Ambac Financial : Annual Report 2023 Annual Report

2023 ANNUAL REPORT

FINANCIAL HIGHLIGHTS

SHAREHOLDER

EQUITY

(in billions)

$1.25 $1.36

$1.0

2021 2022 2023

+9%

FINANCIAL GUARANTEE NET PAR OUTSTANDING

(in billions)

$28

$23

$20

2021 2022 2023

-14%

BOOK VALUE

PER SHARE

(in dollars)

$28 $30

$22

2021 2022 2023

+8%

P&C PREMIUM

PRODUCTION

(in millions)

$504

$282

$131

2021 2022 2023

+79%

ADJUSTED

BOOK VALUE

(in billions)

$1.27 $1.30

$.87

2021 2022 2023

+2%

MGA

PARTNERS

27

17

8

2021 2022 2023

+59%

Net Income

$4 MILLION

Adjusted Net Income

$93 MILLION

EBITDA

$107 MILLION

Adversely Classified Credits

26% REDUCTION

A MESSAGE FROM OUR CEO

• Having accomplished our strategic priorities for 2023-including achieving profitability in our specialty P&C insurance segment and launching a process to explore strategic options for our legacy financial guarantee business-weexpect 2024 to be a transformative year for Ambac as we continue to strive to enhance long-termshareholder value."

Dear Fellow Shareholders,

2023 was another milestone year for Ambac. Three years ago, we embarked on a journey to build a specialty property and casualty insurance platform that included a distribution division and a specialty program insurance carrier.

Our vision is to create the premier destination for MGA and program operators, and the quick ascent of our P&C businesses demonstrates that we have built a strong foundation to deliver on that goal. Key to our success is our people. In 2023 we hired top industry talent to help drive our growth and both Everspan and Cirrata exceeded their 2023 targets, generating over a half billion dollars of premium production, an 80% increase over 2022. That accomplishment is a testament to the hard work of the Everspan and Cirrata teams, whose achievements

I will further expound on in the following pages. In 2023, we also added Kristi Matus and Michael Price as Directors, further bolstering the P&C expertise of our Board.

While our future lies in the property and casualty insurance sector, we remain committed to maximizing the value of our legacy financial guarantee business. In 2023, we continued to improve the quality of the insured portfolio through various de-risking initiatives, which for the full year resulted in a reduction in net par outstanding by 14% and adversely classified credits by 26%. In addition, following the completion of an internal review process and analysis of the strategic options available for the legacy financial guarantee business, we appointed investment bank Moelis & Company to explore potential transactions with interested parties.

As I noted in previous letters, Ambac remains committed to sustainability and responsible business practices. We continue to refine our policies to better reflect how these practices are embedded in our corporate culture, strategy, and decision-making. As part of our ongoing efforts to improve our disclosures, in 2023 we updated our Corporate Governance Guidelines and Code of Business Conduct and Ethics, and we published an updated and amended Corporate Social Responsibility (CSR) report in February 2024.

We are excited about the direction Ambac is headed. As we look to the future, we are well positioned to leverage the strong growth generated in 2023, and we believe our specialty insurance platform is poised to deliver significant, incremental value for Ambac's shareholders.

EVERSPAN

SPECIALTY PROGRAM INSURANCE CARRIER

In its second full year of operation, Everspan wrote $273 million of gross premium, achieving profitability in the second half of the year while establishing itself as a preferred partner of MGAs and reinsurers. Everspan exceeded its 2023 targets while maintaining its commitment to underwriting excellence and strong program oversight.

Everspan had a very strong year, generating gross premium written of $273 million, an 87% increase over 2022 and a 9% increase over its 2023 target of $250 million. While we are pleased with those numbers, we are equally, if not more, focused on combined ratio, which factors both underwriting results and expense management, and is a more accurate gauge of an insurer's performance and profitability. Everspan's 100% combined ratio, reported in the fourth quarter, demonstrates a positive trend that we aim to improve in the coming quarters. Everspan's fourth quarter results marked the fifth consecutive quarterly improvement for the business, which we believe has achieved the necessary scale to generate underwriting profitability. Everspan is now on a pathway to generating mid-teen ROEs at scale, over the insurance cycle.

Portfolio diversification was also a key area of focus for Everspan in 2023, as the business sought to expand and diversify its MGA program partners. At year end, Everspan had 23 program partners, up from 14 a year ago. Equally important, its programs spanned a wide range of business classes, including commercial auto, excess liability, workers compensation and

general liability, among others. Everspan's book is now more balanced across risk classes, which should have the long-term benefit of more stable and predictable underwriting results.

It is important to note that Everspan's growth was achieved without sacrificing robust underwriting standards. Everspan accepted less than 5% of the program submissions it received, which is a testament to its careful selection methods. Its rigorous review process is underpinned by robust diligence and a "gross line" underwriting approach, meaning it applies the same evaluation criteria regardless of whether it retains 30% or very little risk. Uniform application of underwriting criteria helps keep Everspan's interests aligned with the interests of its reinsurance partners.

Everspan also aligns interests through its high-touch engagement model. With two full years of operation under its belt, it has established a comprehensive approach to program management, employing proactive risk management and oversight to achieve profitability for itself and its partners. We believe this approach is a strategic differentiator in the marketplace and a cornerstone to our achievements.

$273 MILLION

of GPW in 2023 Up 87%

Combined Ratio	23
107%		MGA Programs
	2023 GPW

61% E&S vs 39% Admitted

Shareholders' Equity

$123 MILLION

GROSS PREMIUM WRITTEN (GPW) & NUMBER OF PROGRAMS

(in millions)

$300		$273	30
$225			24
$150	$146		18
			#)(program
$75			12
$13
$0			6
2021	2022	2023

Gross Premium Written				# of Programs

CIRRATA

INSURANCE DISTRIBUTION PLATFORM

With a growing portfolio of distribution businesses, Cirrata has doubled its revenue in the last two years and beat its growth targets, achieving $231 million in placed premiums for 2023. It continues to attract premier underwriting teams looking to scale their businesses with Ambac's support.

Cirrata, like Everspan, exceeded its 2023 targets. It placed $231 million of premium in 2023, an increase of 70% over the prior year and a 15% increase over its 2023 target of $200 million. It also produced over $11 million of EBITDA. Cirrata's revenue has doubled to $52 million in the last two years, while its EBITDA margin remains attractive at 22%.

Cirrata's growth has been fueled by both organic initiatives and the financial performance of recent acquisitions. It has acquired and onboarded three companies over the last 18 months and now operates four programs across various classes of business, including specialty commercial auto, professional liability, inland marine, employer stop loss, and affinity programs. After purchasing majority stakes in All Trans Risk Solutions and Capacity Marine Corporation at the end of 2022, we acquired a majority stake in Riverton Insurance Agency in August 2023. Xchange Benefits, our first MGU, rounds out the Cirrata portfolio.

In 2023, Cirrata reached the size and scale to necessitate its own dedicated leadership team, and in May we appointed industry veteran Naveen Anand as President of Cirrata Group. Naveen has extensive

executive management and specialty lines experience, making him the ideal candidate to expand the Cirrata platform and build its profile in the specialty property and casualty insurance market.

We continue to see significant opportunities for growth at Cirrata, whether across our current businesses,

via organic initiatives, or through additional M&A transactions and de novo incubations.

$231 MILLION

of Premium Placed Up 71% Over 2022

EBITDA Margin(1) of 22% Generating $11 MILLION(2)of EBITDA in 2023

REVENUE UP 68%

in 2023

RIVERTON INSURANCE AGENCY CORP.

Acquired August 1

1. EBITDA/Net Insurance Distribution Revenues
2. Represents 100% inclusive of non-controlling interests

REVENUE & EBITDA

(in millions)

$60				$12
$50			$52	$10
$40				$8	(EBITDA)
$30		$31		$6
$20				$4
$26
$10				$2
$0				$0
	2021	2022	2023
		Revenue	EBITDA

LEGACY FINANCIAL GUARANTEE

STRIVING TO MAXIMIZE ECONOMIC VALUE

We continue to focus on crystallizing the value of our Legacy Financial Guarantee business, which has been in run-off since 2008, with the goal of further maximizing value for shareholders.

Since I joined Ambac seven years ago, we have de- risked and de-levered the insured portfolio by over $42 billion, materially improving our business risk profile and quality of our book value. During 2023 we continued our active de-risking efforts, which we expect will further enhance value for Ambac and its shareholders.

Net insured par exposure for our legacy portfolio was $20 billion at December 31, 2023, down approximately 14% from $23 billion at year-end 2022. Our adversely classified credit exposure at year end was $3.5 billion, a reduction of 26% from the prior year end.

Following a thorough process over the last year, the Wisconsin Office of the Commissioner of Insurance (OCI) has finalized its capital model and Stipulation and Order, providing a new regulatory framework for the legacy business. This new framework provides Ambac with clarity on capital requirements and pathways toward realization of value from the Legacy Financial Guarantee companies.

Finally, in the fourth quarter we engaged Moelis & Company, along with other external advisors, to assess strategic options for our legacy business.

ADVERSELY CLASSIFIED	NET PAR EXPOSURE
CREDITS NET PAR	SINCE 2018
(in billions)	(in billions)

$12	$10.9						$50	$47
$10							$40		$38	$34
		$7.5
$8
	$6.8	$6.4			$30				$28
									$23
$6					$4.7							$20
						$20
$4						$3.5
$2							$10
$0	2018	2019	2020	2021	2022	2023	$0	2018	2019	2020	2021	2022	2023

2024 OUTLOOK

DELIVERING LONG-TERM VALUE CREATION

EVERSPAN

• Target GPW +$400 million in 2024 growing to +$500 million in 2025(1,2)
• Target mid-teens ROE at scale and over the cycle
• Target combined ratio under 100%

CIRRATA

• Target premiums placed +$300 million in 2024(1,2)
• Target +$60 million revenue in 2024(1,2)
• Target +20% EBITDA margins(1)

1. Forward looking targets and projections subject to change. Targets and projections may not be realized and are not meant to provide guarantees of performance. Please refer to Ambac's annual report on form 10-K for the year ended December 31, 2023, for more information about Ambac's business and related risk factors.
2. Subject to market conditions.

In conclusion, I am pleased with our continued progress on our strategic priorities and am very excited about Ambac's prospects in 2024 and beyond.

I would like to thank you, our shareholders, for your ongoing support and the Board, our Executive Management team and dedicated employees for their tireless commitment to the execution of our strategic priorities for the benefit of all our stakeholders.

Sincerely,

Claude LeBlanc

President and Chief Executive Officer

STRATEGIC PRIORITIES

SPECIALTY PROPERTY

AND CASUALTY

INSURANCE PLATFORM:

• 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.
• 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, establishing new businesses "de-novo," and organic growth and diversification supported by a centralized technology-led shared services offering.
• Making opportunistic investments that are strategic to both the Specialty Property and Casualty Insurance and Insurance Distribution businesses.

LEGACY FINANCIAL

GUARANTEE:

• Actively managing, de-risking and mitigating insured portfolio risk, and pursuing recoveries of previously paid losses.
• Improving operating efficiency and optimizing our asset and liability profile.
• Exploring strategic options to further maximize value for Ambac.

BOARD OF DIRECTORS

EXECUTIVE OFFICERS

JEFFREY S. STEIN (2), (3)

Chairman

Founder and Managing Partner

of Stein Advisors LLC

IAN D. HAFT (1)*, (4)

Chief Executive Officer

of Surgis Capital LLC

and Chief Financial Officer

of Electric Monster Media, Inc.

LISA G. IGLESIAS (1), (3)*

Executive Vice President

General Counsel of Unum Group

JOAN LAMM-TENNANT(2), (3), (4)*

Founder and Former

Chief Executive Officer of

Blue Marble Microinsurance

KRISTI A. MATUS (1), (2)*

Former Chief Financial Officer

and Chief Operating Officer

of Buckle Agency LLC

MICHAEL D. PRICE (1), (4)

Former President and

Chief Executive Officer of

Platinum Underwriters Holdings, Ltd.

CLAUDE LeBLANC

President and

Chief Executive Officer

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

CLAUDE LeBLANC

President and

Chief Executive Officer

DAVID TRICK

Executive Vice President,

Chief Financial Officer

and Treasurer

R. SHARON SMITH

Executive Vice President and Chief Strategy Officer

DAVID BARRANCO

Senior Managing Director, Head of Risk Management

ROBERT B. EISMAN

Senior Managing Director, Chief Accounting Officer

and Controller

STEPHEN M. KSENAK

Senior Managing Director and General Counsel

DAN McGINNIS

Senior Managing Director and Chief Operating Officer

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, 2023

• 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)
		[phone]
		(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 30, 2023 was $623,109,150. As of February 26, 2024, there were 45,195,370 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.

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)

• Business ..............................................................
  Introduction.........................................................
  Description of the Business ................................
  Enterprise Risk Management..............................
  Available Information.........................................
  Insurance Regulatory Matters and Other Restrictions .........................................................
  Investments and Investment Policy ....................

Employees...........................................................

1A Risk Factors ........................................................

1B Unresolved Staff Comments...............................

1C Cybersecurity......................................................

2 Properties ............................................................

3 Legal Proceedings...............................................

4 Mine Safety Disclosures .....................................

PART II

Market for Registrant's Common Equity,

5 Related Stockholder Matters and Issuer

Purchases of Equity Securities............................

6 Reserved .............................................................

• Management's Discussion and Analysis of Financial Condition and Results of Operations
  Executive Summary............................................
  Critical Accounting Policies and Estimates .......
  Financial Guarantees in Force ............................
  Results of Operations..........................................
  Liquidity and Capital Resources...........................

2		Balance Sheet	45
2		Accounting Standards	50
2		U.S. Statutory Basis Financial Results	50
9		Ambac UK Financial Results Under UK	52
	Accounting Principles
10		Non-GAAP Financial Measures	53
11	7A	Quantitative and Qualitative Disclosures about	55
		Market Risk
12	8	Financial Statements and Supplementary Data ..	58
13	9	Changes in and Disagreements with
Accountants on Accounting and Financial	122
		Disclosure
13	9A	Controls and Procedures	122
25	9B	Other Information	123
25		PART III
26	10	Directors, Executive Officers and Corporate	123
		Governance
27	11	Executive Compensation	123
27	12	Security Ownership of Certain Beneficial
Owners and Management and Related	123
		Stockholder Matters
	13	Certain Relationships and Related	123
		Transactions, and Director Independence
27	14	Principal Accountant Fees and Services	123
28		PART IV
28	15	Exhibits, Financial Statement Schedules	123
29		Schedule I-Summary of Investment	127
30		Schedule II-Condensed Financial Information
	of Registrant (Parent Company Only)	128
33		Schedule III-Supplementary Insurance
	Information	133
37	16	Form 10-KSummary	133
44	SIGNATURES	134