shares
(7,919)
1,131
(9,050)
Balance at December 31, 2022
$ 1,305,250
$
—
$
467
$ 274,486
$
(252,843) $ 1,245,491
$
(15,270) $
52,919
Total comprehensive income
(loss)
96,428
92,796
3,632
Stock-based compensation
17,275
17,275
Cost of shares (acquired) issued
under equity plan
(4,665)
(7,872)
3,207
Cost of shares repurchased
(4,510)
(4,510)
Changes to NCI
4,836
4,797
39
Balance at December 31, 2023
$ 1,414,614
$
—
$
467
$ 291,761
$
(160,047) $ 1,246,048
$
(16,573) $
52,958
Total comprehensive income
(loss)
(584,839)
(28,390) (556,449)
Stock-based compensation
8,995
8,995
Cost of shares (acquired) issued
under equity plan
(701)
(634)
(67)
Cost of shares repurchased
(11,699)
(11,699)
Changes to NCI
49,966
1,044
53,220
(4,298)
Issuance of common stock
29,229
22
29,207
Fair value of nonredeemable NCI
in Beat Capital Partners at
acquisition
149,095
149,095
Balance at December 31, 2024
$ 1,054,661
$
—
$
489
$ 331,007
$
(188,436) $ 742,185
$
(28,339) $
197,755
See accompanying Notes to Consolidated Financial Statements
Ambac Financial Group, Inc.
54
2024 Form 10-K
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income (loss)
(556,088)
4,951
522,120
Net income (loss) from discontinued operations
(497,167)
28,183
557,364
Net income (loss) from continuing operations
(58,921)
(23,232)
(35,244)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation
2,345
1,078
872
Amortization of bond premium and discount
(296)
9
(6,742)
Share-based compensation
9,356
12,266
11,231
Unearned premiums, net
(10,324)
27,913
14,684
Losses and loss expenses, net
10,779
23,737
7,900
Ceded premiums payable
23,337
9,721
17,065
Premium receivables
(11,329)
(30,225)
(13,478)
Accrued interest payable
2,560
—
—
Amortization of intangible assets
17,602
4,152
2,921
Net investment gains (losses), including impairments
497
(19)
13,710
Corporate costs reallocated to continuing operations
14,919
19,367
20,189
Other, net
237
(7,819)
37,260
Net cash provided by (used in) operating activities from continuing operations
762
36,948
70,368
Cash flows from investing activities:
Proceeds from sales of bonds
5,994
1,378
53,517
Proceeds from matured bonds
21,580
15,078
18,097
Purchases of bonds
(60,470)
(33,243)
(43,489)
Proceeds from sales of other invested assets
625
—
—
Purchases of other investments
(2,522)
(2,242)
(4,788)
Change in short-term investments
101,829
4,157
(48,386)
Acquisitions, net of cash acquired
(243,776)
(6,953)
(18,442)
Proceeds from sale of subsidiary, net of cash transferred
14,119
—
—
Other, net
(3,750)
(4,854)
2,329
Net cash provided by (used in) investing activities from continuing operations
(166,371)
(26,679)
(41,162)
Cash flows from financing activities:
Proceeds from short-term debt
147,000
—
—
Issuance of equity interest in subsidiary
62,000
—
—
Payments for purchases of common stock held in treasury
(11,698)
(4,510)
(14,217)
Tax payments related to shares withheld for share-based compensation plans
(692)
(4,585)
(3,576)
Distributions to noncontrolling interest holders
(2,391)
(1,891)
(1,442)
Net cash provided by (used in) financing activities from continuing operations
194,219
(10,986)
(19,235)
Effect of foreign exchange on cash and cash equivalents - continuing operations
(558)
—
—
Net cash provided by (used in) continuing operations
28,052
(717)
9,971
Cash, cash equivalents, and restricted cash at beginning of period - continuing operations
19,223
19,940
9,969
Cash, cash equivalents, and restricted cash at end of period - continuing operations
$
47,275
$
19,223
$
19,940
Net cash provided by (used in) operating activities from discontinued operations
33,536
163,376
1,264,975
Net cash provided by (used in) investing activities from discontinued operations
(7,911)
461,870
959,610
Net cash provided by (used in) financing activities from discontinued operations
(214,606)
(411,947)
(2,195,992)
Effect of foreign exchange on cash and cash equivalents - discontinued operations
(126)
529
(670)
Net cash provided by (used in) discontinued operations
(189,107)
213,828
27,923
Cash, cash equivalents, and restricted cash at beginning of period - discontinued operations
255,183
41,355
13,432
Cash, cash equivalents, and restricted cash at end of period - discontinued operations
$
66,076
$
255,183
$
41,355
($ in thousands) Year Ended December 31,
2024
2023
2022
See accompanying Notes to Consolidated Financial Statements
Ambac Financial Group, Inc.
55
2024 Form 10-K
1. BACKGROUND AND BUSINESS
DESCRIPTION
Ambac Financial Group, Inc. (“AFG”), headquartered in New
York City, is a financial services holding company incorporated
in the state of Delaware on April 29, 1991. References to
“Ambac,” the “Company,” “we,” “our,” and “us” are to AFG
and its subsidiaries, as the context requires. Ambac's business
operations include:
• Insurance Distribution — Ambac's specialty property and
casualty ("P&C") insurance distribution business includes
Managing General Agents and Underwriters (collectively
"MGAs" or "MGA/Us"), an insurance broker, and other
distribution
and
underwriting
businesses.
Insurance
Distribution includes Beat Capital Partners Limited
("Beat", which was acquired on July 31, 2024). At
December 31, 2024, Ambac's insurance distribution
platform operates in the following lines of business:
accident & health, specialty auto, other professional,
marine & energy, niche specialty risks, property,
reinsurance, professional D&O and other specialty lines.
• Specialty Property and Casualty Insurance — Ambac's
Specialty Property and Casualty Insurance program
business includes four admitted carriers and an excess and
surplus
lines
(“E&S”
or
“nonadmitted”)
insurer
(collectively, “Everspan”). Everspan carriers have an A.M.
Best rating of 'A-' (Excellent) which was affirmed on June
13, 2024.
The Company reports these two business operations as
segments; see Note 3. Segment Information for further
information.
Ambac's financial guarantee business, which is being reported as
a discontinued operation due to its pending sale, includes the
activities of Ambac Assurance Corporation ("AAC") and its
wholly owned subsidiaries, including Ambac Assurance UK
Limited (“Ambac UK”) and Ambac Financial Services LLC
("AFS"). Both AAC and Ambac UK have financial guarantee
insurance portfolios that have been in runoff since 2008. AFS
provided interest rate derivatives to financial guarantee
customers and used derivatives to hedge interest rate risk in
AAC's insurance and investment portfolios. See Note 5.
Discontinued Operation for information related to the pending
sale of AAC.
Limitations on Voting and Transfer of Common Stock
AFG’s Amended and Restated Certificate of Incorporation
limits voting and transfer rights of stockholders in significant
ways. Article IV contains voting restrictions applicable to any
person owning at least 10% of AFG's common stock so that
such person (including any group consisting of such person and
any other person with whom such person or any affiliate or
associate of such person has any agreement, contract,
arrangement or understanding with respect to acquiring, voting,
holding or disposing of AFG’s common stock) shall not be
entitled to cast votes in excess of one vote less than 10% of the
votes entitled to be cast by all common stock holders, except as
otherwise approved by the insurance commissioners of the states
of domicile of the insurance companies controlled by AFG.
Article XII contains substantial restrictions on the ability to
transfer AFG’s common stock. In order to preserve certain tax
benefits, subject to limited exceptions, any attempted transfer of
common stock shall be prohibited and void to the extent that, as
a result of such transfer (or any series of transfers of which such
transfer is a part), either (i) any person or group of persons shall
become a holder of 5% or more of AFG’s common stock or
(ii) the percentage stock ownership interest in AFG of any
holder of 5% or more of AFG’s common stock shall be
increased (a “Prohibited Transfer”). These restrictions shall not
apply to an attempted transfer if the transferor or the transferee
obtains the written approval of AFG’s Board of Directors to
such transfer. A purported transferee of a Prohibited Transfer
shall not be recognized as a stockholder of AFG for any purpose
whatsoever in respect of the securities which are the subject of
the Prohibited Transfer (the “Excess Securities”). Until the
Excess Securities are acquired by another person in a transfer
that is not a Prohibited Transfer, the purported transferee of a
Prohibited Transfer shall not be entitled with respect to such
Excess Securities to any rights of stockholders of AFG,
including, without limitation, the right to vote such Excess
Securities and to receive dividends or distributions, whether
liquidating or otherwise, in respect thereof, if any. Once the
Excess Securities have been acquired in a transfer that is not a
Prohibited Transfer, the securities shall cease to be Excess
Securities. If the Board determines that a transfer of securities
constitutes a Prohibited Transfer then, upon written demand by
AFG, the purported transferee shall transfer or cause to be
transferred any certificate or other evidence of ownership of the
Excess Securities within the purported transferee’s possession or
control, together with any distributions paid by AFG with
respect to such Excess Securities, to an agent designated by
AFG. Such agent shall thereafter sell such Excess Securities and
the proceeds of such sale shall be distributed as set forth in the
Amended and Restated Certificate of Incorporation. If the
purported transferee of a Prohibited Transfer has resold the
Excess Securities before receiving such demand, such person
shall be deemed to have sold the Excess Securities for AFG’s
agent and shall be required to transfer to such agent the proceeds
of such sale, which shall be distributed as set forth in the
Amended and Restated Certificate of Incorporation.
2. BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES
Ambac’s consolidated financial statements have been prepared
on the basis of U.S. generally accepted accounting principles
(“GAAP”). The preparation of financial statements in
conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and disclosures. There can be no
assurance that actual results will conform to such estimates and
any future changes in estimates could be material to the financial
statements.
Consolidation
The consolidated financial statements include the accounts of
AFG and all other entities in which AFG (directly or through its
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
56
2024 Form 10-K
subsidiaries) has a controlling financial interest. All significant
intercompany balances have been eliminated. The usual
condition for a controlling financial interest is ownership of a
majority of the voting interests of an entity.
AFG Unconsolidated Financial Information
Financial information of AFG is presented in Schedule II in this
Annual Report on Form 10-K as of December 31, 2024 and
2023 and for the years ended December 31, 2024, 2023 and
2022. Investments in subsidiaries are accounted for using the
equity method of accounting in Schedule II.
Held for Sale and Discontinued Operations
The Company has separately classified the assets and liabilities
of AAC as held for sale as a result of AAC's pending sale and
meeting specified accounting criteria. Assets and liabilities held
for sale are presented separately within the Consolidated
Balance Sheets with any adjustments necessary to measure the
disposal group at the lower of its carrying value or fair value less
costs to sell. The stockholders' equity section of the
Consolidated Balance Sheet continues to be reported on an
aggregate basis; equity components (including nonredeemable
NCI) solely attributable to AAC are not presented separately.
The Company reports the results of operations of AAC as
discontinued operations since the pending sale also represents a
strategic shift that will have a major effect on the Company's
operations and financial results. The results of discontinued
operations are reported separately as Net income (loss) from
discontinued operations within the Consolidated Statements of
Total Comprehensive Income for the current and prior periods.
AAC cash flows are reflected as Net cash provided by (used in)
discontinued operations within the Consolidated Statements of
Cash Flows for each period presented.
Refer to Note 5. Discontinued Operation for further information.
Measurement
of
Credit
Losses
on
Financial
Instruments (CECL)
Ambac measures credit losses on financial assets that are not
accounted for at fair value through net income in accordance
with the Current Expected Credit Loss standard or "CECL".
The credit loss impairment evaluation process for available-for-
sale debt securities is discussed in the Investments sub-section
below. CECL does not apply to equity method investments
accounted for under ASC 323.
Credit loss impairment for amortized cost assets reflect
management's current estimate of all expected lifetime credit
losses. The estimate of expected lifetime credit losses considers
historical information, current information, as well as reasonable
and supportable forecasts. Expected lifetime credit losses for
amortized cost assets are recorded as an allowance for credit
losses, with subsequent increases or decreases in the allowance
reflected in net income each period. The credit loss impairment
evaluation process for amortized cost assets are addressed in the
applicable subsections below. The total allowance for credit
losses for amortized cost assets recorded under CECL related to
continuing operations was $641at December 31, 2024.
Investments
The Investments - Debt Securities Topic of the ASC requires
that all debt instruments be classified in Ambac’s Consolidated
Balance Sheets according to their purpose and, depending on
that classification, be carried at either cost or fair market value.
Ambac’s debt investment portfolio is accounted for on a trade-
date basis and consists primarily of investments in fixed
maturity securities are either classified as available-for-sale or
trading as defined by the Investments - Debt Securities Topic of
the ASC. Available-for-sale debt securities are reported in the
financial statements at fair value with unrealized gains and
losses, net of deferred taxes, reflected in Accumulated Other
Comprehensive Income (Loss) in Stockholders’ Equity and
computed using amortized cost as the basis. For purposes of
computing amortized cost, premiums and discounts are
accounted for using the effective interest method over the term
of the security. For structured debt securities with a large
underlying pool of homogenous loans, such as mortgage-backed
and asset-backed securities, premiums and discounts are
adjusted for the effects of actual and anticipated prepayments.
For other fixed maturity securities, such as corporate and
municipal bonds, discounts are amortized or accreted over the
remaining term of the securities and premiums are amortized to
the earliest call date.
Short-term investments consist of investments in money market
funds and fixed maturity investments having maturities of less
than one year and greater than three months when purchased.
Other investments primarily consist of:
• Equity interests in pooled investment funds which are
accounted for in accordance with the Investments - Equity
Securities Topic of the ASC and reported as Other
investments on the Consolidated Balance Sheet with
income reported through Net investment income on the
Statement of Total Comprehensive Income (Loss). Equity
interests in such funds consist of limited partner interests
and are reported using the equity method.
• Preferred equity investments that do not have readily
determinable fair values and are carried at cost, less any
impairments as permitted under the Investments — Equity
Securities Topic of the ASC.
Fair value is based primarily on quotes obtained from
independent market sources. When quotes for fixed maturity
securities are not available or cannot be reasonably
corroborated, valuation models are used to estimate fair value.
These models include estimates, made by management, which
utilize current market information. When fair value is not
readily determinable for pooled investment funds, the
investments are valued using net asset value ("NAV") as a
practical expedient as permitted under the Fair Value
Measurement Topic of the ASC. Investment valuations could
differ materially from amounts that would actually be realized in
the market. Realized gains and losses on the sale of investments
are determined on the basis of specific identification. Refer to
Note 7. Fair Value Measurements for further description of the
methodologies used to determine the fair value of investments,
including model inputs and assumptions where applicable.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
57
2024 Form 10-K
Ambac has a formal impairment review process for fixed
maturity available-for-sale securities in its investment portfolio.
Ambac conducts a review each quarter to identify and evaluate
investments that have indications of impairment in accordance
with the Investments - Debt Securities Topic of the ASC.
If management either: (i) has the intent to sell its investment in
an impaired debt security or (ii) determines that the Company
more likely than not will be required to sell the debt security
before its anticipated recovery of the amortized cost basis less
any current period credit impairment, then an impairment charge
is recognized in earnings, with the amortized cost of the security
written-down to fair value.
If management does not intend to sell, or will not be required to
sell the debt security, the security is reviewed for credit
impairment. Factors considered to identify and assess securities
for credit impairment include: (i) fair values that have declined
by 20% or more below amortized cost; (ii) recent downgrades
by rating agencies; (iii) the financial condition of the issuer and
financial guarantor, as applicable, and an analysis of projected
defaults on the underlying collateral; and (iv) whether scheduled
interest payments are past due. The recognition of credit
impairment losses for available-for-sale debt securities are
recorded as an allowance for credit losses with an offsetting
charge to net income. Improvements to estimated credit losses
for available-for-sale debt securities are recognized immediately
in net income. If we believe a decline in the fair value of a
particular fixed maturity available-for-sale investment is not
credit impaired, we record the decline as an unrealized loss net
of tax in Accumulated Other Comprehensive Income (Loss) in
Stockholders’ Equity on our Consolidated Balance Sheets.
The evaluation of securities for credit impairment is a
quantitative and qualitative process, which is subject to risks and
uncertainties and is intended to determine whether, and to what
extent, declines in the fair value of investments should be
recognized in current period earnings. The risks and
uncertainties include changes in general economic conditions,
the issuer’s or guarantor’s financial condition and/or future
prospects, the impact of regulatory actions on the investment
portfolio, the performance of the underlying collateral, the
effects of changes in interest rates or credit spreads and the
expected recovery period.
Ambac has made certain accounting policy elections related to
accrued interest receivable ("AIR") for available-for-sale
investments under CECL. Elections include: i) not measuring
AIR for credit impairment, instead AIR is written off when it
becomes 90 days past due; ii) writing off AIR by reversing
interest income; iii) presenting AIR separately in Other Assets
on the balance sheet and iv) excluding AIR from amortized cost
balances in required CECL disclosures found in Note 6.
Investments. AIR at December 31, 2024 and 2023 was $1,703
and $1,569, respectively.
Refer to Note 6. Investments for further credit impairment
disclosures.
Specialty Property and Casualty Insurance Premiums
Gross written premiums on insurance policies are recorded at
the inception of the policy and can be received on an upfront or
installment basis. Certain gross written premiums are written as
assumed reinsurance. Assumed reinsurance can attach on a risk
attaching or loss occurring basis. On risk attaching, assumed
written premiums are recorded at the inception of the policy and
can be received on an upfront or installment basis. On loss
occurring, assumed written premium includes the transfer of
unearned premiums for inforce policies at the effective date of
the respective reinsurance agreements and ongoing premium
written activity of policies inforce during the respective contract
period. At end of the contract period, the remaining unearned
premiums of inforce policies are returned to the carrier.
Collections of loss occurring assumed written premiums are
generally on an installment basis. Ceded premiums written are
based on contractual terms applied against related gross written
premiums. Premiums, net of reinsurance, are recognized as
revenue on a daily pro-rata basis over the term of the insured
risk. Unearned premiums and Deferred ceded premiums
represents the portion of gross and ceded premiums written that
relate to unexpired risk, respectively.
Premium receivables represent balances currently due and
amounts not yet due from policyholders, insurance carriers,
managing general agents or producers issuing insurance policies
on Everspan's behalf. Premium receivables are reported net of
an allowance for expected credit losses. The allowance is based
upon Everspan's ongoing review of amounts outstanding,
including delinquencies and write-offs, and other relevant
factors. Credit risk is partially mitigated by the managing
general agent's ability to cancel the policy on behalf of Everspan
if the policyholder does not pay the premium, thereby reducing
the related policy's premium written and Everspan's premium
receivable.
Derivative Contracts
The Company has used derivative contracts to hedge foreign
exchange or other economic risks in connection with certain
strategic investments. None of Ambac’s derivative contracts
were designated as hedges under the Derivatives and Hedging
Topic of the ASC.
All derivatives are recorded on the Consolidated Balance Sheets
at fair value and are included in Other assets and Other
liabilities, as appropriate. Refer to Note 10. Derivative
Instruments for further discussion of the Company’s use of
derivative instruments and their impact of the consolidated
financial statements. Refer to Note 7. Fair Value Measurements
for further description of the methodologies used to determine
the fair value of derivative contracts.
Deferred Acquisition Costs, Ceding Commissions and
Deferred Program Fees
The Specialty Property and Casualty Program business defers
acquisition costs incurred that are related directly to the
successful acquisition of new or renewal insurance contracts,
including commissions paid to managing general agents for
direct business, and paid to insurance carriers when acquired via
assumed reinsurance. Ceding commissions received from
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
58
2024 Form 10-K
reinsurers represent a recovery of related acquisition costs.
Deferred acquisition costs, net of ceding commissions, are
amortized over the related policy period, generally one year, and
recognized in amortization of deferred acquisition costs on the
Statement of Total Comprehensive Income (Loss). Ceding
commissions received in excess of the related direct acquisition
costs are deferred and amortized over the related policy period,
and recognized as program fees on the Statement of Total
Comprehensive Income (Loss).
A legal right of offset exists for (i) premiums received and
commissions paid to managing general agents on direct
business, (ii) premiums received and ceding commission paid on
assumed business and (iii) premiums paid and ceding
commissions received on ceded business.
Goodwill
Goodwill is attributable to acquisitions in the Insurance
Distribution segment and represents the acquisition cost in
excess of the fair value of net assets acquired, including
identifiable intangible assets. Goodwill is assigned at acquisition
to the applicable reporting unit of the acquired entity giving rise
to the goodwill. Goodwill is not amortized but is subject to
impairment testing. Goodwill impairment tests are performed
annually or more frequently if circumstances indicate a possible
impairment. The annual test of goodwill impairment is as of
October 1st of each year. The impairment test for each reporting
unit may first consider qualitative factors to determine whether
it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. Examples of qualitative factors
include macroeconomic conditions, industry and market
considerations, cost factors, overall financial performance,
entity-specific events, events affecting reporting units and
sustained changes in our stock price. If results of the qualitative
assessment indicate a more likely than not determination, or if
we elect not to perform a qualitative assessment, then a
quantitative impairment evaluation is performed as described
below.
The quantitative evaluation compares the estimated fair value
using an income approach or market approach for each reporting
unit with its respective carrying value (including goodwill and
identifiable intangible assets). The income approach uses
discounted cash flows which are dependent on subjective factors
including the timing of future cash flows, the underlying margin
projection assumptions, future growth rates and the discount
rate. The market approach uses valuation multiples and is
dependent on subjective factors including the determination of
industry market multiples and EBITDA forecasts. Additionally,
to corroborate our estimated fair value, we perform a market
capitalization reconciliation to determine if the implied control
premium is reasonable. If our assumptions or estimates in our
fair value calculations change or if any of the above subjective
factors vary from what was expected, this may impact our
impairment analysis and result in a decline in fair value that may
trigger future impairment charges.
Intangible Assets
Finite-lived intangibles
Ambac acquired identifiable intangible assets attributable to the
Insurance Distribution segment. The intangible assets primarily
relate to distribution relationships, non-compete agreements and
trade names, all of which have finite lives and are amortized
over their estimated useful lives using the straight-line method.
The acquisition date valuation method used to determine the fair
value of customer relationships, which were the most significant
intangible assets acquired, was the multi period excess earnings
method "(MPEEM"), which quantifies the residual (or excess)
cash flows generated by the intangible asset and discounts those
cash flows to their present value. The significant assumptions
used in determining the fair value of customer relationships
include estimated revenue growth, customer attrition rates,
operating margins, and discount rate.
The Company tests finite-lived acquired intangible assets for
impairment if certain events occur or circumstances change
indicating that the carrying amount of the intangible asset may
not be recoverable. The carrying amount of the intangible asset
is not recoverable if it exceeds the projected undiscounted cash
flows expected to result from the use and eventual disposal of
the asset or asset group. If deemed unrecoverable, an
impairment loss is recognized for the excess carrying amount
over the fair value. There have been no accumulated impairment
losses since these finite-lived intangible assets were established.
Indefinite-lived intangibles
Ambac acquired identifiable intangible assets attributable to its
acquisitions of licensed insurance carriers in both 2021 and
2022, which were accounted for as asset acquisitions (Specialty
Property and Casualty Insurance segment). The intangible assets
relate to insurance licenses which have indefinite lives and
therefore are not amortized. The useful lives are re-evaluated
each period to determine whether facts and circumstances
continue to support an indefinite life. The Company tests
indefinite-lived acquired intangible assets for impairment
annually or more frequently if circumstances indicate a possible
impairment. Ambac tests indefinite-lived intangibles for
impairment as of October 1st of each year. If, after assessing
qualitative factors, management believes it is more likely than
not that the intangible assets are impaired, a quantitative
impairment evaluation is performed. Management also has the
option to bypass the qualitative evaluation and proceed directly
to the quantitative evaluation. The quantitative test compares the
estimated fair value of the intangible asset with its carrying
value. An impairment is recognized for the excess of the
carrying amount of the intangible asset over it estimated fair
value. If the asset’s estimated fair value exceeds its carrying
value, the intangible asset is not impaired. There have been no
accumulated impairment losses since these indefinite-lived
intangible assets were established.
Cash and Cash Equivalents
Cash and cash equivalents principally consist of demand
deposits with financial institutions and highly liquid fixed
maturity investments having maturities of three months or less
when purchased.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
59
2024 Form 10-K
Restricted Cash including Fiduciary Funds
Cash that we do not have the right to use for general purposes is
recorded as restricted cash in our consolidated balance sheets.
Restricted cash includes fiduciary cash held by Ambac's
insurance distribution subsidiaries as described below.
As an intermediary, we hold funds, generally in a fiduciary
capacity, for the account of third parties, typically as the result
of premiums received from retail brokers or insureds that are in
transit to insurers and claims due that are in transit from
insurers. Since fiduciary assets are not available for corporate
use, they are shown in the consolidated balance sheets as
restricted cash and we present an equal and corresponding
fiduciary liability relating to these funds representing amounts or
claims or premiums due on our consolidated balance sheets
(included in Other liabilities).
Fiduciary funds are generally required to be kept in bank
accounts subject to guidelines which emphasize capital
preservation and liquidity. The Company is entitled to retain
investment income earned on certain of these fiduciary funds in
accordance with industry custom and practice and, in some
cases, as supported by agreements with insureds.
Restricted cash for net uncollected premiums and claims and the
related fiduciary liabilities were $17,669 and $11,881 at
December 31, 2024 and 2023, respectively.
Specialty Property and Casualty Loss and Loss
Adjustment Expenses
Loss and loss adjustment expense reserves for Specialty
Property and Casualty policies represent management's estimate
of the ultimate liability for unpaid losses and loss expenses for
claims that have been reported and claims that have been
incurred but not yet reported ("IBNR") as of the balance sheet
date.
Loss
and
loss
adjustment
expense
reserves
represent
management estimates, primarily utilizing actuarial expertise
and projection methods that develop estimates for the ultimate
cost of claims and claim adjustment expenses. The reserves are
estimated based upon experience and using a variety of actuarial
methods. These estimates are reviewed and are subject to the
impact of future changes in factors such as claim severity and
frequency, underwriting and claims practices, changes in social
and economic conditions including the impact of inflation, legal
and judicial developments, medical cost trends and upward
trends in damage awards. Our actuarial methods may also rely
on external data, such as industry loss ratios, loss development
factors, or trend factors. Such data while more mature than
Everspan's own data may not be perfectly representative of the
particular business written by Everspan. The ultimate amount
for loss and loss adjustment expenses may be in excess, or less
than, the amounts recorded on our financial statements. Because
the establishment of claims and claim adjustment expense
reserves is an inherently uncertain process involving estimates
and judgment, currently estimated claims and claim adjustment
expense reserves may change. Adjustments will be reflected as
part of the net increase or reduction in loss and loss adjustment
expense reserves in the periods in which they become known.
Cumulative amounts paid and case reserves held as of the
balance sheet date are subtracted from the estimate of the
ultimate cost of claims and claim adjustment expenses to derive
incurred but not reported (IBNR) reserves. There were no
changes in methodology in the past year.
Detailed claim data is typically insufficient to produce a reliable
indication of the initial estimate for ultimate claims and claim
adjustment expenses for an accident year. As a result, the initial
estimate for an accident year is generally based on an exposure-
based method using the loss ratio projection method. The loss
ratio projection method develops an initial estimate of ultimate
claims and claim adjustment expenses for an accident year by
multiplying earned premium for the accident year by a projected
loss ratio. The projected loss ratio is determined by analyzing
prior period experience, and adjusting for loss cost trends, rate
level differences, mix of business changes and other known or
observed factors influencing the accident year relative to prior
accident years.
The following estimation and analysis methods are principally
used by the Company’s actuaries to estimate the ultimate cost of
claims and claim adjustment expenses. These estimation and
analysis methods are typically referred to as conventional
actuarial methods.
• The paid loss development method assumes that the future
change (positive or negative) in cumulative paid losses for
a given cohort of claims will occur in a stable, predictable
pattern from year-to-year, consistent with the pattern
observed in past cohorts.
• The case incurred development method is the same as the
paid loss development method, but is based on cumulative
case-incurred losses rather than paid losses.
• The Bornhuetter-Ferguson method uses an initial estimate
of ultimate losses for a given product line reserve
component, typically expressed as a ratio to earned
premium. The method assumes that the ratio of additional
claim activity to earned premium for that component is
relatively stable and predictable over time and that actual
claim activity to date is not a credible predictor of further
activity for that component. The method is used most often
for more recent accident years where claim data is sparse
and/or volatile, with a transition to other methods as the
underlying claim data becomes more voluminous and
therefore more credible.
While these are the principal methods utilized, the Company’s
actuaries have available to them the full range of actuarial
methods developed by the casualty actuarial profession. Most
actuarial methods assume that past patterns demonstrated in the
data will repeat themselves in the future.
The Company performs a continuing review of its loss and loss
adjustment expense reserves, including its reserving techniques
and the impact of reinsurance. Since the reserves are based on
estimates, the ultimate liability may be more or less than such
reserves. In this context, in the fourth quarter of 2024,
management determined for runoff programs that it would
select the high end of its actuarial estimate as it's loss selection
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
60
2024 Form 10-K
pick given the greater volatility that runoff programs may
experience.
Reinsurance Recoverable
The Company uses ceded reinsurance to transfer certain
insurance risk, along with premiums written and earned, to other
insurance carriers that agree to share in such risks. The primary
purpose of the reinsurance is to (i) protect the Company, at a
cost, from losses in excess of amounts it is willing to accept, (ii)
protect the Company's capital, and (iii) to manage the
Company's net retention on individual risks and overall exposure
to losses while providing the Company the ability to offer
policies with sufficient limits to meet policyholder needs. The
Company generally enters into quota share reinsurance
agreements whereby it cedes to the capacity providers
(reinsurers) a substantial amount (generally 70% or more) of its
gross liability under all policies issued by and on behalf of the
Company by the MGA/U.
Everspan is exposed to the credit risk of the reinsurer, or the risk
that one of its reinsurers becomes insolvent or otherwise unable
or unwilling to pay policyholder claims. This credit risk is
generally mitigated by either selecting well capitalized, highly
rated authorized capacity providers or requiring that the capacity
provider post collateral to secure the reinsured risks, which in
some instances, exceeds the related reinsurance recoverable.
Amounts recoverable from reinsurers are estimated in a manner
consistent with the associated loss and loss adjustment expense
reserves. The Company reports reinsurance recoverables net of
an allowance for amounts that are estimated to be uncollectible.
The reinsurance of risk does not legally relieve Everspan of its
original liability to its policyholders. In the event that any of
Everspan’s reinsurers are unable to meet their obligations under
reinsurance contracts, Everspan would, nonetheless, be liable to
its policyholders for the full amount of its policy.
To minimize credit exposure to losses from reinsurer
insolvencies, Everspan (i) is entitled to receive collateral from
certain reinsurance counterparties pursuant to the terms of the
relevant reinsurance contracts and (ii) has certain cancellation
rights that can be exercised by Everspan in the event of rating
agency downgrades of a reinsurer (among other events and
circumstances). For those reinsurance counterparties that do not
currently post collateral, Everspan’s reinsurers are well
capitalized, highly rated, authorized capacity providers.
Everspan has a formal quarterly credit impairment review
process whereby it has elected to use the practical expedient of
considering the fair value of collateral posted by reinsurers when
evaluating credit impairment. To determine the total unsecured
recoverable to be evaluated for credit impairment, we net the
reinsurance recoverable amount by ceded premiums payable and
the fair value of collateral posted, if any.
The key factors in assessing credit impairment for reinsurance
recoverables are independent rating agency credit ratings and
loss severities. Management utilizes a probability of default/loss
given default ("PD/LGD") approach, which is applied to the net
unsecured reinsurance recoverable amount. Refer to Note 8.
Insurance Contracts for credit impairment disclosures.
Short-term Debt
Short-term debt is carried at par value less unamortized
discount. Accrued interest and discount accretion on short-term
debt is reported as Interest expense on the Consolidated
Statements of Total Comprehensive Income (Loss).
Noncontrolling Interests ("NCI")
Nonredeemable NCI interests
Nonredeemable NCI of $146,837 includes the aggregate NCI
share in certain operating units which are minority owned by the
units' respective management teams. As of December 31, 2024,
there are no put or call options associated with these minority
interests and as such, the aggregate amount is classified as
nonredeemable NCI on the balance sheet. The acquisition date
valuation method to determine the fair value of nonredeemable
NCI was the discounted cash flow approach. The significant fair
value assumptions used in the model include estimated long
term revenue and expense forecasts and the discount rate.
At December 31, 2024 and 2023, AAC had 4,596 shares of
issued and outstanding Auction Market Preferred Shares
("AMPS") with a liquidation preference of $114,900 relative to
Ambac common shareholders (reported as nonredeemable
noncontrolling interest of $50,918 on Ambac's balance sheet).
See Note 5. Discontinued Operation for further discussion of the
AMPS.
Redeemable noncontrolling interests
The Xchange, All Trans, Capacity Marine, Riverton and Beat
acquisitions resulted in the ownership percentages of the
acquired entities by Ambac as shown in the following table
Company
Ownership
Percentage
Xchange
80%
All Trans
85%
Capacity Marine
80%
Riverton
80%
Beat (1)
60%
(1)
Beat's majority interests in its underlying MGAs ranges from 60 to
100 at December 31, 2024, resulting in Ambac's interest ranging
from 36 to 60% in each underlying MGA/U.
Under the terms of all the acquisition agreements, Ambac has
call options to purchase the remaining interest from the minority
owners (i.e., noncontrolling interests) and the minority owners
have put options to sell their remaining interests to Ambac.
Because the exercise of the put options are outside the control of
Ambac, in accordance with the Distinguishing Liabilities from
Equity Topic of the ASC, Ambac reports redeemable NCI in the
mezzanine section of its consolidated balance sheets.
The acquisition date valuation method to determine the fair
value of redeemable NCI and related put and call options was
Monte Carlo Simulation. The significant fair value assumptions
used in the simulation include the exercise thresholds, EBITDA
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
61
2024 Form 10-K
forecasts, discount rate and long-term growth rates. The
redeemable NCI is remeasured each period as the greater of:
i. the carrying value under ASC 810, which attributes a
portion of consolidated net income (loss) to the redeemable
NCI, and
ii. the redemption value of the put option under ASC 480 as if
it were exercisable at the end of the reporting period.
Any increase (decrease) in the carrying amount of the
redeemable NCI as a result of adjusting to the redemption value
of the put option is recorded as an offset to retained earnings.
The impact of such differences on earnings per share are
presented in Note 15. Net Income Per Share.
Following is a rollforward of redeemable NCI.
Years Ended December 31,
2024
2023
Beginning balance
$ 17,079
$ 19,983
Fair value of redeemable NCI at acquisition
date
185,469
2,450
Net income attributable to redeemable NCI
(ASC 810)
(1,282)
1,318
Distributions
(2,391)
(1,880)
Adjustment to redemption value (ASC 480 )
(53,210)
(4,792)
Foreign exchange
(4,805)
—
Ending Balance
$ 140,860
$ 17,079
Revenue Recognition
Revenues for the Insurance Distribution business operations are
recognized in accordance with the Revenue from Contracts with
Customers Topic of the ASC. The following steps are applied to
recognize revenue: (i) identify the contract(s) with the customer,
(ii) identify the performance obligations in the contract(s), (iii)
determine the transaction price, and (iv) allocate the transaction
price to the performance obligations in the contract and
recognize revenue when (or as) the entity satisfies a performance
obligation. A performance obligation is satisfied either at a point
in time or over time depending on the nature of the product or
service provided, and the specific terms of the contract with
customers.
Performance obligations consist of underwriting and placing
policies with insurers and, for certain products, providing claims
servicing. Revenue from employer stop loss policies ("ESL") is
apportioned to policy placement and claims servicing based on
the relative stand-alone selling price of the respective
performance obligations with policy placement revenue
recognized upfront while claims servicing revenue is recognized
over the claim adjustment period. Revenue from other insurance
policies are recognized up front as no further performance
obligations exist after policy placement.
Revenue consists of base and profit-sharing commissions.
• Base commissions, associated with policy placement and
claims servicing, are estimated by applying the contractual
commission percentages to estimated gross premiums
placed.
• Profit-sharing
commissions
represent
variable
consideration associated with policy placement only and
are estimated based on expected loss ratios and the
estimated gross premium for base commissions.
Base and profit-sharing commissions are estimated with a
constraint applied such that a significant reversal of revenue in
the future is not probable. Revenue is reported in Commissions
income on the Consolidated Statement of Total Comprehensive
Income.
Contract assets represent the Company's right to future
consideration for services it has already transferred to the
customer, which is subject to certain contingencies. Once the
right to consideration becomes unconditional, it is reported as a
receivable. Contract assets are evaluated for credit loss under
CECL using a probability of default / loss given default (“PD/
LGD”) method which measures credit impairment as the product
of the carrying value, default probability and loss given default,
considering the asset’s credit rating and average life. Contract
liabilities represent the Company's obligation to transfer services
for which it has already received consideration from the
customer. Contract assets and receivables are reported as other
assets, and contract liabilities are reported as other liabilities, on
the Consolidated Balance Sheet.
The Company’s costs to obtain customer contracts relate to
certain commissions paid to independent agents for procuring
policies. As these costs relate to the Company’s policy
placement performance obligation to its customers, they are
expensed as incurred. These costs are reported in Commission
expenses
on
the
Consolidated
Statement
of
Total
Comprehensive Income (Loss).
Incentive Compensation
Incentive compensation is a key component of our compensation
strategy. Incentive compensation has two components: short
term incentive compensation (consisting of an annual cash
bonus) and long term incentive plan awards (consisting of
deferred cash and awards of restricted and performance stock
units). Annual decisions with regard to incentive compensation
are generally made in the first quarter of each year and are based
on the prior year's performance for the Company, the employee
and the employee's business unit.
In 2024, the Ambac 2020 Incentive Compensation Plan (the
“2020 Incentive Plan”) was superseded by the 2024 Incentive
Compensation Plan ("2024 Incentive Plan"). Both plans allow
for the granting of stock options, restricted stock, stock
appreciation rights, restricted and performance units and other
awards to employees, directors and consultants that are valued
or determined by reference to Ambac's common stock. Under
these plans, Ambac has issued both cash and equity awards to
US employees and consultants.
In connection with the adoption of the 2024 Incentive Plan, all
shares reserved but unissued under the 2020 Incentive Plan were
transferred to the the 2024 Incentive Plan in addition to any
shares underlying outstanding awards under the 2020 Incentive
Plan as of June 5, 2024, that subsequently terminate by
expiration or forfeiture, cancellation, or otherwise are not issued.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
62
2024 Form 10-K
Under the 2020 and 2024 Incentive Compensation Plans. Ambac
recognizes compensation costs for all equity classified awards
granted at fair value, which is measured on the grant date, and
records forfeitures for unvested shares only when they occur.
For awards that only include service and performance
conditions, the fair value is the market price of Ambac stock on
the grant date. For awards that also contain a market condition,
specifically a total shareholder return ("TSR") modifier, the fair
value is estimated using a Monte Carlo simulation.
The types of equity awards granted to employees are as follows:
• Restricted stock units — only require future service and
accordingly the respective fair value is recognized as
compensation expense over the relevant service period.
• Performance stock units — require both future service and
achieving
specified
performance
targets
to
vest.
Performance stock unit grants also include a market
condition TSR modifier that will cause the total payout at
the end the performance period to increase or decrease
depending on Ambac's stock performance relative to a peer
group. Compensation costs for all performance stock units
are only recognized when the achievement of the
performance conditions are considered probable. Once
deemed probable, such compensation costs are recognized
as compensation expense over the relevant service period.
Compensation costs are initially based on the probable
outcome of the performance conditions and adjusted for
subsequent changes in the estimated or actual outcome each
reporting period as necessary. Changes in the estimated or
actual outcome of a performance condition are recognized
by reflecting a retrospective adjustment to compensation
cost in the current period.
Operating Leases
A contract contains a lease if it conveys the right to control the
use of identified property, plant, or equipment for a period of
time in exchange for consideration. Ambac's evaluation of
whether certain contracts contain leases requires judgment
regarding what party controls the asset and whether the asset is
physically distinct.
Ambac is the lessee in leases which are classified as operating
leases. Ambac recognizes a single lease cost, calculated so that
the cost is allocated generally on a straight-line basis over the
lease term within operating expenses in the Consolidated
Statements of Total Comprehensive Income (Loss). The lease
term commences on the earlier of the date when we become
legally obligated for the rent payments or the date on which we
take possession of the property. For such operating leases,
Ambac recognizes a right-of-use ("ROU") asset and a lease
liability, initially measured at the present value of the lease
payments. The discount rate used to initially measure the ROU
assets and lease liabilities reflects the estimated secured
borrowing rate of the applicable Ambac subsidiary, which
considers the rate of existing or recent debt obligations of the
entity. All cash payments are classified within operating
activities in the statement of cash flows.
For contracts where Ambac is the lessee, we have elected the
short-term lease recognition exemption for all leases that
qualify. For those leases that qualify for that exemption, we will
not recognize ROU assets or lease liabilities. For all contracts
where Ambac is the lessee and lessor we have also elected the
practical expedient to not separate lease and non-lease
components.
Depreciation and Amortization of Fixed Assets
Depreciation of furniture and fixtures, certain information
technology development costs and electronic data processing
equipment is charged over the estimated useful lives of the
respective assets, ranging from three to five years, using the
straight-line method. Amortization of leasehold improvements is
charged over the remaining term of the respective operating
lease using the straight-line method. Changes to estimated useful
lives are accounted for prospectively from the period of change.
Fixed assets are evaluated for impairment whenever events or
changes in circumstances indicate their carrying value may not
be recoverable.
Foreign Currency
Financial statement accounts expressed in foreign currencies are
translated into U.S. dollars in accordance with the Foreign
Currency Matters Topic of the ASC. The functional currencies
of Ambac's subsidiaries are the local currencies of the country
where the respective subsidiaries are based, which are also the
primary operating environments in which the subsidiaries
operate.
Foreign currency translation: Functional currency assets
and liabilities of Ambac’s foreign subsidiaries are translated into
U.S. dollars using exchange rates in effect at the balance sheet
dates and the related translation adjustments, net of deferred
taxes, are included as a component of Accumulated Other
Comprehensive Income (Loss) in Stockholders' Equity.
Functional currency operating results of foreign subsidiaries are
translated using average exchange rates.
Foreign currency transactions: The impact of non-
functional currency transactions and the remeasurement of non-
functional currency assets and liabilities into the respective
subsidiaries' functional currency (collectively "foreign currency
transactions gains/(losses)") are $101, $0 and $0 for the years
ended December 31, 2024, 2023 and 2022, respectively.
Foreign currency transactions gains/(losses) are primarily the
result of Beat's transactions in currencies (primarily the U.S.
dollar) other than its functional currency (the British Pound
Sterling).
Commitments and Contingencies
The Company and its subsidiaries are defendants in or parties to
actual, pending and threatened lawsuits and proceedings. A
liability is accrued for such contingencies when a loss is both
probable and reasonably estimable. If a loss is not "probable and
reasonably estimable," but is reasonably possible, disclosure of
the contingency and an estimate of the loss or range of loss is
required if such an estimate can be determined. Significant
management judgment is required to apply this guidance. As a
legal contingency develops, the Company, in conjunction with
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
63
2024 Form 10-K
outside counsel, evaluates what level of accrual and/or
disclosure is required under the guidance. See Note 19.
Commitments and Contingencies for additional information
about our legal contingencies and related accounting evaluation.
Income Taxes
Ambac files a consolidated U.S. Federal income tax return with
its subsidiaries, except for Beat which files a separate tax return.
Ambac and its subsidiaries also file separate or combined
income tax returns in various states, local and foreign
jurisdictions. Current tax assets and liabilities are recognized for
taxes refundable or payable for the current year.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
current and deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment
date.
The Income Taxes Topic of the ASC requires that companies
assess whether valuation allowances should be established
against their deferred tax assets based on management's
assessment and consideration of all available evidence using a
‘more likely than not' standard. In making such judgments,
significant weight is given to evidence that can be objectively
verified. The level of deferred tax asset recognition is influenced
by management’s assessment of future profitability, which
depends on the existence of sufficient taxable income within the
carry forward periods available under the tax law.
Net Income Per Share
Basic net income per share is computed by dividing net income
attributable to common stockholders, including the adjustment
to redemption value of the redeemable NCI, by the weighted-
average number of common shares outstanding and vested
restricted stock units (together, "Basic Weighted Average Shares
Outstanding"). Diluted net income per share is computed by
dividing net income attributable to common stockholders,
including the adjustment to redemption value of the redeemable
controlling interest, by the Basic Weighted-Average Shares
Outstanding plus all potentially dilutive common shares
outstanding during the period. All potentially dilutive common
shares outstanding consider common stock deliverable pursuant
to warrants, unvested restricted stock units and performance
stock units granted under existing compensation plans.
Supplemental Disclosure of Cash Flow Information
Year Ended December 31,
2024
2023
2022
Cash paid during the period for:
Income taxes
$
526
$
381
$
347
Interest on debt
3,821
—
—
Non-cash investing and financing activities:
Ambac common stock issued as partial consideration to acquire Beat
29,229
—
—
December 31,
2024
2023
2022
Reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance
Sheets to the Consolidated Statements of Cash Flow:
Cash and cash equivalents
$ 29,606
$
7,342
$
6,329
Restricted cash
17,669
11,881
13,612
Total cash, cash equivalents, and restricted cash shown on the Consolidated Statements of Cash Flows
47,275
19,223
19,941
Reclassifications and Rounding
Reclassifications have been made to prior years' amounts to
conform to the current year's presentation. This includes
reclassifying held-for-sale assets and liabilities of Ambac's
financial guarantee business which is being reported as a
discontinued operation. Certain amounts and tables in the
consolidated financial statements and associated notes may not
add due to rounding.
Adopted Accounting Standards
The Company adopted the following accounting standard in
2024:
Segment Reporting:
In November 2023, the FASB issued ASU 2023-07, Segment
Reporting (Topic 280) - Improvement to Reportable Segment
Disclosures. The ASU requires disclosure of the following:
• Significant segment expenses regularly provided to the
chief operating decision maker (CODM) and included
within the reported measure(s) of a segment’s profit or loss.
• The amount and composition of "other segment items".
This amount reconciles segment revenue, less significant
expenses, to the reported measure(s) of a segment’s profit
or loss.
• The CODM's title and position.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
64
2024 Form 10-K
• How the CODM uses the reported measure(s) of a
segment’s profit or loss to assess segment performance and
decide how to allocate resources.
• All segment profit or loss and assets disclosures currently
required annually by Topic 280, as well as those introduced
by the ASU, to also be disclosed in interim periods.
The ASU also permits a public entity to report multiple
measures of a segment’s profit or loss as long as: i) all the
reported measures of a segment’s profit or loss are used by the
CODM for purposes of assessing performance and allocating
resources; and ii) the measure closest to GAAP is also provided.
The ASU is effective for fiscal years beginning after December
15, 2023, and interim periods within fiscal years beginning after
December 15, 2024, with early adoption permitted. Ambac
adopted this ASU for the annual reporting period ending
December 31, 2024. See Note 3. Segment Information for the
required disclosures.
Future Application of Accounting Standards
Income Taxes:
In December 2023, the FASB issued ASU 2023-09, Income
Taxes (Topic 740) - Improvements to Income Tax Disclosures.
The enhancements in the ASU include the following:
• Within the rate reconciliation table, disclosure of additional
categories of information about federal, state and foreign
income taxes and providing more details about the
reconciling items in some categories if the items meet a
quantitative threshold.
• Annual disclosure of income taxes paid (net of refunds
received) disaggregated by federal (national), state and
foreign taxes and disaggregation of the information by
jurisdiction based on a quantitative threshold.
• Other disclosures include: i) income (or loss) from
continuing operations before income tax expense (or
benefit) disaggregated between domestic and foreign and
ii) income tax expense (or benefit) from continuing
operations disaggregated by federal (national), state, and
foreign.
The ASU is effective for annual periods beginning after
December 15, 2024, with early adoption permitted. Ambac will
adopt this ASU on January 1, 2025 and do not expect it to have
a consequential impact on Ambac's financial statements.
Expense Disaggregation Disclosures:
In November 2024, the FASB issued ASU 2024-03, Income
Statement—Reporting
Comprehensive
Income—Expense
Disaggregation Disclosures (Subtopic 220-40). The enhanced
disclosures requirements include the following:
• Disclose the amounts of certain expense categories
included in each relevant expense caption. Those categories
applicable to Ambac include employee compensation,
depreciation, and intangible asset amortization. A relevant
expense caption is an expense caption presented on the face
of the income statement within continuing operations that
contains any of the expense categories listed above.
• Include certain amounts that are already required to be
disclosed under current GAAP in the same disclosure as the
other disaggregation requirements.
• Disclose a qualitative description of the amounts remaining
in relevant expense captions that are not separately
disaggregated quantitatively.
• Disclose the total amount of selling expenses and, in annual
reporting periods, an entity’s definition of selling expenses.
The ASU is effective for annual periods beginning after
December 15, 2026 and for interim reporting periods after
December 15, 2027 with early adoption permitted. Ambac has
not determined if it will early adopt this ASU and is evaluating
the impact on Ambac's financial statements.
3. SEGMENT INFORMATION
The Company reports its results of continuing operations in two segments: Specialty Property and Casualty Insurance and Insurance
Distribution. These reportable segments offer distinct products and services as further described in Note 1. Background and Business
Description. The operating entities within each segment are wholly or majority owned by separate intermediate holding companies:
Everspan Holdings, LLC for Specialty Property and Casualty Insurance and Cirrata Group, LLC for Insurance Distribution. The
Company's segments have separate management teams with incentive compensation structures based on segment level performance.
Financial reporting for each segment is regularly provided to the Company's Chief Executive Officer, who is the chief operating decision
maker ("CODM"), for purposes of monitoring the businesses, assessing performance and allocating resources.
The following tables summarize the components of the Company’s total revenues and expenses, and pretax income (loss) by reportable
business segment. Information provided below for “Corporate and Other” primarily relates to the operations of AFG, which will include
investment income on its investment portfolio and costs to maintain the operations of AFG, including public company reporting, capital
management and business development costs for the acquisition and development of new business initiatives. As a result of the Company
reporting the results of operations of AAC as discontinued operations, certain corporate costs charged to AAC totaling $14919, $19367 and
$20189 for the years ended December 31, 2024, 2023 and 2022, respectively, have been reported in Net income from continuing operations
on the Consolidated Statements of Total Comprehensive Income and included in Corporate and Other in the tables below.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
65
2024 Form 10-K
Specialty
Property
&
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Total
Specialty
Property
&
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Total
Revenues:
Net premiums earned
$
99,005
$
99,005
$
51,911
$
51,911
Commission income
$
92,023
92,023
$
51,281
51,281
Program fees
13,506
13,506
8,437
8,437
Net investment income, net investment gains (losses),
including impairments
6,400
787
$
6,764
13,951
3,759
64
$
9,353
13,176
Net gains (losses) on derivative contracts
—
106
3,910
4,016
—
—
(279)
(279)
Other income (expense)
7,409
6,320
(415)
13,314
(6)
200
6
200
Total revenues from Continuing Operations (1)
126,320
99,236
10,259
235,815
64,101
51,546
9,080
124,728
Less:
Loss and loss adjustment expenses (benefit)
72,626
72,626
36,712
36,712
Policy acquisition costs
23,666
23,666
10,557
10,557
Commission expenses
40,876
40,876
29,465
29,465
Depreciation expense
—
481
1,864
2,345
—
42
1,036
1,078
Intangible amortization
17,602
17,602
4,152
4,152
Interest expense
9,379
9,379
—
Compensation expense
10,201
28,353
25,791
64,346
10,853
7,951
29,664
48,468
Non Compensation expense
7,605
10,354
46,861
64,820
5,596
2,647
10,274
18,517
Total expenses from Continuing Operations
114,098
107,045
74,516
295,660
63,718
44,257
40,974
148,949
Segment pretax income (loss)
12,222
(7,809)
(64,257)
(59,845)
383
7,289
(31,894)
(24,221)
Segment income tax expense (benefit)
1,753
(928)
(1,748)
(924)
48
156
(1,193)
(989)
Segment net income (loss)
10,469
(6,881)
(62,509)
(58,921)
335
7,133
(30,701)
(23,232)
Segment net (income) loss attributable to NCI
2
(363)
(361)
(1)
(1,318)
(1,319)
Segment net income (loss) attributable to Ambac
shareholders
$
10,471
$
(7,244) $
(62,509) $ (59,282) $
334
5,815
(30,701) $ (24,551)
Reconciliation to consolidated net income (loss) attributable to Ambac stockholders
Discontinued operations
(497,167)
28,183
Net income (loss) attributable to Ambac stockholders
$ (556,449)
$
3,632
Reconciliation of segment assets to consolidated total assets
Total assets
$ 751,272
$
900,222
$
139,684
$ 1,791,178
$ 523,179
$
154,846
$
233,839
$ 911,864
Discontinued operations
$ 6,267,200
$ 7,516,456
Total consolidated assets
$ 8,058,378
$ 8,428,320
EBITDA Reconciliation
Segment net income (loss)
$ 10,469
$
(6,881)
$ (62,509)
$ (58,921)
$
335
$
7,133
$ (30,701)
$ (23,232)
Adjustments:
Interest expense
9,379
9,379
—
—
Income taxes
1,753
(928)
(1,748)
(924)
48
156
(1,193)
(989)
Depreciation
—
481
1,864
2,345
—
42
1,036
1,078
Intangible amortization
17,602
17,602
4,152
4,152
EBITDA
12,222
19,653
(62,393)
(30,518)
$
383
$
11,483
$ (30,858)
$ (18,991)
Add: Impact of noncontrolling interests
(6,448)
(6,448)
(2,102)
(2,102)
Ambac EBITDA
$ 12,222
$
13,208
$ (62,396)
$ (36,966)
383
9,381
(30,858)
(21,093)
Year Ended December 31, 2024
Year Ended December 31, 2023
Reportable Segments
Reportable Segments
(1)
Inter-segment revenues and inter-segment pre-tax income (loss) amounts are insignificant and are not presented separately.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
66
2024 Form 10-K
Year Ended December 31, 2022
Reportable Segments
Specialty
Property &
Casualty
Insurance
Insurance
Distribution
Corporate
& Other
Total
Revenues:
Net premiums earned
$
13,869
$
13,869
Commission income
$
30,695
30,695
Program fees
3,095
3,095
Net investment income, net
investment gains (losses),
including impairments
1,559
—
$
2,883
4,442
Net gains (losses) on
derivative contracts
935
935
Other income (expense)
(58)
715
(81)
576
Total revenues from
Continuing Operations
18,465
31,410
3,737
53,612
Less:
Loss and loss adjustment
expenses (benefit)
9,071
9,071
Policy acquisition costs
2,535
2,535
Commission expenses
17,641
17,641
Depreciation expense
—
31
841
872
Intangible amortization
2,921
2,921
Interest expense
—
—
—
Compensation expense
7,799
4,518
26,842
39,159
Non Compensation
expense
5,406
1,775
9,938
17,119
Total expenses from
Continuing Operations (1)
24,811
26,886
37,621
89,318
Segment pretax income
(loss)
(6,346)
4,524
(33,884)
(35,706)
Segment income tax expense
(benefit)
(1)
—
(462)
(462)
Segment net income (loss)
(6,345)
4,524
(33,422)
(35,244)
Segment net (income) loss
attributable to NCI
15
(886)
(871)
Segment net income (loss)
attributable to Ambac
shareholders
$
(6,330)
$
3,638
$
(33,422)
$
(36,115)
Reconciliation to consolidated net income (loss) attributable to Ambac
stockholders
Discontinued operations
557,364
Plus: gain on purchase of auction market preferred shares
1,131
Net income (loss) attributable to Ambac stockholders
$
522,380
Reconciliation of segment
assets to consolidated total
assets
Total assets
316,327
138,068
226,386
$
680,781
Discontinued operations
7,291,949
Total consolidated assets
$ 7,972,730
Segment net income (loss)
$
(6,345)
$
4,524
$
(33,422)
$
(35,244)
Adjustments:
Interest expense
—
—
—
Income taxes
(1)
—
(462)
(462)
Depreciation
—
31
841
872
Intangible amortization
2,921
2,921
EBITDA
(6,346)
7,476
(33,043)
(31,913)
Add: Impact of
noncontrolling interests
(1,463)
(1,463)
Ambac EBITDA
$
(6,347)
$
6,013
$
(33,043)
$
(33,377)
(1)
Inter-segment revenues and inter-segment pre-tax income (loss)
amounts are insignificant and are not presented separately.
Geographic Information
Revenue is primarily recognized based on the country in which
the services are performed. The following table shows the
geographic breakdown of revenue:
Year Ended December 31,
2024
2023
2022
United States
$
212,605
$
124,728
$
53,612
United Kingdom
23,210
—
—
Total revenues and other
income
$
235,815
$
124,728
$
53,612
4. BUSINESS COMBINATION
On July 31, 2024, Ambac completed the acquisition of 60% of
Beat for a purchase price of $281,278 of which approximately
$252,048 was paid in cash and the remainder was satisfied
through the issuance of 2,216,023 shares of Company Common
Stock to certain Sellers (the "Beat Transaction"). Beat’s
management team and Bain Capital Credit LP (together, the
“Rollover Shareholders”) each retained approximately 20% of
Beat’s issued share capital immediately after closing. Many of
Beat's operating units are minority owned by their respective
management teams and accordingly, Ambac's economic
interests in those units is less than 60% despite our ownership of
60% of Beat.
AFG funded the cash portion of the consideration with a
combination of available cash, approximately $62,000 of
funding from AAC in the form of an investment in Cirrata V
LLC, and $147,000 from new indebtedness (the "Credit
Facility") that was issued in the third quarter of 2024. See Note
12. Debt for the terms of the Credit Facility.
AFG issued the common stock free and clear of any liens or
restrictions (other than those arising under state and federal
securities laws of the United States) and bearing a restrictive
legend. The common stock has not been registered under the
Securities Act in reliance upon an exemption from registration
pursuant to Section 4(a)(2) of the Securities Act.
At the closing of the Beat Transaction, AFG entered into a
Shareholders’ Agreement by and among AFG, the Purchaser,
the Rollover Shareholders and Beat (the “Shareholders’
Agreement”). The Shareholders’ Agreement provides for,
among other things, the granting of (i) put options to each
Rollover Shareholder to require the Purchaser to purchase from
such Rollover Shareholder, the Relevant Shares (as defined in
the Shareholders’ Agreement), and (ii) call options to the
Purchaser to purchase from each Rollover Shareholder, the
Relevant Shares.
The acquisition was accounted for as a business combination
using the acquisition method of accounting. The Company has
finalized its fair value estimates of the acquired assets, assumed
liabilities and NCI as of December 31, 2024, and no subsequent
adjustments will be made within the permitted measurement
period as defined by ASC 805.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
67
2024 Form 10-K
The following table summarizes the consideration transferred to
acquire Beat and the estimated fair values of the identified assets
acquired and liabilities assumed at the acquisition date, as well
as the fair value of the NCI, at the acquisition date:
Fair value of consideration transferred:
Cash
$
252,048
Common shares
29,229
Total consideration
$
281,278
Recognized amounts of assets acquired, liabilities
assumed and NCI:
Cash and equivalents
$
8,272
Short-term investments
28,919
Commission receivables and contract assets
47,696
Other assets
10,972
Intangible assets
311,557
Goodwill
357,317
Advanced commissions
(49,299)
Premium payable
(5,722)
Deferred tax liability
(74,300)
Other liabilities
(19,570)
Redeemable NCI
(185,469)
Nonredeemable NCI
(149,095)
Total
$
281,278
Goodwill was recorded to reflect the excess purchase
consideration over net assets acquired and primarily consists of
the future economic benefits that we expect to receive as a result
of the acquisition, driven by the value of Beat's potential future
distribution and carrier relationships, and synergies with other
Ambac business operations. All of the $357,317 of goodwill was
assigned to the Insurance Distribution segment. The goodwill is
not deductible for tax purposes.
The fair value of the redeemable non-controlling interest of
$185,469 on the acquisition date was estimated based on the
non-controlling interest’s respective share of Beat's enterprise
value, adjusted for the value of Ambac's call option to purchase,
and the minority owners' put option to sell to Ambac,
respectively, the remaining 40% membership interest in Beat.
Please refer to the Redeemable Noncontrolling Interest section
of Note 2. Basis of Presentation and Significant Accounting
Policies, for further information regarding the terms of the call
and put option, as well as the redeemable NCI balance sheet
classification.
The fair value of the nonredeemable NCI of $149,095 represents
the aggregate NCI share in certain Beat operating units which
are minority owned by the units' respective management teams.
At December 31, 2024, there are no put or call options
associated with these minority interests and as such, the
aggregate amount is classified as nonredeemable NCI on the
balance sheet.
The following table sets forth the estimated fair values of
identifiable intangible assets acquired and their estimated useful
lives as of the date of acquisition:
Fair
Useful
Customer relationships
$
303,331
10.0
Trademarks
8,226
10.0
Total
$
311,557
The customer relationships intangible represents existing
relationships Beat maintains with a variety of brokers and
distributors across its product lines. It excludes the value of
potential future distribution relationships that may be developed,
which is included in goodwill. The trade name intangible
represents the rights to the Beat Capital Partners brand name
which is well known in the marketplace in which Beat
competes.
The overall weighted average useful life of the identified
amortizable intangible assets acquired is 5.1 years.
The acquired business contributed revenues of $40,343 and net
income of $4,551 to Ambac for the period from August 1, 2024,
to December 31, 2024. The following unaudited pro forma
summary presents consolidated information of Ambac as if the
business combination had occurred on January 1, 2023.
Year Ended December 31,
Pro forma (unaudited)
2024
2023
Revenues
$
276,800
$
182,482
Net income (loss) from
continuing operations
$
(51,782) $
(93,021)
Ambac did not have any material, nonrecurring pro forma
adjustments directly attributable to the business combination
included in the reported pro forma revenue and net income.
These pro forma amounts have been calculated after applying
Ambac's accounting policies and adjusting the results of Beat to
reflect amortization that would have been charged assuming the
fair value adjustments to intangible assets had been applied from
January 1, 2023, with the consequential tax effects.
In 2024, Ambac incurred $27,388 of acquisition-related costs.
These expenses are included in general and administrative
expense on Ambac's consolidated statement of comprehensive
income (loss) for the year ended December 31, 2024. In the
table above, these expenses are reflected in the pro forma net
income for the year ended December 31, 2023.
5. DISCONTINUED OPERATION
Sale of Ambac Assurance Corporation ("AAC")
On June 4, 2024, AFG entered into a stock purchase agreement
(the "Purchase Agreement") with American Acorn Corporation
(the “Buyer”), a Delaware corporation owned by funds managed
by Oaktree Capital Management, L.P., pursuant to which and
subject to the conditions set forth therein, AFG will sell all of
the issued and outstanding shares of common stock of AAC
owned by AFG to the Buyer for aggregate consideration of
$420,000 in cash, and will issue to the Buyer a warrant to
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
68
2024 Form 10-K
purchase AFG common stock as further described below (the
"AAC Sale"). The terms of the AAC Sale as contemplated by
the Purchase Agreement provide that, at the closing of the AAC
Sale (the “Closing”), Buyer will acquire complete ownership of
the common stock of AAC and all of its wholly owned
subsidiaries, including Ambac UK.
The Purchase Agreement required AFG to seek the affirmative
vote in favor of the AAC Sale by the holders of a majority of the
issued and outstanding shares of AFG common stock entitled to
vote thereon (the “Stockholder Approval”). On October 16,
2024, Stockholder Approval was obtained at a special meeting
of stockholders duly convened for that purpose.
The Purchase Agreement contains certain customary termination
rights for each of AFG and Buyer, including (i) by mutual
written agreement; (ii) if the AAC Sale has not been
consummated on or before April 4, 2025 (the “End Date”),
subject to extension by 90 days in certain circumstances; (iii) if
the other party is in breach of the Purchase Agreement in a
manner that would result in a failure of an applicable closing
condition and such breach cannot be cured or, if curable, has not
been cured within 60 days after written notice to the other party
of such breach; or (iv) if any applicable law makes the
consummation of the Closing illegal or otherwise prohibited, or
any judgment, order or decree of any governmental authority
enjoins Buyer and AFG from consummating the Closing. AFG
would pay the Buyer an amount equal to $22,000 (the
“Termination Fee”) if all of the following occur: (i) the Purchase
Agreement is terminated as a result of (a) not closing the AAC
Sale and other transactions contemplated by the Purchase
Agreement by the End Date, as it may be extended, or (b) an
AFG breach of representations or covenants that would cause
certain closing conditions not to be satisfied; (ii) AFG has
received an alternative acquisition proposal prior to a valid
termination of the Purchase Agreement; and (iii) within 12
months after termination of the Purchase Agreement, AFG
enters into a definitive agreement for an alternative acquisition.
AFG would also pay Buyer the Termination Fee if the Purchase
Agreement is terminated for (x) AFG's breach of certain
covenants that would cause closing conditions not to be
satisfied, or (y) AFG changing its recommendation to the
Company’s stockholders regarding the sale. In addition to the
Termination Fee, AFG would pay Buyer up to $6,000 as a
reimbursement of Buyer’s reasonably documented out-of-pocket
fees and expenses incurred in connection with the AAC Sale and
other transactions contemplated by the Purchase Agreement if
(i) the Purchase Agreement is terminated as a result of not
closing the AAC Sale and other transactions by the End Date
and the Termination Fee is also payable; (ii) the Purchase
Agreement is terminated as a result of AFG changing its
recommendation to the AFG stockholders regarding the AAC
Sale; or (iii) there is an AFG breach of representations or
covenants that would cause certain closing conditions not to be
satisfied. The Closing is subject to customary closing conditions,
including the receipt of specified regulatory approvals.
In connection with and pursuant to the Purchase Agreement,
AFG has agreed to issue to the Buyer a warrant exercisable for a
number of shares of common stock, par value $0.01, of AFG
representing 9.9% of the fully diluted shares of AFG’s common
stock as of March 31, 2024, pro forma for the issuance of the
Warrant. The Warrant will have an exercise price per share of
$18.50 with a 6.5 year term from the date of issuance and will
be immediately exercisable. Payment of the exercise price may
be settled, at AFG’s option, by way of a cash exercise or by net
share settlement. Also pursuant to the Purchase Agreement,
concurrent with the AAC Sale, AFG will purchase AAC's co-
investment in the holding company established to purchase Beat,
for an amount equal to AAC's $62,000 investment plus 7.5% per
annum thereon.
While management, the Board and AFG's stockholders have
approved the AAC Sale, the AAC Sale is also subject to
approval by our regulators in both the US and UK. Buyer
received approval from the U.K. Prudential Regulation
Authority ("PRA") for the change in control of Ambac UK on
October 24, 2024 (which remains effective only if the AAC Sale
is completed by April 30, 2025, which deadline may be
extended by the PRA on upon Buyer's request). Approval from
the Wisconsin Office of the Commissioner of Insurance ("OCI")
remains outstanding. Management believes the OCI approval of
the sale of AAC is ordinary and customary and it is probable
that the deal will close in the first half of 2025. The AAC Sale
will have a major effect on AFG's operations and financial
results and, as of December 31, 2024, meets the held-for-sale
reporting requirements. Accordingly, AAC's assets and
liabilities that will be transferred in the AAC Sale are classified
as held-for-sale, and its results and cash flows presented as
discontinued operations.
At December 31, 2024, the carrying value of AAC's net assets
held-for-sale is $962,637, before the valuation allowance for the
expected loss on disposal, inclusive of the accrued value of
AAC's co-investment with AFG described above, and net of the
carrying value of AAC's Auction Market Preferred Shares
("AMPS").
• At December 31, 2024 and 2023, AAC had 4,596 shares of
issued and outstanding AMPS with a liquidation preference
of $114,900 relative to Ambac common shareholders
(reported as nonredeemable noncontrolling interest of
$50,918 on Ambac's balance sheet). In 2022, AAC
purchased 905 shares of AMPS for $7,919. The difference
between this amount paid to AMPS holders and the
carrying amount was reflected as an increase to Net income
attributable to common shareholders for approximately
$1,131. The auction occurs every 28 days and the dividend
rate has continuously been reset at the maximum, equal to
the Reference Rate plus 200 basis points. Beginning July 1,
2023, the Reference Rate for the AMPS is one-month CME
Term SOFR plus 0.11448 percent. Prior to July 1, 2023,
the Reference Rate was one-month LIBOR.
• Under the terms of the AMPS, dividends may not be paid
on the common stock of AAC unless all accrued and
unpaid dividends on the AMPS for the then current
dividend period have been paid, provided, that dividends on
the common stock may be made at all times for the purpose
of, and only in such amounts as are necessary for, enabling
AFG (i) to service its indebtedness for borrowed money as
such payments become due or (ii) to pay its operating
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
69
2024 Form 10-K
expenses. If dividends are paid on the common stock as
provided in the prior sentence, dividends on the AMPS
become cumulative until the date that all accumulated and
unpaid dividends have been paid on the AMPS. AAC has
not paid dividends on its AMPS since 2010.
The expected loss on sale reported in the Statement of
Comprehensive Income (Loss) for the year ended December 31,
2024 of (570145) is equal to the difference between the sale
proceeds (net of the value of the Warrants to be issued) and the
carrying value of AAC's net assets held-for-sale, less expected
closing costs. The carrying value of held-for-sale assets and
liabilities, and consequently the expected loss on disposal, are
subject to variability through the closing date of the AAC Sale.
Changes to the carrying value of held-for-sale assets and
liabilities could arise from changes in estimates of financial
guarantee losses and loss adjustment expense reserves, including
subrogation recoverable; changes in the valuation of invested
assets and other financial instruments carried at fair value;
adverse or favorable litigation outcomes; and other operating
results of AAC and its subsidiaries, including consolidated
variable interest entities (“VIEs”). Additionally, at closing, net
income will be impacted by reclassification from Accumulated
Other Comprehensive Income (Loss) of net unrealized gains
(losses) on available-for-sale investment securities, cumulative
foreign currency translation adjustments and cumulative credit
risk changes of fair value option liabilities attributable to AAC
and subsidiaries, which at December 31, 2024, amounted to
$(175,278).
The components of anticipated loss on sale included within Net
income (loss) from discontinued operations before tax on the
Consolidated Statement of Comprehensive Income (Loss) for
the year ended December 31, 2024, are summarized below:
Fair value of net consideration to be received
$ 399,727
Less: estimated closing costs
(7,235)
392,492
Carrying amount of net assets held-for-sale
962,637
Loss on disposal
$ (570,145)
The following table summarizes the major classes of assets and
liabilities held-for-sale on the Consolidated Balance Sheets after
elimination of intercompany balances:
December 31,
2024
2023
ASSETS:
Total investments
$ 2,226,505
$ 2,309,967
Cash and equivalents
8,322
9,152
Premiums receivable
217,096
243,710
Reinsurance recoverable on paid and
unpaid losses
25,274
29,518
Deferred ceded premiums
79,074
93,264
Subrogation recoverable
113,962
137,219
Intangible assets
213,457
245,133
Other assets, net
49,396
54,091
VIE assets (including restricted cash of
$57,754 and $246,031)
3,904,259
4,394,402
Valuation allowance on assets held-for-
sale
(570,145)
—
Total assets held-for-sale
$ 6,267,200
$ 7,516,456
LIABILITIES:
Unearned premiums
$ 228,177
$ 266,727
Loss and loss adjustment reserves
577,167
695,859
Ceded premiums payable
56,404
60,627
Long-term debt and accrued interest
1,046,658
983,069
Other liabilities, net
105,772
131,294
VIE liabilities
3,873,507
4,404,290
Total liabilities held-for-sale
$ 5,887,685
$ 6,541,866
The following table summarizes the major line items
constituting net income (loss) from discontinued operations
reconciled to net income (loss) from discontinued operations
presented in the Consolidated Statement of Comprehensive
Income (Loss):
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
70
2024 Form 10-K
Year Ended December 31,
2024
2023
2022
REVENUES:
Net premiums earned
$
23,879
$
26,040
$
42,383
Net investment income
133,933
126,957
12,324
Net investment gains
(losses), including
impairments
4,416
(22,507)
31,538
Net gains (losses) on
derivative contracts
3,958
(699)
127,630
Net realized gain on
extinguishment of debt
—
—
81,272
Litigation recoveries
—
—
125,869
Other revenues
31,096
14,533
30,266
Total revenues
197,282
144,324
451,282
EXPENSES:
Loss and loss adjustment
expenses (benefit)
(45,767)
(69,320)
(405,534)
Intangible amortization
30,508
24,736
43,925
General & administrative
and other expenses
57,491
88,306
84,455
Interest expense
63,587
64,025
168,158
Total expenses
105,819
107,747
(108,996)
Pretax income
91,463
36,577
560,278
Provision for income taxes
18,485
8,394
2,914
Loss on disposal
(570,145)
—
—
Net income (loss) from
discontinued operations
(497,167)
28,183
557,364
Gain on purchase of AMPS
—
—
1,131
Net income (loss)
attributable to Ambac
common shareholders
$ (497,167) $
28,183
$ 558,495
Significant Accounting Policies
The held-for-sale assets and liabilities and results of operations
are subject to certain additional significant accounting policies
to those described in Note 2. Basis of Presentation and
Significant Accounting Policies.
Fair value of assets held-for-sale:
Total assets held-for-sale are carried at fair value as of
December 31, 2024. The Fair Value Measurement Topic of the
ASC specifies a fair value hierarchy based on whether the inputs
to valuation techniques used to measure fair value are
observable or unobservable. Measurement of fair value of assets
held-for-sale is based on information from the purchase
agreement and other unobservable information and is considered
by management to be a Level 3 valuation under the Fair Value
Measurement Topic of the ASC.
Investments:
Equity interests in pooled investment funds which are accounted
for in accordance with the Investments - Equity Securities Topic
of the ASC include equity interests in the form of common stock
or in-substance common stock are classified as trading securities
and reported at fair value with changes in fair value reported
through income.
Investments in fixed maturity securities classified at trading are
reported within Assets held-for-sale at fair value with unrealized
gains and losses reported through income.
Consolidation of Variable Interest Entities:
The consolidated financial statements include the accounts of
VIEs for which AAC or Ambac UK is deemed the primary
beneficiary in accordance with the Consolidation Topic of the
ASC. A VIE is an entity: a) that lacks enough equity investment
at risk to permit the entity to finance its activities without
additional subordinated financial support from other parties; or
b) where the group of equity holders does not have: (1) the
power, through voting rights or similar rights, to direct the
activities of an entity that most significantly impact the entity’s
economic performance; (2) the obligation to absorb the entity’s
expected losses; or (3) the right to receive the entity’s expected
residual returns. The determination of whether a variable interest
holder is the primary beneficiary involves performing a
qualitative analysis of the VIE that includes, among other
factors, its capital structure, contractual terms including the
rights of each variable interest holder, the activities of the VIE,
whether the variable interest holder has the power to direct the
activities of a VIE that most significantly impact the VIE’s
economic performance, whether the variable interest holder has
the obligation to absorb losses of the VIE that could potentially
be significant to the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, related
party relationships and the design of the VIE. An entity that is
deemed the primary beneficiary of a VIE is required to
consolidate the VIE.
We determined that AAC or Ambac UK generally have the
obligation to absorb a LFG VIE's expected losses given that they
have issued financial guarantees supporting certain liabilities
(and in some cases certain assets). Ambac consolidates certain
LFG VIEs in cases where we also have the power to direct the
activities that most significantly impact the VIE’s economic
performance. A VIE is generally deconsolidated in the period
that AAC or Ambac UK no longer has such control rights.
The impact of consolidating such LFG VIEs on Ambac’s
balance sheet is the elimination of transactions between the
consolidated LFG VIEs and AAC or Ambac UK and the
inclusion of the LFG VIE’s third party assets and liabilities. For
a financial guarantee insurance policy issued to a consolidated
VIE, Ambac does not reflect the financial guarantee insurance
policy in accordance with the related insurance accounting rules
under the Financial Services — Insurance Topic of the ASC.
Consequently, upon consolidation, Ambac eliminates the
insurance assets and liabilities associated with the policy from
the
Consolidated
Balance
Sheets,
including
premium
receivables, unearned premiums, loss and loss expense reserves,
and insurance intangible assets. For investment securities owned
by AAC or Ambac UK that are debt instruments issued by the
VIE, the associated debt and investment balances are eliminated
upon consolidation.
Generally, Ambac has elected the fair value option for
consolidated LFG VIE financial assets and financial liabilities,
except in cases where AAC or Ambac UK was involved in the
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
71
2024 Form 10-K
design of the VIE and was granted control rights at its inception
or when the financial liabilities are primarily supported by non-
financial assets. The election to use the fair value option is made
on an instrument by instrument basis.
In cases where the fair value option has not been elected, the
LFG VIE's invested assets are fixed maturity securities and are
classified as either available-for-sale or trading as defined by the
Investments - Debt Securities Topic of the ASC.
When the fair value option is elected for LFG VIE long-term
debt, changes in the fair value of the long-term debt is reported
in
income
on
the
Consolidated
Statements
of
Total
Comprehensive Income (Loss), except for the portion of the
total change in fair value of financial liabilities caused by
changes in the instrument-specific credit risk which is presented
separately in Other comprehensive income (loss). In cases
where the fair value option has not been elected, the LFG VIEs'
long-term debt is carried at par less unamortized discount, with
interest expense reported in income on the Consolidated
Statements of Total Comprehensive Income (Loss).
Consolidated VIE assets and liabilities are presented in VIE
assets and VIE liabilities in the above table. Results of
consolidated VIEs are included in other revenues above.
Financial Guarantee Insurance Intangible:
Upon Ambac's emergence from bankruptcy in 2013, an
insurance intangible asset was recorded which represented the
difference between the fair value and aggregate carrying value
of the financial guarantee insurance and reinsurance assets and
liabilities. The carrying values of financial guarantee insurance
and reinsurance contracts continue to be reported and measured
in accordance with their existing accounting policies. Pursuant
to the Financial Services-Insurance Topic of the ASC, the
insurance intangible is to be measured on a basis consistent with
the related financial guarantee insurance and reinsurance
contracts. The initial insurance intangible asset was assigned to
groups of insurance and reinsurance contracts with similar
characteristics and has been amortized using a level-yield
method based on par exposure of the related groups.
Legacy Financial Guarantee Loss and Loss
Adjustment Expenses:
The loss and loss adjustment expense reserve (“loss reserve”)
policy relates only to Ambac’s non-derivative financial
guarantee insurance business for insurance policies issued to
beneficiaries, including VIEs, for which we do not consolidate
the VIE. Losses and loss expenses are based upon estimates of
the ultimate aggregate losses inherent in the insured portfolio as
of the reporting date.
A loss reserve is recorded on the balance sheet on a policy-by-
policy basis based upon the present value ("PV") of expected net
claim cash outflows or expected net recovery cash inflows,
discounted at risk-free rates. The estimate for future net cash
flows consider the likelihood of all possible outcomes that may
occur from missed principal and/or interest payments on the
insured obligation. This estimate also considers future recoveries
related to remediation strategies and other contractual or
subrogation-related cash flows.
▪Net claim cash outflow policies represent contracts where
the PV of expected cash outflows are greater than the PV of
expected recovery cash inflows. For such policies, a “loss
and loss adjustment expense reserves” liability is recorded
for the excess of the PV of expected net claim cash
outflows over the unearned premium revenue.
▪Net recovery cash inflow policies represent contracts where
the PV of expected recovery cash inflows are greater than
the PV of expected claim cash outflows. For such policies,
a “Subrogation recoverable” asset is recorded.
The evaluation process for determining expected losses is
subject to certain judgments based on our assumptions regarding
the probability of default by the issuer of the insured security,
probability of settlement outcomes (which may include
commutation settlements, refinancing and/or other settlement
outcomes) and expected severity of credits for each insurance
contract. Ambac’s loss reserves are based on management’s
ongoing review of the financial guarantee credit portfolio.
Active surveillance of the insured portfolio enables Ambac’s
Risk Management Group ("RMG") to track credit migration of
insured obligations from period to period and update internal
classifications and credit ratings for each transaction. Non-
adversely classified credits are assigned a Class I rating while
adversely classified credits are assigned a rating ranging from
Class IA ("Potential Problem with Risks to be Dimensioned")
through Class V (“Fully Reserved”). The criteria for an exposure
to be assigned an adversely classified credit rating includes the
deterioration
of
an
issuer’s
financial
condition,
underperformance of the underlying collateral (for collateral
dependent transactions such as mortgage-backed or student loan
securitizations), poor performance by the servicer of the
underlying collateral and other adverse economic events or
trends. The servicer of the underlying collateral of an insured
securitization transaction is a consideration in assessing credit
quality because the servicer’s performance can directly impact
the performance of the related issue. All credits are assigned
risk classifications by RMG using established guidelines.
The population of credits evaluated in Ambac’s loss reserve
process are: (i) all adversely classified credits and ii) non-
adversely classified credits which had an internal Ambac rating
downgrade since the transaction’s inception. One of two
approaches is then utilized to estimate losses to ultimately
determine if a loss reserve should be established.
▪The first approach is a statistical expected loss approach,
which considers the likelihood of all possible outcomes.
The “base case” statistical expected loss is the product of:
(i) the par outstanding on the credit; (ii) internally
developed default information (taking into consideration
internal ratings and average life of an obligation);
(iii) internally developed loss severities; and (iv) a discount
factor. The loss severities and default information are based
on rating agency information, are specific to each bond
type and are established and approved by senior RMG
officers. For certain credit exposures, Ambac’s additional
monitoring, loss remediation efforts and probabilities of
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
72
2024 Form 10-K
potential settlement outcomes may provide information
relevant to adjust this estimate of “base case” statistical
expected losses. RMG may accept the “base case”
statistical expected loss as the best estimate of expected
loss or assign multiple probability weighted scenarios to
determine an adjusted statistical expected loss that better
reflects management’s view of a given transaction’s
expected losses, as well as the potential for additional
remediation activities (e.g., commutations).
▪The second approach entails the use of cash-flow based
models to estimate expected losses (future claims, net of
potential recoveries, expected to be paid to the holder of the
insured financial obligation). Ambac’s RMG group will
consider the likelihood of all possible outcomes and
develop appropriate cash flow scenarios. This approach can
include the utilization of internal or third party models and
tools to project future losses and resultant claim payment
estimates. We utilize cash flow models for RMBS, student
loans and other exposures. RMBS and student loan models
use historical performance of the collateral pools in order to
then derive future performance characteristics, such as
default and voluntary prepayment rates, which in turn
determine projected future claim payments. In other cases,
such as many public finance exposures we do not
specifically forecast resources available to pay debt service
in the cash flow model itself. Rather, we consider the
issuers’ overall ability and willingness to pay, including the
fiscal, economic, legal and political framework to develop
projected future claim payment estimates. In this approach,
a probability-weighted expected loss estimate is developed
based on assigning probabilities to multiple claim payment
scenarios and applying an appropriate discount factor.
Additionally, we consider the issuer’s ability to refinance
an insured issue, Ambac’s ability to execute a potential
settlement (i.e., commutation) of the insurance policy,
including the impact on future installment premiums, and/
or other restructuring possibilities in our scenarios. The
commutation scenarios and the related probabilities of
occurrence vary by transaction, depending on our view of
the likelihood of negotiating such a transaction with issuers
and/or investors.
The discount factor applied to the statistical expected loss
approach is based on a risk-free discount rate corresponding to
the remaining expected weighted-average life of the exposure
and the exposure currency. For the cash flow scenario approach,
discount factors are applied based on a risk-free discount rate
term structure and correspond to the date of each respective cash
flow payment or recovery and the exposure currency. Discount
factors are updated for the current risk-free rate each reporting
period.
Ambac establishes loss expense reserves based on our estimate
of expected net cash outflows for loss expenses, such as legal
and consulting costs.
Long-term Debt
Long-term debt issued is carried at par value less unamortized
discount. Accrued interest and discount accretion on long-term
debt is reported through income on the Consolidated Statements
of Total Comprehensive Income (Loss). To the extent Ambac
repurchases or redeems its long-term debt, such repurchases or
redemptions may be settled for an amount different than the
carrying value of the obligation. Any difference between the
payment and carrying value of the obligation is reported in
income on the Consolidated Statements of Total Comprehensive
Income (Loss). For surplus note repurchases, the pro-rata
purchase price related to principal and accrued interest is
reported as a financing and operating activity, respectively, on
the Statement of Cash Flows.
AAC's 5.1% surplus notes have an outstanding par value of
$519,235 and carrying value of $503,139 at December 31, 2024
and had an original maturity of June 7, 2020. Surplus note
principal and interest payments require the approval of OCI.
Since the issuance of the surplus notes in 2010, OCI has
declined to approve regular payments of interest on surplus
notes, although the OCI has permitted two exceptional
payments. As a result, the scheduled payment date for interest,
and the scheduled maturity date for payment of principal of the
surplus notes are extended until OCI grants approval to make the
payment. Interest will accrue, compounded on each anniversary
of the original scheduled payment date or scheduled maturity
date, on any unpaid principal or interest through the actual date
of payment, at 5.1% per annum. Holders of surplus notes have
no rights to enforce the payment of the principal of, or interest
on, surplus notes in the absence of OCI approval to pay such
amount. The interest on the outstanding surplus notes were
accrued for and AAC is accruing interest on the interest amounts
following each scheduled payment date. As required by the
terms of surplus notes, AAC will continue to seek OCI’s
approval to make payments of principal and interest on its
surplus notes. OCI’s approval may be granted or denied in
OCI’s sole discretion. Ambac can provide no assurance as to
when or if surplus note principal and interest payments will be
made. If OCI does not approve payments on or the acquisition of
surplus notes over time, the ongoing accretion of interest on the
notes may impair AAC's ability to extinguish the notes in full.
Surplus notes are subordinated in right of payment to
policyholder and other claims.
Ambac UK debt, issued in connection with the commutation of
an exposure on June 18, 2019, has a par value of $40,600 and a
carrying value of $18,079 at December 31, 2024. The Ambac
UK debt has a legal maturity of May 2, 2036. Interest on the
Ambac UK debt is at an annual rate of 0.00%. The Ambac UK
debt was recorded at its fair value at the date of issuance with
the discount amortizing at an effective interest rate of 7.4%.
NOL & Investment Interest Carryforward
As of December 31, 2024, AAC has (i) $1,952,621 of NOLs,
which if not utilized will begin expiring in 2030, and will fully
expire in 2045, and (ii) $110,494 of interest expense tax
deduction carryover, which has an indefinite carryforward
period but is limited in any particular year based on certain
provisions. AAC has maintained a full valuation allowance since
2010.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
73
2024 Form 10-K
6. INVESTMENTS
Ambac’s invested assets are primarily comprised of (i) fixed maturity securities classified as either available-for-sale, (ii) interests in
pooled investment funds which are reported within Other investments on the Consolidated Balance Sheets and (iii) preferred equity
investments which are reported within Other investments on the Consolidated Balance Sheets. Interests in pooled investment funds are
limited partner interests and are reported using the equity method.
Fixed Maturity Securities
The amortized cost and estimated fair value of available-for-sale investments, at December 31, 2024 and 2023 were as follows:
December 31, 2024
December 31, 2023
Amortized
Cost
Allowance
for Credit
Losses
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Amortized
Cost
Allowance
for Credit
Losses
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Fixed maturity securities:
Municipal obligations
$ 14,646
$
—
$
7
$
570
$ 14,083
$ 9,394
—
13
696
8,711
Corporate obligations
92,990
—
107
3,905
89,192
92,694
—
262
4,965
87,991
U.S. government obligations
41,706
—
98
809
40,995
39,091
—
364
933
38,522
Residential mortgage-backed
securities
2,475
—
—
29
2,446
—
—
—
—
—
Commercial mortgage-backed
securities
2,127
—
8
34
2,101
—
—
—
—
—
Collateralized debt obligations
3,131
—
13
2
3,142
—
—
—
—
—
Other asset-backed securities
5,049
—
14
2
5,061
—
—
—
—
—
162,124
—
247
5,351
157,020
141,179
—
639
6,594
135,224
Short-term
127,588
—
13
—
127,601
200,506
—
4
—
200,510
Total available-for-sale
investments
$ 289,712
$
—
$
260
$ 5,351
$ 284,621
341,685
$
—
$
643
$ 6,594
$ 335,734
The amortized cost and estimated fair value of available-for-sale
investments, at December 31, 2024, by contractual maturity,
were as follows:
Amortized
Cost
Estimated
Fair Value
Due in one year or less
$
158,357
$
158,056
Due after one year through five years
62,715
61,169
Due after five years through ten years
54,882
51,688
Due after ten years
976
958
276,930
271,871
Residential mortgage-backed securities
2,475
2,446
Commercial mortgage-backed securities
2,127
2,101
Collateralized debt obligations
3,131
3,142
Other asset-backed securities
5,049
5,061
Total
$
289,712
$
284,621
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay certain
obligations with or without call or prepayment penalties.
Unrealized Losses on Fixed Maturity Securities
The following table shows gross unrealized losses and fair
values of Ambac’s available-for-sale investments, which at
December 31, 2024, did not have an allowance for credit losses
under the CECL standard. This information is aggregated by
investment category and length of time that the individual
securities have been in a continuous unrealized loss position, at
December 31, 2024 and 2023:
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
74
2024 Form 10-K
December 31, 2024
December 31, 2023
Less Than 12 Months
12 Months or More
Total
Less Than 12 Months
12 Months or More
Total
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
Fixed maturity securities:
Municipal obligations
$ 6,042
$
112
$ 6,582
$
458
$ 12,624
$
570
$
732
$
17
$ 7,015
$
679
$
7,747
$
696
Corporate obligations
23,784
269
46,612
3,636
70,396
3,905
12,134
49
59,010
4,916
71,144
4,965
U.S. government obligations
15,919
344
14,818
465
30,737
809
6,847
37
20,981
896
27,828
933
Residential mortgage-backed
securities
2,446
29
—
—
2,446
29
—
—
—
—
—
—
Commercial mortgage-backed
securities
738
34
—
—
738
34
—
—
—
—
—
—
Collateralized debt obligations
655
2
—
—
655
2
—
—
—
—
—
—
Other asset-backed securities
1,428
2
—
—
1,428
2
—
—
—
—
—
—
51,012
792
68,012
4,559
119,024
5,351
19,713
103
87,006
6,491
106,719
6,594
Short-term
—
—
—
—
—
—
619
—
—
—
619
—
Total temporarily impaired
securities
$ 51,012
$
792
$ 68,012
$
4,559
$ 119,024
$
5,351
$ 20,332
$
103
$ 87,006
$
6,491
$ 107,338
$
6,594
Management has determined that the securities in the above
table do not have credit impairment as of December 31, 2024
and 2023 based upon (i) no actual or expected principal and
interest payment defaults on these securities and (ii) analysis of
the creditworthiness of the issuer.
Ambac’s assessment about whether a security is credit impaired
reflects management’s current judgment regarding facts and
circumstances specific to the security and other factors. If that
judgment changes, Ambac may record a charge for credit
impairment in future periods.
The declines in fair value and resultant unrealized losses across
asset classes as of December 31, 2024, included in the above
table resulted primarily from the impact of increasing interest
rates since the securities were purchased. Management has
determined that the securities with unrealized losses are not
credit impaired. Further discussion of management's assessment
with respect to security categories with larger unrealized loss
balances is below.
Corporate obligations
The gross unrealized losses on corporate obligations as of
December 31, 2024, resulted primarily from an increase in
interest rates since the securities were purchased. Unrealized
losses of $3,905 related to 145 investment grade securities with
an average unrealized loss equal to 5% of amortized cost at
December 31, 2024. Securities that have below investment
grade credit ratings or are unrated comprise $0 of the gross
unrealized loss at December 31, 2024. Management believes
that the full and timely receipt of all principal and interest
payment on corporate obligations with unrealized losses as of
December 31, 2024, is probable.
Investment Income (Loss)
Net investment income (loss) was comprised of the following
for the affected periods:
Year Ended December 31,
2024
2023
2022
Fixed maturity securities
$
4,895
$
3,696
$
2,163
Short-term investments
10,033
9,287
2,345
Investment expense
(365)
(296)
(139)
Securities available-for-sale and
short-term
14,563
12,687
4,369
Fixed maturity securities -
trading
—
—
—
Other investments
(115)
472
134
Total net investment income (loss)
$
14,448
$
13,159
$
4,503
Net investment income (loss) from Other investments primarily
represents changes in fair value on equity securities including
certain pooled investment funds, and income from investment
limited partnerships and other equity interests accounted for
under the equity method.
Net Investments Gains (Losses), including
Impairments
The following table details amounts included in net investment
gains (losses) and impairments included in earnings for the
affected periods:
Year Ended December 31,
2024
2023
2022
Gross realized gains on securities
$
6,020
$
57
$
43
Gross realized losses on securities
(1)
(38)
(105)
Foreign exchange (losses) gains
—
—
—
Credit impairments
(6,516)
—
—
Intent to sell impairments
—
—
—
Net investment gains (losses),
including impairments
$
(497) $
19
$
(62)
Ambac had an allowance for credit losses $0 and $0 at
December 31, 2024 and 2023, respectively.
Ambac did not purchase any financial assets with credit
deterioration for the years ended December 31, 2024 and 2023.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
75
2024 Form 10-K
Deposits with Regulators and Other Restrictions
Securities carried at $22,861 and $20,748 at December 31, 2024
and 2023, respectively, were deposited by Ambac's insurance
subsidiaries with governmental authorities or designated
custodian banks as required by laws affecting insurance
companies. Invested assets of AAC carried at $800 and reported
within assets held-for-sale on Ambac's consolidated balance
sheet as of December 31, 2024, were deposited as security in
connection with a letter of credit issued for a corporate office
lease. The lease will be transferred to Ambac in connection with
the AAC sale. Fiduciary funds held by Ambac's insurance
distribution subsidiaries, carried at $2,845 and $1,769 at
December 31, 2024 and 2023, respectively, are included in
invested assets.
Other Investments
Ambac's investment portfolio includes a limited partnership
interest in a private equity fund which seeks to generate long-
term capital appreciation through investments in private equity,
equity-related and other instruments. The fair value of Ambac's
investment in the fund was 7499 and 5817 as of December 31,
2024 and 2023, determined using net asset value ("NAV") as a
practical expedient. Redemptions may be made quarterly with
90 days notice subject to withdrawal limitations and/or
redemption fees which vary with the timing and notification of
withdrawal provided by the investor. Ambac's unfunded
commitments total $1,724 on this private equity fund at
December 31, 2024.
Other investments also include preferred equity investments
with a carrying value of 20618 and $12,500 as of December 31,
2024 and 2023, respectively, that do not have readily
determinable fair values and are carried at cost, less any
impairments as permitted under the Investments — Equity
Securities Topic of the ASC. Impairments of 6516, 0, and 0
were recorded on these investments in the years ended
December 31, 2024, 2023 and 2022, respectively. There were
no adjustments to fair value to reflect observable price changes
in identical or similar investments from the same issuer during
the years ended December 31, 2024, 2023 and 2022.
7. FAIR VALUE MEASUREMENTS
The Fair Value Measurement Topic of the ASC establishes a framework for measuring fair value and disclosures about fair value
measurements.
Fair Value Hierarchy
The Fair Value Measurement Topic of the ASC specifies a fair value hierarchy based on whether the inputs to valuation techniques used to
measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect Company-based assumptions. The fair value hierarchy has three broad levels as follows:
l Level 1
Quoted prices for identical instruments in active markets. Assets and liabilities classified as Level 1 include US Treasury
and other foreign government obligations traded in highly liquid and transparent markets, and money market funds.
l Level 2
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active
markets. Assets and liabilities classified as Level 2 generally include investments in fixed maturity securities and certain
derivatives valued using only market observable data.
l Level 3
Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. This
hierarchy requires the use of observable market data when available. Financial instruments classified as Level 3 include
certain investments in fixed maturity securities, loans and derivatives.
The Fair Value Measurement Topic of the ASC permits, as a practical expedient, the estimation of fair value of certain investments in
funds using the net asset value per share of the investment or its equivalent (“NAV”). Investments in funds valued using NAV are not
categorized as Level 1, 2 or 3 under the fair value hierarchy. The Investments — Equity Securities Topic of the ASC permits the
measurement of certain equity securities without a readily determinable fair value at cost, less impairment, and adjusted to fair value when
observable price changes in identical or similar investments from the same issuer occur (the "measurement alternative"). The fair values of
investments measured under this measurement alternative are not included in the below disclosures of fair value of financial instruments.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
76
2024 Form 10-K
The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of December 31, 2024 and
2023, including the level within the fair value hierarchy at which fair value measurements are categorized. As required by the Fair Value
Measurement Topic of the ASC financial assets and liabilities are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement.
December 31, 2024:
December 31, 2023:
Carrying
Amount
Total Fair
Value
Fair Value Measurements Categorized as:
Carrying
Amount
Total Fair
Value
Fair Value Measurements Categorized as:
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Financial assets:
Fixed maturity securities:
Municipal obligations
$
14,083
$
14,083
$
—
$
14,083
$
—
$
8,711
$
8,711
$
—
$
8,711
Corporate obligations
89,192
89,192
—
89,192
—
87,991
87,991
—
74,071
13,920
U.S. government obligations
40,995
40,995
40,995
—
—
38,522
38,522
38,522
—
—
Residential mortgage-backed securities
2,446
2,446
—
2,446
—
—
—
—
—
—
Commercial mortgage-backed securities
2,101
2,101
—
2,101
—
—
—
—
—
—
Collateralized debt obligations
3,142
3,142
—
3,142
—
—
—
—
—
—
Other asset-backed securities
5,061
5,061
—
5,061
—
—
—
—
—
—
Short term investments
127,601
127,601
127,601
—
—
200,510
200,510
200,510
—
—
Other investments (1)
28,294
7,499
—
—
—
18,317
5,817
—
—
—
Cash, cash equivalents and restricted cash
47,276
47,276
47,276
—
—
19,223
19,223
19,223
—
—
Other assets-Loans
3,434
3,434
—
—
3,434
—
—
—
—
—
Other assets - Derivatives:
Warrants
—
—
—
—
—
656
656
—
—
656
Total financial assets
$ 363,625
$ 342,830
$
215,872
$
116,025
$
3,434
$ 373,930
$ 361,430
$
258,255
$
82,782
$
14,576
Financial liabilities:
Short-term debt, including accrued interest
$ 152,560
$ 152,560
$
—
$
—
$
152,560
$
—
$
—
$
—
$
—
$
—
Other liabilities - Derivatives:
FX forward contracts
317
317
—
317
—
—
—
—
—
—
Total financial liabilities
$ 152,877
$ 152,877
$
—
$
317
$
152,560
$
—
$
—
—
—
—
(1)
Excluded from the fair value measurement categories in the table above are investment funds of $7,499 and $5,817 as of December 31, 2024 and 2023,
respectively, which are measured using NAV as a practical expedient. Also excluded from the fair value measurements in the table above are equity
securities with a carrying value of $20,618 and $12,500 as of December 31, 2024 and 2023, respectively, that do not have readily determinable fair
values and have carrying amounts determined using the measurement alternative, and an equity method investment of $177 as of December 31, 2024.
Determination of Fair Value
When available, Ambac uses quoted active market prices
specific to the financial instrument to determine fair value and
classifies such items within Level 1. The determination of fair
value for financial instruments categorized in Level 2 or 3
involves judgment due to the complexity of factors contributing
to the valuation. Third-party sources from which we obtain
independent market quotes also use assumptions, judgments and
estimates in determining financial instrument values and
different third parties may use different methodologies or
provide different values for financial instruments. In addition,
the use of internal valuation models may require assumptions
about hypothetical or inactive markets. As a result of these
factors, the actual trade value of a financial instrument in the
market, or exit value of a financial instrument position by
Ambac, may be significantly different from its recorded fair
value.
Ambac’s financial instruments carried at fair value are mainly
comprised of investments in fixed maturity securities, equity
interests in pooled investment funds, and derivative instruments.
Valuation of financial instruments is performed by Ambac’s
finance group using methods approved by senior financial
management with consultation from risk management and third-
party portfolio managers as appropriate. Preliminary valuation
results are discussed internally and with third-party portfolio
managers as necessary quarterly to assess consistency with
market
transactions
and
trends
as
applicable.
Market
transactions such as trades or negotiated settlements of similar
positions, if any, are reviewed to validate fair value model
results. However, financial instruments valued using significant
unobservable inputs have very little or no observable market
activity. Methods and significant inputs and assumptions used to
determine fair values across portfolios are reviewed quarterly by
senior
financial
management.
Other
valuation
control
procedures specific to particular portfolios are described further
below.
Fixed Maturity Securities
The fair values of fixed maturity investment securities are based
primarily on market prices received independent pricing sources.
Because many fixed maturity securities do not trade on a daily
basis, pricing sources apply available market information
through processes such as matrix pricing to calculate fair value.
Such prices generally consider a variety of factors, including
recent trades of the same and similar securities. In those cases,
the items are classified within Level 2. For those fixed maturity
investments where quotes were not available or cannot be
reasonably corroborated, fair values are based on internal
valuation models. Key inputs to the internal valuation models
generally include maturity date, coupon and yield curves for
asset-type and credit rating characteristics that closely match
those characteristics of the specific investment securities being
valued. Items valued using valuation models are classified
according to the lowest level input or value driver that is
significant to the valuation. Thus, an item may be classified in
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
77
2024 Form 10-K
Level 3 even though there may be significant inputs that are
readily observable. Longer (shorter) expected maturities or
higher (lower) yields used in the valuation model will, in
isolation, result in decreases (increases) in fair value. Generally,
lower credit ratings or longer expected maturities will be
accompanied by higher yields used to value a security.
Ambac performs various review and validation procedures to
quoted and modeled prices for fixed maturity securities,
including price variance analyses, missing and static price
reviews, overall valuation analysis by portfolio managers and
finance managers and reviews associated with our ongoing
impairment analysis. Unusual prices identified through these
procedures will be evaluated further against alternative third-
party quotes (if available), internally modeled prices and/or
other relevant data, and the pricing source values will be
challenged as necessary. Price challenges generally result in the
use of the pricing source’s quote as originally provided or as
revised by the source following their internal diligence process.
A price challenge may result in a determination by either the
pricing source or Ambac management that the pricing source
cannot provide a reasonable value for a security or cannot
adequately support a quote, in which case Ambac would resort
to using either other quotes or internal models. Results of price
challenges are reviewed by portfolio managers and finance
managers.
Information about the valuation inputs for fixed maturity
securities classified as Level 3 is included below:
Corporate obligations: This includes certain investments in
convertible debt securities. The fair value classified as Level 3
was $0 and 13920 at December 31, 2024 and 2023, respectively.
Fair value was calculated by discounting cash flows to average
maturity of 0.75 years and a yield of 9.4% at December 31,
2023. Yields used are consistent with the security type and
rating.
Other Investments
Other investments primarily relate to investments in pooled
investment funds. The fair value of pooled investment funds is
determined using dealer quotes or alternative pricing sources
when such investments have readily determinable fair values.
When fair value is not readily determinable, pooled investment
funds are valued using NAV as a practical expedient as
permitted under the Fair Value Measurement Topic of the ASC.
Refer to Note 6. Investments for additional information about
such investments in pooled funds that are reported at fair value
using NAV as a practical expedient.
Derivative Instruments
As of December 31, 2024, Ambac has foreign currency forward
contracts and holds warrants to purchase preferred stock of a
development stage company. The fair value of foreign currency
forwards are determined using valuation models with observable
market inputs. Fair value of the warrants are determined using a
standard warrant valuation model with internally developed
input assumptions.
Short-term Debt
Short-term debt consists of SOFR indexed borrowing used for
the partial funding of the Beat acquisition and is classified as
Level 3.
Other Financial Assets
Included in Other assets are loans carried at amortized cost, the
fair values of which are estimated based upon internal valuation
models and are classified as Level 3.
Additional Fair Value Information for Financial
Assets and Liabilities Accounted for at Fair Value
The following tables present the changes in the Level 3 fair
value category for the periods presented in 2024, 2023 and 2022.
Ambac classifies financial instruments in Level 3 of the fair
value hierarchy when there is reliance on at least one significant
unobservable input to the valuation model. In addition to these
unobservable inputs, the valuation models for Level 3 financial
instruments typically also rely on a number of inputs that are
readily observable either directly or indirectly. Thus, the gains
and losses presented below include changes in the fair value
related to both observable and unobservable inputs.
Level-3 Financial Assets and Liabilities Accounted for at Fair Value
Year Ended December 31, 2024
Investments
Derivatives
Total
Balance, beginning of period
$
13,920
$
656
$
14,576
Total gains/(losses) realized and unrealized:
Included in earnings
6,016
(656)
5,360
Included in other comprehensive income
125
—
125
Purchases
—
—
—
Issuances
—
—
—
Sales
—
—
—
Settlements
(20,061)
—
(20,061)
Balance, end of period
$
—
$
—
$
—
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating
to assets and liabilities still held at the reporting date
$
—
$
(656) $
(656)
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized
gains or losses relating to assets and liabilities still held at the reporting date
$
—
$
—
$
—
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
78
2024 Form 10-K
Level-3 Financial Assets and Liabilities Accounted for at Fair Value
Year Ended December 31, 2023
Investments
Derivatives
Total
Balance, beginning of period
$
12,341
$
935
$
13,276
Total gains/(losses) realized and unrealized:
Included in earnings
—
(279)
(279)
Included in other comprehensive income
784
784
Purchases
795
795
Issuances
—
—
Sales
—
—
Settlements
—
—
Balance, end of period
$
13,920
$
656
$
14,576
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to
assets and liabilities still held at the reporting date
$
—
$
(279) $
(279)
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains
or losses relating to assets and liabilities still held at the reporting date
$
784
$
—
$
784
Level-3 Financial Assets and Liabilities Accounted for at Fair Value
Year Ended December 31, 2022
Investments
Derivatives
Total
Balance, beginning of period
$
12,305
$
—
$
12,305
Total gains/(losses) realized and unrealized:
Included in earnings
—
935
935
Included in other comprehensive income
(714)
—
(714)
Purchases
750
—
750
Issuances
—
—
—
Sales
—
—
—
Settlements
—
—
—
Balance, end of period
$
12,341
$
935
$
13,276
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating
to assets and liabilities still held at the reporting date
$
—
$
935
$
935
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains
or losses relating to assets and liabilities still held at the reporting date
$
(713) $
—
$
(713)
Invested assets are transferred into Level 3 when internal valuation models that include significant unobservable inputs are used to estimate
fair value. All such securities that have internally modeled fair values have been classified as Level 3. Derivative instruments are
transferred into Level 3 when the use of unobservable inputs becomes significant to the overall valuation. There were no transfers of
financial instruments into or out of Level 3 in the periods disclosed.
Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported
as follows:
Net
Investment
Income
Net Gains
(Losses) on
Derivative
Contracts
Year Ended December 31, 2024
Total gains (losses) included in earnings for the period
$
6,016
$
(656)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date
—
(656)
Year Ended December 31, 2023
Total gains (losses) included in earnings for the period
$
—
$
(278)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date
—
(278)
Year Ended December 31, 2022
Total gains (losses) included in earnings for the period
$
—
$
935
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date
—
935
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
79
2024 Form 10-K
8. INSURANCE CONTRACTS
Premiums
The effect of reinsurance on premiums written and earned was
as follows:
Year Ended
December 31,
Direct
Assumed
Ceded
Net
Premiums
2024:
Written
$
334,311
$
48,459
$
294,088
$
88,682
Earned
298,121
57,081
256,197
99,005
2023:
Written
$
233,702
$
39,585
$
193,462
$
79,825
Earned
185,470
18,354
151,913
51,911
2022:
Written
$
146,379
$
—
$
117,826
$
28,553
Earned
70,577
—
56,708
13,869
Premium Receivables, including Credit Impairments
Premium receivables at December 31, 2024 and 2023 were
$57,222 and $45,893, respectively. Management evaluates
premium receivables for expected credit losses ("credit
impairment") in accordance with the CECL standard, which is
further described in Note 2. Basis of Presentation and
Significant Accounting Policies.
Below is a rollforward of the premium receivable allowance for
credit losses as of December 31, 2024 and 2023:
Year Ended December 31,
2024
2023
2022
Beginning balance
$
69
$
—
$
—
Current period provision (benefit)
73
69
—
Write-offs of the allowance
—
—
—
Recoveries of previously written-
off amounts
—
—
—
Ending balance
$
142
$
69
$
—
At December 31, 2024 and 2023, $5,690 and $510 of premiums
were past due.
Loss and Loss Adjustment Expense Reserves
Below is the loss and loss reserve expense roll-forward,
recoverable and reinsurance, for the affected periods.
Year Ended December 31,
2024
2023
2022
Beginning gross loss and loss
adjustment expense reserves
$ 197,089
$
89,907
$
32,169
Reinsurance recoverable
156,301
80,155
31,695
Beginning balance of net loss and
loss adjustment expense reserves
40,788
9,752
474
Losses and loss expenses incurred:
Current year
67,937
36,569
9,049
Prior years
4,689
143
23
Total (1)
72,626
36,712
9,072
Loss and loss adjustment expenses
(recovered) paid:
Current year
16,202
3,798
(206)
Prior years
18,231
1,878
—
Total
34,433
5,676
(206)
Ending net loss and loss adjustment
expense reserves
78,981
40,788
9,752
Reinsurance recoverable (2)
270,081
156,301
80,155
Ending gross loss and loss
adjustment expense reserves
$ 349,062
$ 197,089
$
89,907
(1)
Total losses and loss expenses (benefit) is net of $(191,151),
$(113,622) and $(52,960) for the years ended December 31, 2024,
2023 and 2022, respectively, related to ceded reinsurance.
(2)
Represents reinsurance recoverable on future loss and loss
adjustment expenses. Additionally, the Balance Sheet line
"Reinsurance recoverable on paid and unpaid losses" includes
reinsurance recoverables of $36,210, $8,765 and $1,397 as of
December 31, 2024, 2023 and 2022, respectively, related to
previously paid loss and loss adjustment expenses.
Prior accident years losses incurred development for the year
end December 31, 2024 was primarily driven by commercial
auto loss experience and a higher selected loss ratio for
programs in runoff. In the fourth quarter of 2024 management
decided to set loss reserves for programs that are runoff at the
high end of the actuarial loss range, given these program can
experience greater loss volatility than active programs.
Specialty Property & Casualty Loss Reserves
Claims Development
The following is a summary of loss and loss adjustment expense reserves, including certain components, for the Company’s major product
lines by reporting segment at December 31, 2024.
Net Loss and Loss
Adjustment Expense
Reserves
Reinsurance
Recoverables on
Unpaid Losses (1)
Loss and Loss
Adjustment
Reserves (1)
Commercial auto
$
28,720
$
129,752
$
158,472
Excess and general liability
14,857
70,602
85,459
Workers compensation
14,465
—
14,465
Non-standard personal auto
12,185
504
12,689
Unallocated loss adjustment expense reserves
6,578
5,660
12,238
Other
2,176
63,563
65,739
Total
78,981
270,081
349,062
(1)
Other includes 35146 related to legacy liabilities obtained from the acquisitions of Providence Washington Insurance Company, Greenwood Insurance
Company, and Consolidated Specialty Insurance Company. All legacy liabilities remain obligations of affiliates of the sellers through reinsurance and
contractual indemnities.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
80
2024 Form 10-K
The claim development tables that follow present, by accident year, incurred and cumulative paid claims and allocated claim adjustment
expense on a historical basis. This claim development information is presented on an undiscounted, net of reinsurance basis since 2021,
Everspan's entry into the Specialty P&C business. The claim development tables also provide the historical average annual percentage
payout of incurred claims by age, net of reinsurance, as supplementary information (identified as unaudited in the tables below). The
historical average annual percentage payout for incurred claims is subject to variability due to the impact of both large claim activity and
subrogation recoveries, among other items.
Commercial Auto
Incurred Claims and Allocated LAE, Net of Reinsurance
Accident Year
Year Ended December 31,
IBNR Reserves at
December 31, 2024
Cumulative Number
of Reported Claims
2021
2022
2023
2024
Unaudited
2021
$
432
$
468
$
978
$
962
$
150
80
2022
8,225
7,866
9,099
1,959
1,155
2023
19,459
23,313
6,496
3,197
2024
$
15,193
7,583
2,768
Total
$
48,567
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
Year Ended December 31,
Liability for Loss and Loss Adjustment
Expenses, Net of Reinsurance
2021
2022
2023
2024
2021 -
Before
Unaudited
2024
2021
2021
$
7
$
44
$
151
$
681
2022
555
2,325
4,700
2023
3,914
10,989
2024
3,477
Total
19,847
28,720
—
Total net liability
28,720
Average Annual Percentage Payout of Incurred Claims by Age,
Net of Reinsurance
Unaudited
Years
1
2
3
4
11.6 %
17.9 %
18.6 %
55.1 %
Excess and General Liability
Incurred Claims and Allocated LAE, Net of Reinsurance
Accident Year
Year Ended December 31,
IBNR Reserves at
December 31, 2024
Cumulative Number
of Reported Claims
2021
2022
2023
2024
Unaudited
2021
$
3
$
3
$
10
$
12
$
2
1
2022
372
350
589
227
6
2023
3,597
2,901
2,434
69
2024
$
12,200
10,877
177
Total
$
15,702
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
81
2024 Form 10-K
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
Year Ended December 31,
Liability for Loss and Loss Adjustment
Expenses, Net of Reinsurance
2021
2022
2023
2024
2021 -
Before
Unaudited
2024
2021
2021
$
—
$
—
$
—
$
—
2022
—
1
368
2023
30
316
2024
161
Total
845
14,857
—
Total net liability
14,857
Average Annual Percentage Payout of Incurred Claims by Age,
Net of Reinsurance
Unaudited
Years
1
2
3
4
0.6 %
3.7 %
31.3 %
— %
Workers Compensation
Incurred Claims and Allocated LAE, Net of Reinsurance
Accident Year
Year Ended December 31,
IBNR Reserves at
December 31, 2024
Cumulative Number
of Reported Claims
2021
2022
2023
2024
Unaudited
2021
$
—
$
—
$
—
$
—
$
—
0
2022
—
—
—
—
0
2023
6,053
6,056
(331)
2,308
2024
$
16,486
8,156
3,177
Total
$
22,542
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
Year Ended December 31,
Liability for Loss and Loss Adjustment
Expenses, Net of Reinsurance
2021
2022
2023
2024
2021 -
Before
Unaudited
2024
2021
2021
$
—
$
—
$
—
$
—
2022
—
—
—
2023
807
3,938
2024
4,139
Total
8,077
14,465
—
Total net liability
14,465
Average Annual Percentage Payout of Incurred Claims by Age,
Net of Reinsurance
Unaudited
Years
1
2
3
4
19.2 %
65.0 %
— %
— %
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
82
2024 Form 10-K
Other (1)
Incurred Claims and Allocated LAE, Net of Reinsurance
Accident Year
Year Ended December 31,
IBNR Reserves at
December 31, 2024
Cumulative Number
of Reported Claims
2021
2022
2023
2024
Unaudited
2021
$
—
$
—
$
—
$
—
$
—
—
2022
1
1
1
1
740
2023
6,142
6,062
539
17,633
2024
23,341
3,469
52,385
Total
$
29,404
Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year
Year Ended December 31,
Liability for Loss and Loss Adjustment
Expenses, Net of Reinsurance
2021
2022
2023
2024
2021 -
Before
Unaudited
2024
2021
2021
$
—
$
—
$
—
$
—
2022
—
—
—
2023
966
4,337
2024
10,706
Total
15,043
14,361
—
Total net liability
14,361
Average Annual Percentage Payout of Incurred Claims by Age,
Net of Reinsurance
Unaudited
Years
1
2
3
4
20.6 %
35.8 %
— %
— %
(1) Other includes non-standard personal auto, professional liability, business owners products, travel and surety
Methodology for Determining Cumulative Number of
Reported Claims
A claim file is created when the Company or the third party
claims administrator is notified of an actual demand for
payment, notified of an event that may lead to a demand for
payment or when it is determined that a demand for payment
could possibly lead to a future demand for payment on another
coverage on the same policy or on another policy. Claim files
are generally created at the claimant by coverage type,
depending on the particular facts and circumstances of the
underlying event.
For purposes of the claims development tables above, claims
reported for direct business are counted even if they eventually
close with no loss payment. Note that claims with zero claim
dollars may still generate some level of claim adjustment
expenses. Claim counts for assumed business are included only
to the extent such counts are available. The methods used to
summarize claim counts have not changed significantly over the
time periods reported in the tables above.
The Company cautions against using the summarized claim
count information provided in this disclosure in attempting to
project ultimate loss payouts by product line. The Company
generally finds claim count data to be useful only on a more
granular basis than the aggregated basis disclosed in the claim
development tables above, as the risks, average values and other
dynamics of the claim process can vary materially by the cause
of loss and coverage within product line.
Reinsurance Recoverables, Including Credit
Impairments:
Everspan’s reinsurance assets, including deferred ceded
premiums and reinsurance recoverables on losses amounted to
$454,491 at December 31, 2024. Credit exposure existed at
December 31, 2024, with respect to reinsurance recoverables to
the extent that any reinsurer may not be able to reimburse
Everspan under the terms of these reinsurance arrangements. At
December 31, 2024, there were ceded reinsurance balances
payable
of
$53,002
offsetting
this
credit
exposure.
Contractually ceded reinsurance payables can only be offset
against amounts owed from the same reinsurer in the event that
such reinsurer is unable to meet its obligations to reimburse
Everspan.
To minimize its credit exposure to losses from reinsurer
insolvencies, Everspan (i) is entitled to receive collateral from
its reinsurance counterparties in certain reinsurance contracts
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
83
2024 Form 10-K
and (ii) has certain cancellation rights that can be exercised by
Everspan in the event of rating agency downgrades of a
reinsurer (among other events and circumstances). Everspan
held letters of credit and collateral amounting to $62,792 from
its reinsurers at December 31, 2024. For those reinsurance
counterparties that do not currently post collateral, Everspan's
reinsurers are well capitalized, highly rated, authorized capacity
providers. Additionally, while legacy liabilities from the
Providence Washington Insurance Company acquisition and the
admitted carriers acquired by Everspan on January 3, 2022
(Greenwood Insurance Company, and Consolidated Specialty
Insurance Company), were fully ceded to certain reinsurers,
Everspan also benefits from an unlimited, uncapped indemnity
from Enstar Holdings (US) and 21st Century Premier Insurance
Company, respectively, to mitigate any residual risk to these
reinsurers.
For 2024, our top five reinsurers represented 69% our total
reinsurance recoverables on paid and unpaid losses. These
reinsurance recoverables were primarily from reinsurers with
applicable ratings of A or better. The following table sets forth
our five most significant reinsurers by amount of reinsurance
recoverable as of December 31, 2024.
Reinsurers
Type of
Insurance
Rating
(1)
Reinsurance
Recoverable
(2)
Unsecured
Recoverable
(3)
General
Reinsurance
Company
Specialty
P&C
A++
$
135,706
$
117,537
QBE Insurance
Corporation
Specialty
P&C
A
31,502
31,502
Munich
Reinsurance
Company
Specialty
P&C
A+
20,052
16,653
The Cincinnati
Insurance
Company
Specialty
P&C
A+
15,663
14,933
Everest
Reinsurance
Company
Specialty
P&C
A+
8,641
7,356
All other
reinsurers
94,726
44,329
Total recoverables
$
306,290
$
232,310
(1)
Represents financial strength ratings from AM Best.
(2)
Represents reinsurance recoverables on paid and unpaid losses.
Unsecured amounts from QBE Insurance Corporation is also
supported by an unlimited, uncapped indemnity from Enstar
Holdings (US).
(3)
Reinsurance recoverables reduced by ceded premiums payables
due to reinsurers, letters of credit, and collateral posted for the
benefit of Everspan.
Everspan has uncollateralized credit exposure to reinsurers of
$232,310 and $127,568 and has recorded an allowance for credit
losses of $100 and $100 at December 31, 2024 and 2023,
respectively. The uncollateralized credit exposure to reinsurers
includes legacy liabilities obtained from the acquisitions of
Providence Washington Insurance Company and the admitted
carriers acquired by Everspan on January 3, 2022, of $35,146
and $43,688 at December 31, 2024 and December 31, 2023,
respectively. All legacy liabilities remain with affiliates of the
sellers through reinsurance and contractual indemnities.
9. INSURANCE REGULATORY
RESTRICTIONS
Everspan Indemnity and its wholly owned subsidiary, Everspan
Insurance Company ("Everspan Insurance"), as well as
Consolidated Specialty Insurance Company, a wholly-owned
subsidiary of Everspan Insurance, are domiciled in Arizona and
are subject to the insurance laws and regulations of Arizona (the
“Arizona Insurance Laws”) and are regulated by the Arizona
Department of Insurance and Financial Institutions as domestic
insurers. The other subsidiaries of Everspan Insurance,
Providence Washington Insurance Company and Greenwood
Insurance Company (together with Everspan Insurance, the
"Everspan Admitted Carriers") are domiciled in Rhode Island
and Pennsylvania, respectively, and are therefore subject to the
insurance laws and regulations of their respective States of
domicile (together with Arizona Insurance Laws, the “State
Insurance Laws”) and regulated by the insurance departments of
those States as domestic insurers. In addition, the Everspan
Admitted Carriers are subject to the insurance laws and
regulations of the other jurisdictions in which they are licensed
and operate as foreign insurers.
Insurance laws and regulations applicable to insurers vary by
jurisdiction, but the insurance laws and regulations applicable to
our insurance carriers generally require them to maintain
minimum standards of business conduct and solvency; to meet
certain financial tests; and to file policy forms, premium rate
schedules and certain reports with regulatory authorities,
including information concerning capital structure, ownership,
financial condition (such as risk-based capital), corporate
governance and enterprise risk.
Regulated insurance companies are also required to file
quarterly and annual statutory financial statements in each
jurisdiction in which they are licensed. The State Insurance
Laws also require prior approval (or non-disapproval) of certain
transactions between an insurance carrier and its affiliates. The
level of supervisory authority that may be exercised by non-
domiciliary
insurance
regulators
varies
by
jurisdiction.
Generally, however, non-domiciliary regulators are authorized
to suspend or revoke the insurance license they issued and to
impose restrictions on that license in the event that laws or
regulations are breached by a regulated insurance company or in
the event that continued or unrestricted licensing of the
regulated
insurance
company
constitutes
a
“hazardous
condition” (or meets a similar standard) in the opinion of the
non-domiciliary regulator.
The domiciliary regulators have primary regulatory authority,
including with respect to the initiation and administration of
rehabilitation or liquidation proceedings. Additionally, the
accounts and operations of Everspan Indemnity and the
Everspan Admitted Carriers are subject to individual periodic
comprehensive financial examinations by their domestic
regulators, and may be examined collectively by the lead
regulator of the affiliated insurance company group.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
84
2024 Form 10-K
Everspan Indemnity is a domestic surplus lines insurer and is
eligible to write property and casualty insurance as an excess
and surplus lines insurance in all states by virtue of the U.S.
Nonadmitted and Reinsurance Reform Act of 2010.
Everspan
Insurance,
Greenwood
Insurance
Company,
Consolidated Specialty Insurance Company, and Providence
Washington Insurance Company are admitted property and
casualty insurers. Collectively, they have broad authority to
write property and casualty insurance throughout the United
States.
Everspan Indemnity and the Everspan Admitted Carriers
(collectively, "Everspan") are subject to risk-based capital
requirements.
All of Ambac's insurance subsidiaries are in compliance with the
minimum capital and surplus levels required under the State
Insurance Laws required to transact all business written to date.
Our Insurance Distribution businesses, like some other
managing
general
agents,
brokerages
and
program
administrators, may be subject to licensing requirements and
regulation by insurance regulators in various regulatory
jurisdictions in which they conduct business.
The financial statements Everspan are prepared on the basis of
accounting practices prescribed or permitted by the State
Insurance Laws and the actions of regulatory authorities
thereunder. Everspan uses such statutory accounting practices
prescribed or permitted by the applicable regulatory authorities
for determining and reporting their financial condition and
results of operations, including for determining solvency under
the State Insurance Laws. The States in which Everspan are
domiciled have adopted the National Association of Insurance
Commissioners (“NAIC”) accounting practices and procedures
manual (“NAIC SAP”) as a component of prescribed practices
as codified in each State’s applicable law or regulation.
Statutory policyholder surplus differs from stockholder's equity
determined under GAAP principally due to statutory accounting
rules that treat investments, acquisition costs and consolidation
of subsidiaries differently.
Everspan Indemnity has statutory policyholder surplus of
$125,235 as of December 31, 2024, as compared to $108,051 as
of December 31, 2023.
Everspan does not have any permitted or additional prescribed
practices at December 31, 2024, or December 31, 2023.
Dividend Restrictions, Including Contractual
Restrictions
United States
State Insurance Regulators prescribe rules that determine if
Everspan may declare dividends. In addition, Everspan is
subject to certain restrictions in their respective articles of
incorporation with regards to the payment of dividends. Board
action authorizing a distribution by an insurance company must
generally be reported to the applicable domiciliary regulator
prior to payment. In addition, State Insurance Laws generally
require regulatory approval for the payment of extraordinary
dividends, which are distributions in amounts that would exceed
certain thresholds, such as a percentage of surplus or net income
for the prior year or number of years.
Everspan does not have sufficient earned surplus at this time to
pay ordinary dividends under the State Insurance Laws.
Furthermore, certain subsidiaries of Everspan Insurance were
restricted from paying dividends to Everspan Insurance until
January 1, 2025. Currently, Everspan Insurance’s subsidiaries,
other than Greenwood Insurance Company, do not have
sufficient surplus to pay dividends.
Ambac's MGA/U subsidiaries are not restricted from paying
dividends or partner distributions (collectively "Distributions")
to their owners or partners, including Cirrata, which is 100%
owned by AFG. Ambac's established MGA/Us historically have
paid Distributions equating to the majority of their individual
EBITDA, subject to working capital, taxes and other capital
needs, on a quarterly basis. Newly formed de-novo MGA/Us are
not expected to make regular distributions to their partners until
they become profitable and generate free cash flow on a steady
and/or predictable basis.
United Kingdom
Beat's UK subsidiaries are subject to certain restrictions in their
articles of association and shareholder agreements with regards
to the payment of dividends. The Board of Beat and each
subsidiary can approve the payment of a dividend (subject to
repayment of any funding agreements). Beat and its UK
subsidiaries historically have paid Distributions equating to the
majority of their distributable reserves, being principally profit
after taxation.
Bermuda
Beat’s Bermuda subsidiary is subject to certain restrictions in
their articles of association and shareholder agreements with
regards to the payment of dividends. The Board of the
Bermuda subsidiary can approve the payment of a dividend
(subject to repayment of any funding agreement). The Board of
the Bermuda subsidiary historically has paid Distributions
equating to the majority of their distributable reserves, being
principally profit after taxation.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
85
2024 Form 10-K
10. DERIVATIVE INSTRUMENTS
The following tables summarize the location and gross fair values of individual derivative instruments and the impact of legal rights of
offset as reported in the Consolidated Balance Sheets, as of December 31, 2024 and 2023.
Gross
Amounts of
Recognized
Assets /
Liabilities
Gross
Amounts
Offset in the
Consolidated
Balance
Sheet
Net Amounts
of Assets/
Liabilities
Presented
in the
Consolidated
Balance
Sheet
Gross
Amount
of Collateral
Received /
Pledged not
Offset in the
Consolidated
Balance
Sheet
Net Amount
Gross
Amounts of
Recognized
Assets /
Liabilities
Gross
Amounts
Offset in the
Consolidated
Balance
Sheet
Net Amounts
of Assets/
Liabilities
Presented
in the
Consolidated
Balance
Sheet
Gross
Amount
of Collateral
Received /
Pledged not
Offset in the
Consolidated
Balance
Sheet
Net Amount
Other assets:
Warrants
$
—
$
—
$
—
$
—
$
—
$
656
$
—
$
656
$
—
$
656
Total derivative assets
$
—
$
—
$
—
$
—
$
—
$
656
$
—
$
656
$
—
$
656
Other liabilities:
FX forward
$
317
$
—
$
317
$
—
$
317
$
—
$
—
$
—
$
—
$
—
Total derivative liabilities
$
317
$
—
$
317
$
—
$
317
$
—
$
—
$
—
$
—
$
—
December 31, 2024:
December 31, 2023:
The following tables summarize the location and amount of gains and losses of derivative contracts in the Consolidated Statements of Total
Comprehensive Income (Loss) for the years ended December 31, 2024, 2023 and 2022:
Location of Gain (Loss) Recognized
in Consolidated Statements of
Total Comprehensive Income (Loss)
Amount of Gain (Loss) Recognized in Consolidated
Statement of Total Comprehensive Income (Loss) –
Year Ended December 31,
2024
2023
2022
Warrants
Net gains (losses) on derivative contracts
$
(656) $
(279) $
935
FX forwards
Net gains (losses) on derivative contracts
4,672
—
—
Total derivatives
$
4,016
$
(279) $
935
Other Derivatives:
At December 31, 2024 and 2023, Ambac holds warrants to
purchase equity shares of a development stage company.
During 2024, Ambac entered into US dollar/British pound
sterling foreign exchange (FX) forward contracts to protect
against currency fluctuations related to the purchase of Beat.
Ambac's FX forward position was closed concurrent with the
Beat purchase closed and the contracts matured October 4, 2024.
In addition, Beat utilizes foreign exchange forward contracts to
partially hedge its foreign currency exposure. Beat’s functional
currency is the British Pound, but a significant portion of its
revenues are generated in currencies other then the British
Pound, particularly the US Dollar. Beat, therefore, typically
enters into forward contracts to partially hedge its exposure to
fluctuations in exchange rates relative to the British Pound. In
connection with our acquisition of Beat and the growth profile
of its business, we will be re-evaluating our exposure to foreign
currency exchange rates and related hedging strategy.
Ambac had no FX forward contacts as of December 31, 2023.
Information about FX forward contracts as of December 31,
2024, is summarized below.
Derivative Type
Weighted
Average
Remaining
Term
(years)
Face
Amount
(Buy)
Face
Amount
(Sell)
Fair Value
Asset
(Liability)
FX Forwards-Buy
GBP/Sell USD
0.61
15,720
20,000
(317)
11. GOODWILL AND INTANGIBLE ASSETS
The following table presents a rollforward of goodwill at
December 31, 2024 and 2023.
December 31,
2024
2023
Beginning balance
$
69,694
$
46,050
Business acquisitions
357,316
8,791
Gain (loss) on foreign currency translation
(8,776)
—
Impairments
—
—
Ending balance
$
418,234
$
69,694
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
86
2024 Form 10-K
Intangible asset and accumulated amortization are included in
the Consolidated Balance Sheets, as shown below.
Cost
Accumulated
Amortization
Net Carrying
Amount
December 31, 2024
Finite-lived Intangible
Assets:
Customer relationships
$
348,350
$
24,630
$
323,720
Non-compete agreements
1,350
1,080
270
Trade names
10,767
1,195
9,572
Total finite-lived
intangible assets
360,467
26,905
333,562
Indefinite-lived
Intangible Assets:
Insurance licenses
11,213
—
11,213
Total intangible assets
$
371,680
$
26,905
$
344,775
December 31, 2023
Finite-lived Intangible
Assets:
Customer relationships
$
52,878
$
8,293
$
44,585
Non-compete agreements
1,350
810
540
Trade names
2,755
602
2,153
Total finite-lived
intangible assets
56,983
9,705
47,278
Indefinite-lived
Intangible Assets:
Insurance licenses
$
14,125
$
—
$
14,125
Total intangible assets
$
71,108
$
9,705
$
61,403
Amortization Expense:
Amortization expense is included in the Consolidated
Statements of Total Comprehensive Income (Loss), as shown
below.
Year Ended December 31,
2024
2023
2022
Customer relationships
16,739
3,622
2,472
Non-compete
270
270
270
Trade names
593
260
179
Total (1)
$
17,602
$
4,152
$
2,921
(1)
The weighted-average amortization period 5.0 years.
The estimated future amortization expense for finite-lived
intangible assets is as follows:
Amortization Expense
Total
2025
$
34,847
2026
34,508
2027
34,508
2028
34,504
2029
34,345
Thereafter
160,850
12. DEBT
In the third quarter of 2024, Ambac funded a portion of the
acquisition of Beat with a $150,000 Credit Facility. The debt
incurred under the Credit Facility matures on July 31, 2025.
Obligations under the Credit Facility are guaranteed by AFG
and are secured on a first-priority basis by (i) a pledge by AFG
of all of the capital stock of Everspan Holdings, LLC, a
Delaware limited liability company and wholly owned
subsidiary of the Company and (ii) a pledge by the Purchaser of
all of the capital stock of Beat held by Purchaser. Borrowing
under the Credit Facility bears interest at three-month SOFR
plus a margin initially equal to 4.50%, increasing to 5.50% on
November 1, 2024, 6.50% on February 1, 2025, and 7.50% on
May 1, 2025. A duration fee equal to 1% of the then
outstanding Credit Facility shall be due on each of February 1,
2025 and May 1, 2025, to the extent the borrowing under the
Credit Facility is not repaid earlier.
The Credit Facility includes covenants that restrict our ability to
manage capital resources by limiting, among other actions, the
issuance of debt or capital stock; the creation of liens; the
disposition of assets; engaging in transactions with affiliates;
making restricted payments, including dividends and the
purchase or redemption of capital stock; and making
acquisitions and other investments. The Credit Facility also
requires the prepayment of the borrowings thereunder with
proceeds of certain debt or equity issuances and certain asset
sales, including the sale of AAC. These requirements will
impact our financial and operational flexibility while the Credit
Facility remains in place.
13. REVENUES FROM CONTRACTS WITH
CUSTOMERS
As further described in the Revenue Recognition section of Note
2. Basis of Presentation and Significant Accounting Policies, the
Insurance Distribution businesses have contracts that are subject
to the Revenue from Contracts with Customers Topic of the
ASC ("ASC 606").
The following table presents Insurance Distribution commission
income recognized disaggregated by policy type for the years
ended December 31, 2024, 2023 and 2022:
Year Ended December 31,
2024
2023
2022
Accident & Health
$
30,123
$
32,836
$
28,399
Specialty Auto
17,851
11,929
1,871
Other Professional
10,076
3,097
—
Marine & Energy
2,829
2,909
158
Niche Specialty Risks
5,268
—
—
Property
5,116
—
—
Reinsurance
1,641
147
—
Professional D&O
1,422
—
—
Misc. Specialty
17,697
363
267
Total
$
92,023
$
51,281
$
30,695
For the years ended December 31, 2024, 2023 and 2022,
income of $6,320, $200 and $715, respectively, was recognized
in accordance with ASC 606 and reported in other revenue on
the Consolidated Statement of Comprehensive Income.
During the years ended December 31, 2024, 2023 and 2022, the
amount of revenue recognized related to performance
obligations satisfied in a previous period, inclusive of changes
due to estimates was approximately $5,325, $5,241 and $5,816,
respectively.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
87
2024 Form 10-K
Receivables, Contract Assets and Liabilities
The balances of receivables, contract assets and contract
liabilities with customers were as follows:
December 31,
2024
2023
Receivables
$
55,377
$
9,419
Contract assets
15,967
7,261
Contract liabilities
473
527
Contract assets represent estimated future consideration related
to base commissions and profit-sharing commissions that were
recognized as revenue upon the placement of the policy, but are
not yet billable or collectable. The Company does not have the
right to bill or collect payment on i) base commissions until the
related premiums from policyholders have been collected nor ii)
profit-sharing commissions until after the contract year is
completed.
Contract liabilities represent advance consideration received
from customers related to Employer stop loss base commissions
that will be recognized over time as claims servicing is
performed, which typically occurs between 17 and 20 months
from contract inception. During the years ended December 31,
2024, 2023 and 2022, the Company recognized revenue that was
included in the contract liability balance as of the beginning of
the period of $479, $583 and $523, respectively.
14. COMPREHENSIVE INCOME
The following tables detail the changes in the balances of each component of accumulated other comprehensive income for the affected
periods:
Unrealized
Gains
(Losses) on
Available-
for Sale
Securities (1)
Amortization
of
Postretirement
Benefit
(1)
Gain (Loss)
on Foreign
Currency
Translation
(1)
Credit Risk
Changes of
Fair Value
Option
Liabilities
(1) (2)
Total
Unrealized
Gains
(Losses) on
Available-
for Sale
Securities (1)
Amortization
of
Postretireme
nt Benefit
(1)
Gain (Loss)
on Foreign
Currency
Translation
(1)
Credit Risk
Changes of
Fair Value
Option
Liabilities
(1) (2)
Total
Beginning Balance
$
(20,197)
$
4,939
$
(144,035)
$
(753)
$
(160,047)
$
(71,381)
$
3,370
$
(184,167)
$
(665)
$
(252,843)
Other comprehensive
income (loss) before
reclassifications
3,583
(67)
(22,156)
—
(18,640)
30,623
3,051
40,132
—
73,806
Amounts reclassified from
accumulated other
comprehensive income (loss)
(4,522)
(4,872)
—
(356)
(9,750)
20,561
(1,482)
—
(88)
18,991
Net current period other
comprehensive income (loss)
(939)
(4,939)
(22,156)
(356)
(28,390)
51,184
1,569
40,132
(88)
92,797
Ending balance
$
(21,136)
$
—
$
(166,191)
$
(1,109)
$
(188,436)
$
(20,197)
$
4,939
$
(144,035)
$
(753)
$
(160,047)
Year Ended December 31, 2024:
Year Ended December 31, 2023:
(1)
All amounts are net of tax and NCI. Amounts in parentheses indicate reductions to Accumulated Other Comprehensive Income.
(2)
Represents the changes in fair value attributable to instrument-specific credit risk of liabilities for which the fair value option is elected.
The following table details the significant amounts reclassified from each component of accumulated other comprehensive income, shown
in the above rollforward tables, for the affected periods:
Details about Accumulated Other
Comprehensive Income Components
Amount Reclassified from Accumulated
Other Comprehensive Income
Affected Line Item in the
Consolidated Statement of
Total Comprehensive Income
Year Ended December 31,
2024
2023
Unrealized Gains (Losses) on Available-for-Sale Securities (1)
$
(3,919) $
22,489
Net realized investment gains (losses)
(603)
(1,928) Provision for income taxes
$
(4,522) $
20,561
Net of tax and NCI
Amortization of Postretirement Benefit
Prior service cost
$
(210) $
(963) Other income
Actuarial gains (losses)
(67)
(519) Other income
Curtailment gain
(4,662)
—
Other income
(4,939)
(1,482) Total before tax
—
—
Provision for income taxes
$
(4,939) $
(1,482) Net of tax and NCI
Credit Risk Changes of Fair Value Option Liabilities
$
(474) $
89
Credit risk changes of fair value option liabilities
118
(177) Provision for income taxes
(356)
(88) Net of tax and NCI
Total reclassifications for the period
$
(9,817) $
18,991
Net of tax and NCI
(1)
Net unrealized investment gains (losses) on available for sale securities are included in Ambac's Consolidated Statements of Comprehensive Income as
a component of Accumulated Other Comprehensive Income. Changes in these amounts include reclassification adjustments to exclude from "Other
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
88
2024 Form 10-K
comprehensive income (loss)" those items that are included as part of "Net income" for a period that has been part of "Other comprehensive income
(loss)" in earlier periods.
15. NET INCOME PER SHARE
As of December 31, 2024, 46,506,973 shares of AFG's common
stock (par value $0.01) were issued and outstanding. Common
shares outstanding increased by 1,311,603, during the year
ended December 31, 2024, primarily due to the issuance of
shares in the Beat acquisition, offset by share repurchases.
Share Repurchases
On March 29, 2022, AFG's Board of Directors approved a share
repurchase program authorizing up to $20,000 in share
repurchases. On May 5, 2022, the Board of Directors authorized
an additional $15,000 in share repurchase. This program expired
on March 31, 2024.
On November 12, 2024, Ambac’s Board of Directors authorized
a share repurchase program, under which Ambac may
opportunistically repurchase up to $50,000 of the Company’s
common shares at management’s discretion over the period
ending on December 31, 2026.
The following table shows shares repurchased by year.
($ in thousands,
except per share)
Year Ended December 31,
2022
2023
2024
Shares repurchased
1,605,316
325,068
937,141
Total cost
$
14,217
$
4,510
$
11,699
Average purchase price per
share
$
8.86
$
13.88
$
12.48
Unused authorization
amount
$
38,302
Earnings Per Share Calculation
The numerator of the basic and diluted earnings per share
computation represents net income (loss) attributable to
common stockholders adjusted by the retained earnings impact
of the adjustment to redemption value of redeemable NCI under
ASC 480. The redemption value adjustment is further described
in the Redeemable NCI section of Note 2. Basis of Presentation
and Significant Accounting Policies.
The following table provides a reconciliation of net income
(loss) from continuing operations attributable to common
stockholders to the numerator in the basic and diluted earnings
per share calculation, together with the resulting earnings per
share amounts:
Year Ended December 31,
2024
2023
2022
Net income (loss) attributable to
Ambac common stockholders
$
(59,282) $
(24,551) $
(36,115)
Adjustment to redemption value
(ASC 480)
53,210
4,792
2,469
Numerator of basic and diluted
EPS
$
(6,072) $
(19,759) $
(33,646)
Per Share:
Basic
$
(0.13) $
(0.43) $
(0.74)
Diluted
$
(0.13) $
(0.43) $
(0.74)
The denominator of the basic earnings per share computation
represents the weighted average common shares outstanding
plus vested restricted stock units (together, "Basic Weighted
Average Shares Outstanding"). The denominator of diluted
earnings per share adjusts the basic weighted average shares
outstanding for all potential dilutive common shares outstanding
during the period. All potential dilutive common shares
outstanding consider common stock deliverable pursuant to
warrants, unvested restricted stock units and performance stock
units granted under existing compensation plans.
In determining diluted net income (loss) per share, whether net
income from continuing operations is positive or negative
controls whether dilutive shares are included in the
determination. For all periods presented, net income from
continuing operations is negative, a net loss. Accordingly, since
including dilutive shares would dilute the loss from continuing
operations, no dilutive shares are included in any of the per
share calculations. The following table provides a reconciliation
of the common shares used for basic net income per share to the
diluted shares used for diluted net income per share:
Year Ended December 31,
2024
2023
2022
Basic weighted average shares
outstanding
46,969,708
45,636,649
45,719,906
Effect of potential dilutive
shares (1):
Restricted stock units
—
—
—
Performance stock units (1)
—
—
—
Diluted weighted average shares
outstanding
46,969,708
45,636,649
45,719,906
Anti-dilutive shares excluded
from the above reconciliation
Warrants
—
—
4,877,617
Restricted stock units
479,781
550,255
600,994
Performance stock units (1)
817,483
900,964
1,095,664
(1)
Performance stock units are reflected based on the performance
metrics through the balance sheet date. Vesting of these units is
contingent upon meeting certain performance metrics. Although a
portion of these performance metrics have been achieved as of the
respective period end, it is possible that awards may no longer
meet the metric at the end of the performance period.
16. INCOME TAXES
AFG files a consolidated U.S. Federal income tax return with its
80% or more owned domestic subsidiaries ("Consolidated Tax
Subsidiaries"). Beat's US subsidiaries file separate U.S. Federal
income tax returns as they are not directly owned by AFG for
tax purposes. AFG and its Consolidated Tax Subsidiaries also
file separate or combined income tax returns in various states,
local and foreign jurisdictions. The following are the major
jurisdictions in which Ambac and its subsidiaries, including it
foreign subsidiaries, operate and the earliest tax years subject to
examination:
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
89
2024 Form 10-K
Jurisdiction
Tax Year
United States
2010
New York State
2015
New York City
2018
United Kingdom
2020
Consolidated Pretax Income (Loss)
U.S. and foreign components of pre-tax income (loss) from
continuing operations were as follows:
Year Ended December 31,
2024
2023
2022
U.S.
$
(58,014) $
(24,221) $
(35,706)
Foreign
(1,831)
—
—
Total
$
(59,845) $
(24,221) $
(35,706)
Provision (Benefit) for Income Taxes
The components of the provision (benefit) for income taxes
from continuing operations were as follows:
Year Ended December 31,
2024
2023
2022
Current taxes
U.S. state and local
$
100
$
431
$
(453)
Foreign
2,193
—
—
Total current taxes
2,197
431
(453)
Deferred taxes
Domestic
—
(1,420)
(9)
Foreign
(3,121)
—
—
Total deferred taxes
$
(3,121) $
(1,420) $
(9)
Provision for income taxes
$
(924) $
(989) $
(462)
The total effect of income taxes on net income and stockholders’
equity for the years ended December 31, 2024, 2023 and 2022 is
as follows:
Year Ended December 31,
2024
2023
2022
Total income taxes charged to
net income
$
(924) $
(989) $
(462)
Income taxes charged
(credited) to stockholders’
equity:
Unrealized gains (losses) on
investment securities,
including foreign exchange
144
918
335
Unrealized gains (losses) on
foreign currency translations
(1,922)
—
—
Valuation allowance to
equity
1,778
(918)
(335)
Total charged to
stockholders’ equity:
—
—
—
Total effect of income taxes
$
(924) $
(989) $
(462)
Reconciliation of U.S. Federal Statutory Income Tax
Rate to Actual Income Tax Rate
The
tax
provisions
for
continuing
operations
in
the
accompanying Consolidated Statements of Total Comprehensive
Income (Loss) reflect effective tax rates differing from
prevailing Federal corporate income tax rates. The following is a
reconciliation of these differences:
Year Ended
December 31,
2024
2023
2022
Tax on income
(loss) at
statutory rate
$ (12,567)
21 %
$ (5,086)
21 %
$ (7,498)
21 %
Changes in
expected tax
resulting from:
State only
DTA and
tax rate
change
4,554
(8) %
—
— %
(1,003)
3 %
Tax-exempt
interest
(4)
— %
(5)
— %
(14)
— %
Foreign
taxes
787
(1) %
—
— %
—
— %
State
Income
Taxes
79
— %
411
(2) %
367
(1) %
Outside tax
basis
difference
105,630
(177) %
—
— %
—
— %
Acquisition
costs
2,017
(3) %
1,497
(6) %
—
— %
Valuation
allowance
(101,598)
170 %
1,602
(7) %
8,379
(24) %
Other, net
178
— %
592
(2) %
(693)
2 %
Tax expense
on income
(loss)
$
(924)
2 %
$ (989)
1 %
$ (462)
(2) %
Unrecognized Tax Positions
The Company had no material unrecognized tax positions at
December 31, 2024 and 2023.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
90
2024 Form 10-K
Deferred Income Taxes
The tax effects of temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred
tax assets at December 31, 2024 and 2023, are presented below:
December 31,
2024
2023
Deferred tax liabilities:
Amortizable intangible
$
71,414
$
—
Outside basis difference
105,630
—
Deferred acquisition costs
9,474
7,531
Investments
3,568
—
Other
787
139
Total deferred tax liabilities
190,873
7,670
Deferred tax assets:
Net operating loss carryforward
349,931
341,886
Unearned premium reserves
9,138
3,590
Loss reserves
1,102
162
State capital loss carryforward
3,096
7,650
Compensation
1,423
1,423
Investments
—
1,072
Other
429
1,625
Subtotal deferred tax assets
365,119
357,408
Valuation allowance
244,381
349,738
Total deferred tax assets
120,738
7,670
Net deferred tax liability
$
70,135
$
—
The Company has adopted an accounting policy to classify the
inside tax basis differences deferred tax assets and liabilities
(i.e., inside basis differences) associated with the disposition of
shares of a subsidiary as assets or liabilities held for sale on the
Consolidated Balance Sheets. For the years ended December
31, 2024, and 2023, the Company has included net deferred tax
liabilities of $20,382 and $19,138, respectively, in liabilities
held for sale.
In accordance with the Income Tax Topic of the ASC, a
valuation allowance is recognized if, based on the weight of
available evidence, it is more-likely-than-not that some, or all, of
the deferred tax asset will not be realized. As a result of the risks
and uncertainties associated with future operating results,
management believes it is more likely than not that the
Company will not generate sufficient U.S. federal, state and/or
local taxable income to recover the deferred tax operating assets
and therefore maintains a full valuation allowance on AFG's
U.S. net deferred tax assets. The remaining net deferred tax
liability of $70,135 is attributable to the amortizing intangible
related to the acquisition of Beat and is classified in Deferred
Taxes on the Consolidated Balance Sheet.
NOL & Investment Interest Carryforward
As of December 31, 2024, the Company has $1,663,087 of US
NOLs if not utilized will begin expiring in 2030. Of the total
NOLs $158,663 carry forward indefinitely.
17. EMPLOYMENT BENEFIT PLANS
Incentive Compensation - Stock Units and Cash
Employees, directors and consultants of Ambac are eligible to
participate in Ambac’s 2024 Incentive Plan, which is the
successor plan to the Ambac’s 2020 Incentive Plan and 2013
Incentive Plan, subject to the discretion of the Compensation
Committee of Ambac’s Board of Directors. There are 4,350,000
1,475,000 and 4,000,000 shares of Ambac's common stock
authorized for awards under the 2024 Plan, 2020 Plan and 2013
Plan, respectively. Awards may also be made under the 2024
Plan with respect to the shares that remained available for grant
under the 2020 Plan. In addition, shares subject to outstanding
awards granted under the 2020 Plan that subsequently terminate
by expiration or forfeiture, cancellation, or otherwise without the
issuance of such shares become available for awards under the
2024 Plan.
On June 24, 2021, the Compensation Committee of Ambac's
Board of Directors adopted the Ambac Financial Group, Inc.
Executive Stock Deferral Plan (the “Stock Deferral Plan”).
Under the Stock Deferral Plan, certain executives of AFG and
its subsidiaries who are designated by the compensation
committee as eligible to participate in the Stock Deferral Plan
may elect to defer the settlement of all or a portion of the RSU
and PSU (as defined below) awards that are granted to the
executives to a future date(s) selected by the executive. Deferred
awards under the Stock Deferral Plan (and any related dividend
equivalents) will continue to be paid in shares of common stock
of AFG, which will be issued under the relevant incentive
compensation plan pursuant to which the underlying award was
first granted, provided that any dividend equivalents credited on
a participant’s deferred awards in respect of cash dividends paid
by AFG will be paid to the participant in cash. The sale of AAC
will trigger a change in control provision under the Stock
Deferral Plan and immediately prior to closing all deferred
shares will be settled in stock. At the discretion of the
Compensation Committee of the Board of Directors, RSU and
PSU awards may be settled in cash based on the closing price of
AFG's common stock on the last business day prior to the
settlement date. The Stock Deferral Plan is not funded, and
deferred awards under the Stock Deferral Plan are not
segregated from the Company’s general assets.
The amount of stock-based compensation expense and
corresponding after-tax expense from continuing operations are
as follows.
Year Ended December 31,
2024
2023
2022
Restricted stock units
$
3,144
$
3,462
$
2,911
Performance awards
6,212
8,804
8,320
Total stock-based
compensation
$
9,356
$
12,266
$
11,231
Total stock-based
compensation (after-tax)
$
9,356
$
12,266
$
11,231
Restricted Stock Units (“RSUs”)
RSUs can be awarded to certain employees for a portion of their
STIP compensation, LTIP compensation, sign-on and special
awards for exceptional performance or promotion. RSUs can
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
91
2024 Form 10-K
also be awarded to consultants as part of the consideration for
their services. The LTIP, sign-on, consultant and special awards
generally vest in equal installments over, or cliff-vest at the end
of, a two to three year period. Such vesting is expressly
conditioned upon continued service with Ambac through the
applicable vesting date, although vesting may be accelerated in
certain circumstances under the awards, including for
terminations due to death, disability, eligible retirement, or
involuntary termination by Ambac other than for cause.
As part of our director compensation program, RSUs are granted
quarterly and vest one year from the grant date. These RSUs will
not settle until the respective director’s termination from the
Board of Directors or, if earlier, upon a change in control. All
RSUs provide for accelerated vesting upon a change in control,
death or disability or involuntary removal other than for cause
(not including removal pursuant to a shareholder vote at a
regularly scheduled annual meeting of shareholders). The sale of
AAC will meet the requirements for a change in control and
immediately prior to closing any unvested shares will vest and
settle along with all previously deferred shares. Upon
termination (other than for cause), the unvested RSUs shall
partially vest as of the date of such termination in an amount
equal to the number of then outstanding unvested RSUs
multiplied by a fraction, the numerator of which shall be the
number of calendar days which have lapsed since the grant date
and the denominator of which shall be the number of calendar
days from the grant date until the next regularly scheduled
quarterly grant date pursuant to Ambac’s director compensation
program.
As of December 31, 2024, 1,075,025 RSUs remained
outstanding, of which (i) 467,705 units required future service as
a condition to the delivery of the underlying shares of common
stock and (ii) 608,853 units do not require future service and are
deferred for future settlement. As of December 31, 2023,
1,036,339 RSUs remained outstanding, of which (i) 634,312
units required future service as a condition to the delivery of the
underlying shares of common stock, and (ii) 402,027 units did
not require future service and were deferred for future
settlement.
A summary of RSU activity for 2024 is as follows:
Shares
Weighted
Average
Grant Date
Fair Value Per
Share
Outstanding at beginning of period
1,036,339
$
15.75
Granted
250,992
14.28
Delivered or returned to plan (1)
(208,038)
14.67
Forfeited
(4,268)
15.52
Outstanding at end of period
1,075,025
$
15.62
(1)
When restricted stock unit awards issued by Ambac become
taxable compensation to employees, shares may be withheld to
cover the employee’s withholding taxes. For the year ended
December 31, 2024, Ambac withheld 19,335 shares from
employees that settled restricted stock units to meet the required
tax withholdings.
Ambac’s closing share price on the grant date was used to
estimate the fair value of the service condition based RSU on the
grant date. The weighted average grant date fair value per share
of RSUs granted during 2024, 2023 and 2022 was $14.28,
$15.72 and $12.48, respectively. As of December 31, 2024,
there was $3,687 of total unrecognized compensation costs
related to unvested RSUs granted of which $494 will be
transferred to the buyer upon close of AAC sale. These costs are
expected to be recognized over a weighted average period of 1.6
years. The fair value for RSUs vested and delivered during the
year ended December 31, 2024, 2023 and 2022 was $1,654,
$4,646 and $3,861, respectively.
Performance Stock Awards ("PSUs")
PSUs are awarded to certain employees for a portion of their
LTIP compensation and vest after 3 years from grant date. The
actual number of shares payable at settlement is subject to
performance metrics relative to the companies and segments of
Ambac. Actual payout can range from 0% to 240% of the
number of units granted. Under currently outstanding award
agreements, performance will be evaluated as follows:
• In regards to Xchange, for the 2022 PSU awards, and
Cirrata for the 2023 and 2024 PSU awards, (i) cumulative
earnings
before
interest,
taxes,
depreciation
and
amortization over the vesting period and (ii) for Cirrata
2023 and 2024 PSU awards, the aggregate of all premiums
placed by Cirrata with any insurance carrier over the
vesting period.
• In regards to Everspan: (i) for the 2022, 2023 and 2024
PSU awards, cumulative earnings before interest, taxes,
depreciation and amortization over the vesting period and
(ii) for the 2023 and 2024 PSU award, cumulative direct or
assumed premiums written (including any from Cirrata)
and fronting fees over the vesting period.
• In regards to AAC: reductions in watch list and adversely
classified credits, which is intended to reward participants
for de-risking the financial guarantee insured portfolio.
• Relative Total Shareholder Return will cause the payout at
the end of the performance period to be increased or
decreased 20% for PSU awards granted 2022, 2023 and
2024, if AFG's stock performance compared to a peer
group is at or above the 75th percentile or at or below the
25th percentile, respectively.
Pursuant to the LTIP award agreements if (i) a termination
occurred prior to the last day of the performance period by
reason of disability, an involuntary termination by the Company
other than for “cause,” or "retirement," the recipient would be
entitled to receive the PSU award at the end of the relevant
performance period based on the satisfaction of the performance
conditions related to such award at the end of the performance
period, and (ii) a termination occurred prior to the last day of the
performance period by reason of death, the beneficiaries of the
recipient would be entitled to receive the number of PSUs that
the recipient would have been entitled to receive at a 100%
overall payout multiple regardless of the outcome of any of the
performance conditions. The current performance awards shall
be settled within 75 days after the end of the performance
period, including those with partial or accelerated vesting,
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
92
2024 Form 10-K
subject to any deferrals made pursuant to the Stock Deferral
Plan.
A summary of PSU activity for 2024 is as follows:
Shares
Weighted
Average
Grant Date
Fair Value Per
Share
Outstanding at beginning of period
1,019,071
$
15.52
Granted (1)
371,877
15.94
Delivered (2)
(312,280)
10.02
Forfeited
(20,017)
15.57
Performance adjustment (3)
204,860
18.67
Outstanding at end of period
1,263,511
$
—
(1)
Represents performance share units at 100% of units granted for
LTIP Awards.
(2)
Reflects the number of performance shares attributable to the
performance goals attained over the completed performance period
and for which service conditions have been met. When
performance stock unit awards issued by Ambac become taxable
compensation to employees, shares may be withheld to cover the
employee’s withholding taxes. For the year ended December 31,
2024, Ambac withheld 24,431 of shares from employees that
settled performance based restricted stock units to meet the
required tax withholdings.
(3)
Represents the number of additional shares issued for awards
granted in 2021 as a result of actual performance during the
performance period.
The weighted average grant date fair value per share of PSUs
granted during 2024, 2023 and 2022 was $15.94, $17.72 and
$13.44, respectively. As of December 31, 2024, there was
$5,509 of total unrecognized compensation costs related to the
PSU portion of unvested performance awards of which $724
will be transferred to the buyer upon close of AAC sale. These
costs are expected to be recognized over a weighted average
period of 2.0 years. The fair value for PSUs vested and
delivered during the year ended December 31, 2024, 2023 and
2022 was $2,663, $7,665 and $4,620, respectively.
Postemployment Benefits
Ambac provides discretionary severance benefits. Severance
benefits from continuing operations, were $416, $0 and $0 for
the years ended December 31, 2024, 2023 and 2022,
respectively.
Defined Contribution Plans
As a result of the acquisitions of All Trans and Capacity Marine
effective November 1, 2022, and Beat effective July 31, 2024,
Ambac has multiple savings incentive plans. Substantially all
US employees are covered by one of these plans. The Plan
sponsored by AFG includes employer matching contributions
equal to 100% of the employees’ contributions, up to 3% of such
participants’ compensation, as defined in the plan, plus 50% of
contributions up to an additional 2% of compensation, subject to
limits set by the Internal Revenue Code. Xchange and Riverton
employees moved to this plan from a previous plan (Xchange
during 2022 and Riverton during 2023). Employees of All
Trans and Capacity Marine are included in a multiple employer
plan that has discretionary contributions for which none were
made during Ambac's ownership of these entities. The plan for
US
employees
of
Beat
includes
employer
matching
contributions equal to 100% of the employees’ contributions, up
to 5% of such participants’ compensation. UK employees of
Beat have a defined contribution pension plan where employer
contributes 10% of participants’ compensation of which the
assets are held separately from those of the group in an
independently administrated fund. The total cost of all the were
$1,945, $676 and $379 for the years December 31, 2024, 2023
and 2022, respectively.
18. LEASES
Ambac is the lessee and lessor under certain lease agreements
further described below.
Lessee information
Ambac is the lessee in operating leases for corporate offices.
Leases in effect at December 31, 2024, have remaining lease
terms ranging from under 2 years to 8 years. Certain of these
leases include early termination provisions which Ambac does
not include in the determination of its lease liabilities and right-
of-use assets unless exercise is considered reasonably certain.
Lease costs are included in operating expenses on the
Consolidated Statement of Total Comprehensive Income (Loss).
The components of lease costs, net of sub-lessor income, is as
follows:
Year Ended December 31,
2024
2023
2022
Operating lease cost
$
4,247
$
3,904
$
3,848
Short-term lease cost
—
52
18
Variable lease cost
437
404
317
Sublease income
(1,086)
(1,124)
(1,132)
Total lease cost
$
3,598
$
3,236
$
3,051
Ambac is required to make variable lease payments under
certain leases which primarily relates to variable costs of the
lessor, such as taxes, insurance, maintenance and electricity.
Supplemental information related to leases is as follows:
Year Ended December 31,
2024
2023
2022
Cash paid for amounts
included in the measurement
of operating lease liabilities
$
4,432
$
4,155
$
4,123
Right-of-use assets obtained
in exchange for operating
lease liabilities (non-cash)
2,256
714
—
Supplemental balance sheet information related to leases is as
follows:
December 31,
2024
2023
Operating leases:
Operating lease right of use assets
$
18,107
$
18,421
Operating lease liabilities
21,543
22,041
Weighted average remaining lease term:
Operating leases
5.1 years
6.1 years
Weighted average discount rate:
Operating leases
7.8 %
7.9 %
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
93
2024 Form 10-K
Operating lease right of use assets and operating lease liabilities
are included in Other assets and Other liabilities, respectively,
on the consolidated balance sheet.
Future undiscounted lease payments, gross of sublease receipts,
to be made are as follows:
As of December 31, 2024
Operating
Leases
2025
$
5,008
2026
5,135
2027
5,140
2028
5,016
2029
4,960
Thereafter
827
Total lease payments
26,086
Less: imputed interest
(4,543)
Total
$
21,543
Lessor information
Ambac is the lessor in one operating sublease of corporate office
space which has a remaining term of 5.0 years. There are no
extension or termination provisions.
Future undiscounted lease payments to be received are as
follows:
As of December 31, 2024
Operating
Leases
2025
$
1,184
2026
1,286
2027
1,302
2028
1,318
2029
1,331
Thereafter
—
Total lease receipts
6,421
19. COMMITMENTS AND CONTINGENCIES
The Company periodically receives various regulatory inquiries
and requests for information with respect to investigations and
inquiries that such regulators are conducting. The Company has
complied with all such inquiries and requests for information.
The Company is involved from time to time in various routine
legal proceedings, including proceedings related to litigation
with present or former employees. Although such litigation is
routine and incidental to the conduct of its business, such
litigation can potentially result in large monetary awards when a
civil jury is allowed to determine compensatory and/or punitive
damages.
Everspan may be subject to disputes with policyholders
regarding the scope and extent of coverage offered under
Everspan's policies; be required to defend claimants in suits
against its policyholders for covered liability claims; or enter
into commercial disputes with its reinsurers, MGA/Us or third
party claims administrators or other parties regarding their
respective contractual obligations and rights. Under some
circumstances, the results of such disputes or suits may lead to
liabilities beyond those which are anticipated or reserved.
In the ordinary course of their businesses, certain of Ambac’s
subsidiaries assert claims in legal proceedings against third
parties to recover losses already paid and/or mitigate future
losses. The amounts recovered and/or losses avoided which may
result from these proceedings is uncertain, although recoveries
and/or losses avoided in any one or more of these proceedings
during any quarter or fiscal year could be material to Ambac’s
results of operations in that quarter or fiscal year.
From time to time, Ambac is subject to allegations concerning
its corporate governance, including the manner in which it
exercises control and oversight of its subsidiaries, that may lead
to litigation, including derivative litigation. While the monetary
impacts of addressing such allegations outside of litigation may
not be material, these charges may distract management and the
Board of Directors from their principal focus on Ambac's
business, strategy and objectives.
It is not reasonably possible to predict whether suits in addition
to those described below will be filed or whether additional
inquiries or requests for information will be made, and it is also
not possible to predict the outcome of litigation, inquiries or
requests for information. It is possible that there could be
unfavorable outcomes in these or other proceedings. Legal
accruals for litigation against the Company with losses that are
probable and reasonably estimable are not material to the
operating results or financial position of the Company. For the
litigation matters the Company is defending that do not meet the
“probable and reasonably estimable” accrual threshold and
where no loss estimates have been provided below, management
is unable to make a meaningful estimate of the amount or range
of loss that could result from unfavorable outcomes. Under some
circumstances, adverse results in any such proceedings could be
material to our business, operations, financial position,
profitability or cash flows. The Company believes that it has
substantial defenses to the claims described below and, to the
extent that these actions proceed, the Company intends to defend
itself vigorously; however, the Company is not able to predict
the outcomes of these actions.
Litigation against Ambac Financial Group, Inc.
Dwight Jereczek and Stanley Elliott, individually and on behalf
of all others similarly situated v. MBIA Inc., Ambac Financial
Group, Inc., Ambac Assurance Corporation, MBIA Insurance
Corporation,
and
National
Public
Finance
Guarantee
Corporation (United States District Court for the District of
Connecticut, filed on February 12, 2025) (the "COFINA Case").
This putative class action complaint is brought by alleged
former holders of bonds issued by the Puerto Rico Sales Tax
Financing Corporation (“COFINA”) allegedly insured by
defendants under financial guaranty insurance policies. On
behalf of themselves and all persons and entities that owned
such bonds between October 19, 2018, and February 12, 2019,
plaintiffs allege that, in connection with the restructuring of
COFINA under Title III of the Puerto Rico Oversight,
Management,
and
Economic
Stability
Act,
defendants
orchestrated a scheme to improperly use their role in the Title III
process to alter contracts with insured COFINA bondholders,
resulting in such bondholders receiving less than what they
contracted for under the financial guaranty insurance policies.
Plaintiffs assert claims for breach of contract, unjust enrichment,
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
94
2024 Form 10-K
and bad faith refusal to pay first-party benefits under an
insurance contract. Plaintiffs seek an unspecified amount of
damages with interest thereon, disgorgement of profits, a
declaratory judgment of plaintiffs’ rights and defendants’
responsibilities, and a permanent injunction against violations of
law. As of the date of this report, no summons has been issued
or served on Ambac.
Litigation in Legacy Financial Guarantee Business
AAC is involved in litigation as described below as well as the
COFINA Case described above. These actual and potential
cases may continue after the AAC Sale is completed.
Following completion of the AAC Sale, the Company will no
longer have any exposure to the following matters, except with
respect to the COFINA Case described above for so long as
AFG remains a defendant in the case.
Current Litigation
Monterey Bay Military Housing, LLC, et al. v. Ambac
Assurance Corporation, et al. (United States District Court,
Southern District of New York, Case No. 1:19-cv-09193-PGG,
transferred on October 4, 2019 from the United States District
Court, Northern District of California, San Jose Division, Case
No. 17-cv-04992-BLF, filed August 28, 2017). Plaintiffs, the
corporate developers of various military housing projects, filed
an amended complaint on October 27, 2017 against AAC, a
former employee of AAC, and certain unaffiliated persons and
entities, asserting claims for (i) violation of 18 U.S.C §§ 1962(c)
and
1962(d)
(civil
Racketeer
Influenced
and
Corrupt
Organizations Act (“RICO”) and conspiracy to commit civil
RICO), (ii) breach of fiduciary duty, (iii) aiding and abetting
breach of fiduciary duty, (iv) fraudulent misrepresentation, (v)
fraudulent concealment and (vi) conspiracy to commit fraud.
The claims relate to bonds and debt certificates (insured by
AAC) that were issued to finance the renovation and
construction of housing at certain military bases. Plaintiffs
allege that defendants secretly conspired to overcharge plaintiffs
for the financing of the projects and directed the excess profits
to themselves. Plaintiffs allege defendants generated these
excess profits by supposedly charging inflated interest rates,
manipulating “shadow ratings,” charging unnecessary fees, and
hiding evidence of their alleged wrongdoing. Plaintiffs seek,
among other things, compensatory damages, disgorgement of
profits and fees, punitive damages, trebled damages and
attorneys’ fees. AAC and the other defendants filed motions to
dismiss the amended complaint on November 13, 2017. On July
17, 2018, the court granted AAC’s and the other defendants’
motion to dismiss the first amended complaint without
prejudice. On December 17, 2018, Plaintiffs filed a second
amended complaint. On February 15, 2019, AAC and the other
defendants filed a motion to dismiss the second amended
complaint. On September 26, 2019, the court issued a decision
denying defendants’ motion to dismiss and sua sponte
reconsidering its previous denial of defendants’ motion to
transfer venue to the Southern District of New York (“SDNY”).
On October 10, 2019, after the case was transferred to the
SDNY, the defendants filed motions to vacate or reconsider the
decision by the Northern District of California on the
defendants’ motion to dismiss. On March 31, 2021, the court
granted defendants’ motions for reconsideration and, upon
reconsideration, dismissed the claims against AAC and its
former employee for breach of fiduciary duty and for aiding and
abetting breach of AAC’s or its former employee’s fiduciary
duty; dismissed two plaintiffs’ RICO claims against AAC and
its former employee; and in all other respects denied defendants’
motions. Defendants served answers to the second amended
complaint on April 21, 2021, asserting several affirmative
defenses, including a defense for unclean hands focused on the
plaintiffs’ failure to maintain the project properties and
falsification of maintenance records. On May 24, 2021,
plaintiffs moved to strike defendants’ unclean hands defenses.
On September 14, 2021, Magistrate Judge Sarah L. Cave, to
whom plaintiffs’ motion to strike was referred for a Report and
Recommendation, issued an opinion and order denying
plaintiffs’ motion. On April 6, 2022, certain co-defendants filed
a motion to sever the plaintiffs’ claims and to dismiss all claims
except for claims asserted by the Monterey Bay plaintiffs. On
January 26, 2024, the court granted the parties leave to file
motions for summary judgment; opening briefs were due March
22, 2024, while oppositions are due May 31, 2024 and replies on
July 12, 2024. On February 29, 2024, the court denied co-
defendants’ motion to sever plaintiffs’ claims. On March 22,
2024, defendants served opening motions for summary
judgment against plaintiffs’ claims in their entirety on multiple
grounds, and plaintiffs served cross-motions for summary
judgment on defendants’ unclean hands defenses. The parties’
summary judgment motions were fully briefed as of July 12,
2024 and are currently awaiting a decision from the Court. On
December 11, 2024, the Court denied Plaintiffs’ motion for oral
argument on Defendants’ motions for summary judgment,
stating that it would “notify the parties if it concludes that oral
argument concerning the motions for summary judgment would
be productive.”
In re National Collegiate Student Loan Trusts Litigation
(Delaware Court of Chancery, Consolidated C.A. No. 12111,
filed November 1, 2019). On November 1, 2019, AAC became
aware of a new declaratory judgment action filed by certain
residual equity interest holders (“NC Owners” or “Plaintiffs”) in
fourteen National Collegiate Student Loan Trusts (the “Trusts”)
against Wilmington Trust Company, the Owner Trustee for the
Trusts; U.S. Bank National Association, the Indenture Trustee;
GSS Data Services, Inc., the Administrator; and AAC. Through
this action, Plaintiffs seek a number of judicial determinations.
On January 21, 2020, the presiding Vice Chancellor entered an
order consolidating the action with previously filed litigation
relating to the Trusts. On February 13, 2020, AAC, the Owner
Trustee, the Indenture Trustee, and other parties filed
declaratory judgment counterclaims. Several parties, including
Plaintiffs and AAC, filed motions for judgment on the pleadings
in support of their requested judicial determinations. On August
27, 2020, the Vice Chancellor issued an opinion addressing all
of the pending motions for judgment on the pleadings, which
granted certain of the parties’ requested judicial determinations
and denied others. He deferred judgment on still other
declarations pending further factual development. The Vice
Chancellor entered a series of stays to facilitate good-faith
settlement discussions, the most recent of which was entered on
May 2, 2023, and stayed the matter through May 5, 2023. On
February 21, 2025, the Administrator filed a status report stating
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
95
2024 Form 10-K
that certain parties continue to negotiate a resolution to some of
the pending claims.
Ambac Assurance Corporation v. Bank of New York Mellon
(United States District Court, Southern District of New York,
No. 1:17-cv-03804, filed May 2, 2017). On May 2, 2017, AAC
filed a complaint in New York State Supreme Court, New York
County, against the trustee for the COFINA bonds, Bank of New
York Mellon (“BNY”), alleging breach of fiduciary, contractual,
and other duties for failing to adequately and appropriately
protect the holders of certain AAC-insured senior COFINA
bonds. On May 19, 2017, BNY filed a notice of removal of this
action from New York state court to the United States District
Court for the Southern District of New York. On May 30, 2017,
the United States District Court for the District of Puerto Rico
entered an order in an adversary proceeding brought by BNY
(No. 1:17-ap-00133) staying this litigation pending further order
of the court. The COFINA Plan became effective on February
12, 2019, and, pursuant to the District Court’s confirmation
order, this litigation was permitted to continue, with AAC’s
claims against BNYM being limited to those for gross
negligence, willful misconduct and intentional fraud. On
November 17, 2021, the District Court denied as moot BNY's
motion to transfer venue to the District of Puerto Rico and
continued the stay of the action. On July 6, 2022, the District
Court granted AAC’s motion to lift the stay and for leave to file
a Second Amended Complaint (“SAC”). AAC filed its SAC on
July 10, 2022, and on July 25, 2022, BNY moved to dismiss the
SAC. On September 23, 2022, Ambac filed its opposition to
BNY’s motion to dismiss, and on October 24, 2022, BNY filed
its reply in support of its motion to dismiss. On September 12,
2024, the District Court entered an Order to Show Cause
concerning the proper venue for the case, stating that it planned
to transfer the case to the United States District Court for the
District of Puerto Rico. After AAC and BNY filed a Joint
Response to the Order to Show Cause on September 19, 2024,
stating that they did not object to the transfer, the case was
transferred to the District Court for the District of Puerto Rico
on September 20, 2024. On September 24, 2024, the District
Court granted BNY’s motion to dismiss in its entirety. On
October 23, 2024, AAC filed a Notice of Appeal appealing the
case to the United States Court of Appeals for the First Circuit.
On December 9, 2024, AAC and BNY filed a joint stipulation to
voluntarily dismiss the appeal with prejudice and, following
such filing, the District Court entered its judgment ordering such
dismissal.
Potential Litigation
AAC’s estimates of projected losses for RMBS transactions
consider, among other things, the RMBS transactions’ payment
waterfall structure, including the application of interest and
principal payments and recoveries, and depend in part on our
interpretations of contracts and other bases of our legal rights.
From time to time, bond trustees and other transaction
participants have employed different contractual interpretations
and have commenced, or threatened to commence, litigation to
resolve these differences. From time to time AAC is also subject
to allegations that it has failed to fulfill a contractual obligation
or duty in respect of securities that it has issued. It is not
possible to predict whether additional disputes will arise, nor the
outcomes of any potential litigation. It is possible that there
could be unfavorable outcomes in these or other disputes or
proceedings and that our interpretations may prove to be
incorrect, which could lead to changes to our estimate of loss
reserves.
In the ordinary course of its businesses, AAC asserts claims in
legal proceedings against third parties to recover losses already
paid and/or mitigate future losses. The amounts recovered and/
or losses avoided which may result from these proceedings is
uncertain, although recoveries and/or losses avoided in any one
or more of these proceedings during any quarter or fiscal year
could be material to Ambac’s results of operations in that
quarter or fiscal year.
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
96
2024 Form 10-K
20. QUARTERLY INFORMATION (Unaudited)
Our unaudited quarterly results of operations for the year ended December 31, 2024 and 2023 are being included because of our held for
sale treatment in the fourth quarter of 2024 resulting in reporting discontinued operations and are summarized in the table below.
2024 Quarters
2023 Quarters
($ in thousands)
First
Second
Third
Fourth
First
Second
Third
Fourth
Gross premiums written
$ 96,422
$ 111,206
$ 115,154
$ 59,988
$ 51,823
$ 53,229
$ 77,499
$ 90,736
Net premiums written
26,247
32,289
32,754
(2,608)
9,187
9,120
24,768
36,750
Net premiums earned
25,579
27,054
27,441
18,931
6,995
7,785
12,187
24,945
Commission income
17,729
13,221
23,064
38,009
14,486
10,032
14,572
12,191
Program fees
2,567
3,328
3,622
3,989
1,485
2,076
2,415
2,461
Net investment income
3,640
3,763
3,488
3,557
2,881
3,027
3,663
3,588
Net investment gains (losses), including impairments
—
4,535
(577)
(4,455)
38
(20)
—
1
Net gains (losses) on derivative contracts
(48)
(438)
6,545
(2,043)
(175)
(146)
(27)
69
Other revenue (loss)
83
(426)
6,422
7,235
37
101
(5)
67
Losses and loss expenses (benefit)
19,355
23,024
20,421
9,826
4,659
5,739
9,509
16,805
Policy acquisition costs
4,424
5,399
5,993
7,850
1,399
1,351
1,956
5,851
Commission expense
9,822
7,888
9,499
13,667
7,597
6,021
8,455
7,392
General & administrative expense, including depreciation expense
18,050
28,336
44,681
40,444
11,839
17,117
17,914
21,193
Intangible amortization
1,139
1,139
6,423
8,901
967
966
1,079
1,139
Interest expense
—
—
3,745
5,634
—
—
—
—
Net income (loss) from continuing operations
(3,369) (14,719) (19,890) (20,943)
(813)
(8,725)
(4,595)
(9,099)
Net income (loss) from continuing operations attributable to Ambac
shareholders
(4,070) (14,932) (18,117) (22,163)
(1,482)
(8,835)
(5,026)
(9,208)
Net income (loss) from discontinued operations net of tax (including
loss on disposal of $570,145 in 2024)
24,140
14,182
(9,387) (526,102) (35,876)
(9,300)
66,190
7,169
Net income (loss) attributable to Ambac shareholders
$ 20,070
$
(750) $ (27,504) $ (548,265) $ (33,417) $ (13,132) $ 65,869
$ (15,688)
Net income (loss) from continuing operations per share attributable to
Ambac shareholders
Basic
$
(0.09) $
(0.33) $
(0.43) $
0.70
$
(0.03) $
(0.20) $
(0.11) $
(0.10)
Diluted
$
(0.09) $
(0.33) $
(0.43) $
0.70
$
(0.03) $
(0.20) $
(0.11) $
(0.10)
Net income (loss) from discontinued operations per share attributable to
Ambac shareholders
Basic
$
0.53
$
0.31
$
(0.20) $ (10.93) $
(0.70) $
(0.09) $
1.55
$
(0.14)
Diluted
$
0.53
$
0.31
$
(0.20) $ (10.93) $
(0.70) $
(0.09) $
1.55
$
(0.14)
Net income (loss) per share attributable to Ambac shareholders
Basic
0.44
(0.02)
(0.63)
(10.23)
(0.73)
(0.29)
1.44
(0.24)
Diluted
0.44
(0.02)
(0.63)
(10.23)
(0.73)
(0.29)
1.44
(0.24)
Net income (loss) attributable to Ambac shareholders
$ 20,070
$
(750) $ (27,504) $ (548,265) $ (33,417) $ (13,132) $ 65,869
$ (15,688)
Adjustment for Redeemable NCI
53
(184)
(2,402)
55,762
212
(294)
19
4,855
Numerator of basic and diluted EPS
$ 20,123
$
(934) $ (29,906) $ (492,503) $ (33,205) $ (13,426) $ 65,888
$ (10,833)
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands, Except Share Amounts)
Ambac Financial Group, Inc.
97
2024 Form 10-K
Item 9.
Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure — None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Ambac’s
disclosure controls and procedures are designed to ensure that
information required to be disclosed under the Securities
Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in
the SEC’s rules and forms, including without limitation that
information required to be disclosed by Ambac in its SEC filings
is accumulated and communicated to management, including the
Chief Executive Officer (CEO) and Chief Financial Officer
(CFO) as appropriate to allow for timely decisions regarding
required disclosure.
Ambac’s Disclosure Committee assists the CEO and CFO in
their responsibilities to design, establish, maintain and evaluate
the effectiveness of disclosure controls and procedures. The
Disclosure Committee is responsible for, among other things,
the oversight, maintenance and implementation of the disclosure
controls and procedures, subject to the supervision and oversight
of the CEO and CFO. Ambac’s management, with the
participation of its CEO and CFO, has evaluated the
effectiveness of Ambac’s disclosure controls and procedures (as
defined in rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of December 31, 2024 and, the CEO
and CFO have concluded that at that date Ambac’s disclosure
controls and procedures were effective at the reasonable
assurance level.
Management’s Report on Internal Control Over Financial
Reporting. Management of Ambac is responsible for
establishing and maintaining adequate internal control over
financial reporting. Ambac’s internal control over financial
reporting is a process designed under the supervision of the CEO
and CFO and overseen by Ambac’s Board of Directors to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of Ambac’s financial
statements for external reporting purposes in accordance with
U.S. generally accepted accounting principles. Ambac’s internal
control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions
and dispositions of assets of Ambac; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S.
generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of Ambac; and
(iii) provide reasonable assurance regarding the prevention or
timely detection and remediation of unauthorized acquisition,
use or disposition of Ambac’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal controls over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Ambac
management
conducted
an
assessment
of
the
effectiveness of Ambac’s internal control over financial
reporting based on the criteria established in the Internal Control
— Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Ambac management recognizes that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives.
Under guidelines established by the SEC, companies are
permitted to exclude certain acquisitions from their first
assessment of internal control over financial reporting following
the
date
of
acquisition.
Based
on
those
guidelines,
management’s assessment of the effectiveness of Ambac
Financial Group Inc.’s internal control over financial reporting
at December 31, 2024 excluded certain processes of Beat
Capital Partners Limited which were not integrated into the
Company’s existing internal control over financial reporting
environment at December 31, 2024. The excluded Beat Capital
Partners Limited processes represented approximately 1% of the
Company's total assets and approximately 17% of the
Company’s total revenues, respectively.
Based on its evaluations, Ambac's management have concluded
that, as of December 31, 2024, our internal control over
financial reporting was effective based on the criteria articulated
in the 2013 Internal Control - Integrated Framework, excluding
the above noted processes of Beat Capital Partners Limited. The
effectiveness of our internal control over financial reporting as
of December 31, 2024 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their
report, which expressed an unqualified opinion on the
effectiveness of Ambac’s internal control over financial
reporting.
Changes in Internal Control Over Financial Reporting.
Ambac expects to complete the assessment of the design of
Beat's internal controls over financial reporting by July 31,
2025. There were no changes in the Company’s internal control
over financial reporting that occurred during the fourth quarter
of 2024 that materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
Item 9B. Other Information
In the last fiscal quarter, none of our directors or executive
officers adopted, terminated, or modified any Rule 10b5-1
trading arrangement, or any non-Rule 10b5-1 trading
arrangement. No other matters require disclosure.
Ambac Financial Group, Inc.
98
2024 Form 10-K
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
Information relating to AFG’s executive officers and directors,
including its audit committee and audit committee financial
experts, will be in AFG’s definitive Proxy Statement for its 2025
Annual Meeting of Stockholders which will be filed within 120
days of the end of our fiscal year ended December 31, 2024 (the
“2025 Proxy Statement”) and is incorporated herein by
reference.
Ambac has a Code of Business Conduct and Ethics which
promotes management’s commitment to integrity and expresses
Ambac’s standards for ethical behavior by providing guidelines
for handling business situations appropriately. This code can be
found on Ambac’s website at www.ambac.com on the
“Environmental,
Social
&
Governance”
page
under
"Governance Documents." Ambac will disclose on its website
any amendment to, or waiver from, a provision of its Code of
Business Conduct and Ethics that applies to its Chief Executive
Officer, Chief Financial Officer or Chief Accounting Officer.
Ambac’s corporate governance guidelines and the charters for
the committees of the Board of Directors are also available on
our website under the “Governance Documents” page.
Item 11. Executive Compensation
Information relating to Ambac’s executive officer and director
compensation will be in the 2025 Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
Information relating to security ownership of certain beneficial
owners of AFG’s common stock and information relating to the
security ownership of AFG’s management, as well as
information related to equity compensation plans, will be in the
2025 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
Information relating to Ambac with respect to certain
relationships and related transactions and director independence
will be in the 2025 Proxy Statement and is incorporated herein
by reference.
Item 14. Principal Accountant Fees and Services
Information relating to principal accountant fees and services
will be in the 2025 Proxy Statement and is incorporated herein
by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as a part of this report:
1.
Financial Statements
The consolidated financial statements included in Part II, Item 8 above are filed as part of this Annual Report on Form 10-K.
2.
Financial Statement Schedules
The financial statement schedules filed herein, which are the only schedules required to be filed, are as follows:
Page
Schedule I — Summary of Investments Other Than Investments in Related Parties .............................................................
104
Schedule II — Condensed Financial Information of Registrant (Parent Company Only) ......................................................
105
Schedule III — Supplementary Insurance Information ..........................................................................................................
110
(3)
Articles of Incorporation and bylaws:
3.1
Amended and Restated Certificate of Incorporation of Ambac
Financial Group, Inc.
10-Q
08/04/24
3.1
Incorporated by Reference
Exhibit Description
Form
Filing
Date
Exhibit
Number
Filed
Herewith
Ambac Financial Group, Inc.
99
2024 Form 10-K
3.2
Amended By-Laws of Ambac Financial Group, Inc.
8-K
01/27/23
2.1
(4)
Instruments defining the rights of security holders, including indentures:
4.1
Description of Capital Stock
8-A
05/01/13
4.2
Specimen form of common stock certificate
8-A
05/01/13
4.1
4.3
Fiscal Agency Agreement, dated as of July 19, 2010, by and
between the Segregated Account of Ambac Assurance Corporation
and The Bank of New York Mellon, as fiscal agent
10-K
03/03/14
4.10
4.4
Form of Surplus Note due June 7, 2020 issued by the Segregated
Account of Ambac Assurance Corporation.(included in Exhibit
4.3)
4.5
Fiscal Agency Agreement, dated as of June 7, 2010, by and
between Ambac Assurance Corporation and The Bank of New
York Mellon, as fiscal agent
8-K
06/08/10
10.3
4.6
Amendment dated as of October 3, 2014 to Fiscal Agency
Agreement dated as of June 7, 2010 by and between Ambac
Assurance Corporation and The Bank of New York Mellon, as
fiscal agent
10-Q
11/09/15
4.1
4.7
Form of Warrant Agreement to be entered into at the closing of the
sale of Ambac Assurance Corporation to funds managed by
Oaktree Capital Management, L.P.
8-K
06/05/24
4.1
(10)
Material contract and management compensation plans and arrangements:
10.1
Ambac
Financial
Group,
Inc.'s
Long-Term
Incentive
Compensation Plan
10-Q
08/11/14
10.1
10.2
Form of Restricted Stock Unit Award Agreement for directors
X
10.3
Closing Agreement between Ambac Financial, Group, Inc. and
Commissioner of Internal Revenue, dated April 30, 2013
8-K
05/03/13
10.2
10.4
Form of Expense Sharing and Cost Allocation Agreement among
Ambac Assurance Corporation, Ambac Financial Group, Inc. and
their respective subsidiaries and affiliates
10-K
03/01/23
10.5
10.5
Lease, dated as of March 1, 2011, by and between One State
Street, LLC and Ambac Assurance Corporation
10-K
03/16/11
10.34
10.6
Settlement Agreement, dated as of June 7, 2010, by and among
Ambac Assurance Corporation, Ambac Credit Products LLC,
Ambac Financial Group, Inc. and the parties listed on Schedule A
thereto
10-Q
11/15/10
10.1
10.7
Ambac Financial Group, Inc. Severance Pay Plan (Applicable to
termination on or after December 16, 2021)
10-K
02/24/22
10.10
10.8
Lease Modification dated as of September 8, 2015 to the Lease
dated as of March 1, 2011, by and between One State Street, LLC
and Ambac Assurance Corporation
10-K
02/29/16
10.27
10.9
Employment Agreement dated as of November 1, 2016 by and
among Ambac Financial Group, Inc., Ambac Assurance
Corporation and David Trick
10-Q
11/03/16
10.2
10.10
Amended and Restated Employment Agreement dated August 3,
2020 by and among Ambac Financial Group, Inc, Ambac
Assurance Corporation and Claude LeBlanc.
10-Q
08/06/20
10.2
10.11
Employment Agreement dated as of January 4, 2017 by and among
Ambac Financial Group, Inc., Ambac Assurance Corporation and
Stephen Ksenak
8-K
01/06/17
10.1
10.12
Second Amended Plan of Rehabilitation of the Segregated Account
of Ambac Assurance Corporation dated September 25, 2017, and
effective as of February 12, 2018
10-K
02/28/18
10.38
10.13
Order Granting the Rehabilitator’s Motion to Further Amend the
Plan of Rehabilitation and confirming the Second Amended Plan
of Rehabilitation, as amended, Case No. 10-CV-1576 (Dane
County, Wisconsin) dated January 22, 2018
10-K
02/28/18
10.39
Incorporated by Reference
Exhibit Description
Form
Filing
Date
Exhibit
Number
Filed
Herewith
Ambac Financial Group, Inc.
100
2024 Form 10-K
10.14
Preferred Stock Repurchase and Support Agreement dated as of
June 22, 2018, by and among Ambac Assurance Corporation
(“AAC”), Ambac Financial Group, Inc. and the holders of one or
more series of the AAC’s outstanding Auction Market Preferred
Shares
8-K
06/25/18
10.1
10.15
SUBLEASE dated as of January 30, 2019, between Advance
Magazine Publishers Inc. (D/B/A CONDE NAST), and Ambac
Assurance Group Corporation
10-K
03/02/20
10.45
10.16
2020 Incentive Compensation Plan
Def 14A
04/15/20
Ex. B
10.17
Purchase Agreement, by and among, Ambac Assurance
Corporation, Ambac Financial Group, Inc. and certain funds or
accounts affiliated with or managed by CVC Credit Partners, LLC,
CVC Credit Partners Investment Management Limited and EJF
Capital LLC, dated as of January 19, 2021
8-K
01/25/21
1.01
10.18
Executive Stock Deferral Plan dated June 24, 2021
8-K
06/30/21
10.1
10.19
Settlement Agreement and Release dated as of October 6, 2022 by
and among Bank of America Corporation and certain affiliates and
Ambac Assurance Corporation (Portions of this exhibit have been
omitted in reliance on Regulation S-K Item 601(b)(10)(iv))
10-K
03/01/23
10.34
10.20
Settlement Agreement and Release dated as of December 29, 2022
by and among Nomura Credit & Capital, Inc. and Ambac
Assurance Corporation. (Portions of this exhibit have been
omitted in reliance on Regulation S-K Item 601(b)(10)(iv))
10-K
03/01/23
10.35
10.21
Form of 2022 Restricted Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and
Ksenak
10-Q
05/10/22
10.1
10.22
Form of 2022 Restricted Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. Barranco, Eisman,
McGinnis and Ms. Smith.
10-Q
05/10/22
10.2
10.23
Form of 2022 Performance Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and
Ksenak
10-Q
05/10/22
10.3
10.24
Form of 2022 Performance Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. Barranco, Eisman,
McGinnis and Ms. Smith
10-Q
05/10/22
10.4
10.25
Employment Agreement dated as of October 5, 2023, by and
among Ambac Financial Group, Inc., Ambac Assurance
Corporation and R. Sharon Smith
8-K
10/06/23
10.1
10.26
Employment Agreement dated as of October 5, 2023, by and
among Ambac Financial Group, Inc., Ambac Assurance
Corporation and Daniel McGinnis
10-Q
11/07/23
10.2
10.27
Form of 2023 Restricted Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and
Ksenak.
10-Q
05/09/23
10.1
10.28
Form of 2023 Restricted Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. Barranco, Eisman,
McGinnis and Ms. Smith.
10-Q
05/09/23
10.2
10.29
Form of 2023 Performance Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and
Ksenak.
10-Q
05/09/23
10.3
10.30
Form of 2023 Performance Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. Barranco, Eisman,
McGinnis and Ms. Smith.
10-Q
05/09/23
10.4
10.31
Stipulation and Order - Office of the Commissioner of Insurance of
the State of Wisconsin, in the Matter of Ambac Assurance
Corporation effective as of February 22, 2024
10-K
02/27/24
10.38
10.32
2024 Incentive Compensation Plan
Def 14A
04/26/24
Appendix
A
Incorporated by Reference
Exhibit Description
Form
Filing
Date
Exhibit
Number
Filed
Herewith
Ambac Financial Group, Inc.
101
2024 Form 10-K
10.33
Form of 2024 Restricted Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick, Ksenak,
McGinnis and Ms. Smith.
10-Q
05/06/24
10.1
10.34
Form of 2024 Restricted Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. Barranco and Eisman.
10-Q
05/06/24
10.2
10.35
Form of 2024 Performance Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick, Ksenak,
McGinnis and Ms. Smith.
10-Q
05/06/24
10.3
10.36
Form of 2024 Performance Stock Unit Award Agreement between
Ambac Financial Group, Inc. and Messrs. Barranco and Eisman.
10-Q
05/06/24
10.4
10.37
Stock Purchase Agreement, by and between Ambac Financial
Group, Inc. and American Acorn Corporation, dated as of June 4,
2024.
8-K
06/05/24
2.2
10.38
Shareholders’ Agreement by and among Ambac Financial Group,
Inc., Cirrata V LLC, Beat Capital Partners Limited and the sellers
set forth therein, dated as of August 1, 2024 .
8-K
08/02/24
10.1
10.39
Credit Agreement, by and between Ambac Financial Group,
Cirrata V LLC, Cirrata Group, LLC, Cirrata V UK Ltd and UBS
AG, dated as of August 1, 2024.
8-K
08/02/24
10.2
10.40
Share Purchase Agreement, by and among Ambac Financial
Group, Inc., Cirrata V LLC, Beat Capital Partners Limited and the
sellers set forth therein, dated as of June 4, 2024.
8-K
06/05/24
2.2
10.41
Form of Investor Rights Agreement to be entered into at the
closing of the sale of Ambac Assurance Corporation to funds
managed by Oaktree Capital Management, L.P.
8-K
06/05/24
10.2
10.42
Form of Shareholders’ Agreement by and among Ambac Financial
Group, Inc., Cirrata V LLC, Beat Capital Partners Limited and the
sellers set forth therein.
8-K
06/05/24
10.4
10.43
Commitment Letter dated June 4, 2024, by UBS AG, Stamford
Branch and UBS Securities LLC to Cirrata V LLC.
8-K
06/05/24
10.5
(19) Insider Trading Policy
19.1
Ambac Insider Trading Policy
X
(97)
Recoupment Policy
97.1
Ambac Financial Group, Inc. - Recoupment Policy
10-K
02/27/24
97.1
(99)
Additional exhibits
99.1
Second Modified Fifth Amended Plan of Reorganization of Ambac
Financial Group, Inc., effective as of May 1, 2013
10-K
03/03/14
99.3
Other exhibits, filed or furnished, as indicated:
21.1
List of Subsidiaries of Ambac Financial Group, Inc.
X
23.1
Consent of Independent Registered Public Accounting Firm
X
24.1
Power of Attorney for directors of Ambac Financial Group, Inc.
X
31.1
Certification of Chief Executive Officer Pursuant to Rules
13a-14(a) and 15d-14(a) Promulgated under the Securities
Exchange Act of 1934, as amended
X
31.2
Certification of Chief Financial Officer Pursuant to Rules
13a-14(a) and 15d-14(a) Promulgated under the Securities
Exchange Act of 1934, as amended
X
32.1++
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
Incorporated by Reference
Exhibit Description
Form
Filing
Date
Exhibit
Number
Filed
Herewith
Ambac Financial Group, Inc.
102
2024 Form 10-K
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101)
++ Furnished herewith.
Incorporated by Reference
Exhibit Description
Form
Filing
Date
Exhibit
Number
Filed
Herewith
Ambac Financial Group, Inc.
103
2024 Form 10-K
SCHEDULE I
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Summary of Investments
Other Than Investments in Related Parties
December 31, 2024
Type of Investment
($ in thousands)
Cost
Estimated
Fair Value
Amount at Which
Shown in the
Balance Sheet
Municipal obligations
$
14,646
$
14,083
$
14,083
Corporate obligations
92,990
89,192
89,192
U.S. government obligations
41,706
40,995
40,995
Residential mortgage-backed securities
2,475
2,446
2,446
Commercial mortgage-backed securities
2,127
2,101
2,101
Collateralized debt obligations
3,131
3,142
3,142
Other asset-backed securities
5,049
5,061
5,061
Short-term
127,588
127,601
127,601
Other(1)
28,170
7,499
28,118
Total
$
317,882
$
292,120
$
312,739
(1) Excluded from the estimated fair value amount are equity securities with a carrying value of $20,618 as of December 31, 2024, that do not have readily
determinable fair values and are carried on the balance sheet at cost, less impairment, and adjusted to fair value when observable price changes in
identical or similar investments from the same issuer occur, as permitted under the Investments — Equity Securities Topic of the ASC, and an equity
method investment of $177 as of December 31, 2024.
See the Report of Independent Registered Public Accounting Firm.
Ambac Financial Group, Inc.
104
2024 Form 10-K
SCHEDULE II
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information
Of Registrant (Parent Company Only)
Condensed Balance Sheets
($ in thousands, except share data) December 31,
2024
2023
Assets:
Fixed maturity securities, at fair value (amortized cost of $0 and $14,045)
$
—
$
13,920
Short-term investments, at fair value (amortized cost of $64,439 and $155,687)
64,439
155,688
Other investments
28,117
18,317
Total investments (net of allowance for credit losses of $0 and $0)
92,556
187,925
Cash and cash equivalents
9,981
250
Investment in subsidiaries
737,692
1,150,195
Investment income due and accrued
269
545
Other assets
22,703
26,258
Total assets
$
863,201
$ 1,365,173
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and other liabilities
6,294
3,515
Total liabilities
6,294
3,515
Stockholders’ equity:
Preferred stock, par value $0.01 per share; 20,000,000 shares authorized shares; issued and outstanding shares—none
—
—
Common stock, par value $0.01 per share; 130,000,000 shares authorized; issued shares: 48,875,167 and 46,659,144
489
467
Additional paid-in capital
331,007
291,761
Accumulated other comprehensive income (loss)
(188,436)
(160,046)
Retained earnings
742,185
1,246,049
Treasury stock, shares at cost: 2,368,194 and 1,463,774
(28,339)
(16,573)
Total Ambac Financial Group, Inc. stockholders’ equity
856,906
1,361,658
Total liabilities and stockholders’ equity
$
863,201
$ 1,365,173
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the following notes.
See the Report of Independent Registered Public Accounting Firm.
Ambac Financial Group, Inc.
105
2024 Form 10-K
SCHEDULE II
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information
Of Registrant (Parent Company Only)
Condensed Statement of Comprehensive Income
($ in thousands) Year Ended December 31,
2024
2023
2022
Revenues:
Investment income
$
7,262
$
9,298
$
10,389
Other income
(415)
6
(81)
Net gains on derivative contracts
3,910
(348)
935
Net investment gains (losses), including impairments
(498)
55
(13,664)
Total revenues
10,259
9,011
(2,421)
Expenses:
General and administrative expenses
41,519
21,597
17,435
Total expenses
41,519
21,597
17,435
Income (loss) before income taxes and net income (loss) of subsidiaries
(31,260)
(12,586)
(19,856)
Federal income tax provision (benefit)
(1,748)
(1,193)
(462)
Income (loss) before net income (loss) of subsidiaries
(29,512)
(11,393)
(19,394)
Net income (loss) of subsidiaries
(526,937)
15,026
541,773
Net income (loss)
$ (556,449) $
3,633
$
522,379
Other comprehensive income (loss), after tax:
Net income (loss)
$ (556,449) $
3,633
$
522,379
Unrealized gains (losses) on securities, net of income tax provision (benefit) of $1,295, $2,095 and $(6,264)
(939)
51,184
(225,341)
Gains (losses) on foreign currency translation, net of income tax provision (benefit) of $—, $— and $—
(22,156)
40,132
(84,520)
Credit risk changes of fair value option liabilities, net of income tax provision (benefit) of $(118), $177 and
$79
(356)
(88)
340
Changes to postretirement benefit, net of income tax provision (benefit) of $—, $— and $—
(4,939)
1,569
(933)
Total other comprehensive income (loss)
(28,390)
92,797
(310,454)
Total comprehensive income (loss) attributable to Ambac Financial Group, Inc.
$ (584,839) $
96,430
$
211,925
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the following notes.
See the Report of Independent Registered Public Accounting Firm.
Ambac Financial Group, Inc.
106
2024 Form 10-K
SCHEDULE II
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information
Of Registrant (Parent Company Only)
Condensed Statement of Stockholders' Equity
($ in thousands)
Total
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Common
Stock Held
in Treasury,
at Cost
Balance at January 1, 2022
$ 1,038,105
$
—
$
465
$
256,906
$
57,611
$
726,054
$
(2,931)
Total comprehensive income (loss)
210,794
(310,454)
521,248
Stock-based compensation
17,408
17,408
Cost of shares (acquired) issued
under equity plan
(3,568)
(5,446)
1,878
Cost of shares repurchased
(14,217)
(14,217)
Changes to redeemable NCI
2,504
—
—
—
—
2,504
—
Cost of warrants acquired
172
—
—
172
—
—
—
Issuance of common stock
2
—
2
—
—
—
—
Purchase of Ambac Assurance
auction market preferred shares
1,131
—
—
—
—
1,131
—
Balance at December 31, 2022
1,252,331
—
467
274,486
(252,843)
1,245,491
(15,270)
Total comprehensive income (loss)
96,430
—
92,797
3,633
—
Stock-based compensation
17,275
17,275
Cost of shares (acquired) issued
under equity plan
(4,665)
(7,872)
3,207
Cost of shares repurchased
(4,510)
(4,510)
Changes to NCI
4,797
4,797
Balance at December 31, 2023
1,361,658
—
467
291,761
(160,046)
1,246,048
(16,573)
Total comprehensive income (loss)
(584,839)
(28,390)
(556,449)
Stock-based compensation
8,995
8,995
Cost of shares (acquired) issued
under equity plan
(701)
(634)
(67)
Cost of shares repurchased
(11,699)
(11,699)
Changes to NCI
54,264
—
—
1,044
—
53,220
—
Issuance of common stock
29,229
—
22
29,207
—
—
—
Balance at December 31, 2024
$
856,906
$
—
$
489
$
331,007
$
(188,436) $
742,185
$
(28,339)
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the following notes.
See the Report of Independent Registered Public Accounting Firm.
Ambac Financial Group, Inc.
107
2024 Form 10-K
SCHEDULE II
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information
Of Registrant (Parent Company Only)
Condensed Statements of Cash Flow
($ in thousands) Year Ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net income (loss)
$
(556,449) $
3,632
$
522,380
Adjustments to reconcile net income loss to net cash used in operating activities:
Net (income) loss of subsidiaries
526,937
(15,027)
(541,773)
Amortization of bond premium and discount
—
—
(7,378)
Net investment gains (losses), including impairments
498
(55)
13,664
Increase (decrease) in current income taxes payable
(1,970)
(1,674)
(809)
Share-based compensation
8,361
9,404
11,962
(Increase) decrease in other assets and liabilities
7,817
(4,660)
40,976
Distributions received from majority owned subsidiaries
10,739
8,032
5,760
Other, net
1,814
2,392
1,109
Net cash provided by (used in) operating activities
(1,755)
2,044
45,891
Cash flows from investing activities:
Proceeds from sales and matured bonds
5,000
—
68,205
Purchases of bonds
—
(795)
(750)
Change in short-term investments
91,249
19,676
(51,069)
Change in other investments
(1,749)
(2,715)
(4,213)
Net cash provided by (used in) investing activities
94,500
16,166
12,173
Cash flows from financing activities:
Capital contribution to subsidiaries
(70,817)
(16,050)
(42,420)
Cost of shares acquired
(11,699)
(4,510)
(14,217)
Net cash (used in) financing activities
(82,516)
(20,560)
(56,637)
Net cash flow
9,731
(2,350)
1,427
Cash at beginning of period
250
2,600
1,173
Cash at end of period
$
9,981
$
250
$
2,600
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes
$
—
$
—
$
—
Non-cash financing activity:
Ambac common stock issued as partial consideration to acquire Beat
$
29,229
$
—
$
—
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the following notes.
See the Report of Independent Registered Public Accounting Firm.
Ambac Financial Group, Inc.
108
2024 Form 10-K
SCHEDULE II
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information
Of Registrant (Parent Company Only)
Notes to Condensed Financial Information
(Dollar Amounts in Thousands)
The condensed financial information of Ambac Financial Group,
Inc. (“AFG” or the “Registrant”) as of December 31, 2024 and
2023, and for the three years in the period ended December 31,
2024, should be read in conjunction with the consolidated
financial statements of AFG Financial Group, Inc. and
Subsidiaries and the notes thereto included in this Annual
Report on Form 10-K for the year ended December 31, 2024.
Investments in subsidiaries are accounted for using the equity
method of accounting.
AFG, headquartered in New York City, is an insurance holding
company incorporated in the state of Delaware on April 29,
1991.
Income Taxes
AFG files a consolidated U.S. Federal income tax return with its
80% or greater owned U.S. subsidiaries. Beat's US subsidiaries
file separate U.S. Federal income tax returns as they are not
directly owned by AFG for tax purposes. AFG and its
subsidiaries also file separate or combined income tax returns in
various states, local and foreign jurisdictions. As of December
31, 2024, the Company has $1,663,087 of NOLs, which if not
utilized will begin expiring in 2030, and $158,663 of NOLs that
carryforward indefinitely.
Discontinued Operations
On June 4, 2024, AFG entered into a stock purchase agreement
(the "Purchase Agreement") with American Acorn Corporation
(the “Buyer”), a Delaware corporation owned by funds managed
by Oaktree Capital Management, L.P., pursuant to which and
subject to the conditions set forth therein, AFG will sell all of
the issued and outstanding shares of common stock of AAC
owned by AFG to the Buyer for aggregate consideration of
$420,000 in cash, and will issue to the Buyer a warrant to
purchase AFG common stock representing 9.9% of the fully
diluted shares of AFG’s common stock as of March 31, 2024,
pro forma for the issuance of the Warrant (the "AAC Sale"). The
terms of the AAC Sale as contemplated by the Purchase
Agreement provide that, at the closing of the AAC Sale (the
“Closing”), Buyer will acquire complete ownership of the
common stock of AAC and all of its wholly owned subsidiaries,
including Ambac UK. For further information, see Note 5.
Discontinued Operation included in Part II, Item 8 of this Form
10-K.
Ambac Financial Group, Inc.
109
2024 Form 10-K
SCHEDULE III
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Supplementary Insurance Information
(Dollar Amounts in Thousands)
Segment
Deferred
Acquisition
Costs
Loss and
Loss
Adjustment
Expense
Reserves
Unearned
Premium
Earned
Premiums
Net
Investment
Income
Loss and
Loss
Adjustment
Expenses
(Benefit)
Amortization
of Deferred
Amortization
Costs
Other
Operating
Expenses
Net Written
Premiums
2024
Specialty Property
and Casualty
I
$
8,572
$ 349,062
$ 182,446
$
99,005
$
6,399
$
72,626
$
23,666
$
17,806
$
88,682
2023
Specialty Property
and Casualty
I
$
10,960
$ 197,089
$ 154,878
$
51,911
$
3,795
$
36,712
$
10,557
$
16,452
$
79,824
2022
Specialty Property
and Casualty
I
$
3,362
$
89,907
$
85,415
$
13,869
$
1,605
$
9,071
$
2,535
$
13,205
$
28,554
See the Report of Independent Registered Public Accounting Firm.
Item 16. Form 10-K Summary. — None
Ambac Financial Group, Inc.
110
2024 Form 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMBAC FINANCIAL GROUP, INC.
Dated: March 6, 2025
By:
/S/ DAVID TRICK
David Trick
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ JEFFREY S. STEIN*
Chairman of the Board and Director
March 6, 2025
Jeffrey S. Stein
/S/ CLAUDE LEBLANC
President, Chief Executive Officer and Director
March 6, 2025
Claude LeBlanc
(Principal Executive Officer)
/S/ DAVID TRICK
Executive Vice President and Chief Financial Officer
March 6, 2025
David Trick
(Principal Financial Officer)
/S/ ROBERT B. EISMAN
Senior Managing Director and Chief Accounting Officer
March 6, 2025
Robert B. Eisman
(Principal Accounting Officer)
/S/ IAN D. HAFT*
Director
March 6, 2025
Ian D. Haft
/S/ LISA G. IGLESIAS*
Director
March 6, 2025
Lisa G. Iglesias
/S/ JOAN LAMM-TENNANT*
Director
March 6, 2025
Joan Lamm-Tennant
/S/ KRISTI A. MATUS*
Director
March 6, 2025
Kristi A. Matus
/S/ MICHAEL D. PRICE*
Director
March 6, 2025
Michael D. Price
/S/ STEPHEN M. KSENAK
Attorney-in-fact
March 6, 2025
*By: Stephen M. Ksenak
Ambac Financial Group, Inc.
111
2024 Form 10-K
[This page intentionally left blank]
CORPORATE INFORMATION
CORPORATE OFFICE
Ambac Financial Group, Inc.
One World Trade Center
41st Floor
New York, NY 10007
212-658-7470
www.ambac.com
COMMON STOCK LISTING
The common stock of Ambac
Financial Group, Inc. trades on
the New York Stock Exchange
under the symbol “AMBC”.
ANNUAL MEETING
OF STOCKHOLDERS
The Annual Meeting of Stockholders
will be held in a virtual format on
Wednesday, May 28, 2025 at 11:00 am
Eastern Time and can be accessed at
www.virtualshareholdermeeting.com/
AMBC2025.
INVESTOR SERVICES/
TRANSFER AGENT
COMPUTERSHARE
P.O. BOX 505000
Louisville, KY 40233
Inside the USA call 1-800-662-7232
Outside the USA call 1-781-575-4238
Hearing impaired call 1-800-952-9245
www.computershare.com/investor
or overnight correspondence
can be sent to:
COMPUTERSHARE
462 South 4th Street, Suite 1600
Louisville, KY 40202
INVESTOR RELATIONS
Charles J. Sebaski
Managing Director,
Head of Investor Relations
Ambac Financial Group, Inc.
212-208-3222
ir@ambac.com
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
KPMG, LLP
345 Park Avenue
New York, NY 10154
CORPORATE GOVERNANCE
Ambac is committed to maintaining
the independence of Ambac’s Board
of Directors and its committees and
the integrity of its corporate governance
processes. Our Corporate Governance
Guidelines, Code of Business Conduct
& Ethics and charters that govern our
Board committees, all of which are
designed to keep Ambac accountable
to its shareholders, can be found
at www.ambac.com.
OFFICER CERTIFICATIONS
The certi´cations of Ambac’s Chief
Executive Of´cer and Chief Financial
Of´cer, required under Section 302 of
the Sarbanes-Oxley Act of 2002, have
been ´led as exhibits to Ambac’s 2024
Annual Report on Form 10-K.
AMBAC FINANCIAL GROUP, INC.
One World Trade Center, 41st Floor
New York, NY 10007
www.ambac.com