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What changed in OCTAVE SPECIALTY GROUP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of OCTAVE SPECIALTY GROUP INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+574 added−717 removedSource: 10-K (2025-03-06) vs 10-K (2024-02-27)

Top changes in OCTAVE SPECIALTY GROUP INC's 2024 10-K

574 paragraphs added · 717 removed · 289 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

70 edited+35 added−96 removed43 unchanged
Biggest changeThe following table provide certain information concerning the consolidated investments of Ambac: 2023 2022 Investment Category ($ in millions) December 31, Carrying Value Weighted Average Yield (1) Carrying Value Weighted Average Yield (1) Municipal obligations $ 72 4.8 % $ 43 4.6 % Corporate securities 745 3.3 % 598 2.6 % Foreign obligations 100 2.6 % 76 1.5 % U.S. government obligations 82 3.0 % 65 1.9 % Residential mortgage-backed securities 250 7.2 % 238 8.3 % Commercial mortgage-backed securities 19 5.6 % 15 5.5 % Asset-backed securities 442 8.5 % 361 7.0 % Short-term investments 452 5.3 % 572 4.0 % Total fixed maturity-available-for-sale 2,162 5.2 % 1,966 4.4 % Fixed maturity securities - trading (2) 27 — % 59 — % Other investments (3) 475 — % 568 — % Total $ 2,664 5.2 % $ 2,593 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.
Biggest changeAmbac Financial Group, Inc. 9 2024 Form 10-K Table of Contents , 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.
This unique 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.
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.
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 — Effective November 1, 2022, Ambac acquired an 80% controlling interest in Capacity Marine Corporation ("Capacity Marine").
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 — Effective August 1, 2023, Ambac acquired an 80% controlling interest in Riverton Insurance Agency, Corp. ("Riverton").
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.
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 and other capital needs, on a quarterly basis.
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.
Everspan closely 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.
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.
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, AllTrans launched a new program primarily focussed on charter buses.
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.
Insurance underwritten through Ambac's MGA/Us may utilize Everspan as an insurance carrier, but are not be required to do so, depending on strategic and operational considerations.
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.
We believe that growing multi-year carrier relationships are evidence of the value created by our MGA/U, a value which we believe should sustain through routine market cycles. • Strong distribution relationships — Distribution relationships provide value in several ways. First, carrier partners are looking for both underwriting expertise and distribution access when working with MGA/Us.
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.
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 ten insurance carriers and dozens of agents and other distributors.
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.
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 comprehensive diligence and monitoring of MGA/U partners from our in-house pricing actuaries, claims executives, and program managers.
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.
While underwriting direct business produced by MGA/Us is Everspan's primary means of distribution, Everspan also selectively assumes reinsurance to further its goal of writing a diversified book of specialty P&C business while efficiently 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.
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.
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 AM Best, the MGA/U sector is one of fastest growing segments of the U.S.
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.
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.
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 .
The following graph shows our reinsurance carriers' AM Best rating based on share of ceded premium for the year ended December 31, 2023: (1) 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 7.
The following graph shows our reinsurance carriers' AM Best rating based on share of ceded premium for the year ended December 31, 2024: (1) 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.
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 AAC, Everspan Indemnity, Everspan Insurance and its 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.
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.
AAC, 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 8.
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.
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.
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.
In order to assist the Board of Directors in overseeing Ambac’s risk management, Ambac uses enterprise risk management, a 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 strategy and fulfill its business objectives.
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 Table of Contents , 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.
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; Ambac Financial Group, Inc 10 2023 Form 10-K Table of Contents , email: ir@ambac.com.
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 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 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.
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 (i) Specialty Property and Casualty Insurance and Insurance Distribution businesses and (ii) Legacy Financial Guarantee Insurance business.
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.
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.
Ambac Financial Group, Inc. 3 2024 Form 10-K Table of Contents , 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.
Everspan Companies: Everspan Indemnity, Everspan Insurance and its subsidiaries are also subject to regulatory restrictions on their ability to pay dividends. Everspan Indemnity and Everspan Insurance do not have sufficient earned surplus at this time to pay ordinary dividends under the insurance laws and regulations of Arizona.
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.
Such guidelines set forth minimum credit rating requirements and credit risk concentration limits. As of December 31, 2023, the non-VIE Insurance Distribution investment portfolio had an aggregate fair value of approximately $4 million, primarily consisting of money market funds.
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 $27,611 thousand, primarily consisting of money market funds.
As of December 31, 2023, the AAC and Everspan non-VIE investment portfolios had an aggregate fair value of approximately $1,810 million. 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.
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.
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.
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.
Members of the Reserve Committee include the CEO, Head of Risk Management, CFO, General Counsel and senior managers throughout risk, legal and finance. • 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 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.
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, 2023, the consolidated non-VIE investments of Ambac had an aggregate fair value of approximately $2,664 million.
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.
Reasons to terminate a relationship include Ambac Financial Group, Inc 7 2023 Form 10-K Table of Contents , 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.
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.
MGA/U Program Market It is estimated that U.S. MGA/Us generate between $70 to $100 billion of direct premiums 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/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.
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.
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.
Everspan presently has five admitted carriers, which are wholly-owned except as indicated below: Everspan Insurance Company; Greenwood Insurance Company; Consolidated National Insurance Company; Consolidated Specialty Insurance Company; and Providence Washington Insurance Company (90.1% owned). 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.
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.
AFG, on a standalone basis, had $211 million in net assets (excluding its investment in subsidiaries) and net operating loss carry-forwards of $3,400 million ($1,760 million of which is allocated to AAC) at December 31, 2023. See Schedule II for more information on the holding company.
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.
Market conditions and capital capacity influence the degree of competition at any point in time. 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 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.
Ambac plans to grow its existing Insurance Distribution business using several strategies, including (i) organic growth, (ii) additional acquisitions and/or partnerships, and (iii) hiring experienced underwriting teams to incubate start-up MGA/Us. Key criteria include a track record of profitability and a seasoned management team.
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.
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 AAC or one or more members of the Everspan group of companies, 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 AAC and each member of Everspan).
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).
As of December 31, 2023, the non-VIE AFG (parent company only, excluding investments in subsidiaries) investment portfolio had an aggregate fair value of approximately $188 million. The primary investment objective is to preserve capital for strategic uses while maximizing income. The investment portfolio is subject to internal investment guidelines.
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 $64,439 thousand of short-term investments carried at fair value. The primary investment objective is to preserve capital for strategic uses while maximizing income. The investment portfolio is subject to internal investment guidelines.
In addition the quality of distribution relationships helps in allowing our MGA/Us access to higher quality risks from the wholesale and retail agents which we believe over time will help produce better underwriting results..
In addition, the quality of distribution relationships helps in allowing our MGA/Us access to higher quality risks from the wholesale and retail agents which we believe over time will help produce better underwriting results. Competition: The MGA/U insurance sector is highly fragmented and competitive, and firms actively compete with Cirrata's businesses for customers and insurance carrier capacity.
The following table sets forth gross written premiums (direct and assumed) by line of business for the years ended December 31, 2023 and 2022: ($ in millions) Year Ended December 31, 2023 2022 Commercial auto liability $ 122 $ 117 Excess liability 41 5 General liability 27 6 Surety 26 4 Non-standard auto 20 — Workers Compensation 20 — Commercial auto physical damage 12 13 Other 6 1 Gross written premiums $ 273 $ 146 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.
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.
Ambac Financial Group, Inc 9 2023 Form 10-K Table of Contents , • 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.
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.
Specialty Property and Casualty Insurance and Insurance Distribution strategic priorities include: • 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 which generate attractive margins at scale.
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.
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, 2023, we have 23 programs with 19 MGA/Us.
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.
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, Benchmark, Clear Blue, Core Specialty, Falls Lake, Fortegra, Obsidian, Spinnaker, State National, Transverse, and Trisura. Most of these entities have both admitted and E&S carriers.
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.
We believe this provides a Ambac Financial Group, Inc 6 2023 Form 10-K Table of Contents , 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.
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.
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 in which they conduct business. United Kingdom The Prudential Regulatory Authority ("PRA") and Financial Conduct Authority ("FCA") (and their predecessor regulator the Financial Services Authority (“FSA”)) exercise significant oversight over Ambac UK.
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.
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 AAC Risk Committee's objective is to provide oversight of the key risk remediation issues impacting AAC.
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.
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 dividends. As a result of these restrictions, substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends.
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.
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.
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.
According to data from AM Best, the E&S market generated approximately $99 billion of direct written premium in 2022 an increase of 19.2% over the prior year and and represents over 11% of the industry direct premium volume.
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 Table of Contents , of 17.4% over the prior year and and represents nearly 12% of the industry direct premium volume.
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.
This will be achieved through acquisitions, strategic investments, establishing new businesses “de-novo,” and organic growth and diversification supported by a centralized technology led shared services offering • Growing our Specialty Property and Casualty Insurance business to generate underwriting profits from a diversified portfolio of commercial and personal liability risks accessed primarily through program administrators.
Ambac Financial Group, Inc 5 2023 Form 10-K Table of Contents , For the year ended December 31, 2023, Everspan generated $273 million of gross written premium, of which Everspan retained approximately 29%, including assumed written premiums. Everspan retained approximately 17% of its direct written premiums, with the balance primarily ceded to quota share reinsurers.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The E&S market is more heavily focused in commercial lines and accounted for over 21% of total commercial direct written premium for the first time in 2022. For the period of 2012 through 2022 the E&S sector had a compound annual growth rate of 11% compared to 5% for the overall U.S. P&C sector.
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.
P&C insurance market with 2022 direct premium written of $68 billion, an increase of 14% over the prior year, and loss ratios consistently lower than the P&C sector overall. In 2022, AM Best identified 654 MGAs in the U.S. market with likely several hundred additional MGAs not counted in that group as their premium production falls below the filing threshold.
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.
Investments of the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further discussion of Ambac insured securities held in the investment portfolio.
(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.
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.
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.
We believe the growth in the MGA/U and program space is likely to continue as the industry continues its move towards increased specialization.
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.
Commission expenses are a variable cost as we pay a percentage of premiums written to the agents/producers. Insurance Distribution generated gross commission revenue of $51 million and $31 million during the years ended December 31, 2023 and 2022, respectively and net commission revenue (gross commissions less commission expenses) of $22 million and $13 million, respectively.
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.
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. In addition to existing MGA/Us and acquisitions, de novo MGA/U formations will be a core element of the Insurance Distribution segment's growth strategy.
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.
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. Pursuant to the terms of the Settlement Agreement and the Stipulation and Order, AAC must seek prior approval by OCI of certain corporate actions.
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.
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.
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.
In 2023 we reviewed over 180 submissions and agreed to contract 11 new programs with eight new MGA/Us and two MGA/Us with an existing relationship, while renewing or extending twelve programs with eleven incumbent MGA/Us. Included in 2023 new programs are two executed via assumed reinsurance.
In Ambac Financial Group, Inc. 4 2024 Form 10-K Table of Contents , 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.
Commission revenue and expense growth will be driven by the businesses' continued expansion and diversification of its products across regions, products, and carriers. Competitive Strengths: • Deep specialty domain knowledge — Our Insurance Distribution businesses are anchored by a deep specialty domain knowledge in their respective classes of business.
($ 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.
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.
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.
Everspan carriers have an AM Best rating of 'A-' (Excellent). • Insurance Distribution — Ambac's insurance distribution business includes managing general agents/underwriters (collectively "MGAs" or "MGA/Us") and insurance brokers operating as part of Cirrata Group. Beginning in 2022, the Company began reporting these three business operations as segments; see Note 3. Segment Information for further information.
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.
Given the recent acquisitions and potential de Ambac Financial Group, Inc 8 2023 Form 10-K Table of Contents , novo launches, this seasonality is expected to become more muted over time. Expenses at Cirrata include commissions the businesses pay to their independent agents/producers, compensation for their management and staff and intangible asset amortization from acquisitions.
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.
Removed
Ambac operates three principal businesses: • Legacy Financial Guarantee ("LFG") Insurance — Ambac's financial guarantee business 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").
Added
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.
Removed
Both AAC and Ambac UK are financial guarantee insurance companies that have been in run-off, having not underwritten any new business since 2008.
Added
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”).
Removed
AFS is AAC's legacy interest rate swap provider which is also currently being run-off. • Specialty Property and Casualty Insurance — Ambac's specialty property and casualty program business ("Specialty Property and Casualty Insurance") includes five admitted carriers and an excess and surplus lines (“E&S” or “nonadmitted”) carrier (collectively, “Everspan”).
Added
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.
Removed
Legacy Financial Guarantee Insurance strategic priorities include: • 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 AFG.
Added
(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.
Removed
DESCRIPTION OF THE BUSINESS Legacy Financial Guarantee Insurance: Financial guarantee insurance policies provide an unconditional and irrevocable guarantee which protects the holder of a debt obligation against non-payment when due of the principal and interest on the obligations guaranteed.
Added
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

100 edited+90 added−32 removed110 unchanged
Biggest changeThe 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 Legacy Financial Guarantee ("LFG") insured portfolio; Ambac Financial Group, Inc 13 2023 Form 10-K Table of Contents , • changes to regulatory status; • changes in investors’ or analysts’ valuation measures for 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, disposition or other strategic transaction, including entry into a new line of business or the sale of all or a part of the LFG business, on the value or long-term prospects of the Company; • adverse developments in the industries and markets in which we operate, including the property and casualty insurance, underwriting and brokerage industries, or the fixed income and equity capital markets; • adverse market and/or economic conditions, such as those caused by a recession or inflation, which increase our risk of loss on insurance policies and depress the value and/or liquidity of our investments and other assets; • adverse developments in current or future litigations; and • results and actions of other participants in our industries.
Biggest changeThe 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.
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. We compete with a large number of companies in the property and casualty insurance industry for underwriting premium.
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, costs 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.
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.
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 portfolio may also be adversely affected by credit rating downgrades, ABS and RMBS prepayment speeds, foreign exchange movements, spread volatility, and credit losses.
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.
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/or alternative assets; such as hedge funds.
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.
It is not possible to predict the extent to which additional suits involving AFG, 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.
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.
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 our business.
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.
We do not 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.
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.
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 portfolios run off.
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.
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 our insured and investment portfolios, and decreased refinancing activity.
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.
Performance of our insured LFG transactions, including (but not limited to) those backed by municipal, utility, sovereign/sub-sovereign, military housing and consumer risk, 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.
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.
LFG and 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.
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.
In addition, if Ambac 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.
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.
For example, 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.
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.
The Settlement Agreement and Stipulation and Order also include 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.
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.
Actions of the PRA and FCA could reduce the value of Ambac UK realizable by AAC, which would adversely affect our securityholders. Ambac’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.
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.
Item 1A. Risk Factors ($ in millions) 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.
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.
Risk Factors. 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.
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.
OCI has certain enforcement rights with respect to the Settlement Agreement and Stipulation and Order, and retains full discretion over the design of, and assumption utilized in, OCI's Runoff Capital Framework and the implications thereof.
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.
These risks my be exacerbated to the extent that our insurance carrier subsidiaries' reinsurance recoverables are overly concentrated with one or a small subset of reinsurers.
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.
Changes in law or in the functioning of the healthcare market could significantly impair Xchange’s 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.
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.
The amount of installment premiums we actually realize 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 revenues and cash flow in the future.
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.
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 or restrict AFG from making strategic acquisitions or cause us to make non-strategic divestitures; • 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.
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.
Material adverse developments to Xchange's 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 insurer capacity.
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.
A material failure by an external service or information provider or a material defect in the products, services or information provided thereby could adversely affect our financial condition and results of operations.
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.
Certain of these restrictions may be waived with the approval of holders of surplus notes and/or OCI. If we are unable to obtain the required consents under the Settlement Agreement and/or the Stipulation and Order, AAC may not be able to execute its planned business strategies.
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.
Catastrophic events, including 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.
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.
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, as well as diversified financial services companies 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.
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.
Revenues and cash flow will be adversely impacted by a decline in realization of installment premiums. A significant percentage of our LFG premium revenue is attributable to installment premiums. The amount of installment premiums we collect is declining along with the insured portfolio.
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.
If we do not effectively develop, implement and monitor our vendor and contractual counterparty relationships, if third party providers do not perform as anticipated, if we experience technological or other problems, or if vendor 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 .
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.
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 not materially change over time as circumstances, our assumptions, or our models change.
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.
During these times, it may be difficult for Everspan or our MGA/Us to grow or maintain premium volume without lowering underwriting standards, sacrificing income, or both.
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.
While Xchange has historically demonstrated an ability to adjust its products to major changes in the healthcare industry, given its focus on Accident and Health products, Xchange 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.
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.
If OCI were to decide to initiate rehabilitation proceedings with respect to AAC, adverse consequences may result, including, without limitation and absent enforceable protective injunctive relief, the assertion of damages by counterparties, the acceleration of losses based on early termination triggers, and the loss of control rights in insured transactions.
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.
While deterioration in the performance of transactions insured by AAC and Ambac UK, including mortgage and student loan securitizations may occur, the timing, extent and duration of any future deterioration of the credit markets is unknown, as is the impact on potential claim payments and ultimate losses on the securities within our insured LFG portfolio.
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.
Ambac Financial Group, Inc 17 2023 Form 10-K Table of Contents , 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.
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.
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 Ambac Financial Group, Inc 18 2023 Form 10-K Table of Contents , 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.
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.
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 Ambac Financial Group, Inc 23 2023 Form 10-K Table of Contents , commercially reasonable terms, or at all.
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.
In addition, we are exposed to correlation risk as a result of the possibility that multiple credits, counterparties, or portfolios may concurrently and/or consecutively experience losses or increased stress as a result of any such event or series of events.
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.
Additionally, we are an acquisitive organization and the process of integrating the information systems of the businesses we acquire is complex and exposes us to additional risk as we might not adequately identify weaknesses in the targets’ information systems, which could expose us to unexpected liabilities or make our own systems more vulnerable to attack.
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 Table of Contents , to additional risk as we might not adequately identify weaknesses in the targets’ information systems, which could expose us to unexpected liabilities or make our own systems more vulnerable to attack.
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. AAC is defending or otherwise involved in various lawsuits relating to its LFG business. Please see Note 19.
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.
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.
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.
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.
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.
The insolvency of one or more of our insurance carrier subsidiaries' reinsurers, or their inability or unwillingness to make timely payments if and when required under the terms of reinsurance contracts, could adversely affect our business, financial condition and results of operations.
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 Table of Contents , reinsurance contracts, could adversely affect our business, financial condition and results of operations.
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.
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.
Acquisitions have been an important contributor of growth in the Insurance Distribution business and we believe that additional acquisitions will be important to maintaining future growth. Failure to successfully identify and complete acquisitions likely would result in us achieving slower growth.
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.
Our Insurance Distribution businesses derive a significant portion of their commission revenues from a limited number of insurance companies, 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 were derived from insurance policies underwritten by a limited number of insurance companies.
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.
Some of these competitors also have longer standing and better established market recognition than Everspan does.
Some of these competitors also have longer standing and better established market recognition than Ambac's group companies.
Our risk factors are organized in the following sections Page Risks Related to AFG Common Shares 13 Risk Related to the Company's Business 15 Risks Related to Capital, Liquidity and Markets 23 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.
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 Legacy Discontiued Operations 20 Risks Related to AFG Common Shares The price per share of AFG's common stock may be subject to a high degree of volatility, including significant price declines.
Despite current indebtedness levels, we 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.
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.
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. Impairment of intangible assets and goodwill, resulting from acquisitions, could adversely affect our results of operations.
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.
Increased loss development in the LFG insured portfolio, or significant losses from litigation or other events or circumstances may 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, either preemptively or in response to any such event or circumstance.
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.
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 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.
In connection with Ambac’s acquisition of insurance distribution businesses (MGA/Us and brokers), 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.
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.
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 Ambac Financial Group, Inc 19 2023 Form 10-K Table of Contents , reinsurers which satisfy Everspan's criteria as acceptable security.
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.
Any such consequences may reduce or eliminate any residual value of AAC for AFG. Additionally, the rehabilitator would assume control of all of AAC’s assets and management of AAC. In exercising control, the rehabilitator would act solely for the benefit of policyholders, which may result in material adverse consequences for our security holders.
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.
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.
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.
The market conditions and the macroeconomic conditions that affect Ambac Financial Group, Inc 24 2023 Form 10-K Table of Contents , our business could have a material adverse effect on our ability to secure third-party financing on favorable terms, if at all.
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.
Other competitive concerns may include pricing, the entrance of technology companies into the insurance distribution business and the direct-to-consumer insurance carriers that do not utilize third party agents and brokers as production sources.
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 Table of Contents , direct-to-consumer insurance carriers that do not utilize third party agents and brokers as production sources.
In addition, OCI's Runoff Capital Framework and decisions based thereon are expected to affect AAC's ability to reduce financial leverage at AAC, pay dividends to AFG, and/or make payments on surplus notes or AMPS.
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").
Should one or more of these insurance companies terminate its arrangements with our Insurance Distribution businesses or otherwise decrease the number of insurance policies underwritten for it, we may lose significant commission revenues or lose significant business production while seeking other insurance companies to underwrite the business.
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.
As a result of the run-off status of AAC and the early-stage status of AFG's other businesses, we may experience higher employee turnover and finding qualified replacements may be more difficult.
As a result of the AAC Sale, we may experience higher employee turnover and finding qualified replacements may be more difficult.
Efforts to pursue certain business opportunities may be Ambac Financial Group, Inc 14 2023 Form 10-K Table of Contents , unsuccessful or require significant financial or other resources, which could have a negative impact on our operating results and financial condition.
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.
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. Profit-sharing contingent commissions are paid by insurance companies based upon the profitability of the business placed with such companies.
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.
The ability of hackers to infiltrate and compromise our information Ambac Financial Group, Inc 22 2023 Form 10-K Table of Contents , systems or the contents thereof may be enhanced by generative artificial intelligence, which may be more difficult to detect and defend.
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.
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. Changes in prevailing interest rate levels and market conditions could adversely impact our business results and prospects.
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.
Due to the above considerations, as well as applicable legal and contractual restrictions described elsewhere herein, substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends.
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.
Accordingly, determinations made by the PRA and FCA, 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. Regulatory uncertainty in relation to Ambac UK’s capital position could adversely affect the value of Ambac UK and affect our securityholders.
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.
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 have insured exposures.
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.
AFG's ability to realize residual value from AAC will 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.
In the absence of a sale, AFG's ability to realize Ambac Financial Group, Inc. 20 2024 Form 10-K Table of Contents , 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.
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.
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.
Description of Business - Legacy Financial Guarantee Insurance. There can be no assurance that AFG will be able to realize residual value through receiving dividends from the continued run-off of AAC.
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.
Pricing is a highly complex exercise involving the acquisition and analysis of historical loss data and the projection of future trends, loss costs, expenses, and inflation trends, among other factors, for each of Everspan's products in multiple risk tiers and many different markets. Everspan seeks to implement its pricing accurately in accordance with its assumptions.
Pricing is a highly Ambac Financial Group, Inc. 14 2024 Form 10-K Table of Contents , complex exercise involving the acquisition and analysis of historical loss data and the projection of future trends, loss costs, expenses, and inflation trends, among other factors, for each of Everspan's products in multiple risk tiers and many different markets.
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 and contractual counterparties for other essential services and information, such as the provision of data used in setting loss reserves.
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.
Our Insurance Distribution business results of operations depend on the continued capacity of insurance carriers to underwrite risk and provide coverage, which depends in turn on those insurance companies’ ability to procure reinsurance. Capacity among insurance carriers and reinsurers may diminish because of our performance or due to factors outside our control.
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.
The price of AFG's shares may also be affected by the risks described below, including risks associated with AAC’s ability to deliver value to AFG. Investments in AFG's common stock may be subject to a high degree of volatility. AFG may not be able to realize value from its LFG businesses.
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.
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.
For example, increasing interest rates could result in higher claim payments in respect of defaulted obligations that bear floating rates of interest.
Risks Related to Capital, Liquidity and Credit Markets AAC has substantial indebtedness, which could adversely affect our financial condition, operational flexibility and our ability to obtain financing in the future. AAC is highly leveraged.
AAC has substantial indebtedness, which could adversely affect its financial condition, operational Ambac Financial Group, Inc. 23 2024 Form 10-K Table of Contents , flexibility and our ability to obtain financing in the future. AAC is highly leveraged.
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 Ambac Financial Group, Inc 15 2023 Form 10-K Table of Contents , adversely affect 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 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.
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.
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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

5 edited+4 added−1 removed22 unchanged
Biggest changeThe 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 of Directors, which receives ERM updates on a quarterly basis.
Biggest changeThe 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 Company’s technology staff and CISO conduct weekly meetings, attended regularly by the Chief Operating Officer and Chief Information Officer, 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.
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.
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, to increase the likelihood that system risks are identified.
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.
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 Ambac Financial Group, Inc 25 2023 Form 10-K Table of Contents , has become aware.
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.
To identify potential risks, Ambac 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.
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.
Removed
In addition the Board receives periodic cybersecurity awareness training.
Added
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.
Added
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 Table of Contents , of Directors, which receives ERM updates on a quarterly basis.
Added
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.
Added
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

Properties — owned and leased real estate

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Biggest changeAmbac Financial Group, Inc 26 2023 Form 10-K Table of Contents , 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.
Biggest changeIn 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.
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 New Jersey, New York, Indiana and London England. The lease terms typically do not exceed ten years in length.
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+4 added−3 removed0 unchanged
Biggest change($ in millions, except per share) Year ended December 31, 2022 2023 Total Shares repurchased 1,605,316 325,068 1,930,384 Total cost $ 14.2 $ 4.5 $ 18.7 Average purchase price per share $ 8.86 $ 13.88 $ 9.70 Unused authorization amount $ 16.3 Shares purchased from employees to satisfy withholding taxes, as described above, do not count towards utilization under the Company's share repurchase program.
Biggest changeFrom 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.
The graph assumes $100 was invested on December 31, 2018, in our common stock at the closing price of $17.24 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 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.
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 2023, Ambac purchased shares from employees that settled restricted stock units to meet employee tax withholdings.
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 million in share repurchases, with an expiration date of March 31, 2024, which may be terminated at any time. On May 5, 2022, the Board of Directors authorized an additional $15 million share repurchase. The following table shows shares repurchased by year.
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.
The performance shown in the graph represents past performance and should not be considered an indication of future performance. December 31, 2018 2019 2020 2021 2022 2023 Ambac Financial Group, Inc. $100 $125 $89 $93 $101 $96 Russell 2000 Index $100 $124 $147 $167 $131 $151 S&P Completion Index $100 $126 $165 $184 $133 $164
The performance shown in the graph represents past performance and should not be considered an indication of future performance. 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 $150
Information concerning restrictions on the payment of dividends from Ambac's insurance subsidiaries is set forth in Item 1 above under the caption “Dividend Restrictions, Including Contractual Restrictions" and in Note 8. Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.
Dividends The Company did not pay cash dividends on its common stock during 2024 and 2023. Information concerning restrictions on the payment of dividends from Ambac's insurance subsidiaries is set forth in Item 1 above under the caption “Dividend Restrictions, Including Contractual Restrictions" and in Note 9.
Ambac Financial Group, Inc 27 2023 Form 10-K Table of Contents , Stock Performance Graph The following graph compares the performance of an investment in our common stock from the close of business on December 31, 2018, through December 31, 2023, with the Russell 2000 Index and S&P Completion Index.
($ 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 Table of Contents , 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.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company 's common stock trades on the NYSE under the symbol “AMBC". The Company's warrants previously traded on the NYSE under the symbol "AMBC WS" and as of April 30, 2023, all of the then outstanding warrants expired without being exercised.
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.
Removed
Holders On February 26, 2024, there were 16 stockholders of record of AFG’s common stock. Dividends The Company did not pay cash dividends on its common stock during 2023 and 2022.
Added
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.
Removed
Purchases of Equity Securities By the Issuer and Affiliated Purchasers The following table summarizes Ambac's share purchases during the fourth quarter of 2023.
Added
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.
Removed
October 2023 November 2023 December 2023 Fourth Quarter 2023 Total Shares Purchased (1) — — 469 469 Average Price Paid Per Share $ — $ — $ 14.75 $ 14.75 Total Number of Shares Purchased as Part of Publicly Announced Plan — — — — Maximum Dollar Value That may Yet be Purchased Under the Plan $ 16 $ 16 $ 16 $ 16 (1) There were no other repurchase of equity securities made during the three months ended December 31, 2023.
Added
($ 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.
Added
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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

87 edited+143 added−292 removed31 unchanged
Biggest changeAmbac Financial Group, Inc 53 2023 Form 10-K Table of Contents , Legacy Financial Guarantee Insurance Specialty Property and Casualty Insurance Insurance Distribution Corporate & Other Consolidated Year Ended December 31, 2023 Net income (loss) $ 9 $ — $ 7 $ (11) $ 5 Adjustments: Interest expense 64 — — — 64 Income taxes 8 — — (1) 7 Depreciation 1 — — — 2 Amortization of intangible assets 25 — 4 — 29 EBITDA (1) $ 107 $ — $ 11 $ (12) $ 107 Year Ended December 31, 2022 Net income (loss) $ 537 $ (6) $ 5 $ (13) $ 522 Adjustments: Interest expense 168 — — — 168 Income taxes 3 — — — 2 Depreciation 2 — — — 2 Amortization of intangible assets 44 — 3 — 47 EBITDA (1) $ 754 $ (6) $ 7 $ (14) $ 742 Year Ended December 31, 2021 Net income (loss) $ 4 $ (8) $ 4 $ (17) $ (16) Adjustments: Interest expense 187 — — — 187 Income taxes 16 — — 2 18 Depreciation 2 — — — 2 Amortization of intangible assets 52 — 3 — 55 EBITDA (1) $ 262 $ (8) $ 6 $ (15) $ 246 (1) EBITDA is prior to the impact of noncontrolling interests, and relates to subsidiaries where Ambac does not own 100% in the amounts of $2, $1 and $1 for the years ended December 31, 2023, 2022 and 2021, respectively.
Biggest changeAmbac Financial Group, Inc. 45 2024 Form 10-K Table of Contents , 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) %
The increase in the Loss and LAE ratio for the year ended December 31, 2023, compared to December 31, 2022, was partially offset by a benefit to acquisition costs as a result of sliding scale commission arrangements with program partners.
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.
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 8. Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report Form 10-K.
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.
While our 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.
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.
During the second quarter of 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.
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 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, 2023, and assumes an inability to execute any commutation transactions with issuers and/or investors.
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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ($ and £ in millions) 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.
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.
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. Net Investment Income.
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 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 remediation strategies and other contractual or subrogation-related cash flows.
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.
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, Capacity Marine and Riverton, which were acquired in November 2022, November 2022, and August 2023, 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.
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; decreased likelihood 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 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.
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 and diversification of the business. Everspan's loss ratio (including ULAE) was 70.7% and 65.4% for the years ended December 31, 2023 and 2022, respectively, inclusive of prior years development of 0.3% and 0.2%, 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 impact of growing operations was muted by costs incurred in 2022 in connection with the acquisition of additional shell insurance companies.
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.
Basis of Presentation and Significant Accounting Policies 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.
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.
The Insurance Distribution business is typically compensated for its 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.
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.
Cirrata is also 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.
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.
LIQUIDITY AND CAPITAL RESOURCES Holding Company Liquidity AFG is organized as a legal entity separate and distinct from its operating subsidiaries. AFG is a holding company with no outstanding debt.
LIQUIDITY AND CAPITAL RESOURCES Holding Company Liquidity AFG is a holding company organized as a legal entity separate and distinct from its operating subsidiaries.
For the year ended December 31, 2023 commission expense was $29 compared to $18 for the year ended December 31, 2022, representing approximately 57% of commission income in both periods. Program Fees. Program fee revenues were $8 compared $3 for the years December 31, 2023 and 2022, respectively.
For the year ended December 31, 2023 commission expense was $29,465 compared to $17,641 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.
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).
In the opinion of the Company’s management, the net assets of AFG are currently sufficient to meet AFG’s current liquidity Ambac Financial Group, Inc. 39 2024 Form 10-K Table of Contents , 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).
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.
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.
The evaluation process for determining the level of 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.
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.
The increase was driven by organic growth in premiums placed as well as the acquisition of All Trans and Capacity Marine in November of 2022 and Riverton in August of 2023. Commission expense will largely track changes in gross commission.
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.
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.
For public finance issuers, loss reserves will consider not only creditworthiness, but also political dynamics and economic status and prospects.
For example, Employer Stop Loss business underwritten by Xchange has seasonality in January and July, which results in revenue and earnings concentrations in the first and third quarters each calendar year.
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.
We then develop multiple scenarios where issuer debt service is Ambac Financial Group, Inc 31 2023 Form 10-K Table of Contents , 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.
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.
The decrease during 2023 was the result the remeasurement of the redemption value of put options provided to minority owners (noncontrolling interest holders) of Cirrata entities acquired as if the put was exercised on December 31, 2023, partially offset by new put options issued during the acquisition of Riverton during 2023. No put options are exercisable at December 31, 2023.
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.
See “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10-K as well as the descriptions of variability in "Structured Finance," "Public Finance," and "Other Credits, including Ambac UK," below for further discussion of the risks relating to future losses and recoveries that could result in more highly stressed outcomes appearing below.
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 Specialty Property and Casualty Insurance segment has grown significantly since underwriting its first program in May 2021. Twenty-three programs were authorized to issue policies as of December 31, 2023.
(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.
These amounts are derived from our consolidated financial information, but are not presented in our consolidated financial statements prepared in accordance with GAAP.
These amounts are derived from our consolidated financial information, but are not presented in our consolidated financial results.
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 $131 from its reinsurers at December 31, 2023. As of December 31, 2023 and 2022, reinsurance recoverable on paid and unpaid losses were $195 and $115, respectively.
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.
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, net loss and loss adjustment expenses incurred and amortization of deferred acquisition costs. Ambac Financial Group, Inc 42 2023 Form 10-K Table of Contents , Losses and Loss Adjustment Expenses (Benefit).
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.
Ambac Financial Group, Inc 46 2023 Form 10-K Table of Contents , The following charts provide the ratings (1) distribution of the fixed maturity investment portfolio based on fair value at December 31, 2023 and 2022. (1) Ratings are based on the lower of Moody’s or S&P ratings. If ratings are unavailable from Moody's or S&P, Fitch ratings are used.
Ambac Financial Group, Inc. 41 2024 Form 10-K Table of Contents , 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. Premium Receivables.
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 Ambac Financial Group, Inc 30 2023 Form 10-K Table of Contents , could have an adverse impact on default probabilities and loss severities.
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.
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. Ambac Financial Group, Inc 43 2023 Form 10-K Table of Contents , G&A Expenses.
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.
Federal net ordinary operating loss carryforwards, including approximately $1,640 at AFG and $1,760 at AAC.
Federal net ordinary operating loss carryforwards, including approximately $1,663,087 at AFG.
The shift in the loss ratio was driven by commercial auto loss experience in the current accident year and diversification, primarily due to the addition of personal auto and workers compensation programs through assumed reinsurance. Everspan's loss ratio may shift as the inforce book of business grows and diversifies.
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.
Ambac invests in various asset classes in its fixed maturity securities portfolio. Other investments include diversified equity interests in pooled funds. Refer to Note 4. Investments to the Consolidated Financial Statements in this Annual Report on Form 10-K located in Part II. Item 8 for information about fixed maturity securities and pooled funds by asset class.
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.
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. Certain Everspan programs were structured to include sliding scale commission arrangements within a loss ratio range. These sliding scale arrangements mitigate net income volatility.
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.
Basis of Presentation and Significant Accounting Policies and Note 7. 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.
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 Table of Contents , Short-term Debt.
Management has identified the following critical accounting policies and estimates: (i) valuation of financial guarantee loss and loss adjustment expense reserves, (ii) valuation of certain financial instruments and (iii) valuation of deferred tax assets.
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.
The increase was primarily due to the following: • Higher compensation costs primarily due to a net increase in staffing from additions in the Specialty Property and Casualty Insurance and Insurance Distribution segments and the impact of performance factor adjustments on incentive compensation expense, partially offset by reductions in staffing in the Legacy Financial Guarantee Insurance segment. • Higher non-compensation costs primarily related to increased Legacy Financial Guarantee Insurance segment defensive litigation expenses and costs associated with growth of the Specialty Property and Casualty Insurance and Insurance Distribution businesses.
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.
Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K.
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.
During the first quarter of 2023, Ambac revised the model it uses to project RMBS collateral losses considering the seasoning of our RMBS exposure and management’s view that the most relevant determinant of prospective collateral performance is borrower payment status.
During 2023, Ambac revised the model it uses to project RMBS collateral losses Ambac Financial Group, Inc. 32 2024 Form 10-K Table of Contents , 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.).
Net premiums earned for the year ended December 31, 2023 increased by $22 or 38% as compared to net premiums earned for the year ended December 31, 2022, as shown below.
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.
Ambac's premium receivables increased to $290 at December 31, 2023, from $269 at December 31, 2022. As further discussed in Note 7. Insurance Contracts to the Consolidated Financial Statements, in this Annual Report Form 10-K located in Part II.
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.
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, 2023. Refer to Item 1. Description of the Business and Note 1.
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.
Ambac's investment portfolio is managed under established guidelines designed to meet the investment objectives of AAC, Everspan, Ambac UK and AFG. 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. Refer to Note 4.
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.
These funds and other investments are reported in Other investments on the Consolidated Balance Sheets. For further information about investment funds held, refer to Note 4. Investments to the Consolidated Financial Statements, included in Part II, Item 8 in this Annual Report on Form 10-K.
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 $4,503 for the years ended years ended December 31, 2024, 2023 and 2022, respectively.
These additional liabilities or increases in estimates, or a range of either, could vary significantly from period to period. G&A Expenses. General and administrative costs increased for the year ended December 31, 2023, relative to the year ended December 31, 2022, primarily resulting from the growth in Everspan's staffing and operations.
These additional liabilities or increases in estimates, or a range of either, could vary significantly from period to period. General and Administrative Expenses ("G&A").
Beginning January 1, 2023, Ambac replaced the non-GAAP measure Adjusted Earnings with a new non-GAAP measure Adjusted Net Income to better align with other participants in the Property & Casualty insurance industry, including insurance carriers and other peers in the insurance distribution business.
Beginning December 31, 2024, Ambac replaced the non-GAAP measure Adjusted Net Income with new non-GAAP measures Adjusted Net Income and Adjusted Net Income Margin and added Adjusted EBITDA and Adjusted EBITDA Margin to Ambac Financial Group, Inc. 43 2024 Form 10-K Table of Contents , better align with other participants in the Property & Casualty insurance industry, including insurance carriers and other peers in the insurance distribution business.
Payments Due by Period ($ in millions) Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More Than 5 Years Claim payments $ 1,202 $ 93 $ 51 $ 42 $ 1,016 Ambac Financial Group, Inc 48 2023 Form 10-K Table of Contents , Variability of Expected Losses and Recoveries Ambac’s 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.
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.
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 and $14 to the Everspan group of companies during the years ended December 31, 2023 and 2022, respectively.
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.
AFG's principal uses of liquidity are: (i) the payment of operating expenses, including costs to explore opportunities to grow and diversify Ambac, (ii) the making of strategic investments, which may include illiquid investments and (iii) 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.
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 approximatel y $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.
In addition, going forward, we may not be able to offset the impact of inflation on our loss costs with sufficient price increases.
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.
Operating Companies' Liquidity Insurance: Sources of liquidity for the Company’s insurance subsidiaries are through funds generated from premiums, recoveries of prior claim payments, reinsurance recoveries, fees, investment income and maturities and sales of investments. • See Note 7.
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.
Intangible assets includes (i) an insurance intangible asset that was established at AFG's emergence from bankruptcy in 2013, representing the difference between the fair value and aggregate carrying value of the financial guarantee insurance and reinsurance assets and liabilities; (ii) intangible assets established as part of the acquisition of Xchange in 2020, All Trans and Capacity Marine in 2022, and Riverton in 2023; and (iii) indefinite-lived intangible assets established as part of the acquisition of admitted carriers in both 2021 and 2022.
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.
Fair Value Measurements to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.
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.
Net investment income primarily consists of interest and net discount accretion on fixed maturity securities classified as available-for-sale, interest and changes in fair value of fixed maturity securities classified as trading, and net gains (losses) on pooled investment funds which include changes in fair value of the funds' net assets.
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.
Ambac Financial Group, Inc 51 2023 Form 10-K Table of Contents , Everspan Indemnity Insurance Company Everspan Indemnity Insurance Company’s statutory policyholder surplus was $108 at December 31, 2023, as compared to $107 at December 31, 2022.
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.
Insurance Contracts in Part II, Item 8 in the Consolidated Financial Statements included in this Annual Report on Form 10-K) carrying values include a goodwill component representing the acquisition cost in excess of the related entity's statutory surplus. Goodwill is amortized over ten years.
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.
The decrease in AFG net assets, excluding its equity investments in subsidiaries, during 2023 was driven by operating expenses, capital contributions to subsidiaries, the acquisition of Riverton Insurance Agency and share repurchases, partially offset by interest income and distributions from subsidiaries.
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.
December 31, 2023 2022 Cash and short-term investments $ 156 $ 178 Other investments (1) 32 28 Other net assets 23 17 Total $ 211 $ 223 (1) Includes strategic minority investments in insurance services businesses of $26.
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 provision for income taxes for the year ended December 31, 2023 and 2022, was a expense of $7 and $2, respectively. Income taxes for the year ended December 31, 2023 and 2022, includes provisions for income tax due in respect of Ambac UK of $8 and $3, respectively. At December 31, 2023, the Company had approximately $3,400 of U.S.
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.
Organization of Information MD&A includes the following sections: Page Executive Summary 29 Critical Accounting Estimates 30 Financial Guarantees in Force 33 Results of Operations 37 Liquidity and Capital Resources 44 Balance Sheet 45 Accounting Standards 50 Ambac Assurance Statutory Basis Financial Results 50 Ambac UK Financial Results under UK Accounting Principles 52 Non-GAAP Financial Measures 53 Ambac Financial Group, Inc 28 2023 Form 10-K Table of Contents , EXECUTIVE SUMMARY AFG Net Assets: AFG has the following net assets to support its goals and strategies, including the development and growth of its Specialty Property and Casualty Insurance and Insurance Distribution businesses, acquisitions and capital management.
Ambac Financial Group, Inc. 28 2024 Form 10-K Table of Contents , Organization of Information MD&A includes the following sections: Page Strategies to Enhance Shareholder Value 29 Overview 29 Critical Accounting P olicies 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.
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. In addition to commutation negotiations that are underway with various counterparties in various forms, our reserve estimates may also include scenarios which incorporate our ability and/or expectation to commute additional exposure with other counterparties.
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.
Ambac has reinsurance in place pursuant to quota share, surplus share treaty and facultative agreements.
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.
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 receipts (both base and profit commissions).
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.
The significant changes to policyholder surplus for the year ended December 31, 2023, were total capital contributions of $7.3, offset by a net loss at Everspan Indemnity Insurance Company, including its subsidiaries, of $7.1 during the year ended December 31, 2023, primarily driven by G&A expenses as the business continues to scale.
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.
As of December 31, 2023 and 2022, the net intangible asset was $307 and $326, respectively. The decline is driven by amortization; partially offset by translation gains from the consolidation of Ambac's foreign subsidiary (Ambac UK) and established intangibles from the acquisition of Riverton.
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.
Specialty Property and Casualty Insurance Year Ended December 31, 2023 2022 Gross premiums written $ 273 $ 146 Net premiums written 80 29 Revenues: Net premiums earned $ 52 $ 14 Net investment income 4 2 Net investment gains (losses), including impairments — — Program fees 8 3 Total 64 18 Expenses: Losses and loss adjustment expenses 37 9 Amortization of deferred acquisition costs, net 11 3 General and administrative expenses 16 13 Net (gain) loss attributable to noncontrolling interest — — EBITDA — $ (6) Pretax income (loss) $ — $ (6) Loss and LAE Ratio 70.7 % 65.4 % Combined Ratio 106.5 % 156.5 % Ambac's stockholders equity (1) $ 122 $ 110 (1) Represents Ambac stockholders equity in the Specialty Property and Casualty Insurance segment, including intercompany eliminations.
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.
Cirrata business placed premiums for its carriers of approximately $231 for the year ended December 31, 2023, up $95 or 70% as compared to the year ended December 31, 2022.
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.
Final annual Solvency II data and Ambac UK's annual Solvency and Financial Condition Report will be published on Ambac's website in April 2023. 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 Net Income and Adjusted Book Value.
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.
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, 2023 and 2022: Gross Par Outstanding (1) (2) Gross Loss and Loss Adjustment Expense Reserves (1) (3) (4) December 31, 2023 Structured Finance $ 1,860 $ 497 Domestic Public Finance 834 66 Other 1,144 (8) Loss expenses — 4 Totals $ 3,838 559 December 31, 2022 Structured Finance $ 2,050 358 Domestic Public Finance 1,215 75 Other 782 3 Loss expenses — 8 Totals $ 4,047 444 (1) Ceded par outstanding on policies with loss reserves and ceded loss and loss adjustment expense reserves are $362 and $30 respectively, at December 31, 2023, and $472 and $33, respectively at December 31, 2022.
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.
AFG's subsidiaries/businesses are divided into three segments, the key value metrics of which are summarized below along with other recent developments.
OVERVIEW The Company's continuing operations include two segments, financial highlights of which are summarized below along with other recent developments.
The increase in Specialty Property and Casualty Insurance net premiums earned was driven by the growth in net premiums written. Commission Income and Commission Expense. Commission income was $51 compared to $31, for the years ended December 31, 2023 and 2022. Commissions include both base and profit sharing commissions from Cirrata Group companies in the Insurance Distribution segment.
The net loss variance in 2023 compared to 2022 was primarily driven by higher net investment income of $8,655 and growth of both the Specialty Property and Casualty Insurance and Insurance Distribution businesses flowing from higher net premiums earned of $38,042 from Everspan and higher commission income of $20,586 from Insurance Distribution.
Background and Business Description for a description of our business and our key strategies to achieve our primary goal to maximize shareholder value.
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.
EBITDA — We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization of intangible assets.
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.
Consolidated Cash Flow Statement Discussion The following table summarizes the net cash flows for the periods presented.
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.
Structured Finance Variability: Using the approaches described above, the possible increase in loss reserves for structured finance credits for which we have an estimate of expected loss at December 31, 2023, could be approximately $55.
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 $4 reimbursement for 2022 expenses was approved by OCI and paid to AFG in March 2023. • Substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends. • Everspan's ability to make future dividend payments will mostly depend on its future profitability relative to its capital needs to support growth.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

17 edited+9 added−4 removed4 unchanged
Biggest changeAmbac Financial Group, Inc 56 2023 Form 10-K Table of Contents , 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, 2023 and 2022: December 31, 2023 2022 Fair value of fixed maturity investment (1) $ 1,820 $ 1,740 Pre-tax impact of 100 basis point increase in interest rates Decrease in dollars $ (50) $ (53) 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, 2023 and 2022: December 31, 2023 2022 Fair value of long-term debt including accrued interest (1) $ (697) $ (878) Pre-tax impact of 100 basis point decrease in interest rates Increase in dollars $ (24) $ (18) As a percent of fair value 3 % 2 % Fair value of interest rate derivative net assets (liabilities) (1) $ (10) $ (12) Pre-tax impact of 100 basis point decrease in interest rates Pre-tax loss from change in fair value in dollars $ (4) $ (20) (1) Excludes long-term debt and derivative instruments of VIEs consolidated as a result of Ambac’s financial guarantees Foreign Currency Risk.
Biggest changeThe 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.
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.
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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ($ in millions) 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.
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.
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.
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.
Ambac’s fixed maturity 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.
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, although certain securities held at December 31, 2023, are classified as trading with changes in fair value reported through Net income as they occur. • Ambac also invests in limited partnerships and other alternative investments, primarily consisting of diversified pooled investment funds, which are reported as Other investments.
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.
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, 2023 and 2022: December 31, 2023 2022 Fair value of investments denominated in currencies other than the U.S. dollar (1) $ 463 $ 398 Pre-tax impact of 20% strengthening of the U.S. dollar $ (93) $ (80) (1) Excludes investments in distressed Ambac-insured securities and securities held by VIEs consolidated as a result of Ambac’s financial guarantees Equity Sensitivity.
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.
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 primary market risks for fixed maturity investment securities are interest rate risk and foreign exchange rate risk.
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.
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 debt obligations and (at December 31, 2022) result in net fair value gains on interest rate derivatives.
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.
We also monitor our interest rates exposure through periodic reviews of projected cash flows and durations of our asset and liability positions.
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.
December 31, 2023 2022 Fair value of investments in pooled funds $ 463 $ 556 Pre-tax impact of 10% decline in NAV of the funds $ (46) $ (56) Ambac Financial Group, Inc 57 2023 Form 10-K Table of Contents ,
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 Table of Contents ,
Derivative Instruments to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K. • Although our long-term debt obligations 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.
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.
Variable Interest Entities to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further information about VIEs consolidated as a result of Ambac’s financial guarantees. Ambac utilizes various systems, models and sensitivity scenarios to monitor and manage market risk.
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.
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 Interest Rate Risk.
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.
Interest rate changes do not have a significant impact on Ambac's net interest rate derivatives position at December 31, 2023. 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.
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.
For additional information about Ambac’s debt obligations, see Note 12. Long-term Debt to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K. Fixed maturity investment securities that are distressed Ambac-insured bonds have market risk characteristics that behave inversely to those associated with future financial guarantee claim payments.
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.
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. For additional information about Ambac’s investments, see Note 4. Investments in this Annual Report on Form 10-K located in Part II.
These funds are subject to equity value changes driven primarily by changes to their respective net asset value (“NAV”).
Removed
Item 8. • As of December 31, 2022, the interest rate derivatives portfolio was managed as a partial hedge against the effects of rising interest rates elsewhere in the Company, including on Ambac's financial guarantee exposures. As of December 31, 2023, the interest rate derivatives portfolio contains only legacy interest rate swaps with financial guarantee counterparties and associated hedges.
Added
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.
Removed
Changes in fair value of interest rate derivatives are recognized immediately through Net income. For additional information about Ambac’s interest rate derivatives, see Note 9.
Added
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.
Removed
Accordingly, such securities are excluded from the market risk sensitivity measures below. Financial instruments of VIEs that are consolidated as a result of Ambac financial guarantees are also excluded from Ambac's measures of market risk. Ambac’s exposure to such consolidated VIEs is generally limited to financial guarantees outstanding on the VIEs’ liabilities or assets. See Note 11.
Added
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.
Removed
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.
Added
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.
Added
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: Ambac Financial Group, Inc. 46 2024 Form 10-K Table of Contents , 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.
Added
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.
Added
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.
Added
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) Market Risk Sensitivities — Discontinued Operations Interest Rate Risk.
Added
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.

Other OSG 10-K year-over-year comparisons