AMBAC FINANCIAL GROUP INC

Results of Operations

Consolidated Results

A summary of our financial results is shown below:

The following paragraphs describe the consolidated results of operations of Ambac and its subsidiaries for the three months ended March 31, 2024 and 2023, respectively.

Gross Premiums Written. Gross premiums written increased $37 for the three months ended March 31, 2024, compared to the same period in the prior year, as shown by segment below.

Legacy Financial Guarantee Insurance gross written premiums relate to changes in expected and contractual premium cash flows for existing financial guarantees in force.

Specialty Property & Casualty Insurance growth in gross premiums written was driven by new programs, including assumed premium written with Everspan as a reinsurer, and growth in existing programs.

Net Premiums Written. Net premiums written increased $10 for the three months ended March 31, 2024 compared to the same period in the prior year, as shown by segment below:

Legacy Financial Guarantee Insurance net premiums written relate to changes in expected and contractual premium cash flows for existing financial guarantees in force.

Specialty P&C growth was driven by new programs, including assumed premium written by Everspan as a reinsurer, and growth in existing programs.

Net Premiums Earned. Net premiums earned increased $19 for the three months ended March 31, 2024, compared to the same period in the prior year as shown by segment below.

The increase in Specialty Property & Casualty Insurance was driven by new programs, including premiums earned via assumed reinsurance, and growth in existing programs.

Net Investment Income. Net investment income primarily consists of interest and net discount accretion on fixed maturity securities classified as available-for-sale, interest and changes in fair value of fixed maturity securities classified as trading and net gains (losses) on pooled investment funds which include changes in fair value of the funds' net assets. Fixed maturity securities include investments in Ambac-insured securities that are made opportunistically based on their risk/reward and asset-liability management characteristics. Investments in pooled investment funds and certain other investments are either classified as trading securities with changes in fair value recognized in earnings or are reported under the equity method. These funds and other investments are reported in Other investments on the Unaudited Consolidated Balance Sheets, which consists primarily of pooled fund investments in diversified asset classes. For further information about investment funds held, refer to Note 4. Investments to the Unaudited Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q. Net investment income for the periods presented were driven by the Legacy Financial Guarantee segment; other segments' results were not significant.

Net investment income from Ambac-insured securities; available-for-sale and short-term securities, other than Ambac-insured; and Other investments is summarized in the table below:

Net investment income (loss) increased $8 for the three months ended March 31, 2024 compared to the prior year period.

•Net investment income from available-for-sale and short-term securities, other than Ambac-insured increased for the three months ended March 31, 2024, compared to the same periods in the prior year due primarily to higher portfolio yields.

•Other investments income (loss) increased $2 for the three months ended March 31, 2024, compared to the same period in the prior year driven by the higher increase in fair value of securities received in the Puerto Rico restructurings and classified as trading. Income from pooled fund investments for the three months ended March 31, 2024, was flat compared to the prior year period. Stronger average performance in the first quarter of 2024 offset the effect of portfolio allocation out of pooled funds since March 31, 2023.

•Net investment income from Ambac-insured securities for the three months ended March 31, 2024, increase $2 compared to prior year period due to additional purchases of AAC-insured student loan securities during 2023. A significant majority of these student loan securities were transferred to a non-consolidated trust in March 2024 in connection with the commutation of the associated AAC financial guarantees.

Net Investment Gains (Losses), including Impairments. The following table provides a breakdown of net investment gains (losses) for the periods presented:

Credit impairments are recorded as an allowance for credit losses with changes in the allowance recorded through earnings. When credit impairments are recorded, any non-credit related impairment amounts on the securities are recorded in other comprehensive income. If management either: (i) has the intent to sell its investment in a debt security or (ii) determines that the Company is more likely than not will be required to sell the debt security before its anticipated recovery, then the amortized cost of the security is written-down to fair value with a corresponding impairment charge recognized in earnings.

Net Gains (Losses) on Derivative Contracts. Net gains (losses) on derivative contracts are driven primarily by results from the Company's legacy interest rate derivatives portfolio. Through the first quarter of 2023, the interest rate derivatives portfolio was positioned to benefit from rising rates as a partial economic hedge against interest rate exposure in the financial guarantee insurance and investment portfolios. This economic hedge was substantially reduced since September 30, 2022 and was fully removed during the second quarter of 2023. 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. The removal of the economic hedge does not change the

exposure of future results to counterparty credit adjustments. Results from other derivatives were not significant to the periods presented.

Net gains (losses) on interest rate derivatives for the three months ended March 31, 2024, were $2 compared to ($4) for the three months ended March 31, 2023. Results for the three months ended March 31, 2024 and 2023 were driven by counterparty credit adjustments as described below. Additionally, the three months ended March 31, 2023, included losses of $2 related to declines in interest rates during the period.

Counterparty credit adjustments are generally applicable for uncollateralized derivative assets that may not be offset by derivative liabilities under a master netting agreement. In periods when credit spreads are stable, counterparty credit adjustments will generally have a proportionate offsetting impact to gains or losses on derivative assets, relative to fully collateralized assets. In addition to the impact of interest rates on the underlying derivative asset values, the changes in counterparty credit adjustments are driven by movement of credit spreads. 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 $(1) for the three months ended March 31, 2024 and 2023, respectively. The counterparty credit adjustments for both periods were driven primarily by changes to the underlying asset values.

Commission Income and Commission Expense. Commission income for the three months ended March 31, 2024, was $18 compared to $14, for the three months ended March 31, 2023. Commissions include both base and profit sharing commissions of the Insurance Distribution segment. The increase was driven by commissions earned by Riverton Insurance Agency, which was purchased in August 2023, and organic growth. Gross commission income has an accompanying expense, commission expense, which will largely track changes in gross commission. For the three months ended March 31, 2024, commission expense of $10 compared to $8 in three months ended March 31, 2023, driven primarily by the same factors as commission income.

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. Generally, the Company’s consolidated LFG-VIEs are entities for which Ambac has provided financial guarantees on all of or a portion of its assets or liabilities.

Income (loss) on variable interest entities was $3 for the three months ended March 31, 2024, compared to $(1) for the three months ended March 31, 2023. Results for the three months ended March 31, 2024 increased from the prior year period due to inclusion of contract revenues from a LFG-VIE initially consolidated in the fourth quarter 2023, partially offset by lower

fair value gains on the net assets of other LFG-VIEs in the three months ended March 31, 2024 compared to the prior year period.

Refer to Note 9. Variable Interest Entities to the Unaudited Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q for further information on the accounting for LFG- VIEs.

Losses and Loss Adjustment Expenses (Benefit). Loss and loss expenses incurred decreased $19 for the three months ended March 31, 2024, compared to the same period in the prior year. The below provides the breakout of loss and loss expenses by segment:

The variance within legacy financial guarantee was driven by activities in the RMBS portfolio in both years. The primary driver was largely the positive impact of discount rates in 2024 compared to the negative impact of discount rates in 2023.

The higher loss and loss adjustment expenses in Specialty P&C is primarily due to an increase business production from new programs, including production from assumed reinsurance, and growth in existing programs.

General and Administrative Expenses (G&A). The following table provides a summary of G&A expenses for the periods presented:

The increase in Compensation G&A expenses during the three months ended March 31, 2024, was due to higher compensation costs from a net increase in staffing from the development and growth, both organic and via acquisitions, of the Specialty Property & Casualty Insurance and Insurance Distribution segments; offset by lower current year period expenses for severance costs and incentive compensation expense, including the impact of performance factor adjustments on stock-based compensation.

The decrease in Non-Compensation G&A expenses during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was due to lower Legacy Financial Guarantee Insurance segment's legal defense costs, offset by expenses associated with the ongoing strategic review of the Legacy Financial Guarantee Insurance segment and growth of the Specialty Property & Casualty Insurance and Insurance Distribution segments.

Intangible Amortization. Insurance intangible amortization for the three months ended March 31, 2024, was $11 an increase of $5 as compared to the the three months ended March 31, 2023. The increase for the three months ended March 31, 2024, was

driven primarily by de-risking activities. Other intangible amortization for the three months ended March 31, 2024, was $1, and $1 for the three months ended March 31, 2023, respectively.

Interest Expense. All interest expense relates to the Legacy Financial Guarantee Insurance segment and includes accrued interest on the Tier 2 Notes (fully redeemed during the first quarter of 2023), surplus notes and other debt obligations. Additionally, interest expense includes discount accretion when the debt instrument carrying value is at a discount to par. The following table provides details by type of obligation for the periods presented:

Interest expense for the three months ended March 31, 2024, decreased less than $1 compared to the three months ended March 31, 2023, due to the final redemption of Tier 2 secured notes in the first quarter of 2023.

As required by the terms of surplus notes and/or otherwise, AAC will continue to seek OCI’s approval to make payments of principal and interest on its surplus notes. AAC intends to make these requests at least four times a year with respect to payment of a partial amount, as well as the full amount, of the principal and interest then due, unless otherwise directed by OCI. OCI’s approval of AAC’s requests for surplus note payments may be granted or denied in OCI’s sole discretion. Since the issuance of the surplus notes in 2010, OCI has declined to approve regular payments of interest on surplus notes, although the OCI has permitted two exceptional payments. Ambac can provide no assurance as to when or if surplus note principal and interest payments will be made. If OCI does not approve payments on or the acquisition of surplus notes over time, the ongoing accretion of interest on the notes may impair AAC's ability to extinguish the notes in full. Surplus notes are subordinated in right of payment to policyholder and other claims.

AAC's recent request to pay principal of, and interest on, surplus notes on the next scheduled payment date of June 7, 2024, remains pending as of May 6, 2024. If OCI declines such request the scheduled payment date for interest, and the scheduled maturity date for payment of principal of the surplus notes, will be extended until OCI grants approval to make such payment. Interest will accrue, compounded on each anniversary of the original scheduled payment date or scheduled maturity date, on any unpaid principal or interest through the actual date of payment, at 5.1% per annum. Holders of surplus notes have no rights to enforce the payment of the principal of, or interest on, surplus notes in the absence of OCI approval to pay such amount. Interest on the outstanding surplus notes was accrued for and AAC is accruing interest on the interest amounts following each scheduled payment date. Total accrued and unpaid interest for surplus notes outstanding was $487 at March 31, 2024. Since the issuance of the surplus notes in 2010, OCI has declined to approve regular payments of interest on surplus notes, although the OCI has permitted two exceptional payments.

Provision for Income Taxes. The provision for income taxes primarily relates to international operations and was $5 for the three months ended March 31, 2024, compared to $4 for the three months ended March 31, 2023, an increase of $1 for the quarter.

Results of Operations by Segment

(1)Abbreviated as "EBITDA" in future references

(2)Represents the share of Ambac stockholders equity for each subsidiary within the Legacy Financial Guarantee Insurance segment, including intercompany eliminations.

The Legacy Financial Guarantee Insurance segment is in active runoff. This will generally result in declining premiums earned, investment income, G&A expenses and intangible amortization. The variability in the segment financial results are primarily driven by (i) change in loss and loss expenses resulting from, amongst other items, credit developments, interest rates and de-risking transactions (may also impact intangible amortization) and (ii) volatility from Other investments income (loss) resulting from changes in market conditions and other performance factors. Key variances not discussed above in the Consolidated Results section are as follows:

Net premiums earned. Net premiums earned increased $1 for the three months ended March 31, 2024, compared to the same period in the prior year. Net premiums earned were impacted by the organic and active runoff of the financial guarantee insured portfolio, resulting in a reduction to current and future normal net premiums earned and the following:

•Changes to the allowance for credit losses on the premium receivable asset. The positive impact on net premiums earned related to credit losses amounted to $1 for the three months ended March 31, 2024, as compared to $0 for the three months ended March 31, 2023.

Investment and Derivative Results. Net investment income increased $7 for the three months ended March 31, 2024, compared to the prior year period, driven by higher yields in fixed income and fair value gains on fixed maturity securities classified as trading. Net investment gains (losses), including impairments increased $5 for the three months ended March 31, 2024, compared to the prior year period, primarily as a result of foreign exchange gains on US dollar denominated securities held by Ambac UK and impairment charges in first quarter 2023. Derivative results improved by $5 compared to first quarter 2023 mostly driven by the impact of counterparty credit adjustments on certain derivative assets that are hedged against interest rate risk. Additionally, the three months ended March 31, 2023 included losses on positions held as partial hedges against interest rate risk elsewhere in the Legacy Financial Guarantee segment. Ambac has exited the derivative positions that led to the first quarter 2023 losses. See Consolidated Results above for further information about investment and derivative results.

Losses and Loss Adjustment Expenses (Benefit). The following provides details for losses and loss adjustment expenses (benefit) incurred for the periods presented:

Loss and loss adjustment expenses (benefit) for the three months ended March 31, 2024, was largely driven by the positive impact of discount rates on the structured insurance portfolio, and assumption changes in the public finance and international portfolios.

Loss and loss adjustment expenses (benefit) for the three months ended March 31, 2023, were largely driven by unfavorable loss development in the RMBS portfolio resulting from a decline in discount rates, partially offset by assumption changes in the international portfolio.

G&A Expenses.

Segment G&A expenses decreased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to (i) the timing of the reimbursement of expenses paid to the Corporate segment of $4 (2023 was paid in three months ended March 31, 2023 and 2024 will be paid in the second quarter of 2024) ii) lower legal defense costs and lower compensation costs than the prior year period. These relative reductions in expenses were partially offset by expenses incurred in the first quarter of 2024 related to the strategic review of the Legacy Financial Guarantee segment.

(1)Retention ratio is defined as net premiums written divided by gross premiums written

(2)Loss and LAE ratio is defined as losses and loss expenses incurred divided by net premiums earned

(3)Expense Ratio is defined as acquisition costs and general and administrative expenses, reduced by program fees divided by net premiums earned

(4)Combined ratio is defined as Loss and LAE ratio plus Expense Ratio

(5)Represents Ambac stockholders equity in the Specialty Property and Casualty Insurance segment, including intercompany eliminations.

The Specialty Property and Casualty Insurance segment has grown significantly since underwriting its first program in May 2021. Twenty-two programs were authorized to issue policies as of March 31, 2024, including Everspan participating on two programs as a reinsurer. The growth in both the number and size of these programs has contributed to the increase in gross and net premiums written, net premiums earned and net loss and loss expenses incurred.

Consistent with its strategy to generate sustainable and profitable, long-term specialty property and casualty program insurance business with a focus on diverse classes of risks, Everspan may source programs as a reinsurer. Accessing programs as a reinsurer provides Everspan the ability to diversify its risk profile, efficiently manage its exposure limits and underwrite programs in a cost efficient manner, amongst other benefits. Everspan may participate as a reinsurer on up to 30% of a program, which is in line with its strategy to generally retain up to 30% per program. Participation as a reinsurer will affect the retention ratio as Everspan's portion of assumed premiums is reflected fully in both Gross and Net Premiums Written.

Loss and loss expenses incurred increased for the three months ended March 31, 2024, relative to the three months ended March 31, 2023, primarily due to the growth and diversification of the business. Everspan's loss ratio (including ULAE) was 75.7% at March 31, 2024 versus 66.6% at March 31, 2023, inclusive of prior years development of 4.4% and 0.6%, respectively. The shift in the loss ratio was driven by commercial auto losses, the addition of personal nonstandard auto (through assumed reinsurance), excess auto claims and other liability claims. Everspan's loss ratio may fluctuate as the still nascent inforce book of business scales and seeks to diversify. The increase in the Loss and LAE ratio for the three months ended March 31, 2024, compared to March 31, 2023, was partially offset by a benefit to acquisition costs as a result of sliding scale commission arrangements with program partners. Such benefit reduced the Specialty Property and Casualty Insurance segments expense ratio by 6.1% and 0.6% for the three months ended March 31, 2024 and 2023, respectively. Certain Everspan programs were structured to include sliding scale commission arrangements within a loss ratio range. These sliding scale arrangements help mitigate losses, protect underwriting results and limit earnings volatility.

Loss and loss expenses incurred may be adversely impacted by economic and social inflation. The impact of inflation on ultimate loss reserves is difficult to estimate, particularly in light of recent disruptions to the judicial system, supply chain and labor markets. In addition, going forward, we may not be able to offset the impact of inflation on our loss costs with sufficient price increases. The estimation of loss reserves may also be more difficult during extreme events, such as a pandemic, or during the persistence of volatile or uncertain economic conditions, due to, amongst other reasons, unexpected changes in behavior of judicial decisions, claimants and policyholders, including fraudulent reporting of exposures and/or losses. Due to the inherent uncertainty underlying loss reserve estimates, the final resolution of the estimated liability for loss and loss adjustment expenses will likely be higher or lower than the related loss reserves at the reporting date. In addition, our estimate of losses and loss expenses may change. These additional liabilities or increases in estimates, or a range of either, could vary significantly from period to period.

General and administrative costs were flat for the three months ended March 31, 2024, relative to the three months ended March 31, 2023, as increases from the ramp up in Everspan's staffing and operations was mostly offset by the timing of incentive compensation accruals.

(1) The Consolidated Statements of Comprehensive Income presents the sum of these items as General and Administrative Expenses.

(2) Represents the share of Ambac stockholders equity for each subsidiary within the Insurance Distribution segment, including intercompany eliminations.

Ambac's Insurance Distribution businesses are compensated for their services primarily by commissions paid by insurance carriers for underwriting, structuring and/or administering polices. Commission revenues are usually based on a percentage of the premiums placed. In addition, we are eligible to receive profit sharing contingent commissions on certain programs based on the underwriting results of the policies placed with carriers, which may cause some variability in revenue and earnings.

The Insurance Distribution segment placed premiums for its carriers of approximately $90 for the three months ended March 31, 2024, up $13 or 17%, respectively, as compared to the three months ended March 31, 2023. Higher premiums placed were driven by the acquisition of Riverton Insurance Agency and organic growth. The increase in premiums placed and changes to the mix of business written led to the growth in commission income and commission expense of 22% and 29%, respectively.

Employer Stop Loss business underwritten by Xchange has seasonality in January and July, which results in revenue and earnings concentrations in the first and third quarters each calendar year. Employer Stop Loss is Xchange's largest business. Other lines of business placed by our Insurance Distribution business may also experience seasonality that may cause some volatility of results from period to period.

G&A Expenses. G&A expenses for the three months ended March 31, 2024, increased compared to the three months ended March 31, 2023, primarily as a result of the Riverton acquisition.