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What changed in OCTAVE SPECIALTY GROUP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of OCTAVE SPECIALTY GROUP INC's 2022 and 2023 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 2023 report.

+602 added−637 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-01)

Top changes in OCTAVE SPECIALTY GROUP INC's 2023 10-K

602 paragraphs added · 637 removed · 460 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

106 edited+35 added−39 removed68 unchanged
Biggest changeXchange's main products for which it is delegated underwriting authority by insurance carriers include: Employer Stop Loss ("ESL") — provides protection for self-insured employers by serving as a reimbursement mechanism for catastrophic claims, both specific and in aggregate exceeding pre-determined levels.
Biggest changeXchange's main products for which it is delegated underwriting authority by insurance carriers include: • Employer Stop Loss ("ESL") — provides protection for self-insured employers by serving as a reimbursement mechanism for catastrophic claims, both specific and in aggregate exceeding pre-determined levels. • Limited Benefit Medical ("LM") — designed as a supplement to traditional Affordable Care Act medical programs and sold primarily through affinity groups, providing a variety of medically related benefits such as inpatient hospital stays, diagnostic services or physician visits. • Short-term Medical ("STM") — sold primarily through affinity groups, providing non Affordable Care Act comprehensive medical coverage for short durations (i.e. less than one year). • Xchange Re ("MGA/U") / Distribution Re ("Captive") — in January 2023, Xchange launched two new growth initiatives; Xchange Re an A&H reinsurance MGA/U and Distribution Re a protected cell captive insurance company domiciled in Tennessee which will mainly insure high deductible medical stop loss plans.
This underwriting focus also aides in achieving and maintaining support from the reinsurance partners. • Risk Appetite — Everspan may retain up to 30% of the risk it underwrites.
This underwriting focus also aides in achieving and maintaining support from reinsurance partners. • Risk Appetite — Everspan may retain up to 30% of the risk it underwrites.
The committee reviews and discusses, on at least a quarterly basis, reserve-related developments and key metrics and assumptions, including, but not limited to, credit, economic, interest rates, legal and regulatory. The committee gives approval to proceed with the development of loss estimates and related projections utilized in developing the consolidated quarterly reserves of the legacy financial guarantee business.
The committee reviews and discusses, on at least a quarterly basis, reserve-related developments and key metrics and assumptions, including, but not limited to, credit, economic, interest rates, legal and regulatory. The committee gives approval to proceed with the development of loss estimates and related projections utilized in developing the consolidated quarterly reserves of the Legacy Financial Guarantee Insurance business.
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 executive, 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 comprehensive diligence and monitoring of MGA/U partners from our in-house pricing actuaries, claims executives, and program managers.
Ambac's Financial Guarantee business strategy is to increase the residual value of AAC and Ambac UK with the ultimate goal of monetizing such value through (i) dividends and capital distributions while managing their active run-off; (ii) one or more reinsurance transactions or other de-risking transactions that will accelerate or enhance the ability of AAC and/or Ambac UK to pay dividends and make capital distributions; (iii) the sale of all or portions of AAC and/or Ambac UK, or (iv) other strategic transactions to accelerate and/or enhance the above-stated corporate strategy.
Ambac's Legacy Financial Guarantee Insurance business strategy is to increase the residual value of AAC and Ambac UK with the ultimate goal of monetizing such value through (i) dividends and capital distributions while managing their active run-off; (ii) one or more reinsurance transactions or other de-risking transactions that will accelerate or enhance the ability of AAC and/or Ambac UK to pay dividends and make capital distributions; (iii) the sale of all or portions of AAC and/or Ambac UK; or (iv) other strategic transactions to accelerate and/or enhance the above-stated corporate strategy.
We believe this provides a competitive advantage to the more traditional competitors in the market. | Ambac Financial Group, Inc. 6 2022 FORM 10-K Table of Contents , • 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 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.
Legacy Financial Guarantee Insurance strategic priorities include: • Actively managing, de-risking and mitigating insured portfolio risk, and pursuing recovery of previously paid losses. • Improving operating efficiency and optimizing our asset and liability profile. • Exploring strategic options to further maximize value for AFG.
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.
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, 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 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).
The United Kingdom has similar requirements applicable in respect of AFG, as the ultimate holding company of Ambac UK. Dividend Restrictions, Including Contractual Restrictions Due to contractual and regulatory restrictions, AAC has been unable to pay ordinary dividends to AFG since 2008 and will be unable to pay ordinary dividends in 2023.
The United Kingdom has similar requirements applicable in respect of AFG, as the ultimate holding company of Ambac UK. Dividend Restrictions, Including Contractual Restrictions AAC: Due to contractual and regulatory restrictions, AAC has been unable to pay ordinary dividends to AFG since 2008 and will be unable to pay ordinary dividends in 2024.
Pursuant to such guarantees, AAC and Ambac UK make payments if the obligor responsible for making payments fails to do so when due. AAC and Ambac UK wrote the last insurance policy in 2008 and have been in run-off ever since.
Pursuant to such guarantees, AAC and Ambac UK make payments if the obligor responsible for making payments fails to do so when due. AAC and Ambac UK last wrote insurance policies in 2008 and have been in run-off ever since.
Specialty Property and Casualty Insurance Everspan’s strategy as a hybrid insurer is to generate sustainable and profitable, long-term specialty property and casualty program insurance business with a focus on diverse classes of commercial and personal liability risks across an expanding roster of MGA/U partners. As a hybrid insurer Everspan may retain a percentage of the business it underwrites.
Specialty Property and Casualty Insurance Everspan’s strategy is to generate sustainable and profitable, long-term specialty property and casualty program business with a focus on diverse classes of commercial and personal liability risks across an expanding roster of MGA/U partners. As a specialty property and casualty program group. Everspan may retain a percentage of the business it underwrites.
The overall market is large as entrepreneurs and the unemployed seek options for individual insurance.
The overall market is large as entrepreneurs, the unemployed and others seek options for individual insurance.
Ambac plans to grow the 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) 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.
Further, the FSA amended Ambac UK’s license in 2010 such that the PRA must specifically approve any transfer of value and/or assets from Ambac UK to AAC or any other Ambac group company, other than in respect of certain disclosed contracts between the two parties (such as in respect of a management services agreement between AAC and Ambac UK).
Ambac UK: The FSA amended Ambac UK’s license in 2010 such that the PRA must specifically approve any transfer of value and/or assets from Ambac UK to AAC or any other Ambac group company (including dividends), other than in respect of certain disclosed contracts between the two parties (such as in respect of a management services agreement between AAC and Ambac UK).
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 9.
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.
As of December 31, 2022, the AAC and Everspan non-VIE investment portfolios had an aggregate fair value of approximately $1,816 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, 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.
Concurrent with making any such Restricted Payment, a pro rata amount of AAC's surplus notes would also need to be redeemed at par. The Stipulation and Order requires OCI approval for the payment of any dividend or distribution on the common stock of AAC.
Concurrent with making any such Restricted Payment to AFG for the payment of operating expenses, a pro rata amount of AAC's surplus notes would also need to be redeemed at par. The Stipulation and Order requires OCI approval for the payment of any dividend or distribution on the common stock of AAC.
Background and Business Description to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for more information. Such requirements could adversely impact the performance of the investment portfolio. As of December 31, 2022, the non-VIE Ambac UK investment portfolio had an aggregate fair value of approximately $574 million.
Background and Business Description to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for more information. Such requirements could adversely impact the performance of the investment portfolio. As of December 31, 2023, the non-VIE Ambac UK investment portfolio had an aggregate fair value of approximately $663 million.
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 NAIC-qualified financial institutions, to secure the reinsured risks.
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.
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 AAC Reserve Committee's objective is to provide oversight and review of the reserving process at AAC and AUK.
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 AAC Reserve Committee's objective is to provide oversight and review of the reserving process at AAC and Ambac UK.
Competition: The MGA/U insurance sector is highly competitive, and firms actively compete with Cirrata's businesses for customers and insurance carrier capacity. • The ESL market is increasing in size as large companies continue to transition from fully insured to self-funded. As the market size increases, capital is flowing into the market, but prices and margins remain stable.
Competition: The MGA/U insurance sector is highly competitive, and firms actively compete with Cirrata's businesses for customers and insurance carrier capacity. • The ESL market is increasing in size as large companies continue to transition from fully insured to self-funded. As the market size increases, capital is flowing into the market, making prices and margins competitive.
Strategies to Enhance Shareholder Value The Company's primary goal is to maximize long-term shareholder value through the execution of key strategies for its (i) Specialty Property and Casualty Insurance and Insurance Distribution businesses and (ii) Legacy Financial Guarantee Insurance.
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.
This unique flexibility lends itself to providing specialist solutions for unique risks, which has driven meaningful growth within the E&S market over the last decade, which has exceeded the growth rate of the Admitted market.
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.
The following graph shows our reinsurance carriers' AM Best rating based on share of ceded premium for the year ending December 31, 2022: (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.
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.
Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K), risk remediation or loss mitigation plans are developed and implemented that may include actions such as working with the issuer, trustee, bond counsel, servicer and other interested parties in an attempt to remediate the problem and minimize AAC’s exposure to potential loss.
Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K), risk remediation or loss Ambac Financial Group, Inc 4 2023 Form 10-K Table of Contents , mitigation plans are developed and implemented that may include actions such as working with the issuer, trustee, bond counsel, servicer and other interested parties in an attempt to remediate the problem and minimize Ambac’s exposure to potential loss.
Examples of other such risks that could impact our portfolio, and that our surveillance is designed to monitor include the impact of potential municipal bankruptcy contagion, the impact of tax reform on state and municipal bond issuers, the impact of large scale domestic military cutbacks on our privatized military housing portfolio and event risk such as pandemics (e.g., COVID-19), natural disasters or other regional stresses.
Examples of other such risks that could impact our portfolio, and that our surveillance is designed to monitor include the impact of potential municipal bankruptcy contagion, the impact of large-scale domestic military spending or troop level cutbacks on our privatized military housing portfolio and event risk such as pandemics (e.g., COVID-19), natural disasters or other regional stresses.
Members of the Reserve Committee include the CEO, Head of Risk Management, CFO, General Counsel and senior managers throughout risk, legal and finance. • Everspan established an Underwriting Risk Committee in 2021 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 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.
Under the terms of AAC’s AMPS, dividends may not be paid on the common stock of AAC unless all accrued and unpaid dividends on the AMPS for the then current dividend period have been paid, provided that dividends on the common stock may be made at all times for the purpose of, and only in such amounts as are necessary for, enabling AFG (i) to service its indebtedness for borrowed money as such payments become due or (ii) to pay its operating expenses.
Under the terms of AAC’s AMPS, dividends may not be paid on the common stock of AAC unless all accrued and unpaid dividends on the AMPS for the then current dividend period Ambac Financial Group, Inc 11 2023 Form 10-K Table of Contents , have been paid, provided that dividends on the common stock may be made at all times for the purpose of, and only in such amounts as are necessary for, enabling AFG (i) to service its indebtedness for borrowed money as such payments become due or (ii) to pay its operating expenses.
AFG, on a standalone basis, had $223 million in net assets (excluding its investment in subsidiaries) and net operating loss carry-forwards of $3,454 million ($1,824 million of which is allocated to AAC) at December 31, 2022. See Schedule II for more information on the holding company.
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.
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.
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.
AAC’s ability to pay dividends to AFG has also been significantly restricted by the deterioration of AAC’s financial condition and by regulatory, legal and contractual restrictions. Substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends, which constrains AFG's liquidity.
AAC’s ability to pay dividends to AFG has also been significantly restricted by AAC’s financial condition and by regulatory, legal and contractual restrictions. Substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends, which constrains AFG's liquidity. Refer to "Dividend Restrictions, Including Contractual Restrictions" below and to Note 8.
Specialty Property and Casualty Insurance and Insurance Distribution strategic priorities include: • Growing a Specialty Property and Casualty Insurance business which generates underwriting profits and an attractive return on capital from a diversified portfolio of commercial and personal liability risks accessed through program administrators. • Building an Insurance Distribution business based on deep domain knowledge in specialty and niche classes of risk which generate attractive margins at scale.
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.
The Risk Management Group ("RMG") is primarily responsible for the development, implementation and oversight of loss mitigation strategies, surveillance and remediation of the insured financial guarantee portfolio (including through the pursuit of recoveries in respect of paid claims and commutations of policies).
The Risk Management Group ("RMG") is primarily responsible for the management of the insured financial guarantee portfolio, including Surveillance and Risk Remediation (including through the pursuit of recoveries in respect of paid claims and commutations of policies).
Everspan's management team has significant years of experience in the program insurance business and has long-standing and broad relationships with MGA/Us, reinsurers, brokers, producers and third-party claims administrators ("TPAs"). Everspan sources business through program administrators and managing general agents, reinsurers, brokers, producers and others. Everspan is developing long-term relationships with its distribution partners.
Everspan's management team has significant years of experience in the program insurance and reinsurance sectors and has long-standing and broad relationships with MGA/Us, reinsurers, brokers, producers and third-party claims administrators ("TPAs"). Everspan sources business through program administrators and managing general agents, reinsurers, brokers, producers and others.
Subject to Everspan's operational oversight, Everspan engages these third parties to market and administer policies and handle claims within defined authorities on Everspan's behalf. Everspan is focused on generating strong underwriting results and program fee income from its participatory fronting business model.
Subject to Everspan's operational oversight, Everspan engages these third parties to market and administer policies and handle claims within defined authorities on Everspan's behalf. Everspan is focused on generating strong underwriting results and stable fee income as part of its specialty program business model.
The execution of Ambac’s strategy to increase and monetize the residual value of AAC is subject to significant risk as well as the restrictions set forth in the Settlement Agreement, dated as of June 7, 2010 (the "Settlement Agreement"), by and among AAC, Ambac Credit Products LLC ("ACP"), AFG and certain counterparties to credit default swaps with ACP that were guaranteed by AAC, as well as the Stipulation and Order among the Office of the Commissioner of Insurance for the State of Wisconsin (“OCI”), AFG and AAC that became effective on February 12, 2018, as amended (the “Stipulation and Order”), each of which requires OCI and, under certain circumstances, holders of the debt instruments benefiting from such restrictions, to approve certain actions taken by or in respect of AAC.
The execution of Ambac’s strategy to increase and monetize the value of its investment in AAC is subject to the restrictions set forth in the Settlement Agreement, dated as of June 7, 2010, as amended (the "Settlement Agreement"), by and among AAC, Ambac Credit Products LLC ("ACP"), AFG and certain counterparties to credit default swaps with ACP that were guaranteed by AAC, as well as the Stipulation and Order among the OCI, AFG and AAC that became effective on February 22, 2024 (the “Stipulation and Order”), replacing the Stipulation and Order that became effective on February 12, 2018, as amended (the “2018 Stipulation and Order”), each of which requires the Office of the Commissioner of Insurance for the State of Wisconsin ("OCI") and, under certain circumstances, holders of surplus notes, to approve certain actions taken by or in respect of AAC.
Most of these entities have both admitted and E&S carriers. Competition may take the form of lower ceding fees, broader coverages, greater product flexibility, higher coverage limits, greater customer service or higher financial strength ratings by independent rating agencies. Few barriers exist to prevent existing insurers from entering target markets within the property and casualty industry.
Competition may take the form of lower program fees, broader coverages, greater product flexibility, higher coverage limits, greater customer service or higher financial strength ratings by independent rating agencies. Few barriers exist to prevent existing insurers from entering target markets within the property and casualty industry.
The following table provide certain information concerning the consolidated investments of Ambac: 2022 2021 Investment Category ($ in millions) December 31, Carrying Value (2) Weighted Average Yield (1) Carrying Value (2) Weighted Average Yield 1) Municipal obligations $ 43 4.6 % $ 340 5.3 % Corporate securities 598 2.6 % 613 2.2 % Foreign obligations 76 1.5 % 87 0.5 % U.S. government obligations 65 1.9 % 60 1.0 % Residential mortgage-backed securities 238 8.3 % 252 7.3 % Commercial mortgage-backed securities 15 5.5 % — — % Asset-backed securities 361 7.0 % 393 5.0 % Short-term investments 572 4.0 % 519 — % Total fixed maturity-available-for-sale 1,966 4.4 % 2,265 2.9 % Fixed maturity securities - trading (3) 59 — % — — % Other investments (4) 568 — % 690 — % Total $ 2,593 4.4 % $ 2,955 2.9 % (1) Yields are stated on a pre-tax basis, based on average amortized cost for both long and short term fixed-maturity investments.
The 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.
Ambac UK’s investment portfolio is primarily diversified fixed maturity securities and pooled investment funds. The portfolio is subject to internal investment guidelines and may be subject to limits on types and quality of investments imposed by its regulator.
Ambac UK’s investment portfolio is primarily diversified fixed maturity securities and pooled investment funds. The portfolio is subject to internal investment guidelines and may be subject to limits on types and quality of investments imposed by its regulator. The Board of Directors of Ambac UK approves any changes or exceptions to Ambac UK’s investment policy.
The key contractual provisions include, but are not limited to, those relating to ceding commissions, fronting fees, required reports to reinsurers, responsibility for taxes, arbitration in the event of a dispute and Everspan's termination rights when, among other triggers, a reinsurer defaults (such as by failing to collateralize its obligations when required) or its financial strength falls below an agreed level.
The key contractual provisions include, but are not limited to, those relating to the scope of business reinsured, ceding commissions, required reports to reinsurers, dispute resolution, any required collateral, and Everspan's termination rights when, among other triggers, a reinsurer defaults (such as by failing to collateralize its obligations when required) or its financial strength falls below an agreed level.
Ratings are an important factor in assessing Everspan’s competitive position, operation capabilities and risk management in the insurance industry. | Ambac Financial Group, Inc. 7 2022 FORM 10-K Table of Contents , Insurance Distribution Ambac’s Insurance Distribution business, Cirrata Group ("Cirrata"), has a strategy to build a diversified portfolio of MGA/Us covering various P&C products.
Ratings are an important factor in assessing Everspan’s competitive position, operation capabilities and risk management in the insurance industry. Insurance Distribution Ambac’s Insurance Distribution business, Cirrata Group ("Cirrata"), has a strategy to build a diversified portfolio of MGA/Us and other insurance distributors covering various P&C products.
All Trans' track record of performance has allowed the company to maintain a consist panel of insurance carriers with several of the relationships going back over 25 years. Capacity Marine — Effective November 1, 2022, Ambac acquired a controlling interest in 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 — Effective November 1, 2022, Ambac acquired an 80% controlling interest in Capacity Marine Corporation ("Capacity Marine").
Decisions to approve or reject ACWs are made by AAC’s and Ambac UK’s risk management groups based upon certain credit factors, such as the issuer’s ability to repay the bonds and the bond’s security features and structure.
Decisions to approve or reject ACWs are made by AAC’s and Ambac UK’s risk management groups based upon certain credit factors, such as the issuer’s ability to repay the bonds and the bond’s security features and structure. P&C Industry Overview We operate within the $875 billion U.S.
First, carrier partners are looking for both underwriting expertise and distribution access when working with MGA/Us. In addition the quality of distribution relationships helps in allowing our MGA/Us access to higher quality risks from the wholesale and retail agents which we believe over time will help produce better underwriting results..
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..
This will be achieved through acquisitions, new business “de-novo” formation and incubation, and product expansion 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, 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.
All Trans competes with Lancer insurance, National Interstate, Utica, RLI and various other MGA/U companies. ENTERPRISE RISK MANAGEMENT The Company's policies and procedures relating to risk assessment and risk management are overseen by its Board of Directors.
All Trans competes with Lancer insurance, National Interstate, Utica, RLI and various other MGA/U companies. • In professional liability markets, overall market conditions remain stable. Riverton competes with RLI, CNA, Hartford and various other MGA/U companies. ENTERPRISE RISK MANAGEMENT The Company's policies and procedures relating to risk assessment and risk management are overseen by its Board of Directors.
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.
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.
The Board of Directors receives quarterly updates from Board committees and the Board provides guidance to individual committee activities, as appropriate. | Ambac Financial Group, Inc. 9 2022 FORM 10-K Table of Contents , 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 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.
This alignment of interest and strategic vision allows Everspan to leverage resources across the Company and access capital for future initiatives. Competition: Everspan faces competition from program business market participants such as Accelerant Specialty, Accredited America, Benchmark Insurance Company, Clear Blue Insurance Group, Core Specialty, Falls Lake Insurance, Fortegra Insurance Group, Obsidian, Spinnaker, State National, Transverse Insurance Group, and Trisura.
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.
(2) Includes investments guaranteed by AAC and Ambac UK ("Ambac insured"). Refer to Note 5. 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.
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.
In 2022, Cirrata hired two business leaders with plans to launch MGA/Us in 2023. 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 paid by the insured.
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.
Ambac’s succession planning has identified internal candidates that could fill executive management and senior management positions as the need arises. The Company has established a senior advisory team to work with, and advise, executive management on key initiatives, and has invested in both personal and professional growth programs to identify and prepare individuals for promotion within the Company.
The Company has established a senior advisory team to work with, and advise, executive management on key initiatives, and has invested in both personal and professional growth programs to identify and prepare individuals for promotion within the Company.
Risk is shared among the Everspan carriers via a reinsurance agreement and an intercompany pooling agreement (the "Everspan Pool"). We view this rating and financial size category as a competitive advantage in the marketplace.
Ratings: Everspan carriers have an AM Best financial strength ratings ("FSR") of 'A-' (Excellent) and Financial Strength Category of Class VIII. Risk is shared among the Everspan carriers via a reinsurance agreement and an intercompany pooling agreement (the "Everspan Pool"). We view this rating and financial size category as a competitive advantage in the marketplace.
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. In 2022 we reviewed over 180 submissions and agreed to contract with nine MGA/Us.
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.
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.
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.
AFS also maintains a few interest rate derivatives with legacy financial guarantee customers, the exposure to which is fully hedged. Ambac manages a variety of risks inherent in its businesses, including credit, market, liquidity, operational and legal. These risks are identified, measured, and monitored through a variety of control mechanisms, which are in place at different levels throughout the organization.
Ambac manages a variety of risks inherent in its businesses, including credit, market, liquidity, operational and legal. These risks are identified, measured, and monitored through a variety of control mechanisms, which are in place at different levels throughout the organization.
All investments are made in accordance with the general objectives, policies, and guidelines for investments approved by the Board of Directors of the applicable subsidiary. These policies and guidelines include liquidity, credit quality, diversification and duration objectives and are periodically reviewed and revised as appropriate. Additionally, senior credit personnel monitor the portfolio on a continuous basis.
Investments are primarily managed by third party investment management firms overseen internally. All investments are made in accordance with the general objectives, policies, and guidelines for investments approved by the Board of Directors of the applicable subsidiary. These policies and guidelines include liquidity, credit quality, diversification and duration objectives and are periodically reviewed and revised as appropriate.
Refer to "Dividend Restrictions, Including Contractual Restrictions" below and to Note 9. Insurance Regulatory Restrictions to the Consolidated Financial Statements included in this Annual Report on Form 10-K, for more information on dividend payment restrictions. Interest rate derivative transactions are executed through AFS, a wholly-owned subsidiary of AAC.
Insurance Regulatory Restrictions to the Consolidated Financial Statements included in this Annual Report on Form 10-K, for more information on dividend payment restrictions. Interest rate derivative transactions were executed through AFS, a wholly-owned subsidiary of AAC. All remaining interest rate derivative positions, which are substantially economically hedged, relate to legacy financial guarantee customer swaps.
AAC’s ability to pay dividends is restricted by the Settlement Agreement, the Stipulation and Order and the terms of its Auction Market Preferred Shares ("AMPS"), and may be affected by OCI's Runoff Capital Framework when implemented. See Note 9.
AAC’s ability to pay dividends is restricted by the Settlement Agreement, the Stipulation and Order and the terms of its AMPS. OCI's decisions regarding dividends will be guided by OCI's Runoff Capital Framework. See Note 8.
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.
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.
Formal plans or transactions that relate to risk remediation, loss mitigation or restructuring may also require AAC Risk Committee approval, as described below in the section entitled, "Enterprise Risk Management." Control Rights In certain domestic and international structured finance transactions, structured public finance transactions, public-private partnerships and other transactions, AAC and Ambac UK may be the control party as a result of insuring a transaction’s senior class or tranche of debt obligations.
Control Rights In certain domestic and international structured finance transactions, structured public finance transactions, public-private partnerships and other transactions, AAC and Ambac UK may be the control party as a result of insuring a transaction’s senior class or tranche of debt obligations.
P&C insurance is a cyclical industry with opportunistic players entering and exiting the business. We believe that growing multi-year carrier relationships are evidence of the value created by our MGA/U, a value which we believe should sustain through routine market cycles. • Strong distribution relationships — Distribution relationships provide value in several ways.
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.
Both AAC and Ambac UK are financial guarantee insurance companies that have been in run-off, having not underwritten any new business since 2008. AFS uses interest rate derivatives to hedge interest rate risk in AAC's insurance and investment portfolios. • Specialty Property and Casualty Insurance — Ambac's Specialty Property and Casualty Insurance program business.
Both AAC and Ambac UK are financial guarantee insurance companies that have been in run-off, having not underwritten any new business since 2008.
A summary of developments regarding adversely classified credits and credit trends is also provided to AFG’s, AAC’s and Ambac UK's Boards of Directors no less than quarterly. Ambac assigns internal credit ratings to individual exposures as part of the surveillance process.
Watchlist and Adversely Classified Credits Watch list and adversely classified credits are tracked closely and are discussed as part of scheduled RMG credit meetings. A summary of developments regarding adversely classified credits and credit trends is also provided to AFG’s, AAC’s and Ambac UK's Boards of Directors no less than quarterly.
Reasons to terminate a relationship include an inability to produce targeted underwriting results, writing exposures outside of agreed upon risk tolerances, delinquency in meeting reporting requirements, a change of strategic direction, or failure to meet collateral or other commitments to Everspan. Ratings: Everspan carriers have an AM Best FSR of 'A-' (Excellent) and Financial Strength Category of Class VIII.
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.
The following table sets forth our Premiums Placed by line of business: ($ in millions) Year ended December 31, 2022 2021 Premiums placed by line of business: Employee stop loss $ 72 $ 71 Limited and Short-term medical 48 45 Commercial auto 11 — Other 4 2 Premiums placed $ 135 $ 117 Cirrata's portfolio at December 31, 2022 includes the following entities: Xchange — On December 31, 2020, Ambac acquired a controlling interest in Xchange.
The following table sets forth Cirrata's premiums placed by line of business: ($ in millions) Year ended December 31, 2023 2022 Employee stop loss $ 76 $ 72 Limited & short-term medical 54 48 Commercial auto 62 11 Marine 19 1 Professional liability 12 — Other 6 4 Premiums placed $ 231 $ 135 Cirrata's portfolio at December 31, 2023, includes the following entities: Xchange — Ambac owns an 80% controlling interest in Xchange Benefits, LLC ("Xchange").
The Governance and Nominating Committee also performs oversight of the business ethics and compliance program, and reviews compliance with Ambac’s Code of Business Conduct. • The Strategy Committee oversees the management of risk and risk appetite primarily with respect to strategic plans and initiatives.
The Governance and Nominating Committee also performs oversight of the business ethics and compliance program, and reviews compliance with Ambac’s Code of Business Conduct. • The Strategy Committee oversees the management of strategic plans and initiatives. The Board of Directors receives quarterly updates from Board committees and the Board provides guidance to individual committee activities, as appropriate.
Additionally, AAC and Ambac UK are actively managing their regulatory frameworks and seeking to optimize capital allocation in a complex insured portfolio that includes long duration obligations.
Their ability to remediate risk and commute policies may be limited by available liquidity. Additionally, AAC and Ambac UK are actively managing their regulatory frameworks and seeking to optimize capital allocation in complex insured portfolios that include long duration obligations.
Additionally, Everspan conducts underwriting, claims and accounting audits, generally on-site, at least once a year for MGA/U and TPA partners which administer a material amount of Everspan's business. Everspan maintains the right to terminate relationships with its MGA/Us and TPAs.
Additionally, Everspan conducts underwriting, claims and accounting audits, generally on-site, at least once a year for MGA/U and TPA partners which administer a material amount of Everspan's business. Everspan determines whether it will continue to participate on a program no less than annually, generally at the anniversary date of the program.
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.
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 underwritten through Ambac's MGA/Us may utilize Everspan as an insurance carrier, but will not be required to do so, depending on strategic and operational considerations. The Insurance Distribution business derives its revenues from commissions, fees, and other non-risk bearing means of compensation.
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.
AAC and Ambac UK have been reducing risk within their insured portfolios and focusing on exposures to financially stressed municipal entities and asset- | Ambac Financial Group, Inc. 2 2022 FORM 10-K Table of Contents , backed securities as well as large and concentrated exposures.
AAC and Ambac UK have been reducing risk within their insured portfolios focusing on exposures to financially stressed insured exposures as well as large and concentrated exposures.
Cirrata's newly formed MGA/Us are not expected to make regular distributions to their owners until they become profitable. INVESTMENTS AND INVESTMENT POLICY As of December 31, 2022, the consolidated non-VIE investments of Ambac had an aggregate fair value of approximately $2,593 million. Investments are primarily managed by third party investment management firms overseen by internal investment professionals.
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.
This is a particularly useful vehicle for P&C insurers as MGA/Us tend to participate in the E&S market where specialized expertise is needed to underwrite policies. Additionally, MGA/Us are cost effective means for an insurer or reinsurer to access or grow a particular class of business they find attractive given the MGA/U already possesses product expertise and distribution capabilities.
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.
Early termination of AFS’s derivatives could result in losses. AFS has borrowed cash and securities from AAC to help support its collateral and margin posting requirements, termination payments and other cash needs.
AFS continues to be required to post collateral in excess of the market value of certain interest rate derivatives when they are in a mark-to-market loss position. While not anticipated, early termination of AFS’s derivatives could result in losses. AFS has borrowed cash and securities from AAC to help support its collateral and margin posting requirements and other cash needs.
This knowledge is key to generating the underwriting results necessary to maintain long-standing carrier relationships. | Ambac Financial Group, Inc. 8 2022 FORM 10-K Table of Contents , • Long standing carrier relationships — Our MGA/Us strive towards long and durable carrier relationships supported by a focus on underwriting profitability.
This knowledge is key to generating the underwriting results necessary to maintain long-standing carrier relationships. • Long standing carrier relationships — Our MGA/Us strive towards long and durable carrier relationships supported by a focus on underwriting profitability. P&C insurance is a cyclical industry with opportunistic players entering and exiting the business.
Analysts perform periodic credit reviews of insured exposures according to a schedule based on the risk profile of the guaranteed obligations or as necessitated by specific credit events or other macro-economic variables. Risk-adjusted surveillance strategies have been developed for each bond type with review periods and scope of review based upon each bond type’s risk profile.
Additionally, Surveillance evaluates the impact of changes in the economic, regulatory or political environment on the insured portfolio. Analysts perform periodic credit reviews of insured exposures according to a schedule based on the risk profile of the guaranteed obligations or as necessitated by specific credit events or other macro-economic variables.
The risk profile is assessed regularly in response to our own experience and judgments or external factors such as the economic environment and industry trends. The focus of a credit review is to assess performance, identify credit trends and recommend credit classifications, ratings and changes to a transaction or bond type’s review period and surveillance requirements.
The focus of a credit review is to assess performance, identify credit trends and recommend credit classifications, ratings and changes to a transaction or bond type’s review period and surveillance requirements. Please refer to Note 2.
Our ability to execute certain risk management activities may be limited by the restrictions set forth in the Settlement Agreement and the Stipulation and Order and other constraints, potentially including OCI's Runoff Capital Framework. See Note 1. Background and Business Description to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information.
Our ability to execute certain risk management activities may be limited by the restrictions set forth in the Settlement Agreement and the Stipulation and Order, among other constraints. To the extent OCI's approval is required in connection with risk management activities, OCI's decisions may be guided by OCI's Runoff Capital Framework. See Note 1.
All Trans — Effective November 1, 2022, Ambac acquired a controlling interest in All Trans. All Trans is a full service managing general underwriter with delegated underwriting authority in commercial automobile insurance for specific "for-hire" auto classes, specifically focused on the private school bus, motor coach, and livery operators.
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe 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. | Ambac Financial Group, Inc. 19 2022 FORM 10-K Table of Contents , If actual claims exceed claims and claim adjustment expense reserves for Everspan, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal/ tort, regulatory and economic environments in which Everspan operates, our financial results could be materially and adversely affected.
Biggest changeIf actual claims exceed loss and loss adjustment expense reserves for Everspan, or if changes in the estimated level of loss and loss adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal/ tort, regulatory and economic environments in which Everspan operates, our financial results could be materially and adversely affected.
At the inception of a new program, Everspan acts as an issuing carrier and reinsures a majority of such risk to third parties in contracts that are generally subject to term limitations or termination rights.
At the inception of a new program, Everspan generally acts as an issuing carrier and reinsures a majority of such risk to third parties in contracts that are generally subject to term limitations or termination rights.
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.
In addition to our own confidential information, we and our our vendors and contractual counterparties sometimes receive and are required to protect confidential information obtained from third parties (including us in the case of a vendor or contractual counterparty) and personally identifiable information of individuals.
In addition to our own confidential information, we and our vendors and contractual counterparties sometimes receive and are required to protect confidential information obtained from third parties (including us in the case of a vendor or contractual counterparty) and personally identifiable information of individuals.
The FSR reflects AM Best’s opinion of Everspan's financial strength, operating performance, strategic position and ability to meet obligations to policyholders, and are not evaluations directed to investors. Everspan's FSR is subject to periodic review, and the criteria used in the rating methodologies are subject to change. All of the insurance companies that comprise Everspan Group are rated "A-" (Excellent).
The FSR reflects AM Best’s opinion of Everspan's financial strength, operating performance, strategic position and ability to meet obligations to policyholders, and are not evaluations directed to investors. Everspan's FSR is subject to periodic review, and the criteria used in the rating methodologies are subject to change. All of the insurance companies that comprise Everspan are rated "A-" (Excellent).
While we expect to conduct business, financial and legal due diligence in connection with the evaluation of any future business or acquisition opportunities, there can be no assurance our due diligence investigations will identify every matter that could have a material adverse effect on us.
While we expect to conduct business, financial and legal due diligence in connection with the evaluation of any future business or acquisition opportunities, there can be no assurance our due diligence will identify every matter that could have a material adverse effect on us.
Any such outcomes could have a material adverse impact on the value of AFG's shares. A downgrade in the AM Best financial strength rating of Everspan may negatively affect our business. The financial strength of Everspan is evaluated by AM Best, which issues a financial strength ratings ("FSR"), an important factor in establishing the competitive position of Everspan.
Any such outcomes could have a material adverse impact on the value of AFG's shares. A downgrade in the AM Best financial strength rating of Everspan may negatively affect our business. The financial strength of Everspan is evaluated by AM Best, which issues a "FSR, an important factor in establishing the competitive position of Everspan.
Among other things, Ambac UK may not write any new business, and, with respect to any entity within the Ambac group of affiliates, commute, vary or terminate any existing financial guaranty policy, transfer certain assets, or pay dividends, without the prior approval of the PRA and FCA.
Among other things, Ambac UK may not write any new business, and, with respect to any entity within the Ambac group of affiliates, commute, vary or terminate any existing financial guaranty policy, transfer certain assets, or pay dividends, without the prior approval of the PRA.
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 operation and financial condition may be adversely affected by conditions that result in reduced insurer capacity.
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.
The objective of establishing loss reserve estimates is not to, and our loss reserves do not, reflect the worst possible outcomes. While our reserving scenarios reflect a wide range of possible outcomes (on a probability weighted basis), reflecting the significant uncertainty regarding future developments and outcomes, our loss reserves may change materially based on future developments.
The objective of establishing loss reserve estimates is not to, and our loss reserves do not, reflect the worst possible outcomes. While our reserving scenarios reflect a wide range of possible outcomes (on a probability weighted basis), reflecting the uncertainty regarding future developments and outcomes, our loss reserves may change materially based on future developments.
Risks Related to Capital, Liquidity and 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.
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.
The ultimate impact of a catastrophic public health event or a catastrophic environmental event on issuers and their obligations, and the economy in general, is by its very nature uncertain, and will be determined by a number of factors including, but not limited to, the depth and duration of a particular crisis; the extent to which affected consumers, businesses, municipal entities and other debtors or sources of revenues recover from depressed economic circumstances, and the timelines for such recoveries; the level and efficacy of government intervention or support for municipal entities, consumers, businesses and the financial markets via emergency relief measures; the availability of insurance; the availability of cost-effective financing; management of public health crisis remediation efforts; the effectiveness of other public or private crisis management efforts, mitigation measures or support; and certain socio-economic variables, such as unemployment levels.
The ultimate impact of a catastrophic event on insurers and their obligations, and the economy in general, is by its very nature uncertain, and will be determined by a number of factors including, but not limited to, the depth and duration of a particular crisis; the extent to which affected consumers, businesses, municipal entities and other debtors or sources of revenues recover from depressed economic circumstances, and the timelines for such recoveries; the level and efficacy of government intervention or support for municipal entities, consumers, businesses and the financial markets via emergency relief measures; the availability of insurance; the availability of cost-effective financing; management of public health crisis remediation efforts; the effectiveness of other public or private crisis management efforts, mitigation measures or support; and certain socio-economic variables, such as unemployment levels.
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 with a transition, 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 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 .
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 20.
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.
This or similar types of emergency responses to future events may cause Ambac to experience higher losses in its insured portfolio. Future environmental or other public health events and natural disasters can result in significant potential liabilities for issuers, that increase the potential for default on obligations insured by AAC and Ambac UK.
These or similar types of emergency responses to future events may cause Ambac to experience higher losses in its insured portfolio. Future environmental or other public health events and natural disasters can result in significant potential liabilities for issuers, that increase the potential for default on obligations insured by AAC and Ambac UK.
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 FG portfolio.
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.
Such events could have a material adverse impact on the value of AFG's shares. Everspan is in the early stage of the specialty insurance program business. Its business plan entails establishing programs with program administrators, managing general agents and managing general underwriters ("MGA/Us"), with claims handled by TPAs.
Such events could have a material adverse impact on the value of AFG's shares. Everspan is in the early stage of developing a portfolio of specialty insurance program business. Its business plan entails establishing programs with program administrators, managing general agents and managing general underwriters ("MGA/Us"), with claims handled by TPAs.
Even though t he MGA/Us and TPAs with which Everspan transacts may be required to indemnify Everspan for any such liability or monetary losses, there are risks for which indemnity may be insufficient or entirely unavailable if, for example, the relevant program partner becomes insolvent or is otherwise unable to pay us.
Even though the MGA/Us and TPAs with which Everspan transacts may be required to indemnify Everspan for any such liability or monetary losses, there are risks for which indemnity may be insufficient or entirely unavailable if, for example, the relevant program partner becomes insolvent or is otherwise unable to pay us.
AAC's ability to satisfy all of its obligations that are senior to AFG's equity depends on a number of considerations, including its ability to partially or fully recover losses previously paid; avoid material losses from litigation, mitigate losses from its insured portfolio, which is subject to significant risks and uncertainties, including as a result of varying potential perceptions of the value of AAC’s guarantees and securities; realize material value from its investment in Ambac UK; and repay its indebtedness in a timely manner such that accruing interest costs are manageable.
AAC's ability to satisfy all of its obligations that are senior to AFG's equity depends on a number of considerations, including its ability to recover losses previously paid; avoid material losses from litigation; mitigate losses from its insured portfolio, which is subject to significant risks and uncertainties, including as a result of varying potential perceptions of the value of AAC’s guarantees and securities; realize material value from its investment in Ambac UK; and repay and/or restructure its indebtedness in a timely manner such that accruing interest costs are manageable.
If Everspan does not effectively and timely source, evaluate and onboard new MGA/Us, including assisting such MGA/Us to quickly resolve any post-onboarding matters and provide effective ongoing support, Everspan's ability to add new MGA/Us and its relationships with its existing Program Ppartners could be adversely affected.
If Everspan does not effectively and timely source, evaluate and onboard new MGA/Us, including assisting such MGA/Us to quickly resolve any post-onboarding matters and provide effective ongoing support, Everspan's ability to add new MGA/Us and its relationships with its existing Program Partners could be adversely affected.
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 operation. 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 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.
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 assumed to reinsurance companies in exchange for part of the premium they receive in connection with the risk.
Their reinsurers may not pay on losses in a timely fashion, or at all. Our insurance carrier subsidiaries purchase reinsurance to transfer part of the risk they have underwritten to reinsurance companies in exchange for part of the premium they receive in connection with the risk.
Revenues and cash flow will be adversely impacted by a decline in realization of installment premiums. A significant percentage of our FG 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 our LFG premium revenue is attributable to installment premiums. The amount of installment premiums we collect is declining along with the insured portfolio.
Variations in commission income that results from the timing of policy renewals and the net effect of new and lost business production may have unexpected effects on our results of operation. Commission income can vary quarterly or annually due to the timing of policy renewals and the net effect of new and lost business production.
Variations in commission income that results from the timing of policy renewals and the net effect of new and lost business production may have unexpected effects on our results of operations. Commission income can vary quarterly or annually due to the timing of policy renewals and the net effect of new and lost business production.
In addition, we are exposed to correlation risk as a result of the possibility that multiple credits may concurrently and/or consecutively experience losses or increased stress as a result of any such event or series of events.
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.
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.
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.
Federal government and State governments and their agencies adopted policies or guidelines to provide emergency relief to consumers, such as limiting debt collection efforts, encouraging or requiring extensions, modifications or forbearance with respect to certain loans and fees, and establishing foreclosure and eviction moratoriums.
Federal government and State governments and their agencies may adopt policies or guidelines to provide emergency relief to consumers, such as limiting debt collection efforts, encouraging or requiring extensions, modifications or forbearance with respect to certain loans and fees, and establishing foreclosure and eviction moratoriums.
Decreasing interest rates could result in early terminations of FG insurance policies in respect of which AAC and Ambac UK are paid on an installment basis and do not receive a termination premium, thus reducing premium earned for these transactions.
Decreasing interest rates could result in early terminations of financial guarantee insurance policies in respect of which AAC and Ambac UK are paid on an installment basis and do not receive a termination premium, thus reducing premium earned for these transactions.
The price of the shares may decline substantially in response to a number of events or circumstances, including but not limited to: • adverse developments in our financial condition or results of operations; • changes in the actual or perceived risk within our Legacy Financial Guarantee ("LFG") insured portfolio; • changes to regulatory status; • changes in investors’ or analysts’ valuation measures for our stock; | Ambac Financial Group, Inc. 13 2022 FORM 10-K Table of Contents , • 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, 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 and 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 polices and depress the value and/or liquidity of our investments and other assets; and • results and actions of other participants in our industries.
The price of the shares may decline substantially in response to a number of events or circumstances, including but not limited to: • adverse developments in our financial condition or results of operations; • changes in the actual or perceived risk within our 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.
Ambac UK is required to meet certain minimum capital requirements under applicable regulatory capital rules ("Solvency II"). Ambac UK exceeded the required capital thresholds as of December 31, 2022.
Ambac UK is required to meet certain minimum capital requirements under applicable regulatory capital rules ("Solvency II"). Ambac UK exceeded the required capital thresholds as of December 31, 2023 .
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 these or other proceedings.
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.
If we are unable to compete effectively in the markets in which our specialty property and casualty insurance and managing general agency/underwriting 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. Impairment of intangible assets and goodwill, resulting from acquisitions, could adversely affect our results of operations.
Municipalities and their authorities, agencies and instrumentalities, especially those dependent on narrow revenue streams flowing from particular economic activities, such as sales taxes, may suffer disproportionately, from depressed revenues due to the lingering negative economic impact brought about by such events. Notably, in response to the COVID-19 pandemic, the U.S.
Municipalities and their authorities, agencies and instrumentalities, especially those dependent on narrow revenue streams flowing from particular economic activities, such as sales taxes, may suffer disproportionately, from depressed revenues due to the lingering negative economic impact brought about by such events. In response to such events, the U.S.
In connection with Ambac’s acquisition of certain insurance carriers and insurance distribution businesses (MGA/U 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.
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.
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 22 Risks Related to Financial and Credit Markets 24 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 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.
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. Risks Related to the Financial and Credit Markets 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. Changes in prevailing interest rate levels and market conditions could adversely impact our business results and prospects.
Our ability to grow Everspan will depend in part on the addition of new Program Partners, and our inability to effectively onboard such new Program Partners could have an adverse effect on our business, financial condition and results of operations. Our ability to grow Everspan will depend in part on the addition of new MGAUs.
Our ability to grow Everspan will depend in part on the addition of new Program Partners, and our ability to effectively onboard such new Program Partners could have an adverse effect on our business, financial condition and results of operations. Our ability to grow Everspan will depend in part on the addition of new MGA/Us.
Furthermore, any failure to properly handle the marketing, underwriting, claims administration and servicing of policies in our Specialty Property and Casualty Insurance business could also create regulatory issues or harm our reputation, which could materially a nd adversely affect our business, financial condition and results o f operations.
Furthermore, any failure to properly handle the marketing, underwriting, administration and servicing of policies in our Specialty Property and Casualty Insurance business could also create regulatory issues or harm our reputation, which could materially and adversely affect our business, financial condition and results of operations.
Realization of such expected recoveries is subject to various risks and uncertainties, including the rights and defenses of other parties with interests that conflict with AAC’s interests, the performance of the collateral and assets backing the obligations that AAC insures, and the performance of servicers involved in securitizations in which AAC participates as insurer.
Realization of such expected recoveries is subject to various risks and uncertainties, including the rights and defenses of other parties with interests that conflict with AAC’s interests, the performance of the collateral and assets backing the obligations that AAC insures, the performance of servicers involved in securitizations in which AAC participates as insurer, as well as numerous regulatory, legal and compliance considerations and risks.
Government shutdowns, trade disputes, political turnover, judicial decisions, adverse changes in federal funding, or poor public policy decision making could disrupt the national and local economies where we have insured financial guarantee 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 we have insured exposures.
Performance of our insured FG 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 | Ambac Financial Group, Inc. 15 2022 FORM 10-K Table of Contents , 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, 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.
An inability to obtain third-party debt financing or raise additional third-party capital, when required by us or when business conditions warrant, could have a material adverse effect on our business, financial condition and results of operations.
An inability to obtain third-party debt financing or raise additional third-party capital, when required by us or when business conditions warrant, could have a material adverse effect on our business, financial condition and results of operations, and could adversely impact our ability to achieve our strategic objectives.
AAC’s cash flow generation will depend on receipt of premiums, investment returns, and receipts from subsidiaries, offset by policyholder claims, commutation payments, reinsurance premiums, costs and potential losses from litigation, operating and loss adjustment expenses, and interest expense, which will be subject to prevailing economic conditions and to financial, business and other factors, many of which are beyond our control and many of which are 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, 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.
Ambac's legacy financial guarantee business is in run-off and faces significant risks and uncertainties described elsewhere in Part I, Item 1A. Risk Factors. In addition, Ambac's Specialty Property and Casualty Insurance and Insurance Distribution businesses are new and relatively small and therefore are also subject to uncertainties described elsewhere in Part I, Item 1A. Risk Factors.
Ambac's Legacy Financial Guarantee Insurance business is in run-off and faces significant risks and uncertainties described elsewhere in Part I, Item 1A. Risk Factors. In addition, Ambac's Specialty Property and Casualty Insurance and Insurance Distribution businesses are in the early stages of development and relatively small; therefore, they are also subject to uncertainties described elsewhere in Part I, Item 1A.
OCI has certain enforcement rights with respect to the Settlement Agreement and Stipulation and Order, and retains full discretion about the design of 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 assumption utilized in, OCI's Runoff Capital Framework and the implications thereof.
We expect to recover material amounts of claims payments through remediation measures, as well as through cash flows in the securitization structures of transactions that AAC insures.
We expect to recover material amounts of claims payments through cash flows in the securitization structures of transactions that AAC insures.
Surplus note principal and interest payments are subject to the sole approval of the OCI, and OCI's determinations about whether and when to authorize surplus note payments could materially impact the Company's financial position. Ambac can provide no assurance as to when surplus note principal and interest payments will be made.
OCI's determinations about whether and when to authorize surplus note payments could materially impact the Company's financial position. Ambac can provide no assurance as to when surplus note principal and interest payments will be made.
Loss reserves established with respect to our LFG insurance policies issued to beneficiaries, including VIEs for which we do not consolidate the VIE, are based upon estimates and judgments by management, including estimates and judgments with respect to the probability of default; the severity of loss upon default; management’s ability to execute policy commutations, restructurings and other loss mitigation strategies; and estimated subrogation and other loss recoveries.
Loss reserves established with respect to our LFG insurance policies issued to beneficiaries are based upon estimates and judgments by management, including estimates and judgments with respect to the probability of default; the severity of loss upon default; management’s ability to execute policy commutations, restructurings and other loss mitigation strategies; and estimated subrogation and other loss recoveries.
In the latter case, Everspan would have to accept an increase in exposure to risk, reduce the amount of business written by it or seek alternatives in line with Everspan's risk limits, all of which could adversely affect our business, financial condition and results of operations. Our insurance carrier subsidiaries are subject to reinsurance counterparty credit risk.
In the latter case, Everspan would have to accept an increase in exposure to risk, reduce the amount of business written by it or seek alternatives in line with Everspan's risk limits, all of which could adversely affect our business, financial condition and results of operations.
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.
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.
Under some circumstances, the results of such disputes or suits may lead to liabilities beyond those which are anticipated or reserved. Political developments may materially adversely affect our legacy financial guarantee insured portfolio. Our insured financial guarantee exposures and our results of operations can be materially affected by political developments at the federal, state and/or local government levels.
Under some circumstances, the results of such disputes or suits may lead to liabilities beyond those which are anticipated or reserved. Political developments may materially adversely affect our business. Our insurance businesses and our results of operations can be materially affected by political developments at the federal, state and/or local or foreign government levels.
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 and contractual counterparties for other essential services and information, such as the provision of data used in setting loss reserves.
Our financial condition, the risks described | Ambac Financial Group, Inc. 23 2022 FORM 10-K Table of Contents , elsewhere in Part I, Item 1A in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as well as other factors, may constrain our financing abilities.
Our financial condition, the risks described elsewhere in Part I, Item 1A in this Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as well as other factors, may constrain our financing abilities.
Consequently, if issuers affected by such catastrophic events do not have sufficient resources or financial flexibility, receive adequate measures of support or realize the appropriate level of economic recovery, their ultimate ability to service the debt insured by AAC and Ambac UK could be materially impaired and AAC and Ambac UK could suffer material permanent losses and therefore may have an adverse effect on our results of operations and financial condition.
Consequently, if following such catastrophic events we do not have sufficient resources or financial flexibility, receive adequate measures of support or realize the appropriate level of economic recovery, our ultimate ability to operate could be materially impaired and we could suffer material permanent losses and therefore may have an adverse effect on our results of operations and financial condition.
Moreover, although we have incident response, disaster recovery and business continuity plans in place, we may not be able to adequately execute these plans in a timely fashion in the event of a disruption to our information technology and application systems. We may be adversely affected by failures in services or products provided by third parties.
Moreover, although we have incident response, disaster recovery and business continuity plans in place, we may not be able to adequately execute these plans in a timely fashion in the event of a disruption to our information technology and application systems.
In particular, Ambac insures the obligations of a number of issuers that may be substantially affected by the prolonged economic effects of pandemics (such as COVID-19), other public health crises or environmental events, and natural disasters such as municipalities and securitizations, including those backed by consumer loans such as mortgages or student loans.
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.
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 credit risk management policies and practices may not adequately identify significant risks.
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.
There is substantial risk that AAC may not have the financial resources necessary to pay its surplus notes in full due to risks associated | Ambac Financial Group, Inc. 22 2022 FORM 10-K Table of Contents , with its cash flow, insured portfolio, and other liabilities, as discussed elsewhere in these Risk Factors.
There is substantial risk that AAC may not have the financial resources necessary to pay its surplus notes in full due to risks associated with its cash flow, insured portfolio, and other liabilities, as discussed elsewhere in these Risk Factors.
Decreases in prevailing interest rates may also limit growth of, or reduce, investment income and may adversely impact interest rate swap values. 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 portfolio may also be adversely affected by credit rating downgrades, ABS and RMBS prepayment speeds, foreign exchange movements, spread volatility, and credit losses.
The success of these programs is dependent upon the quality of insurance risk underwritten by the MGA/Us, the quality of underwriting and operational 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.
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.
Management is unable to make a meaningful estimate of the amount or range of loss that could result from unfavorable outcomes or of the expenses that will be incurred in connection with such lawsuits.
Management may be unable to make meaningful or reasonable estimates of the amount or range of losses that could result from unfavorable outcomes or of the expenses that will be incurred in connection with such lawsuits.
The composition of the securities in our investment portfolio may expose us to greater risk than before we invested in alternative assets. Each of AAC and Ambac UK maintains a portion of its investment portfolio in below investment grade securities, equities and/or alternative assets, such as hedge funds, with the objective to increase risk-adjusted portfolio returns.
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.
As the runoff of the insured portfolio continues, the proportion of exposures we rate as below investment grade relative to the aggregate insured portfolio is likely to increase, leaving the portfolio increasingly concentrated in higher risk exposures and heightening risks associated with large single risk exposures to particular issuers, losses caused by catastrophic events (including public health crises, terrorist acts and natural disasters), and losses in respect of different, but correlated, credit exposures.These risks may result in greater volatility or have adverse effects on the Company's results from operations and on our financial condition.
As the runoff of the insured portfolio continues, the proportion of exposures we rate as below investment grade relative to the aggregate insured portfolio may increase, leaving the portfolio increasingly concentrated in higher risk exposures and heightening risks associated with large single risk exposures to particular issuers, losses caused by catastrophic events (including public health crises, terrorist acts and natural disasters), and losses in respect of different, but correlated, credit exposures.
Everspan may be subject to disputes with policyholders regarding the scope and extent of coverage offered under Everspan's policies; be required to defend claimants in suits against its policyholders for covered liability claims; or enter into commercial disputes with its reinsurers, MGA/Us or TPAs regarding their respective contractual obligations and rights.
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.
Should Everspan fail in executing its business plans or experience greater than expected losses due to operational issues, poor risk selection, default or failure to perform by reinsurers, failure to timely realize ultimate loss exposure or other factors, Everspan may suffer losses that are material to its capital position, a downgrade in its AM Best rating and/or a loss of its franchise value.
Should Everspan fail in executing its business plans or experience greater than expected losses due to operational issues, poor risk selection, default or failure to perform by reinsurers, failure to timely realize ultimate loss exposure, a departure of qualified MGA/Us from the industry, enhanced scrutiny from regulators or ratings agencies specific to the program business model, failure to collect amounts due to it or other factors, Everspan may suffer losses that are material to its capital position, a downgrade in its AM Best rating and/or a loss of its franchise value.
The current market share of our Insurance Distribution businesses may decrease because of increased competition from insurance companies, technology companies and the financial services industry, as well as the shift away from traditional insurance markets.
Ambac Financial Group, Inc 21 2023 Form 10-K Table of Contents , The current market share of our Insurance Distribution businesses may decrease because of increased competition from insurance companies, technology companies and the financial services industry, as well as the shift away from traditional insurance markets.
The value of AFG's common stock is partially dependent upon realizing residual value from AAC by means of a full or partial sale and/or the receipt of dividends and the receipt of payments pursuant to the intercompany expense sharing and cost allocation agreement (the "Cost Allocation Agreement").
The value of AFG's common stock is partially dependent upon realizing residual value from AAC by means of a full or partial sale and/or the receipt of dividends.
Efforts to pursue certain business opportunities may be 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 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.
Ambac is planning to further develop and expand its Specialty Property and Casualty Insurance business and Insurance Distribution business. Such plans may involve additional acquisitions of assets or existing businesses and the development of businesses through new or existing subsidiaries. Currently, it is not possible to fully predict the future prospects or other characteristics of such businesses.
Such plans may involve additional acquisitions of assets or existing businesses and the development of businesses through new or existing subsidiaries. Currently, it is not possible to fully predict the future prospects or other characteristics of such businesses.
Such stresses could result in liquidity claims or permanent losses. Public health crises and/or natural disasters can cause economic and financial disruptions that may adversely affect, our business and results of operations.
Public health crises and/or natural disasters can cause economic and financial disruptions that may adversely affect, our business and results of operations.
Everspan may, 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.
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.
Because of these and other factors beyond our control, AAC may be unable to pay or discharge the principal or interest on its surplus notes, which would impair AAC's value and the value of AFG.
Because of these and other factors beyond our control, AAC may be unable to pay or discharge the principal or interest on its surplus notes, which would impair AAC's value and the value of AFG. Surplus note principal and interest payments cannot be made without the approval of the OCI, which OCI will grant or withhold in its sole discretion.
Conversely, investments in internal systems or innovative product offerings may fail to yield sufficient return to cover their investments. Our ability to successfully manage ongoing organizational changes could impact our business results, where the level of costs and/or disruption may be significant and change over time, and the benefits may be less than we originally expect.
Our ability to successfully manage ongoing organizational changes could impact our business results, where the level of costs and/or disruption may be significant and change over time, and the benefits may be less than we originally expect.
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.
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.
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 FG insured exposures. De-risking transactions may not be feasible or economically viable.
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.
Ambac is planning to further develop and expand its Specialty Property and Casualty Insurance and Insurance Distribution businesses; however, such plans may not be realized, or if realized, may not create value and may negatively impact our financial results. The value of AFG's common stock depends in part upon the ability of Ambac to generate earnings apart from AAC.
Ambac is planning to further develop and expand its Specialty Property and Casualty Insurance and Insurance Distribution businesses; however, such plans may not be realized, or if realized, may not create value and may negatively impact our financial results.
These risks, which include increased litigation, changes in social norms, and an erosion of the public sentiment towards insurers’ interpretation of coverage levels and limits, may make it more difficult to estimate losses by Everspan from events, establish adequate product pricing, and maintain a strong competitive position with consumers.
Social inflation, which includes increased litigation, partially supported by access to litigation financing; changes in social norms; an erosion of the public sentiment towards insurers’ interpretation of coverage levels and limits; and increased damage awards by juries, may make it difficult for Everspan to estimate loss reserves, establish adequate product pricing, and maintain a strong competitive position with consumers.
The marketing, underwriting, claims administration and servicing of policies in our Specialty Property and Casualty Insurance business have been contracted to t he MGA/Us with | Ambac Financial Group, Inc. 18 2022 FORM 10-K Table of Contents , which Everspan transacts. Any failure to properly handle these functions could result in liability to us.
The marketing, underwriting, administration and servicing of policies in our Specialty Property and Casualty Insurance business have been contracted to the MGA/Us with which Everspan transacts. Any failure by the MGA/Us or TPAs to properly handle these functions could result in liability to us.
Our Insurance Distribution businesses, results of operation, financial condition and liquidity may be | Ambac Financial Group, Inc. 20 2022 FORM 10-K Table of Contents , materially adversely affected by certain potential claims or proceedings.
Our Insurance Distribution businesses, results of operations, financial condition and liquidity may be materially adversely affected by certain potential claims or proceedings.
Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, loss adjustment expenses, acquisition costs and general and administrative expenses in order to earn a profit.
Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, loss adjustment expenses, acquisition costs and general and administrative expenses in order to earn a profit. The rate environment is also subject to market cycles, which can be difficult to predict and make it difficult to adequately price risk.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−2 removed1 unchanged
Biggest changeThe lease signed by Ambac prior to the foreclosure had a stated expiration of March 2024. 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.
Biggest changeOperations 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.
Ambac continues to hold a lease at One State Street Plaza, New York that expires in December 2029 (25,871 square feet) that has been sublet through its expiration date. Ambac maintains a disaster recovery site ("DR Site") in Kingston, New York, County of Ulster which consists of 12,374 square feet.
Ambac continues to hold a lease at One State Street Plaza, New York that expires in December 2029 (25,871 square feet) that has been sublet through its expiration date.
The lease terms typically do not exceed ten years in length. In the opinion of the Company’s management, the Company’s properties are adequate and suitable for its business as presently conducted and are adequately maintained.
Ambac 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.
Removed
During a disaster event, the site would allow employees an alternative office location. In June 2022, the Ulster County Controller reported that the owner of the property where the DR Site is located was delinquent in payment of taxes, interest and penalties, and recommended that the county move forward with foreclosure on the property.
Removed
The County of Ulster foreclosed on the property in November 2022 and acquired title to the property in January 2023. Ambac has begun discussions with the County of Ulster on continued occupancy of the DR Site located at the property, and is also evaluating alternative locations for the DR Site.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+1 added−3 removed0 unchanged
Biggest changeShares purchased from employees to satisfy withholding taxes, as described above, do not count towards utilization under the Company's share repurchase program. | Ambac Financial Group, Inc. 25 2022 FORM 10-K Table of Contents , October 2022 November 2022 December 2022 Fourth Quarter 2022 Total Shares Purchased (1) — 1,425 — 1,425 Average Price Paid Per Share $ — $ 13.56 $ — $ 13.56 Total Number of Shares Purchased as Part of Publicly Announced Plan — — — — Maximum Dollar Value That may Yet be Purchased Under the Plan $ 21 $ 21 $ 21 $ 21 (1) There were no other repurchase of equity securities made during the three months ended December 31, 2022.
Biggest changeOctober 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.
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 2022, Ambac purchased shares from employees that settled restricted stock units to meet employee tax withholdings.
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.
The graph assumes $100 was invested on December 29, 2017, in our common stock at the closing price of $15.98 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, 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.
Stock Performance Graph The following graph compares the performance of an investment in our common stock from the close of business on December 29, 2017, through December 31, 2022, with the Russell 2000 Index and S&P Completion Index.
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.
The performance shown in the graph represents past performance and should not be considered an indication of future performance. ` December 31, 2017 2018 2019 2020 2021 2022 Ambac Financial Group, Inc. $100 $108 $135 $96 $101 $109 Russell 2000 Index $100 $88 $109 $129 $147 $115 S&P Completion Index $100 $89 $112 $147 $164 $119 | Ambac Financial Group, Inc. 26 2022 FORM 10-K Table of Contents ,
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
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. From April 1, 2022, through December 31, 2022, AFG repurchased 1,605,316 shares for $14.2 million at an average purchase price of $8.86 per share.
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.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Since February 3, 2020, the Company 's common stock and warrants have been trading on the NYSE under the symbols “AMBC" and "AMBC WS", respectively.
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.
Dividends The Company did not pay cash dividends on its common stock during 2022 and 2021. 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.
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.
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 The following table summarized Ambac's share purchases during the fourth quarter of 2022.
Purchases of Equity Securities By the Issuer and Affiliated Purchasers The following table summarizes Ambac's share purchases during the fourth quarter of 2023.
Prior to being listed on the NYSE, the Company's common stock and warrants were listed on NASDAQ under the symbols “AMBC” and "AMBCW," respectively. Holders On February 24, 2023, there were 16 stockholders of record of AFG’s common stock and 50 holders of record of AFG's warrants.
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.
Removed
On May 5, 2022, the Board of Directors authorized an additional $15 million share repurchase bringing the total unused authorized amount to $20.8 million.
Added
($ 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.
Removed
Warrants Ambac has 4,877,617 warrants outstanding. Each warrant represents the right to purchase one share of AFG common stock. The warrants are exercisable at any time on or prior to April 30, 2023, at an exercise price of $16.67 per share. The warrants may be exercised for cash or net share settled.
Removed
On June 30, 2015, the Board of Directors of AFG authorized the establishment of a warrant repurchase program that permits the repurchase of up to $10 million of warrants. On November 3, 2016, the Board of Directors of AFG authorized an additional $10 million to the warrant repurchase program. The remaining aggregate authorization at December 31, 2022, is $11.9 million.

Item 7. Management's Discussion & Analysis

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

240 edited+79 added−117 removed91 unchanged
Biggest changeThis adjustment eliminates the foreign exchange gains (losses) on all assets, liabilities and transactions in non-functional currencies, which enables users of our financial statements to better view the results without the impact of fluctuations in foreign currency exchange rates and facilitates period-to-period comparisons of Ambac's operating performance. | Ambac Financial Group, Inc. 55 2022 FORM 10-K Table of Contents , The following table reconciles net income attributable to common stockholders to the non-GAAP measure, Adjusted Earnings on a total dollar amount and per diluted share basis, for all periods presented: 2022 2021 2020 ($ in millions, except per share data) Year Ended December 31, $ Amount Per Diluted Share (1) $ Amount Per Diluted Share (1) $ Amount Per Diluted Share (1) Net income (loss) attributable to common stockholders $ 522 $ 11.31 $ (17) $ (0.61) $ (437) $ (9.47) Adjustments: Non-credit impairment fair value (gain) loss on credit derivatives — — — — — — Insurance intangible amortization 44 0.95 52 1.12 57 1.23 Foreign exchange (gains) losses (12) (0.25) 7 0.15 3 0.06 Adjusted Earnings (Loss) (1) $ 555 $ 12.01 $ 43 $ 0.66 $ (378) $ (8.19) (1) Per Diluted share includes the impact of adjusting redeemable noncontrolling interest to its redemption value Adjusted Book Value.
Biggest changeThe noncontrolling interest adjustments relate to subsidiaries where Ambac does not own 100% Ambac Financial Group, Inc 54 2023 Form 10-K Table of Contents , The following table reconciles net income attributable to common stockholders to the non-GAAP measure, Adjusted Net Income (Loss) on a total dollar amount and per diluted share basis, for all periods presented: 2023 2022 2021 ($ in millions, except per share data) Year Ended December 31, $ Amount Per Diluted Share (1) $ Amount Per Diluted Share (1) $ Amount Per Diluted Share (1) Net income (loss) attributable to common stockholders $ 4 $ 0.18 $ 522 $ 11.31 $ (17) $ (0.61) Adjustments: Net investment (gains) losses, including impairments 22 0.49 (31) (0.68) (7) (0.14) Intangible amortization 29 0.62 47 1.01 55 1.19 Litigation costs 41 0.87 33 0.71 7 0.15 Foreign exchange (gains) losses (1) (0.02) 3 0.06 3 0.06 Workforce change costs 1 0.02 1 0.03 1 0.01 Net (gain) loss on extinguishment of debt — — (81) (1.75) (33) (0.70) Pretax adjusted net income (loss) 96 2.16 494 10.69 9 (0.04) Income tax effects (2) (0.03) 2 0.04 (1) (0.02) Net (gains) attributable to noncontrolling interests (1) (0.02) (1) (0.01) (1) (0.01) Adjusted Net Income (Loss) $ 93 $ 2.11 $ 495 $ 10.72 $ 7 $ (0.07) (1) Per diluted share includes the impact of adjusting redeemable noncontrolling interest to its redemption value.
Refer to Note 2. Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report in Form 10-K for further details on transaction gains and losses. Future changes to currency rates, may adversely affect our financial results.
Refer to Note 2. Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further details on transaction gains and losses. Future changes to currency rates, may adversely affect our financial results.
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 and Insurance Distribution businesses.
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.
Cash provided from these sources is used primarily for claim payments and commutations, loss expenses, acquisition costs (Specialty Property and Casualty Insurance segment only), debt service (Legacy Financial Guarantee segment only), operating expenses, reinsurance payments and purchases of securities and other investments. • Interest and principal payments on surplus notes are subject to the approval of OCI, which has full discretion over payments regardless of the liquidity position of AAC.
Cash provided from these sources is used primarily for claim payments and commutations, loss expenses, acquisition costs (Specialty Property and Casualty Insurance segment only), debt service (Legacy Financial Guarantee Insurance segment only), operating expenses, reinsurance payments and purchases of securities and other investments. • Interest and principal payments on AAC surplus notes are subject to the approval of OCI, which has full discretion over payments regardless of the liquidity position of AAC.
Financing Activities Financing activities for the year ended December 31, 2022, included payments for repurchase of surplus notes of $191, redemption of Sitka AAC Note of $1,210, partial redemption of Tier 2 Notes of $143, share repurchases of $14, repurchases of auction market preferred shares of $8 and paydowns and maturities of VIE debt obligations of $591 (including payments for the accelerations of the VIE trusts created from the Puerto Rico restructuring).
Financing activities for the year ended December 31, 2022, included payments for repurchase of surplus notes of $191, redemption of the Sitka AAC Note of $1,210, partial redemption of Tier 2 Notes of $143, share repurchases of $14, repurchases of auction market preferred shares of $8 and paydowns and maturities of VIE debt obligations of $591 (including payments for the accelerations of the VIE trusts created from the Puerto Rico restructuring).
The amount of additional collateral or margin posted on derivatives contracts will depend on several variables including the degree to which counterparties exercise their termination rights (or agreements terminate automatically) and the terms on which hedges can be replaced. All collateral and margin obligations are currently met.
The amount of additional collateral posted on derivatives contracts will depend on several variables including the degree to which counterparties exercise their termination rights (or agreements terminate automatically) and the terms on which hedges can be replaced. All collateral and margin obligations are currently met.
Our experience with the city of Detroit's bankruptcy and Commonwealth of Puerto Rico's Title III proceedings as well as other municipal bankruptcies demonstrates the preferential treatment of certain creditor classes, especially the public pensions.
Our experience with the city of Detroit's bankruptcy and Commonwealth of Puerto Rico's Title III proceedings as well as other municipal bankruptcies demonstrates the preferential treatment of certain creditor classes, especially public pensions.
Adjusted book value is defined as Total Ambac Financial Group, Inc. stockholders’ equity as reported under GAAP, adjusted for after-tax impact of the following: • Insurance intangible asset: Elimination of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting.
Adjusted Book Value. Adjusted book value is defined as Total Ambac Financial Group, Inc. stockholders’ equity as reported under GAAP, adjusted for after-tax impact of the following: • Insurance intangible asset: Elimination of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting.
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.
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.
Structured Finance RMBS: Changes to assumptions that could make our reserves under-estimated include an increase in interest rates, deterioration in housing prices, poor servicing, government intervention into the functioning of the mortgage market and the effect of a weakened economy characterized by growing unemployment and wage pressures.
Structured Finance RMBS: Changes to assumptions that could make our reserves under-estimated include an increase in interest rates, deterioration in housing prices, poor servicing, government intervention into the functioning of the mortgage market and the general effect of a weakened economy characterized by growing unemployment and wage pressures.
Net gains (losses) on interest rate derivatives generally reflect mark-to-market gains (losses) in the portfolio caused by increases (declines) in forward interest rates during the periods, the carrying cost of the portfolio, and the impact of counterparty credit adjustments as discussed below. Results from other non-VIE derivatives were not significant to the periods presented.
Net gains (losses) on interest rate derivatives reflect mark-to-market gains (losses) in the portfolio caused by increases (declines) in forward interest rates during the periods, the carrying cost of the portfolio, and the impact of counterparty credit adjustments as discussed below. Results from other non-VIE derivatives were not significant to the periods presented.
The cost of pensions and the need to address frequently sizable unfunded or underfunded pensions is often a key driver of stress for many municipalities and their related authorities, including entities to whom we have significant exposure, such as Chicago's school district, the State of New Jersey and others.
The cost of pensions and the need to address frequently sizable unfunded or underfunded pensions is often a key driver of stress for many municipalities and their related authorities, including entities to whom we have exposure, such as Chicago's school district, the State of New Jersey and others.
Other Credits, including Ambac UK, Variability It is possible our loss reserves on other types of credits, including those insured by Ambac UK, may be under-estimated because of various risks that vary widely, including the risk that we may not be able to recover or mitigate losses through our remediation processes.
Other Credits, including Ambac UK It is possible our loss reserves on other types of credits, including those insured by Ambac UK, may be under-estimated because of various risks that vary widely, including the risk that we may not be able to recover or mitigate losses through our remediation processes.
Factors that impact changes to Adjusted Book Value include many of the same factors that impact Adjusted Earnings, including the majority of revenues and expenses, but generally exclude components of premium earnings since they are embedded in prior period's Adjusted Book Value through the net unearned premiums and fees in excess of expected losses adjustment.
Factors that impact changes to Adjusted Book Value include many of the same factors that impact Adjusted Net Income, including the majority of revenues and expenses, but generally exclude components of premium earnings since they are embedded in prior period's Adjusted Book Value through the net unearned premiums and fees in excess of expected losses adjustment.
In the opinion of the Company’s management the net assets of AFG are 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 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).
This adjustment is only made for financial guarantee contracts since such premiums are non-refundable. • Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income: Elimination of the unrealized gains and losses on the Company’s investments that are recorded as a component of accumulated other comprehensive income (“AOCI”).
This adjustment is only made for financial guarantee contracts since such premiums are non-refundable. • Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income: Elimination of the unrealized gains and losses on the Company’s investments that are recorded as a component of accumulated other comprehensive income (“AOCI”), net of income taxes.
The estimate for future net cash flows consider the likelihood of all possible outcomes that may occur from missed principal and/or interest payments on the insured obligation. This estimate also considers future recoveries related to remediation strategies and other contractual or subrogation-related cash flows.
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.
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, 2022, 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, 2023, and assumes an inability to execute any commutation transactions with issuers and/or investors.
GAAP, loss reserves are established (net of US GAAP basis unearned premium revenue) for obligations that have experienced credit deterioration, but have not yet defaulted using a weighted-average risk-free discount rate, currently at 3.5%. • Investments in fixed maturity securities are stated at amortized cost, subject to an other-than-temporary impairment evaluation.
GAAP, loss reserves are established (net of US GAAP basis unearned premium revenue) for obligations that have experienced credit deterioration, but have not yet defaulted using a weighted-average risk-free discount rate, currently at 3.9%. • Investments in fixed maturity securities are stated at amortized cost, subject to an other-than-temporary impairment evaluation.
The evaluation process for expected future net cash flows is subject to certain estimates and judgments regarding the probability of default by the issuer of the insured security, probability of negotiation or settlement outcomes (which may include commutation, litigation and other settlements, and/or a refinancing), probability of a restructuring outcome (which may include payment moratoriums, debt haircuts and/or subsequent recoveries) and the expected loss severity of credits for each insurance contract.
The evaluation process for expected future net cash flows is subject to estimates and judgments regarding the probability of default by the issuer of the insured security, the probability of negotiation or settlement outcomes (which may include commutation, litigation and other settlements, and/or a refinancing), the probability of restructuring outcomes (which may include payment moratoriums, debt haircuts and/or subsequent recoveries) and the expected loss severity of credits for each insurance contract.
(3) Loss and Loss Adjustment Expense reserves at December 31, 2022, of $444 are included in the balance sheet in the following line items: Loss and loss adjustment expense reserves: $715 and Subrogation recoverable: $(271).
Loss and Loss Adjustment Expense reserves at December 31, 2022, of $444 are included in the balance sheet in the following line items: Loss and loss adjustment expense reserves: $715 and Subrogation recoverable: $271.
Ambac’s U.S. public finance portfolio consists of municipal bonds such as general obligation, revenue, and lease and tax-backed obligations of state and local government entities, and also includes several non-municipal types of bonds, such as financings with public and private elements, which generally finance infrastructure, housing and other public interests, the largest sector of which is U.S. military housing which accounts for approximately 51% of AAC's U.S.
Ambac’s U.S. public finance portfolio consists of municipal bonds such as general obligation, revenue, and lease and tax-backed obligations of state and local government entities, and also includes several non-municipal types of bonds, such as financings with public and private elements, which generally finance infrastructure, housing and other public interests, the largest sector of which is U.S. military housing which accounts for approximately 45% of AAC's U.S.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The objectives of our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are to provide users of our consolidated financial statements with the following: • A narrative explanation from the perspective of management of our financial condition, results of operations, cash flows, liquidity and certain other factors that may affect future results; • Context to the consolidated financial statements; and • Information that allows assessment of the likelihood that past performance is indicative of future performance.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ($ and £ in 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.
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 further discussion of our statistical loss reserve method. The timing of these payments may vary significantly from the amounts shown above, especially for credits that are based on our statistical loss reserve method.
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 further discussion of our statistical loss reserve method. The timing of these payments may vary significantly from the amounts shown below, especially for credits that are based on our statistical loss reserve method.
Insurance Contracts to the Consolidated Financial Statements included in Part II, Item 8, in this Annual Report on Form 10-K for a summary of future gross financial guarantee premiums to be collected by AAC and Ambac UK. Termination of financial guarantee policies on an accelerated basis may adversely impact AAC’s liquidity.
Insurance Contracts to the Consolidated Financial Statements included in Part II, Item 8, in this Annual Report on Form 10-K for a summary of future gross financial guarantee premiums to be collected by AAC and Ambac UK under existing insurance policies. Termination of financial guarantee policies on an accelerated basis may adversely impact AAC’s liquidity.
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 5.
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.
While our loss reserves consider 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 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.
Included within Income (loss) on variable interest entities are income statement amounts relating to FG-VIEs consolidated under the Consolidation Topic of the ASC as a result of Ambac's variable interest arising from financial guarantees written by Ambac's subsidiaries, including gains or losses attributable to consolidating or deconsolidating FG-VIEs during the periods reported.
Income (Loss) on Variable Interest Entities. Included within Income (loss) on variable interest entities are income statement amounts relating to LFG-VIEs consolidated under the Consolidation Topic of the ASC as a result of Ambac's variable interest arising from financial guarantees written by Ambac's subsidiaries, including gains or losses attributable to consolidating or deconsolidating LFG-VIEs during the periods reported.
Investments to the Consolidated Financial Statements in this Annual Report on Form 10-K located in Part II. Item 8 for information about Ambac's consolidated investment portfolio. Ambac's investment polices and objectives do not apply to the assets of VIEs consolidated as a result of financial guarantees written by its insurance subsidiaries.
Investments to the Consolidated Financial Statements in this Annual Report on Form 10-K located in Part II. Item 8 for information about Ambac's consolidated investment portfolio. Ambac's investment policies and objectives do not apply to the assets of VIEs consolidated as a result of financial guarantees written by its insurance subsidiaries.
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, 2022. Refer to Item 1. Description of the Business and Note 1.
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.
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay guaranteed obligations. Exposure Currency The table below shows the distribution by currency of Ambac's existing guaranteed net par outstanding as of December 31, 2022: Currency ($ in millions) Net Par Amount Outstanding in Base Currency Net Par Amount Outstanding in U.S.
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay guaranteed obligations. Exposure Currency The table below shows the distribution by currency of Ambac's existing guaranteed net par outstanding as of December 31, 2023: Currency (in millions) Net Par Amount Outstanding in Base Currency Net Par Amount Outstanding in U.S.
Valuation of Certain Financial Instruments The Fair Value Measurement Topic of the ASC requires financial instruments to be classified within a three-level fair value hierarchy. The fair value hierarchy, the financial instruments classified within each level, our valuation methods, inputs, assumptions and the review and validation procedures over quoted and modeled pricing are further detailed in Note 6.
Valuation of Certain Financial Instruments The Fair Value Measurement Topic of the ASC requires financial instruments to be classified within a three-level fair value hierarchy. The fair value hierarchy, the financial instruments classified within each level, our valuation methods, inputs, assumptions and the review and validation procedures over quoted and modeled pricing are further detailed in Note 5.
We present such non-GAAP supplemental financial information because we believe such information is of interest to the investment community that provides greater transparency and enhanced visibility into the underlying drivers of our businesses on a basis that may not be otherwise apparent on a GAAP basis.
We present non-GAAP supplemental financial information because we believe such information is of interest to the investment community, and that it provides greater transparency and enhanced visibility into the underlying drivers and performance of our businesses on a basis that may not be otherwise apparent on a GAAP basis.
Additionally, terminations or other changes to Ambac's financial guarantee insurance policies that impact projected cash flows between a consolidated FG-VIE and Ambac could result in gains or losses, even if such policy changes do not result in deconsolidation of the FG-VIE.
Additionally, terminations or other changes to Ambac's financial guarantee insurance policies that impact projected cash flows between a consolidated LFG-VIE and Ambac could result in gains or losses, even if such policy changes do not result in deconsolidation of the LFG-VIE.
To the extent such risks and uncertainties are resolved, Ambac may have the ability to establish a history of making reliable estimates of future income which could ultimately result in a reduction to the deferred tax asset valuation allowance. See Note 17.
To the extent such risks and uncertainties are resolved, Ambac may have the ability to establish a history of making reliable estimates of future income which could ultimately result in a reduction to the deferred tax asset valuation allowance. See Note 16.
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 5. Investments to the Consolidated Financial Statements, included in Part II, Item 8 in this Annual Report on Form 10-K.
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.
The table below reflects the timing of expected financial guarantee claim payments based on deal specific cash flows, excluding expected recoveries. These deal specific cash flows are based on the expected cash flows of the underlying transactions with the majority of these payments expected at or close to the final maturity of the related insurance policy.
The table below reflects the timing of expected financial guarantee claim payments based on policy specific probability weighted cash flows, excluding expected recoveries. These deal specific cash flows are based on the expected cash flows of the underlying transactions with the majority of these payments expected at or close to the final maturity of the related insurance policy.
STATUTORY BASIS FINANCIAL RESULTS ($ in millions) AFG's U.S. insurance subsidiaries prepare financial statements under accounting practices prescribed or permitted by its domiciliary state regulator (“SAP”) for determining and reporting the financial condition and results of operations of an insurance company.
STATUTORY BASIS FINANCIAL RESULTS AFG's U.S. insurance subsidiaries prepare financial statements under accounting practices prescribed or permitted by its domiciliary state regulator (“SAP”) for determining and reporting the financial condition and results of operations of an insurance company.
See the Balance Sheet section of this Management's Discussion and Analysis of Financial Condition and Results of Operations below for a discussion on the reasons for changes to Gross Loss and Loss Adjustment Expense Reserves during 2022. See Note 2.
See the Balance Sheet section of this Management's Discussion and Analysis of Financial Condition and Results of Operations below for a discussion on the reasons for changes to Gross Loss and Loss Adjustment Expense Reserves during 2023. See Note 2.
Financial Guarantees in Force to the Consolidated Financial Statements, included in Part II, Item 8 included in this Annual Report on Form 10-K, for geographic detail by location of risk as of December 31, 2022.
Financial Guarantees in Force to the Consolidated Financial Statements, included in Part II, Item 8 included in this Annual Report on Form 10-K, for geographic detail by location of risk as of December 31, 2023.
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 8.
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.
AFG’s liquidity is primarily dependent on its net assets, excluding the operating subsidiaries that it owns, totaling $223 as of December 31, 2022, and secondarily on distributions and expense sharing payments from its operating subsidiaries. • Under an inter-company cost allocation agreement, AFG is reimbursed by AAC for a portion of certain operating costs and expenses and, if approved by OCI, entitled to an additional payment of up to $4 per year to cover expenses not otherwise reimbursed.
AFG’s liquidity is primarily dependent on its net assets, excluding the operating subsidiaries that it owns, totaling $211 as of December 31, 2023, and secondarily on distributions and expense sharing payments from its operating subsidiaries. • Under an inter-company cost allocation agreement, AFG is reimbursed by AAC for a portion of certain operating costs and expenses and, if approved by OCI, entitled to an additional payment of up to $4 per year to cover expenses not otherwise reimbursed.
Ratings Distribution The following charts provide a rating distribution of existing net par outstanding based upon internal Ambac credit ratings at December 31, 2022 and 2021, and a distribution of Ambac's below investment grade ("BIG") net par exposures at December 31, 2022 and 2021.
Ratings Distribution The following charts provide a rating distribution of existing net par outstanding based upon internal Ambac credit ratings at December 31, 2023 and 2022, and a distribution of Ambac's below investment grade ("BIG") net par exposures at December 31, 2023 and 2022.
In May 2022, OCI declined the request of AAC to pay the principal amount of the surplus notes, plus all accrued and unpaid interest thereon, on the then next scheduled payment date of June 7, 2022.
In May 2023, OCI declined the request of AAC to pay the principal amount of the surplus notes, plus all accrued and unpaid interest thereon, on the then next scheduled payment date of June 7, 2023.
Net unearned premiums and fees in excess of expected losses will affect Adjusted Book Value for (i) changes to future premium assumptions (e.g. expected term, interest rates, foreign currency rates, time passage) and (ii) changes to expected losses for policies which do not exceed their related unearned premiums and (iii) new reinsurance transactions. | Ambac Financial Group, Inc. 56 2022 FORM 10-K Table of Contents ,
Net unearned premiums and fees in excess of Ambac Financial Group, Inc 55 2023 Form 10-K Table of Contents , expected losses will affect Adjusted Book Value for (i) changes to future premium assumptions (e.g. expected term, interest rates, foreign currency rates, time passage) and (ii) changes to expected losses for policies which do not exceed their related unearned premiums and (iii) new reinsurance transactions.
Intangible assets includes (i) an insurance intangible asset that was established at AFG's emergence from bankruptcy, 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, (iii) indefinite-lived intangible assets established as part of the acquisition of admitted carriers in both 2021 and 2022, and (iv) intangible assets established as part of the acquisition of All Trans and Capacity Marine in 2022.
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.
LIQUIDITY AND CAPITAL RESOURCES ($ in millions) 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 organized as a legal entity separate and distinct from its operating subsidiaries. AFG is a holding company with no outstanding debt.
For all other credits, including Ambac UK, for which we have an estimate of expected loss, the sum of all the highest stress case loss scenarios is approximately $295 greater than the loss reserves at December 31, 2022. There can be no assurance that losses may not exceed our stress case estimates. Long-term Debt.
For all other credits, including Ambac UK, for which we have an estimate of expected loss, the sum of all the highest stress case loss scenarios is approximately $330 greater than the loss reserves at December 31, 2023. There can be no assurance that losses may not exceed our stress case estimates. Long-term Debt.
The $4 reimbursement for 2021 expenses was approved by OCI and paid to AFG in April 2022. • 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.
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.
AFG does not have any commitment or other obligation to provide capital or liquidity to AAC, whose financial guarantee business has been in run-off since 2008. As of December 31, 2022, AFG's stand alone net assets, excluding its equity investments in subsidiaries, were $223.
AFG does not have any commitment or other obligation to provide capital or liquidity to AAC, whose financial guarantee business has been in run-off since 2008. As of December 31, 2023 and 2022, AFG's stand alone net assets, excluding its equity investments in subsidiaries, were $211 and $223, respectively.
Military Housing Bonds AAC's largest concentration of non-municipal bonds is U.S. military housing. Ambac insures $5,400 net par of privatized military housing debt. The debt was issued to finance the construction and/or renovation of housing units for military personnel and their families on domestic U.S. military bases. Debt service is not directly paid or guaranteed by the U.S. Government.
Military Housing Bonds AAC's largest concentration of non-municipal bonds is U.S. military housing. Ambac insures $3,371 net par of privatized military housing debt. The debt was issued to finance the construction and/or renovation of housing units for military personnel and their families on domestic U.S. military bases. Debt service is not directly paid or guaranteed by the U.S. Government.
As of December 31, 2022, statutory policyholder surplus and qualified statutory capital included $519 principal balance of surplus notes outstanding and $115 liquidation preference of preferred stock outstanding.
As of December 31, 2023, statutory policyholder surplus and qualified statutory capital included $519 principal balance of surplus notes outstanding and $115 liquidation preference of preferred stock outstanding.
Generally, narrowing (widening) of credit spreads will increase (decrease) derivative gains relative to a period of stable credit spreads. Inclusion of counterparty credit adjustments in the valuation of interest rate derivatives resulted in gains (losses) within Net gains (losses) on derivative contracts of $8 and $5 for the years ended December 31, 2022 and 2021, respectively.
Generally, narrowing (widening) of credit spreads will increase (decrease) derivative gains relative to a period of stable credit spreads. Inclusion of counterparty credit adjustments in the valuation of interest rate derivatives resulted in gains (losses) within Net gains (losses) on derivative contracts of $2 and $8 for the years ended December 31, 2023 and 2022, respectively.
Financial Statement Impact of Foreign Currency The impact of foreign currency as reported in Ambac's Consolidated Statement of Total Comprehensive Income (Loss) for the years ended December 31, 2022 and 2021 included the following: ($ in millions) December 31, 2022 2021 Net income (1) $ 11 $ (7) Gain (losses) on foreign currency translation (net of tax) (85) (8) Unrealized gains (losses) on non-functional currency available-for-sale securities (net of tax) 11 3 Impact on total comprehensive income (loss) $ (63) $ (12) (1) A portion of Ambac UK's, and to a lesser extent AAC's, assets and liabilities are denominated in currencies other than its functional currency and accordingly, we recognized net foreign currency transaction gains/(losses) as a result of changes to foreign currency rates through our Consolidated Statement of Total Comprehensive Income (Loss).
Financial Statement Impact of Foreign Currency: The impact of foreign currency as reported in Ambac's Consolidated Statement of Total Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022 included the following: ($ in millions) December 31, 2023 2022 Net income (1) $ (3) $ 11 Gain (losses) on foreign currency translation (net of tax) 40 (85) Unrealized gains (losses) on non-functional currency available-for-sale securities (net of tax) (6) 11 Impact on total comprehensive income (loss) $ 31 $ (63) (1) A portion of Ambac UK's, and to a lesser extent AAC's, assets and liabilities are denominated in currencies other than its functional currency and accordingly, we recognized net foreign currency transaction gains/(losses) as a result of changes to foreign currency rates through our Consolidated Statement of Total Comprehensive Income (Loss).
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, partially offset by reductions in staffing in the Legacy Financial Guaranty segment, and the impact of performance factor adjustments on incentive compensation expense. • Higher non-compensation costs primarily related to Legacy Financial Guarantee Insurance segment defensive litigation expenses of $26 and Specialty Property and Casualty Insurance segment costs associated with growth of the business.
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 net income variance was primarily driven by: (i) a higher benefit through loss and loss adjustment expenses, (ii) a litigation recovery, (iii) higher gains on derivative contracts, (iv) higher net gains on extinguishment of debt, and (v) lower interest expense, partially offset by lower returns from the investment portfolio.
The net income variance was primarily driven by: (i) a lower loss and loss adjustment expenses benefit, (ii) a litigation recovery in 2022, (iii) 2022 gains on derivative contracts, and (iv) 2022 net gains on extinguishment of debt, partially offset by higher returns from the investment portfolio and lower interest expense.
The discount rate for loss provisions is equal to the lower of the rate of return on invested assets for either the current year or the period covering the current year plus the four previous years, currently at 0%.
The discount rate for loss provisions is equal to the lower of the rate of return on invested assets for either the current year or the period covering the current year plus the four previous years, currently at 3.2%.
The lower counterparty credit adjustments for both periods reflected lower underlying asset values with the further impact of credit spread widening in 2022 and narrowing in 2021. Net Realized Gains on Extinguishment of Debt. Net realized gains on extinguishment of debt was $81 for year ended December 31, 2022.
The lower counterparty credit adjustments for both periods reflected lower underlying asset values with the further impact of credit spread narrowing in 2023 and widening in 2022. Net Realized Gains on Extinguishment of Debt. Net realized gains on extinguishment of debt was $0 for year ended December 31, 2023.
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 $116 from its reinsurers at December 31, 2022. As of December 31, 2022 and 2021, reinsurance recoverable on paid and unpaid losses were $115 and $55, 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 $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.
(4) Ambac records as a component of its loss and loss adjustment expense reserves, estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties. Ambac has recorded gross estimated recoveries of $140 and $1,730 at December 31, 2022 and 2021, respectively.
(4) Ambac records as a component of its loss and loss adjustment expense reserves, estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties. Ambac has recorded gross estimated recoveries of $0 and $140 at December 31, 2023 and 2022, respectively.
Ambac has no insured exposure related to emerging markets. When underwriting transactions in the international markets, Ambac considered the specific risks related to the particular country and region that could impact the credit of the issuer. These risks include the legal and political environment, capital markets dynamics, foreign exchange issues and the degree of governmental support.
When underwriting transactions in the international markets, Ambac considered the specific risks related to the particular country and region that could impact the credit of the issuer. These risks include the legal and political environment, capital markets dynamics, foreign exchange issues and the degree of governmental support.
Net par exposure within the U.S. public finance market includes capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds.
Net par exposures within the U.S. public finance market include capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds.
Excluding the top ten exposures, the remaining insured portfolio of financial guarantees has an average net par outstanding of $30 per single risk, with insured exposures ranging up to $386 and a median net par outstanding of $5.
Excluding the top ten exposures, the remaining insured portfolio of financial guarantees has an average net par outstanding of $28 per single risk, with insured exposures ranging up to $307 and a median net par outstanding of $5.
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 $15 and $92 to the Everspan group of companies during the years ended December 31, 2022 and 2021, respectively.
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.
AMBAC UK FINANCIAL RESULTS UNDER UK ACCOUNTING PRINCIPLES (£ in millions) Ambac UK is required to prepare financial statements under FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland." Ambac UK’s shareholder funds under UK GAAP were £468 at December 31, 2022, as compared to £444 at December 31, 2021.
AMBAC UK FINANCIAL RESULTS UNDER UK ACCOUNTING PRINCIPLES Ambac UK is required to prepare financial statements under FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland." Ambac UK’s shareholder funds under UK GAAP were £489 at December 31, 2023, as compared to £468 at December 31, 2022.
These surplus notes (including related accrued interest of $427 that is not recorded under statutory basis accounting principles); preferred stock; and all other liabilities, including insurance claims, and $146 principal balance of Tier 2 Notes are obligations that, individually and collectively, have claims on the resources of AAC that are senior to AFG's equity and therefore impede AFG's ability to realize residual value and/or receive dividends from AAC.
These surplus notes (including related accrued interest of $475 that is not recorded under statutory basis accounting principles); preferred stock; and all other liabilities, including insurance claims are obligations that, individually and collectively, have claims on the resources of AAC that are senior to AFG's equity and therefore impede AFG's ability to realize residual value and/or receive dividends from AAC.
Key variances not discussed above in the Consolidated Results section are as follows: Net premiums earned. Net premiums earned decreased $4 for the year ended December 31, 2022, compared to the same period in the prior year.
Key variances not discussed above in the Consolidated Results section are as follows: Net premiums earned. Net premiums earned decreased $16 for the year ended December 31, 2023, compared to the same period in the prior year.
Legacy Financial Guarantee Insurance. Ambac has exposure to various bond types issued in the debt capital markets. The bond types that have experienced significant claims, including through commutations, are RMBS, student loan securities and public finance securities. These bond types represent 91% of our ever-to-date insurance claims recorded with RMBS comprising 63%.
Ambac has exposure to various bond types issued in the debt capital markets. The bond types that have experienced the most significant claims, including through commutations, are RMBS, student loan securities and public finance securities. These bond types represent 91% of our ever-to-date insurance claims recorded with RMBS comprising 61%.
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 the related program reaches a certain level of premium. Program fees are typically 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. Net Investment Income.
Differences between the net carrying value of the insurance accounts under the Financial Services—Insurance Topic of the ASC and the carrying value of the consolidated FG-VIE’s net assets or liabilities are recorded through income at the time of consolidation.
Differences between the net carrying value of the insurance accounts under the Financial Services—Insurance Topic of the ASC and the carrying value of the consolidated LFG-VIEs' net assets or liabilities are recorded through income at the time of consolidation.
This reduction in exposure was primarily related to (i) RMBS policies, which continued to prepay as well as incur claims, (ii) de-risking activity and (iii) scheduled paydowns. Current insured exposures primarily include securitizations of mortgage loans, home equity loans and student loans, in each case where the majority of the underlying collateral risk is situated in the United States.
This reduction in exposure was primarily related to (i) RMBS policies, which continued to prepay as well as incur claims and (ii) scheduled paydowns. Current insured exposures primarily include securitizations of mortgage loans, home equity loans and student loans, and investor-owned utilities in each case where the majority of the underlying collateral risk is situated in the United States.
The following table provides details by type of obligation for the periods presented: Year Ended December 31, 2022 2021 2020 Surplus Notes (1) $ 78 $ 77 $ 85 LSNI Ambac Note — 50 107 Sitka AAC Note 63 32 — Tier 2 Notes 26 27 28 Other 1 1 1 Total interest expense $ 168 $ 187 $ 222 (1) Includes interest on Junior Surplus Notes that were acquired and retired in 2021.
The following table provides details by type of obligation for the periods presented: Year Ended December 31, 2023 2022 2021 Surplus Notes (1) $ 62 $ 78 $ 77 LSNI Ambac Note — — 50 Sitka AAC Note — 63 32 Tier 2 Notes — 26 27 Other 1 1 1 Total interest expense $ 64 $ 168 $ 187 (1) Includes interest on Junior Surplus Notes that were acquired and retired in 2021.
As a result of recent increases in inflation, such indexation-linked exposures have increased at a faster pace than they have historically. The concentration of net par amongst the top ten (as a percentage of net par outstanding) increased slightly to 27.1% at December 31, 2022, from 26.2% at December 31, 2021.
As a result of recent increases in inflation, such indexation-linked exposures have increased at a faster pace than they have historically. The concentration of net par amongst the top ten (as a percentage of net par outstanding) increased to 31% at December 31, 2023, from 27% at December 31, 2022.
The Specialty Property and Casualty Insurance segment has grown significantly since underwriting its first program in May 2021. Fourteen programs were authorized to issue policies as of December 31, 2022.
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.
At December 31, 2022, RMBS represented approximately 9% of net par outstanding.
At December 31, 2023, RMBS represented approximately 9% of net par outstanding.
AAC's statutory surplus and therefore AFG's ultimate ability to realize residual value and/or dividends from AAC is sensitive to | Ambac Financial Group, Inc. 52 2022 FORM 10-K Table of Contents , multiple factors, including: (i) loss reserve development, (ii) approval by OCI of payments on surplus notes, (iii) ongoing interest costs associated with surplus notes, (iv) swap gains and losses at AFS, the financial position of which is supported by certain guarantees and financing arrangements from AAC, (v) first time payment defaults of insured obligations, which increase statutory loss reserves, (vi) commutations of insurance policies at amounts that differ from the amount of liabilities recorded, (vii) reinsurance contract terminations at amounts that differ from net assets recorded, (viii) changes to the fair value of pooled fund and other investments carried at fair value, (ix) realized gains and losses, including losses arising from other than temporary impairments of investment securities, (x) the ultimate residual value of Ambac UK, which may be impacted by numerous factors including foreign exchange rates, and (xi) future changes to prescribed practices by the OCI.
AAC's statutory surplus, and therefore AFG's ultimate ability to realize residual value and/or dividends from AAC, is sensitive to multiple factors, including: (i) loss reserve development, (ii) timing of surplus note payments, (iii) ongoing interest costs associated with surplus notes, (iv) swap gains and losses at AFS, the financial position of which is supported by certain guarantees and financing arrangements from AAC, (v) first time payment defaults of insured obligations, which increase statutory loss reserves, (vi) commutations of insurance policies at amounts that differ from the amount of liabilities recorded, (vii) reinsurance contract terminations at amounts that differ from net assets recorded, (viii) changes to the fair value of pooled fund and other investments carried at fair value, (ix) realized gains and losses, including losses arising from other than temporary impairments of investment securities, (x) the ultimate residual value of Ambac UK, which is currently a non-admitted asset under SAP and may be impacted by numerous factors including foreign exchange rates, and (xi) future changes to prescribed practices by the OCI.
Liability and Insured Exposure Management AAC's Risk Management Group focuses on the implementation and execution of risk reduction, defeasance and loss recovery strategies.
AAC's Risk Management Group focuses on the implementation and execution of risk reduction, defeasance and loss recovery strategies.
Ambac has a significant U.S. tax net operating loss (“NOL”) that is offset by a full valuation allowance in the GAAP consolidated financial statements. As a result of this and other considerations, we utilized a 0% effective tax rate for non-GAAP adjustments for both Adjusted Earnings and Adjusted Book Value; which is subject to change.
Ambac has a significant U.S. tax net operating loss (“NOL”) that is offset by a full valuation allowance in the GAAP consolidated financial statements. As a result of this, tax planning strategies and other considerations, we utilized a 0% effective tax rate for non-GAAP operating adjustments to Adjusted Book.
Valuation of Financial Guarantee Losses and Loss Expense Reserves (including Subrogation Recoverables) The loss and loss adjustment expense reserves and subrogation recoverable assets (collectively defined as "loss reserves") discussed in this section relate only to Ambac’s non-derivative financial guarantee insurance policies issued to beneficiaries, including unconsolidated VIEs.
Valuation of Financial Guarantee Losses and Loss Expense Reserves (including Subrogation Recoverables) The loss and loss adjustment expense reserves and subrogation recoverable assets (collectively defined as "loss reserves") discussed in this section relate solely to Ambac’s financial guarantee insurance policies issued to beneficiaries.
SEC Proposed Rules on Climate Related Information On March 21, 2022, the Securities and Exchange Commission (“SEC”) proposed rule amendments that would require public | Ambac Financial Group, Inc. 29 2022 FORM 10-K Table of Contents , companies to include certain climate-related information in their periodic reports and registration statements, including oversight and governance, material impacts (operational and financial), risk identification and management, and Scope 1, 2 and 3 emissions (the “Proposed Rule”).
SEC Proposed Rules on Climate Related Information On March 21, 2022, the Securities and Exchange Commission (“SEC”) proposed rule amendments that would require public companies to include certain climate-related information in their periodic reports and registration statements, including oversight and governance, material impacts (operational and financial), risk identification and management, and Scope 1, 2 and 3 emissions (the “Proposed Rule”).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe 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, 2022 and 2021: December 31, 2022 2021 Fair value of fixed maturity investment (1) $ 1,740 $ 1,656 Pre-tax impact of 100 basis point increase in interest rates Decrease in dollars $ (53) $ (50) 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 | Ambac Financial Group, Inc. 57 2022 FORM 10-K Table of Contents , 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, 2022 and 2021: December 31, 2022 2021 Fair value of long-term debt including accrued interest (1) $ (878) $ (2,598) Pre-tax impact of 100 basis point decrease in interest rates Increase in dollars $ (18) $ (55) As a percent of fair value 2 % 2 % Fair value of interest rate derivative net assets (liabilities) (1) $ (12) $ (19) Pre-tax impact of 100 basis point decrease in interest rates Pre-tax loss from change in fair value in dollars $ (29) $ (51) (1) Excludes long-term debt and derivative instruments of VIEs consolidated as a result of Ambac’s financial guarantees Foreign Currency Risk.
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.
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, 2022 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, 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.
For additional information about Ambac’s debt obligations, see Note 13. 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.
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.
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 5. 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”). 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.
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 12.
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.
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, 2022 and 2021: December 31, 2022 2021 Fair value of investments denominated in currencies other than the U.S. dollar (1) $ 398 $ 478 Pre-tax impact of 20% strengthening of the U.S. dollar $ (80) $ (96) (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, 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.
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 result in fair value gains on interest rate derivatives and lower the fair value of our debt obligations.
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.
December 31, 2022 2021 Fair value of investments in pooled funds $ 556 $ 683 Pre-tax impact of 10% decline in NAV of the funds $ (56) $ (68) | Ambac Financial Group, Inc. 58 2022 FORM 10-K Table of Contents ,
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 ,
Item 8. • The interest rate derivatives portfolio is managed as a partial hedge against the effects of rising interest rates elsewhere in the Company, including on Ambac's financial guarantee exposures. 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 10.
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.
Ambac performs scenario testing to measure the potential for losses in volatile markets. These scenario tests include parallel and non-parallel shifts in the benchmark interest rate curve. We also monitor our interest rates exposure through periodic reviews of projected cash flows and durations of our asset and liability positions.
We also monitor our interest rates exposure through periodic reviews of projected cash flows and durations of our asset and liability positions.
Added
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
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.

Other OSG 10-K year-over-year comparisons