AMBAC FINANCIAL GROUP INC

Holding Company Liquidity

AFG is organized as a legal entity separate and distinct from its operating subsidiaries. AFG's liquidity is primarily dependent on its net assets, excluding the operating subsidiaries that it owns, totaling $84,922 as of June 30, 2025, and secondarily on investment income, distributions, tax and expense sharing payments from its operating subsidiaries and third party capital (e.g. from credit facilities and equity issuance).

(1)Includes strategic minority investments in insurance services businesses of $20,618 at June 30, 2025, and December 31, 2024..

The decrease in AFG net assets, excluding its equity investments in subsidiaries, during the first six months of 2025 was driven primarily by net cash outflows from operating and interest expenses in addition to treasury stock purchases, partially offset by interest income and net distributions received from subsidiaries.

•Effective July 31, 2024, AFG closed the acquisition of a 60% controlling interest in Beat. In connection with the acquisition, Cirrata incurred $150,000 of debt maturing in 364 days funded by a global bank (the "Credit Facility"). Repayment of debt under the Credit Facility is guaranteed by AFG. AFG is required to repay this debt upon the closing of the sale of AAC or otherwise refinance such short-term debt with longer-term debt. On June 10, 2025, AFG entered into an agreement to extend the maturity date of the Credit Facility from July 31, 2025, to the earlier of (a) December 31, 2025, and (b) the date that is the three-month anniversary of the termination of the Purchase Agreement.

•AFG's acquisition of Beat was partially funded by AAC's co-investment in the amount of $62,000. Upon the close of the AAC sale, AFG will purchase AAC's co-investment at a price resulting in a 7.5% rate of return per annum to AAC.

•If AFG were to not sell AAC, its ability to receive dividends from AAC and the timing of any such potential dividends would depend on regulatory approval and the satisfaction of certain obligations senior to AFG's equity interest (e.g. surplus notes).

•Subject to the satisfaction of the conditions required for the sale of AAC as described in Note 5. Discontinued Operation in the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, AFG will receive $420,000 of proceeds at closing less applicable legal, advisory and other expenses incurred in connection with the Sale.

•Everspan's ability to make future dividend payments will mostly depend on its future profitability relative to its capital needs to support growth. Everspan is not expected to pay dividends in 2025. Everspan makes tax payments to AFG in accordance with a Tax Sharing Agreement. For the six months ended June 30, 2025, Everspan paid $1,744 in tax payments to AFG.

•Cirrata does not have any regulatory restrictions on its ability to make distributions. AFG received distributions from Cirrata of $3,118 and $4,650 during the six months ended June 30, 2025 and 2024, respectively.

AFG's principal uses of liquidity are: (i) the payment of G&A expenses, including costs to explore opportunities to grow and diversify Ambac, (ii) making capital investments to acquire, grow and/or capitalize new and/or existing businesses, including through the acquisition of noncontrolling interests as a result of the exercise of outstanding puts and/or calls, and (iii) making investments in technology and other operational infrastructure to improve the operational effectiveness and efficiency of our business and to support its growth. Funding puts, calls and other capital commitments could require payments from AFG, the magnitude of which will ultimately depend on the performance of the underlying businesses, whether or not the puts or calls are exercised, FX rates and other considerations of approximately $300,000 through 2030. AFG seeks to fund these potential puts and calls from internal resources, but may seek to raise additional short-term or long-term funding or capital sources depending on a number of considerations, including distribution levels from subsidiaries, the potential for additional acquisitions, other capital investment demands, and other considerations. AFG may also provide short-term financial support, primarily in the form of loans, to its operating subsidiaries to support their operating requirements.

In the opinion of the Company’s management the net assets and expected funding sources of AFG are currently sufficient to meet AFG’s current liquidity requirements. However, events, opportunities, acquisitions, the exercise of puts and calls, the need to refinance outstanding debt, or other circumstances could require AFG to seek additional capital (e.g. through the issuance of debt, equity or hybrid securities).

The Credit Facility includes covenants that restrict our ability to manage capital resources by limiting, among other actions, the issuance of debt or capital stock; the creation of liens; the disposition of assets; engaging in transactions with affiliates; making restricted payments, including dividends and the purchase or redemption of capital stock; and making acquisitions and other investments. The Credit Facility also requires the prepayment of the borrowings thereunder with proceeds of certain debt or equity issuances and certain asset sales. These requirements will impact our financial and operational flexibility while the Credit Facility remains in place.

Operating Companies' Liquidity

Insurance

Sources of liquidity for Everspan are primarily through funds generated from premiums, reinsurance recoveries, fees, investment income and maturities and sales of investments.

Cash provided from these sources is used primarily for claim payments, loss expenses, acquisition costs, operating expenses, reinsurance payments and purchases of securities and other investments.

Everspan manages its liquidity risk by projecting cash flows and maintaining specified levels of cash and short-term investments at all times. It is the opinion of the Company’s management that the insurance subsidiaries’ near term liquidity needs will be adequately met from the sources described above.

Insurance Distribution

The liquidity requirements of our Insurance Distribution subsidiaries are met primarily by funds generated from commission (both base and profit commissions) and fees. Base commissions and fees are generally received monthly, whereas profit commissions are received only if the business underwritten is profitable. Cash provided from these sources is used primarily for commissions paid to sub-producers, operating expenses and distributions to AFG and other members.

Cash Held at Banks

Ambac maintains cash and investment accounts, including premium trust accounts, at depository institutions in amounts in excess of the limits insured by the FDIC and in countries other than the U.S. Ambac's cash balances held at banks were $36,407 as of June 30, 2025, including cash of Ambac's insurance distribution subsidiaries held in regional banks of $35,085 as of June 30, 2025.

Consolidated Cash Flow Statement Discussion

The following table summarizes the net cash flows for the periods presented.

Operating Activities for Continuing Operations

Operating cash flows during the six months ended June 30, 2025 and 2024, was $(10,463) and $27,481, respectively. Operating cash flows for the six months ended June 30, 2025, were adversely impacted by G&A expenses paid and interest on short-term borrowing, an increase in reinsurance recoverable, partially offset by cash collections from both the specialty P&C and insurance distribution businesses.

Future operating flows will primarily be impacted by net premium collections, commission and fee income and investment income receipts, G&A expenses, commission expenses, net claim and loss expense payments and interest payments on debt.

Investing Activities for Continuing Operations

Investing activities for the six months ended June 30, 2025 were primarily driven by changes in short-term investments.

Future investing cash flows will be primarily dependent on the sale of AAC, potential acquisitions, the exercise of puts and calls related to non-controlling interests and the purchase and sale of securities.

Financing Activities for Continuing Operations

Financing activities for the six months ended June 30, 2025, included purchases of common stock of $3,301.

Future financing cash flows will be primarily impacted by paydowns and maturities of debt, new borrowings, capital management activity and distributions to noncontrolling interests.

Cash Flows from Discontinued Operations

Cash flows pertaining to discontinued operations are reported separately on the Consolidated Statements of Cash Flows. The primary driver of the cash flows from discontinued operations was the continued run-off of the financial guarantee business. Since the agreement to sell AAC, the operations have been substantially separated and the potential impacts on future liquidity to the continuing operations are expected to be insignificant.