| Ambac Financial Group, Inc. 58 ~~2021~~2022 First Quarter FORM 10-Q |

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Corolla Note Exchange and acquire all of the interests in the Corolla Trust. Subsequent to the closing the Corolla Trust was dissolved and the junior surplus note that had been deposited in the Corolla Trust by AFG in 2014 was canceled.

In February 2021, AAC entered into a purchase agreement pursuant to which the holder of $15 principal amount of 5.1% junior surplus notes issued by AAC agreed to sell such notes to AAC in exchange for senior surplus notes (the "JSN Exchange"). Pursuant to the purchase agreement, each $1.00 principal amount of the junior surplus notes (and the associated amount of accrued and unpaid interest thereon) was exchanged for $0.8581 principal amount of senior surplus notes (and the associated amount of accrued and unpaid interest thereon). The closing of the JSN Exchange occurred on February 11, 2021, when AAC issued approximately $13 aggregate principal amount of senior surplus notes. Subsequent to the closing of the JSN Exchange the junior surplus notes were canceled. As a result of the Corolla Note Exchange and the JSN Exchange, AAC no longer has any junior surplus notes outstanding.

The surplus notes exchanged pursuant to the Corolla Note Exchange and the JSN Exchange are part of the same series as, and rank equally with, the existing surplus notes previously issued by AAC. After giving effect to the Corolla Note Exchange and the JSN Exchange, AAC has $853 principal amount of surplus notes outstanding and total principal and accrued and unpaid interest of surplus notes outstanding is $1,414 as of February 11, 2021. Outstanding surplus notes principal amount includes $83 owned by AFG, which amount is eliminated in consolidation for purposes of US generally accepted accounting principles. The Company recorded a gain of $33 for the three months ended March 31, 2021 arising from AAC's purchases of junior surplus notes below their carrying values which is reported within Net realized gains (losses) on extinguishment of debt in the Consolidated Statements of Total Comprehensive Income (Loss). In addition, the Company has recorded gain of $4 for the three months ended March 31, 2021 from the exchange of the Corolla Certificate held by AFG above its carrying value, which is reported within Net realized investment gains (losses) in the Consolidated Statements of Total Comprehensive Income (Loss).

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The Company has disclosed its significant accounting policies in Note 2. Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. The following significant accounting policies provide an update to those included in the Company’s Annual Report on Form 10-K.

Consolidation:

The consolidated financial statements include the accounts of AFG and all other entities in which AFG (directly or through its subsidiaries) has a controlling financial interest, including variable interest entities (“VIEs”) for which AFG or an AFG subsidiary is deemed the primary beneficiary in accordance with the Consolidation Topic of the Accounting Standards Codification ("ASC"). All significant intercompany balances have been eliminated. See Note 3.9. Variable Interest Entities, for a

detailed discussion of Ambac’s involvement in VIEs, Ambac’s methodology for determining whether Ambac is required to consolidate a VIE and the effects of VIEs being consolidated and deconsolidated.

Basis of Presentation:

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for annual periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. The accompanying consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with the standards of the Public Company Accounting Oversight Board (U.S.), but in the opinion of management such financial statements include all adjustments necessary for the fair presentation of the Company’s consolidated financial position and results of operations. The results of operations for the three months ended March 31, ~~2021,~~2022, may not be indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022. The December 31, ~~2020,~~2021, consolidated balance sheet was derived from audited financial statements.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results.

Foreign Currency:

The impact of non-functional currency transactions and the remeasurement of non-functional currency assets and liabilities into the respective subsidiaries' functional currency (collectively "foreign currency transactions gains/(losses)") are ~~$(5)~~$1 and $1$(5) for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Foreign currency transactions gains/(losses) are primarily the result of remeasuring Ambac UK's assets and liabilities denominated in currencies other than its functional currency, primarily the U.S. dollar and the Euro.

~~Revenue Recognition:~~

Revenues for the MGA/U business operations are recognized in accordance with the Revenue from Contracts with Customers Topic of the ASC. The following steps are applied to recognize revenue: identify the contract(s) with the customer, identify the performance obligations in the contract(s), determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. A performance obligation is satisfied either at a point in time or over time depending on the nature of the product or service provided, and the specific terms of the contract with customers.

~~| Ambac Financial Group, Inc.~~ 6~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

MGA/U performance obligations consist of placing policies with insurers and, for certain products, providing claims servicing. Revenue from limited and short-term medical policies sold through affinity groups ("Affinity") are recognized up front as no further performance obligations exist after policy placement. Revenue from employer stop loss policies ("ESL") is apportioned to policy placement, recognized upfront, and claims servicing, recognized over the claim period, based on the relative stand-alone selling price of the respective performance obligations.

Revenue consists of base and profit-sharing commissions. Base commissions, associated with policy placement and claims servicing, are estimated by applying the contractual commission percentages to estimated gross premiums written. Profit-sharing commissions represent variable consideration associated with policy placement only and are estimated based on expected loss ratios and the estimated gross premium for base commissions. Base and profit-sharing commissions are estimated with a constraint applied such that a significant reversal of revenue in the future is not probable. MGA/U revenue is reported in other income (expense) on the Consolidated Statement of Total Comprehensive Income.

Contract assets represent the Company's right to future consideration for services it has already transferred to the customer, which is also conditional on future performance. Once the right to consideration becomes unconditional, it is reported as a receivable. Contract liabilities represent the Company's obligation to transfer services for which it has already received consideration from the customer. Contract assets and contract liabilities are reported as other assets and other liabilities, respectively, on the Consolidated Balance Sheet.

Redeemable Noncontrolling Interest:

The acquisition by AFG of 80% of the ownership interests of Xchange is further described in Note 3. Business Combinations

in the Notes to Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Under the terms of the acquisition agreement, Ambac received a call option to purchase the remaining 20% of Xchange from the minority owners (i.e., noncontrolling interests) and the minority owners received a put option to sell the remaining 20% to Ambac. The call and put options are exercisable after different time periods elapse. Because the exercise of the put option is outside the control of Ambac, in accordance with the Distinguishing Liabilities from Equity Topic of the ASC, Ambac reports redeemable noncontrolling interests in the mezzanine section of its consolidated balance sheet.

The redeemable noncontrolling interest is remeasured each period as the greater of:

i.the carrying value under ASC 810, which attributes a portion of consolidated net income (loss) to the redeemable noncontrolling interest; and

ii.the redemption value of the put option under ASC 480 as if it were exercisable at the end of the reporting period.

Any increase (decrease) in the carrying amount of the redeemable noncontrolling interest as a result of adjusting to the redemption value of the put option is recorded as an offset to retained earnings. The impact of such differences on earnings per share are presented in Note 5.12. Net Income Per Share.

Following is a rollforward of redeemable noncontrolling interest.


~~Three Months Ended March 31,~~	~~2021~~
~~Beginning balance~~	$	7
~~Net income attributable to redeemable noncontrolling interest (ASC 810)~~	0
~~Adjustment to redemption value (ASC 480)~~	$	13
~~Ending balance~~	$	20

Supplemental Disclosure of Cash Flow Information Three Months Ended March 31,
2021 2020
Cash paid during the period for:
Income taxes $ 8 $ 2
Interest on long-term debt 25 31
Non-cash financing activities:
Decrease in long-term debt as a result of surplus notes exchanges $ 71 $ —
March 31,
2021 2020
Reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows:
Cash and cash equivalents $ 23 $ 58
Restricted cash 16 31
Variable Interest Entity restricted cash 2 2
Total cash, cash equivalents, and restricted cash shown on the Consolidated Statements of Cash Flows $ 42 $ 91

~~Reclassifications and Rounding~~

~~Reclassifications may have been made to prior years' amounts to conform to the current year's presentation. Certain amounts and~~

~~tables in the consolidated financial statements and associated notes may not add due to rounding.~~


Three Months Ended March 31,	2022		2021
Beginning balance	$	18	$	7
Net income attributable to redeemable noncontrolling interest (ASC 810)	—		—
Adjustment to redemption value (ASC 480)	—		13
Ending balance	$	18	$	20

| Ambac Financial Group, Inc. 79 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)


Supplemental Disclosure of Cash Flow Information	Three Months Ended March 31,
	2022		2021
Cash paid during the period for:
Income taxes	$	2	$	8
Interest on long-term debt	15		25
Non-cash investing and financing activities:




Decrease in long-term debt as a result of surplus notes exchanges	$	—	$	71

Exchange of investments in Puerto Rico bonds for new securities issued in the restructuring transactions	185		—

	March 31,
	2022		2021
Reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows:
Cash and cash equivalents	$	60	$	23
Restricted cash	7		16
Variable Interest Entity restricted cash	49		2
Total cash, cash equivalents, and restricted cash shown on the Consolidated Statements of Cash Flows	$	116	$	42

Reclassifications and Rounding

Reclassifications may have been made to prior years' amounts to conform to the current year's presentation. Certain amounts and tables in the consolidated financial statements and associated notes may not add due to rounding.

Adopted Accounting Standards:

Effective January 1, ~~2021,~~2022, the Company adopted the following accounting standard:

~~Simplifying Income Tax Accounting~~Equity-classified Written Call Options

In ~~December 2019,~~May 2021, the FASB issued ASU ~~2019-12,~~2021-04, ~~Income Taxes (Topic 740) - Simplifying the~~Issuer's Accounting for ~~Income Taxes~~Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The ~~FASB issued this~~ ASU clarifies and reduces diversity in practice for an issuer's accounting for modifications or exchanges of equity-classified written call options (e.g. warrants) that remain equity-classified after the modification or exchange. The ASU requires an issuer to account for the modification or exchange based on the economic substance of the transaction. For example, if the modification or exchange is related to the issuance of debt or equity, any change in the fair value of the written call option would be accounted for as part of ~~its initiative to reduce complexity~~the debt issuance cost in ~~accounting standards. The ASU removes certain exceptions~~accordance with the debt guidance or equity issuance cost in accordance with the equity guidance, related to investments, intra-period allocations and interim period allocations. It further adds new guidance related to the allocation of consolidated income taxes and evaluating a step-up in the tax basis of goodwill.respectively. The ASU did not have a consequential impact on Ambac's financial statements.

Convertible Instruments and Contracts in an Entity's Own Equity

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The ASU i) simplifies the accounting for convertible debt and convertible preferred stock by reducing the number of accounting

models, and amends certain disclosures, ii) amends and simplifies the derivative scope exception guidance for contracts in an entity's own equity, including share-based compensation, and iii) amends the diluted earnings per share calculations for convertible instruments and contracts in an entity's own equity. The ASU did not have a consequential impact on Ambac's financial statements.

Future Application of Accounting Standards:

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides companies with optional guidance to ease the potential accounting burden related to transitioning away from reference rates, such as LIBOR, that are expected to be discontinued as a result of initiatives undertaken by various jurisdictions around the world. For example, under current GAAP, contract modifications which change a reference rate are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU can be applied prospectively as of the beginning of the interim period that includes or is subsequent to March 12, 2020, or any date thereafter, but does not apply to contract modifications and other transactions entered into or evaluated after December 31, 2022. On April 20, 2022, the FASB issued a proposed ASU that would extend the sunset date to December 31, 2024 and make certain definitional changes, with feedback required by June 6, 2022. Management has not determined when it will adopt this ASU, and the impact on Ambac's financial statements is being evaluated.

~~3. VARIABLE INTEREST ENTITIES~~

~~Ambac, with its subsidiaries, has engaged in transactions with variable interest entities ("VIEs,") in various capacities.~~

•~~Ambac provides financial guarantees, including credit derivative contracts, for various debt obligations issued by special purpose entities, including VIEs ("FG VIEs");~~

•~~Ambac sponsors special purpose entities that issued notes to investors for various purposes; and~~

•Ambac is an investor in collateralized debt obligations, mortgage-backed and other asset-backed securities issued by VIEs and its ownership interest is generally insignificant to the VIE and/or Ambac does not have rights that direct the activities that are most significant to such VIE.

~~FG VIEs:~~

Ambac’s subsidiaries provide financial guarantees in respect of assets held or debt obligations of VIEs. Ambac’s primary variable interest exists through this financial guarantee insurance or credit derivative contract. The transaction structures provide certain

financial protection to Ambac. Generally, upon deterioration in the performance of a transaction or upon an event of default as specified in the transaction legal documents, Ambac will obtain certain control rights that enable Ambac to remediate losses. These rights may enable Ambac to direct the activities of the entity that most significantly impact the entity’s economic performance. Under the 2018 Stipulation and Order, AAC is required to obtain OCI approval with respect to the exercise of certain significant control rights in connection with policies that had previously been allocated to the Segregated Account. Accordingly, AAC does not have the right to direct the most significant activities of those FG VIEs.

•We determined that Ambac’s subsidiaries generally have the obligation to absorb a FG VIE's expected losses given that they have issued financial guarantees supporting certain liabilities (and in some cases certain assets). As further described below, Ambac consolidates certain FG VIEs in cases where we also have the power to direct the activities that most significantly impact the VIE’s economic performance due to one or more of the following: (i) the transaction experiencing deterioration and breaching performance triggers, giving Ambac the ability to exercise certain control rights, (ii) Ambac being involved in the design of the VIE and receiving control rights from its inception, such as may occur from loss remediation activities, or (iii) the transaction not experiencing deterioration, however due to the passive nature of the VIE, Ambac's contingent control rights upon a future breach of performance triggers is considered to be the power over the most significant activity.

•A VIE is deconsolidated in the period that Ambac no longer has such control rights, which could occur in connection with the execution of remediation activities on the transaction or amortization of insured exposure, either of which may reduce the degree of Ambac’s control over a VIE.

•~~Assets and liabilities of FG VIEs that are consolidated are reported within Variable interest entity assets or Variable interest entity liabilities on the Consolidated Balance Sheets.~~

•The election to use the fair value option is made on an instrument by instrument basis. Ambac has elected the fair value option for consolidated FG VIE financial assets and financial liabilities, except in cases where Ambac was involved in the design of the VIE and was granted control rights at its inception.

◦When the fair value option is elected, changes in the fair value of the FG VIE's financial assets and liabilities are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss), except for the portion of the total change in fair value of financial liabilities caused by changes in the instrument-specific credit risk which is presented separately in Other comprehensive income (loss).

◦In cases where the fair value option has not been elected, the FG VIE's invested assets are fixed maturity securities and are considered available-for-sale as defined by the Investments - Debt Securities Topic of the ASC. These assets are reported in the financial statements at fair value

| Ambac Financial Group, Inc. 810 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

3. SEGMENT INFORMATION

The Company reports its results of operations in 3 segments: Legacy Financial Guarantee Insurance, Specialty Property and Casualty Insurance and Insurance Distribution, separate from Corporate and Other, which is consistent with the manner in which the Company's chief operating decision maker ("CODM") reviews the business to assess performance and allocate resources. See Note 1. Background and Business Description for a description of each of the Company's business segments.

The following tables summarize the components of the Company’s total revenues and expenses, pretax income (loss), net income (loss), net income (loss) attributable to common shareholders and total assets by reportable business segment. Information provided below for “Corporate and Other” primarily relates to the operations of AFG, which will include investment income on its investment portfolio and costs to maintain the operations of AFG, including public company reporting, and business development costs for the acquisition and development of new business initiatives.


	Legacy Financial Guarantee Insurance		Specialty Property & Casualty Insurance		Insurance Distribution		Corporate & Other		Consolidated (2)
Three Months Ended March 31, 2022



Revenues:
Net premiums earned	$	13	$	1					$	15
Net investment income	5		—				—		5

Net gains on derivative contracts	57								57

Commission income					$	9			9

Other revenues (1)	34		—		—		—		34
Total revenues (2)	109		2		9		—		119
Expenses:
Loss and loss expenses	23		1						24
Operating expenses (3)	21		3		1		3		29
Sub-producer commissions (3)					5				5
Depreciation expense (3)	—		—		—		—		—
Intangible amortization	14				1				14
Interest expense	44								44

Total expenses (2)	102		4		6		3		116
Pretax income (loss)	$	6	$	(2)	$	2	$	(3)	$	3





Total assets (2)	$	11,075	$	191	$	97	$	168	$	11,531

| Ambac Financial Group, Inc. 112022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

with unrealized gains and losses reflected in Accumulated Other Comprehensive Income (Loss) in Stockholders' Equity. The financial liabilities of these FG VIEs consist of long term debt obligations and are carried at par less unamortized discount. Income from the FG VIE's available-for-sale securities (including investment income, realized gains and losses and credit impairments as applicable) and interest expense on long term debt are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss).


	Legacy Financial Guarantee Insurance		Specialty Property & Casualty Insurance		Insurance Distribution		Corporate & Other		Consolidated (2)
Three Months Ended March 31, 2021



Revenues:
Net premiums earned	$	14	$	—					$	14
Net investment income	49		—				—		49

Net gains on derivative contracts	25								25

Commission income					$	7			7

Other revenues (1)	29		—		—		4		33
Total revenues (2)	118		—		7		4		129
Expenses:
Loss and loss expenses	8		—						8
Operating expenses (3)	17		1		1		10		29
Sub-producer commissions (3)					4				4
Depreciation expense (3)	—		—		—		—		—
Intangible amortization	19				1				19
Interest expense	50								50

Total expenses	94		1		5		10		110
Pretax income (loss) (2)	$	24	$	(1)	$	2	$	(6)	$	19





Total assets (2)	$	12,470	$	108	$	98	$	165	$	12,840

•(1)~~Upon initial consolidation of a FG VIE, Ambac recognizes a gain or loss in earnings for~~Other revenues include the difference between: (i) the fair value of the consideration paid, the fair value of any non-controlling interests and the reported amount of any previously held interests and (ii) the net amount, as measured on a fair value basis, of the assets and liabilities consolidated. Upon deconsolidation of a FG VIE, Ambac recognizes a gain or loss for the difference between: (i) the fair value of any consideration received, the fair value of any retained non-controlling investment in the VIE and the carrying amount of any non-controlling interest in the VIE and (ii) the carrying amount of the VIE’s assets and liabilities. Gains or losses from consolidation and deconsolidation that are reported in earnings are reported within Income (loss) on variable interest entitiesfollowing line items on the Consolidated Statements of Total Comprehensive ~~Income (Loss)~~Income: Net investment gains (losses), including impairments, Net realized gains (losses) on extinguishment of debt, income (loss) on variable interest entities and other income (expense).

•(2)Inter-segment revenues and inter-segment pre-tax income (loss) amounts are insignificant and are not presented separately. Total assets noted in the Corporate and Other Column is net of AFG's investment in surplus notes issued by the Legacy Financial Guarantee Segment with fair values of $77 and $114 at March 31, 2022 and 2021.

(3)The ~~impact~~Consolidated Statements of ~~consolidating such FG VIEs on Ambac’s balance sheet is~~Comprehensive Income presents the ~~elimination~~sum of transactions between the consolidated FG VIEs and Ambac’s operating subsidiaries and the inclusion of the FG VIE’s third party assets and liabilities. For a financial guarantee insurance policy issued to a consolidated VIE, Ambac does not reflect the financial guarantee insurance policy in accordance with the relatedthese items as Operating Expenses.

4. INVESTMENTS

~~insurance accounting rules under the Financial Services – Insurance Topic~~

Ambac’s non-VIE invested assets are primarily comprised of ~~the ASC. Consequently, upon consolidation, Ambac eliminates the insurance assets~~fixed maturity securities classified as either available-for-sale or trading securities, and ~~liabilities associated with the policy from~~interests in pooled investment funds, which are reported within Other investments on the Consolidated Balance Sheets. Such insurance assets and liabilities may include premium receivables, reinsurance recoverable, deferred ceded premium, subrogation recoverable, unearned premiums, loss and loss expense reserves, ceded premiums payable and insurance intangible assets. ForInterests in pooled investment funds in the form of common stock or in-substance common stock are classified as trading securities, ~~owned by Ambac~~while limited partner interests in such funds are

reported using the equity method. Fixed maturity securities classified as trading are unrated municipal bond obligations of Puerto Rico issuing entities that are ~~debt instruments issued by the VIE, the associated debt and investment balances are eliminated upon consolidation.~~

FG VIEs which are consolidated may include non-recourse assets or liabilities. FG VIEs' liabilities (and in some cases assets) that are insured by the Company are with recourse, because the Company guarantees the payment of principal and interest in the event the issuer defaults. FG VIEs' assets and liabilities that are not insured by the Company are without recourse, because Ambac has not issued a financial guarantee and is under no obligation for the payment of principal and interest of these instruments. Therefore, the Company’s economic exposure to consolidated FG VIEs is limited to the financial guarantees issued for recourse assets and liabilities and any additional variable interests held by Ambac. Additionally, Ambac’s general creditors, other than those specific policy holders which own the VIE debt obligations, do not have rights with regard to the assetspart of the ~~VIEs. Ambac evaluates~~ the ~~net income effects and earnings per share effects to determine attributions between Ambac and non-controlling interests~~PROMESA restructuring process as a result of consolidating a VIE. Ambac has determined that the net income and earnings per share effect of consolidated FG VIEs are attributable to Ambac’s interests through financial guarantee premium and loss payments with the VIE.described further in Note 6. Insurance Contracts.

| Ambac Financial Group, Inc. 912 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Fixed Maturity Securities:

The ~~following table summarizes the carrying values~~amortized cost and estimated fair value of ~~assets~~available-for-sale investments, excluding VIE investments, at March 31, 2022 and ~~liabilities, along with other supplemental information related to VIEs that are consolidated~~December 31, 2021, were as ~~a result of financial guarantees of Ambac UK and AAC:~~follows:

March 31, 2021 December 31, 2020
Ambac UK Ambac Assurance Total VIEs Ambac UK Ambac Assurance Total VIEs
ASSETS:
Fixed maturity securities, at fair value:
Corporate obligations, fair value option $ 3,103 $ 0 $ 3,103 $ 3,215 $ 0 $ 3,215
Municipal obligations, available-for-sale (1)
0 133 133 0 139 139
Total FG VIE fixed maturity securities, at fair value 3,103 133 3,236 3,215 139 3,354
Restricted cash 1 1 2 1 1 2
Loans, at fair value (2)
2,948 0 2,948 2,998 0 2,998
Derivative assets 38 0 38 41 0 41
Other assets 0 1 1 0 2 2
Total FG VIE assets $ 6,090 $ 135 $ 6,225 $ 6,255 $ 143 $ 6,398
LIABILITIES:
Long-term debt:
Long-term debt, at fair value (3)
$ 4,264 $ 0 $ 4,264 $ 4,324 $ 0 $ 4,324
Long-term debt, at par less unamortized discount 0 163 163 0 169 169
Total long-term debt 4,264 163 4,427 4,324 169 4,493
Derivative liabilities 1,739 0 1,739 1,835 0 1,835
Total FG VIE liabilities $ 6,003 $ 163 $ 6,166 $ 6,159 $ 169 $ 6,328
Number of FG VIEs consolidated 5 1 6 5 1 6


	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2022:
Fixed maturity securities:
Municipal obligations	$	65	$	—	$	5	$	1	$	69
Corporate obligations	610		1		2		34		577
Foreign obligations	92		—		—		4		88
U.S. government obligations	53		—		—		2		51

Residential mortgage-backed securities	179		—		47		—		225

Collateralized debt obligations	121		—		—		1		120
Other asset-backed securities (1)	232		—		20		—		252
	1,352		1		73		42		1,383
Short-term	540		—		—		—		540
	1,892		1		73		42		1,922
Fixed maturity securities pledged as collateral:
U.S. government obligations	15		—		—		—		15
Short-term	99		—		—		—		99
	114		—		—		—		114
Total available-for-sale investments	$	2,006	$	1	$	73	$	43	$	2,036



December 31, 2021:
Fixed maturity securities:
Municipal obligations	$	315	$	—	$	28	$	3	$	340
Corporate obligations	612		—		10		9		613
Foreign obligations	89		—		—		2		87
U.S. government obligations	45		—		1		1		45

Residential mortgage-backed securities	182		—		70		—		252

Collateralized debt obligations	128		—		—		—		128
Other asset-backed securities (1)	234		—		32		—		265
	1,605		—		141		16		1,730
Short-term	415		—		—		—		414
	2,020		—		141		16		2,145
Fixed maturity securities pledged as collateral:
U.S. government obligations	15		—		—		—		15
Short-term	105		—		—		—		105
	120		—		—		—		120
Total available-for-sale investments	$	2,140	$	—	$	141	$	16	$	2,265

(1)~~Available-for-sale FG VIE fixed maturity securities consist~~Consists primarily of ~~municipal obligations with an amortized cost basis~~Ambac's holdings of ~~$109~~military housing and ~~$113, and aggregate gross unrealized gains of $23and $27 at March 31, 2021 and December 31, 2020, respectively. All such securities had contractual maturities due after ten years as of March 31, 2021.~~

~~(2)The unpaid principal balances of~~student loan ~~assets carried at fair value were $2,519 as of March 31, 2021 and $2,546 as of December 31, 2020.~~securities.

~~(3)The unpaid principal balances of long-term debt carried at fair value were $3,758 as of March 31, 2021 and $3,769 as of December 31, 2020.~~

~~The following schedule details the components of Income (loss) on variable interest entities for the affected periods:~~

Three Months Ended March 31, 2021 2020
Net change in fair value of VIE assets and liabilities reported under the fair value option $ (1) $ 0
Less: Credit risk changes of fair value option long-term debt reported through other comprehensive income (loss) 1 (4)
Net change in fair value of VIE assets and liabilities reported in earnings (1) (4)
Investment income on available-for-sale securities 2 2
Net realized investment gains (losses) on available-for-sale securities 1 8
Interest expense on long-term debt carried at par less unamortized cost (1) (2)
Income (loss) on variable interest entities $ 0 $ 3

Ambac did not consolidate any new VIEs for the three months ended March 31, 2021, and the three months ended March 31, 2020. Ambac deconsolidated 0 VIEs for the three months ended March 31, 2021, and deconsolidated 0 VIEs for the three months ended March 31, 2020.

| Ambac Financial Group, Inc. 1013 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at March 31, 2022, by contractual maturity, were as follows:


	Amortized Cost		Estimated Fair Value
Due in one year or less	$	683	$	683
Due after one year through five years	431		416
Due after five years through ten years	317		300
Due after ten years	41		39
	1,472		1,438
Residential mortgage-backed securities	179		225

Collateralized debt obligations	121		120
Other asset-backed securities	232		252
Total	$	2,005	$	2,036

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.

Unrealized Losses on Fixed Maturity Securities:

The following table ~~displays the carrying amount of the assets, liabilities~~shows gross unrealized losses and ~~maximum exposure to loss~~fair values of Ambac’s ~~variable interests~~available-for-sale investments, excluding VIE investments, which at March 31, 2022 and December 31, 2021, did not have an allowance for credit losses under the CECL standard. This information is aggregated by investment category and length of time that the individual securities have been in ~~non-consolidated VIEs resulting from financial guarantee~~a continuous unrealized loss position, at March 31, 2022 and ~~derivative contracts by major underlying asset classes,~~December 31, 2021:


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
March 31, 2022:
Fixed maturity securities:
Municipal obligations	$	19	$	1	$	1	$	—	$	19	$	1
Corporate obligations	349		21		117		13		466		34
Foreign obligations	36		1		51		3		87		4
U.S. government obligations	44		1		5		—		49		2

Residential mortgage-backed securities	16		—		1		—		17		—

Collateralized debt obligations	111		1		9		—		120		1
Other asset-backed securities	6		—		—		—		6		—
	580		26		184		16		764		42
Short-term	18		—		12		—		30		—
	598		26		196		17		794		42
Fixed income securities, pledged as collateral:
Short-term	15		—		—		—		15		—
Total collateralized investments	15		—		—		—		15		—
Total temporarily impaired securities	$	613	$	26	$	196	$	17	$	809	$	43

| Ambac Financial Group, Inc. 142022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
December 31, 2021:
Fixed maturity securities:
Municipal obligations	$	117	$	3	$	2	$	—	$	118	$	3
Corporate obligations	363		8		17		1		380		9
Foreign obligations	75		2		3		—		78		2
U.S. government obligations	25		—		2		—		27		1

Residential mortgage-backed securities	—		—		1		—		2		—

Collateralized debt obligations	68		—		3		—		71		—
Other asset-backed securities	6		—		—		—		6		—
	654		14		28		1		682		16
Short-term	114		—		13		—		128		—
	768		14		41		1		810		16
Fixed income securities, pledged as collateral:
U. S. government obligations	15		—		—		—		15		—
Total collateralized investments	15		—		—		—		15		—
Total temporarily impaired securities	$	783	$	14	$	41	$	1	$	825	$	16

Management has determined that the securities in the above table do not have credit impairment as of March 31, ~~2021~~2022 and December 31, ~~2020:~~

Carrying Value of Assets and Liabilities
Maximum
Exposure
To Loss (1)
Insurance
Assets (2)
Insurance
Liabilities (3)
Net Derivative
Assets (Liabilities) (4)
March 31, 2021:
Global structured finance:
Mortgage-backed—residential $ 4,065 $ 1,951 $ 513 $ 0
Other consumer asset-backed 981 23 239 0
Other commercial asset-backed 23 3 1 0
Other 958 0 13 7
Total global structured finance 6,027 1,977 766 7
Global public finance 21,330 266 291 0
Total $ 27,357 $ 2,243 $ 1,057 $ 6
December 31, 2020:
Global structured finance:
Mortgage-backed—residential $ 4,308 $ 2,024 $ 580 $ 0
Other consumer asset-backed 1,050 24 239 0
Other commercial asset-backed 24 3 1 0
Other 970 0 13 8
Total global structured finance 6,352 2,051 834 8
Global public finance 21,646 263 287 0
Total $ 27,998 $ 2,314 $ 1,122 $ 8

~~(1)Maximum exposure to loss represents the maximum future payments of~~2021, based upon (i) no actual or expected principal and interest payment defaults on ~~insured obligations~~these securities; (ii) analysis of the creditworthiness of the issuer and ~~derivative contracts.~~ financial guarantor, as applicable, and (iii) for debt securities that are non-highly rated beneficial interests in securitized financial assets, analysis of whether there was an adverse change in projected cash flows. Management's evaluation as of March 31, 2022, includes the expectation that all principal and interest payments on securities guaranteed by AAC or Ambac UK will be made timely and in full.

Ambac’s ~~maximum exposure~~assessment about whether a security is credit impaired reflects management’s current judgment regarding facts and circumstances specific to ~~loss does not include~~ the ~~benefit of any financial instruments (such as reinsurance or hedge contracts)~~security and other factors. If that judgment changes, Ambac may ~~utilize to mitigate the risks associated with these variable interests.~~record a charge for credit impairment in future periods.

~~(2)Insurance assets represent the amount included in “Premium receivables” and “Subrogation recoverable” for financial guarantee insurance contracts on Ambac’s Consolidated Balance Sheets.~~Investment Income (Loss)

~~(3)~~Insurance liabilities represent the amount included in “Loss and loss expense reserves” and “Unearned premiums” for financial guarantee insurance contracts on Ambac’s Consolidated Balance Sheets.

~~(4)Net derivative assets (liabilities) represent the fair value recognized on credit derivative contracts and interest rate swaps on Ambac’s Consolidated Balance Sheets.~~

~~Ambac Sponsored Non-consolidated VIEs:~~

In 1994, Ambac established a VIE to provide certain financial guarantee clients with funding for their debt obligations. This VIE was established as a separate legal entity, demonstrably distinct from Ambac and that Ambac, its affiliates or its agents could not unilaterally dissolve. The permitted activities of this entity are contractually limited to purchasing assets from Ambac, issuing medium-term notes ("MTNs") to fund such purchases, executing derivative hedges and obtaining financial guarantee policies with respect to indebtedness incurred. Ambac does not consolidate this entity because the exercise of related control rights in such policies remain subject to OCI approval under the Stipulation and Order, as discussed above. Ambac elected to account for its equity interest in this entity at fair value under the fair value option in accordance with the Financial Instruments Topic of the ASC. We believe that the fair value of the investments in this entity provides for greater transparency for recording profit or loss as compared to the equity method under the Investments – Equity Method and Joint Ventures Topic of the ASC. On

February 22, 2021 the last investment held, derivative instrument and MTN issued by this entity matured and were paid in full. At March 31, 2021 and December 31, 2020, the fair value of this entity was $1 and $1, respectively, and is reported within Other assets on the Consolidated Balance Sheets. Total principal amount of debt outstanding was $410 at December 31, 2020.

On August 28, 2014, Ambac monetized its ownership of the junior surplus note issued to it by AAC by depositing the junior surplus note into the Corolla Trust, a VIE, in exchange for cash and the Corolla Certificate, which represented Ambac's right to residual cash flows from the junior surplus note. Ambac does not consolidate the VIE since it does not have a variable interest in the trust. Ambac reported the Corolla Certificate as an equity investment within Other investments on the Consolidated Balance Sheets with associated results from operations included within Net investment income (loss): was comprised of the following for the affected periods:


	Three Months Ended March 31,
	2022		2021
Fixed maturity securities	$	15	$	23
Short-term investments	—		—

Investment expense	(1)		(1)
Securities available-for-sale and short-term	14		22
Fixed maturity securities - trading	(9)		—
Other investments	—		27
Total net investment income (loss)	$	5	$	49

Net investment income (loss) from Other investments primarily represents changes in fair value on equity securities, including certain pooled investment funds, and income from investment limited partnerships and other equity interests accounted for under the ~~Consolidated Statements~~equity method.

Net Investments Gains (Losses), including Impairments:

The following table details amounts included in net investment gains (losses) and impairments included in earnings for the affected periods:


	Three Months Ended March 31,
	2022		2021
Gross realized gains on securities	$	23	$	7
Gross realized losses on securities	(15)		(1)
Foreign exchange gains (losses)	3		(4)
Credit impairments	(1)		—
Intent / requirement to sell impairments	—		—
Net investment gains (losses), including impairments	$	10	$	2

Ambac had an allowance for credit losses of ~~Total Comprehensive Income (Loss). As further described in~~ ~~Note 1. Background~~$1 and ~~Business~~$— at March 31, 2022 and 2021, respectively.

Ambac did not purchase any financial assets with credit deterioration for the three months ended March 31, 2022 and 2021.

| Ambac Financial Group, Inc. 1115 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

~~Description,~~ ~~on January 22, 2021, AAC completed the Corolla Note Exchange transaction whereby it acquired 100% of the outstanding Notes of the Corolla Trust~~Counterparty Collateral, Deposits with Regulators and ~~the Corolla Certificates for AAC surplus notes~~Other Restrictions:

Ambac routinely pledges and ~~subsequently dissolved the Corolla Trust.~~

~~On February 12, 2018, Ambac formed~~receives collateral related to certain transactions. Securities held directly in Ambac’s investment portfolio with a ~~VIE, Ambac LSNI, LLC ("Ambac LSNI"). Ambac LSNI issued Secured Notes in connection with the Rehabilitation Exit Transactions. Ambac does not consolidate the VIE since it does not have a variable~~

~~interest in the trust. Ambac reports its holdings of Secured Notes within Fixed Maturity Securities in the Consolidated Balance Sheets. The carrying~~fair value of ~~Secured Notes held by Ambac was $464~~$114 and ~~$465~~$120 at March 31, ~~2021~~2022 and December 31, ~~2020, respectively. Ambac's debt obligation~~2021, respectively, were pledged to derivative counterparties. Ambac’s derivative counterparties have the ~~VIE (the Ambac Note) had a carrying value of $1,626~~right to re-pledge the investment securities and ~~$1,641 at March 31, 2021 and December 31, 2020, respectively, and is reported within Long-term debt~~as such, these pledged securities are separately classified on the Consolidated Balance ~~Sheets.~~Sheets as “Fixed maturity securities pledged as collateral, at fair value” and "Short-term investments pledged as collateral, at fair value." Refer to Note 7. Derivative Instruments for further information on cash collateral. There was no cash or securities received from other counterparties that were re-pledged by Ambac.

Securities carried at $23 and $17 at March 31, 2022 and December 31, 2021, respectively, were deposited by Ambac's insurance subsidiaries with governmental authorities or designated custodian banks as required by laws affecting insurance companies. Invested assets carried at $1 and $1 at March 31, 2022 and December 31, 2021, were deposited as security in connection with a letter of credit issued for an office lease.

Securities with a fair value of $644 and $669 at March 31, 2022 and December 31, 2021, respectively, were held by Ambac UK, the capital stock of which was pledged as collateral for the Sitka AAC Note. Refer to Note 12. Long-term Debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for further information about the Sitka AAC Note.

Guaranteed Securities:

Ambac’s fixed maturity portfolio includes securities covered by guarantees issued by AAC and other financial guarantors (“insured securities”). The published rating agency ratings on these securities reflect the higher of the financial strength rating of the financial guarantor or the rating of the underlying issuer. Rating agencies do not always publish separate underlying ratings (those ratings excluding the insurance by the financial guarantor). In the event these underlying ratings are not available from the rating agencies, Ambac will assign an internal rating. The following table represents the fair value and weighted-average underlying rating of insured securities in Ambac's investment portfolio at March 31, 2022 and December 31, 2021, respectively:

~~4. COMPREHENSIVE INCOME~~

~~The following tables detail the changes in the balances of each component of accumulated other comprehensive income for the affected periods:~~

Unrealized Gains
(Losses) on
Available for
Sale Securities (1)
Amortization of
Postretirement
Benefit (1)
Gain (Loss) on
Foreign Currency
Translation (1)
Credit Risk Changes of Fair Value Option Liabilities (1) (2)
Total
Three Months Ended March 31, 2021:
Beginning Balance $ 166 $ 5 $ (92) $ 0 $ 79
Other comprehensive income (loss) before reclassifications (21) 0 6 0 (15)
Amounts reclassified from accumulated other comprehensive income (loss) (3) 0 0 (1) (3)
Net current period other comprehensive income (loss) (24) 0 6 (1) (18)
Balance at March 31, 2021 $ 142 $ 5 $ (86) $ (1) $ 61
Three Months Ended March 31, 2020:
Beginning Balance $ 151 $ 8 $ (116) $ (2) $ 42
Other comprehensive income (loss) before reclassifications (139) (2) (46) 0 (187)
Amounts reclassified from accumulated other comprehensive income (loss) (7) 0 0 3 (4)
Net current period other comprehensive income (loss) (146) (2) (46) 3 (191)
Balance at March 31, 2020 $ 5 $ 6 $ (162) $ 2 $ (149)


	Municipal Obligations		Mortgage and Asset- backed Securities		Total		Weighted Average Underlying Rating (1)
March 31, 2022:
Ambac Assurance Corporation	$	47	$	403	$	451	B

Assured Guaranty Municipal Corporation	1		—		1		A



Total	$	48	$	403	$	451	B

December 31, 2021:
Ambac Assurance Corporation	$	316	$	439	$	754	B
National Public Finance Guarantee Corporation	2		—		2		BBB-
Assured Guaranty Municipal Corporation	1		—		1		A-



Total	$	318	$	439	$	757	B

(1)~~All amounts~~Ratings are ~~net~~based on the lower of ~~tax~~Standard & Poor’s or Moody’s rating. If unavailable, Ambac’s internal rating is used.

Other Investments:

Ambac's investment portfolio includes interests in various pooled investment funds. Fair value and ~~noncontrolling interest. Amounts~~additional information about investments in ~~parentheses indicate reductions to Accumulated Other Comprehensive Income.~~

~~(2)Represents~~pooled funds, by investment type, is summarized in the ~~changes~~table below. Except as noted in the table, fair value ~~attributable~~as reported is determined using net asset value ("NAV") as a practical expedient. Redemption of certain funds valued using NAV may be subject to ~~instrument-specific credit risk of liabilities for which the fair value option is elected.~~

withdrawal limitations

| Ambac Financial Group, Inc. 1216 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

~~The following table details~~and/or redemption fees which vary with the ~~significant amounts reclassified from each component~~timing and notification of ~~accumulated other comprehensive income, shown in~~withdrawal provided by the ~~above rollforward tables, for the affected periods:~~investor. In addition to these investments, Ambac has unfunded commitments of $70 to private credit and private equity funds at March 31, 2022.

Details about Accumulated
Other Comprehensive
Income Components Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the
Consolidated Statement of
Total Comprehensive Income (Loss)
Three Months Ended March 31,
2021 2020
Unrealized Gains (Losses) on Available-for-Sale Securities
$ (2) $ (8) Net realized investment gains (losses)
(1) 1 Provision for income taxes
$ (3) $ (7) Net of tax and noncontrolling interest
Amortization of Postretirement Benefit
Prior service cost $ 0 $ 0
Other income
Actuarial (losses) 0 0
Other income
0 0 Total before tax
0 0 Provision for income taxes
$ 0 $ 0 Net of tax and noncontrolling interest
Credit risk changes of fair value option liabilities
$ (1) $ 4 Credit risk changes of fair value option liabilities
0 (1) Provision for income taxes
$ (1) $ 3 Net of tax and noncontrolling interest
Total reclassifications for the period $ (3) $ (4) Net of tax and noncontrolling interest


	Fair Value
Class of Funds	March 31, 2022		December 31, 2021		Redemption Frequency	Redemption Notice Period
Real estate properties (1)	$	40	$	33	quarterly	10 business days
Hedge funds (2)	196		216		quarterly or semi-annually	90 days
High yields and leveraged loans (3)	88		78		daily	0 - 30 days
Private credit (4)	87		88		quarterly if permitted	180 days if permitted
Insurance-linked investments (5)	1		2		see footnote (9)	see footnote (9)
Equity market investments (6) (10)	91		98		daily or quarterly	0 - 90 days
Investment grade floating rate income (7)	90		107		weekly	0 days
Private equity (8)	41		37		quarterly if permitted	90 days if permitted
Emerging markets debt (9) (10)	17		24		daily	0 days
Total equity investments in pooled funds	$	652	$	683

(1)Investments consist of UK property to generate income and capital growth.

(2)This class seeks to generate superior risk-adjusted returns through selective asset sourcing, active trading and hedging strategies across a range of asset types.

(3)This class of funds includes investments in a range of instruments including high-yield bonds, leveraged loans, CLOs, ABS and floating rate notes to generate income and capital appreciation.

(4)This class aims to obtain high long-term returns primarily through credit and preferred equity investments with low liquidity and defined term.

(5)This class seeks to generate returns from insurance markets through investments in catastrophe bonds, life insurance and other insurance linked investments. This investment is restricted in connection with the unwind of certain insurance linked exposures. Ambac has redeemed its investment to the extent permitted by the fund.

(6)This class of funds aim to achieve long term growth through diversified exposure to global equity-markets.

(7)This class of funds includes investments in high quality floating rate debt securities including ABS and corporate floating rate notes.

(8)This class seeks to generate long-term capital appreciation through investments in private equity, equity-related and other instruments.

(9)This class seeks long-term income and growth through investments in the bonds of issuers in emerging markets.

(10)These categories include fair value amounts totaling $92 and $106 at March 31, 2022 and December 31, 2021, respectively, that are readily determinable and are priced through pricing vendors, including for Equity market investments: $75 and $82; and for Emerging markets debt $17 and $24.

~~5. NET INCOME PER SHARE~~

AsOther investments also includes preferred equity investments with a carrying value of $8 and $8 as of March 31, 2022 and December 31, 2021, ~~46,197,102 shares~~respectively, that do not have readily determinable fair values and are carried at cost, less any impairments as permitted under the Investments — Equity Securities Topic of ~~AFG's common stock (par~~the ASC. There were no impairments recorded on these investments or adjustments to fair value ~~$0.01) and warrants entitling holders~~ to ~~acquire up to 4,877,693 shares of new common stock at an exercise~~reflect observable price ~~of $16.67 per share were issued and outstanding. Common shares outstanding increased by 387,963~~changes in identical or similar investments from the same issuer during the ~~three months ended March 31, 2021, primarily due to settlements of employee restricted and performance stock units.~~periods presented.

The numerator of the basic and diluted earnings per share computation represents net income (loss) attributable to common stockholders adjusted by the retained earnings impact of the noncontrolling adjustment to redemption value under ASC 480. The redemption value adjustment is further described Redeemable Noncontrolling Interest section of Note 2. Basis of Presentation and Significant Accounting Policies,

~~The following table provides a reconciliation~~portion of net ~~income attributable~~unrealized gains (losses) related to ~~common stockholders to~~securities classified as trading and equity securities, excluding those reported using the ~~numerator in the basic and diluted earnings per share calculation, together with the resulting earnings per share amounts:~~

Three Months Ended March 31, 2021 2020
Net income (loss) attributable to common stockholders $ 17 $ (280)
Adjustment to redemption value (ASC 480) $ (13) —
Numerator of basic and diluted EPS $ 4 $ (280)
Per Share:
Basic $ 0.08 $ (6.07)
Diluted $ 0.08 $ (6.07)

The denominator of the basic earnings per share computation represents the weighted average common shares outstanding plus vested restricted stock units (together, "Basic Weighted Average Shares Outstanding"). The denominator of diluted earnings per share adjusts the basic weighted average shares outstanding for all potential dilutive common shares outstanding during the period. All potential dilutive common shares outstanding consider common stock deliverable pursuant to warrants, unvested restricted stock units and performance stock units granted under existing compensation plans.

~~The following table provides a reconciliation of the weighted average shares denominator used for basic net income per share to the denominator used for diluted net income per share:~~

Three Months Ended March 31, 2021 2020
Basic weighted average shares outstanding denominator 46,314,049 46,060,324
Effect of potential dilutive shares (1):
Stock options 0 0
Warrants 214,904 0
Restricted stock units 121,215 0
Performance stock units (2)
207,896 0
Diluted weighted average shares outstanding denominator 46,858,064 46,060,324
Anti-dilutive shares excluded from the above reconciliation:
Stock options 0 16,667
Warrants 0 4,877,749
Restricted stock units 165,529 236,189
Performance stock units (2)
0 738,039

~~(1) For the three months ended March 31, 2020, Ambac had a net loss and accordingly excluded all potentially dilutive securities from the~~

~~| Ambac Financial Group, Inc.~~ 13~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

~~determination of diluted loss per share as their impact was anti-dilutive.~~

(2) Performance stock units are reflected based on the performance metrics through the balance sheet date. Vesting of these units is contingent upon meeting certain performance metrics. Although a portion of these performance metrics have been achieved as of the respective period end, it is possible that awards may no longer meet the metricequity method, still held at the end of ~~the performance period.~~

~~6. FINANCIAL GUARANTEE INSURANCE CONTRACTS~~

~~Amounts presented in this Note relate only to Ambac’s non-derivative insurance business for insurance policies issued to beneficiaries, including VIEs, for which we do not consolidate the VIE.~~

~~Net Premiums Earned:~~

~~Gross premiums are received either upfront or in installments. For premiums received upfront, an unearned premium revenue (“UPR”) liability~~each period is established, which is initially recorded as the cash amount received. For installment premium transactions, a premium receivable asset and offsetting UPR liability is initially established in an amount equal to: (i) the present value of future contractual premiums due (the “contractual” method) or (ii) if the assets underlying the insured obligation are homogenous pools which are contractually prepayable, the present value of premiums to be collected over the expected life of the transaction (the “expected” method). An appropriate risk-free rate corresponding to the weighted average life of each policy and currency is used to discount the future premiums contractually due or expected to be collected. For example, U.S. dollar exposures are discounted using U.S. Treasury rates. The weighted average risk-free rate at March 31, 2021 and December 31, 2020, was 2.2% and 2.2%, respectively, and the weighted average period of future premiums used to estimate the premium receivable at March 31, 2021 and December 31, 2020, was 8.3 years and 8.3 years years, respectively.

~~Below is the gross premium receivable roll-forward (direct and assumed contracts) for the affected periods:~~

Three Months Ended March 31, 2021 2020
Beginning premium receivable $ 370 $ 416
Adjustment to initially apply ASU 2016-13 — (3)
Premium receipts (12) (12)
Adjustments for changes in expected and contractual cash flows (1)
(8) 10
Accretion of premium receivable discount 2 2
Changes to allowance for credit losses 4 (2)
Other adjustments (including foreign exchange) 0 (8)
Ending premium receivable (2)
$ 356 $ 403

~~(1) Adjustments for changes in expected and contractual cash flows primarily due to reductions in insured exposure as a result of early policy terminations and unscheduled principal paydowns.~~

(2) Premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At March 31, 2021 and 2020, premium receivables include British

~~Pounds of $122 (£89) and $128 (£103), respectively, and Euros of $21 (€18) and $24 (€22), respectively.~~

When a bond issue insured by AAC has been retired early any remaining UPR is recognized at that time to the extent the financial guarantee contract is legally extinguished, causing accelerated premium revenue. For installment premium paying transactions, we offset the recognition of any remaining UPR by the reduction of the related premium receivable to zero (as it will not be collected as a result of the retirement), which may cause negative accelerated premium revenue. Ambac’s accelerated premium revenue for retired obligations for the three months ended March 31, 2021 and 2020, was less than a million dollars in both periods.

~~The effect of reinsurance on premiums written and earned was~~ as follows:

Three Months Ended March 31,
2021 2020
Written Earned Written Earned
Direct $ (2) $ 17 $ 11 $ 13
Assumed 0 0 0 1
Ceded 7 3 (1) 3
Net premiums $ (9) $ 14 $ 12 $ 10

~~The following table summarizes net premiums earned by location of risk:~~

Three Months Ended March 31, 2021 2020
United States $ 7 $ 7
United Kingdom 3 4
Other international 3 0
Total $ 14 $ 10

~~The table below summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at March 31, 2021:~~

~~| Ambac Financial Group, Inc.~~ 14~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

Future Premiums
to be
Collected (1)
Future
Premiums to
be Earned Net of
Reinsurance (2)
Three months ended:
June 30, 2021 $ 8 $ 8
September 30, 2021 9 8
December 31, 2021 8 8
Twelve months ended:
December 31, 2022 34 31
December 31, 2023 33 29
December 31, 2024 32 28
December 31, 2025 30 26
Five years ended:
December 31, 2030 129 110
December 31, 2035 90 71
December 31, 2040 42 29
December 31, 2045 19 11
December 31, 2050 7 4
December 31, 2055 1 0
Total $ 443 $ 364

~~(1)Future premiums to be collected are undiscounted, gross of allowance for credit losses, and are used to derive the discounted premium receivable asset recorded on Ambac's balance sheet.~~

~~(2)~~Future premiums to be earned, net of reinsurance relate to the unearned premiums liability and deferred ceded premium asset recorded on Ambac’s balance sheet. The use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral is required in the calculation of the premium receivable, as further described in ~~Note 2. Basis of Presentation and~~

~~Significant Accounting Policies~~ in the Notes to Consolidated Financial Statements included in Ambac's Annual Report on Form 10-K for the year ended December 31, 2020. This results in a different premium receivable balance than if expected lives were considered. If installment paying policies are retired or prepay early, premiums reflected in the premium receivable asset and amounts reported in the above table for such policies may not be collected. Future premiums to be earned also considers the use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral, which may result in different unearned premium than if expected lives were considered. If those bonds types are retired early, premium earnings may be negative in the period of call or refinancing.

~~Credit Impairment for Premium Receivables:~~

~~Management evaluates premium receivables for expected credit losses ("credit impairment") in accordance with the CECL standard adopted January 1, 2020, which is further described in~~ ~~Note 2. Basis of Presentation and Significant Accounting Policies~~ in the Notes to Consolidated Financial Statements included in Ambac's Annual Report on Form 10-K for the year ended December 31, 2020. Management's evaluation of credit impairment under prior GAAP rules was not materially different.

~~As further discussed in~~ ~~Note 2. Basis of Presentation and Significant Accounting Policies~~ in the Notes to Consolidated Financial Statements included in Ambac's Annual Report on Form 10-K for the year ended December 31, 2020, the key indicator management uses to assess the credit quality of premium receivables is Ambac's internal risk classifications for the insured obligation determined by the Risk Management Group. Below is the amortized cost basis of premium receivables by risk classification code and asset class as of March 31, 2021 and December 31, 2020:

~~| Ambac Financial Group, Inc.~~ 15~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

Surveillance Categories as of March 31, 2021
Type of Guaranteed Bond I IA II III IV Total
Public Finance:
Housing revenue $ 152 $ 13 $ 0 $ 0 $ 0 $ 165
Other 2 0 0 0 0 2
Total Public Finance 154 13 0 0 0 167
Structured Finance:
Mortgage-backed and home equity 2 0 1 3 14 20
Structured insurance 14 0 0 0 0 14
Student loan 2 0 2 10 0 14
Other 7 0 0 0 0 7
Total Structured Finance 25 0 3 13 14 55
International:
Sovereign/sub-sovereign 86 12 0 12 0 111
Investor-owned and public utilities 30 0 0 0 0 30
Other 6 0 0 0 0 6
Total International 123 12 0 12 0 148
Total (1)
$ 302 $ 25 $ 3 $ 25 $ 14 $ 369
Surveillance Categories as of December 31, 2020
Type of Guaranteed Bond I IA II III IV Total
Public Finance:
Housing revenue $ 155 $ 13 $ 0 $ 0 $ 0 $ 168
Other 2 15 0 0 0 17
Total Public Finance 157 27 0 0 0 185
Structured Finance:
Mortgage-backed and home equity 3 0 1 3 15 22
Structured insurance 14 0 0 0 0 14
Student loan 3 0 2 11 0 16
Other 7 0 0 0 0 7
Total Structured Finance 27 0 3 14 15 59
International:
Sovereign/sub-sovereign 82 13 0 13 0 108
Investor-owned and public utilities 31 0 0 0 0 31
Other 5 0 0 0 0 5
Total International 118 13 0 13 0 144
Total (1)
$ 302 $ 40 $ 3 $ 27 $ 15 $ 387

~~(1) The underwriting origination dates for all policies included are greater than five years prior to the current reporting date.~~

~~Below is a rollforward of the premium receivable allowance for credit losses as of March 31, 2021 and 2020:~~

Three Months Ended March 31, 2021 2020
Beginning balance (1)
$ 17 $ 9
Current period provision (2)
(4) 5
Write-offs of the allowance 0 0
Recoveries of previously written-off amounts 0 0
Ending balance $ 13 $ 14

~~(1)At December 31, 2019, $9 of premiums receivable were deemed uncollectible as determined under prior GAAP rules.~~

~~(2)The three months ended March 31, 2020, includes $3 from the adoption of CECL.~~

At March 31, 2021 and December 31, 2020, Ambac had past due premiums of less than a million, of which less than a million was over 120 days past due and has been included in the allowance for credit losses.

~~| Ambac Financial Group, Inc.~~ 16~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

~~Loss and Loss Expense Reserves:~~

Ambac’s loss and loss expense reserves (“loss reserves”) are based on management’s on-going review of the financial guarantee credit portfolio. Below are the components of the loss reserves liability and the Subrogation recoverable asset at March 31, 2021 and December 31, 2020:

March 31, 2021: December 31, 2020:
Present Value of Expected
Net Cash Flows Unearned
Premium
Revenue Gross Loss and
Loss Expense
Reserves Present Value of Expected
Net Cash Flows Unearned
Premium
Revenue Gross Loss and
Loss Expense
Reserves
Balance Sheet Line Item Claims and
Loss Expenses Recoveries Claims and
Loss Expenses Recoveries
Loss and loss expense reserves $ 1,831 $ (102) $ (67) $ 1,662 $ 2,060 $ (229) $ (72) $ 1,759
Subrogation recoverable 99 (2,175) 0 (2,076) 100 (2,256) 0 (2,156)
Totals $ 1,930 $ (2,277) $ (67) $ (414) $ 2,160 $ (2,486) $ (72) $ (397)

~~Below is the loss and loss reserve expense roll-forward, net of subrogation recoverable and reinsurance, for the affected periods:~~

Three Months Ended March 31, 2021 2020
Beginning gross loss and loss expense reserves $ (397) $ (482)
Reinsurance recoverable 33 26
Beginning balance of net loss and loss expense reserves (430) (508)
Losses and loss expenses (benefit):
Current year 0 27
Prior years 8 90
Total (1) (2)
8 117
Loss and loss expenses paid (recovered):
Current year 0 0
Prior years 25 39
Total 25 39
Foreign exchange effect 0 0
Ending net loss and loss expense reserves (447) (430)
Reinsurance recoverable (3)
33 35
Ending gross loss and loss expense reserves $ (414) $ (395)

~~(1)Total losses and loss expenses (benefit) includes $(1) and $(10) for the three months ended March 31, 2021 and 2020, respectively, related to ceded reinsurance.~~

~~(2)~~Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties ("R&W's) by transaction sponsors within losses and loss expenses (benefit). The losses and loss expense (benefit) incurred associated with changes in estimated R&W's for the three months ended March 31, 2021 and 2020, was $3 and $(36), respectively.

~~(3)~~Represents reinsurance recoverable on future loss and loss expenses. Additionally, the Balance Sheet line "Reinsurance recoverable on paid and unpaid losses" includes reinsurance recoverables (payables) of $0 and $1 as of March 31, 2021 and 2020, respectively, related to previously presented loss and loss expenses and subrogation.

~~For 2021, the adverse development in prior years was primarily due to deterioration of Puerto Rico credits as discussed below in the section, "Puerto Rico."~~

For 2020, the adverse development in prior years was primarily a result of deterioration in Public Finance credits, primarily Puerto Rico, partially offset by positive development in the RMBS portfolio.


	Three Months Ended March 31,
	2022		2021
Net gains (losses) recognized during the period on trading and equity securities	$	(13)	$	7
Less: net gains (losses) recognized during the reporting period on trading and equity securities sold during the period	(3)		—
Unrealized gains (losses) recognized during the reporting period on trading and equity securities still held at the reporting date	$	(10)	$	6

| Ambac Financial Group, Inc. 17 ~~2021~~2022 First Quarter FORM 10-Q |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

The tables below summarize information related to policies currently included in Ambac’s loss and loss expense reserves or subrogation recoverable at March 31, 2021 and December 31, 2020. Gross par exposures 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 bond. The weighted average risk-free rate used to discount loss reserves at March 31, 2021 and December 31, 2020,was 1.8% and 1.1%, respectively.

Surveillance Categories as of March 31, 2021
I IA II III IV V Total
Number of policies 36 25 17 15 131 5 229
Remaining weighted-average contract period (in years) (1)
10 18 8 16 13 7 15
Gross insured contractual payments outstanding:
Principal $ 738 $ 1,158 $ 599 $ 1,421 $ 3,124 $ 47 $ 7,087
Interest 255 1,078 479 199 1,376 25 3,413
Total $ 994 $ 2,236 $ 1,078 $ 1,620 $ 4,500 $ 72 $ 10,500
Gross undiscounted claim liability $ 3 $ 49 $ 41 $ 581 $ 1,498 $ 72 $ 2,245
Discount, gross claim liability 0 (4) (1) (138) (224) (5) (372)
Gross claim liability before all subrogation and before reinsurance 3 46 40 443 1,274 67 1,872
Less:
Gross RMBS subrogation (2)
0 0 0 0 (1,749) 0 (1,749)
Discount, RMBS subrogation 0 0 0 0 2 0 2
Discounted RMBS subrogation, before reinsurance 0 0 0 0 (1,748) 0 (1,748)
Less:
Gross other subrogation (3)
0 0 0 (36) (510) (12) (559)
Discount, other subrogation 0 0 0 2 25 2 30
Discounted other subrogation, before reinsurance 0 0 0 (34) (485) (10) (530)
Gross claim liability, net of all subrogation and discounts, before reinsurance 3 46 40 409 (959) 56 (405)
Less: Unearned premium revenue (2) (14) (5) (16) (29) (1) (67)
Plus: Loss expense reserves 2 0 1 5 49 0 57
Gross loss and loss expense reserves $ 2 $ 32 $ 36 $ 398 $ (938) $ 56 $ (414)
Reinsurance recoverable reported on Balance Sheet (4)
$ 0 $ 7 $ 10 $ 24 $ (8) $ 0 $ 33

~~(1)Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.~~

~~(2)RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty ("R&W") breaches.~~

~~(3)Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions including RMBS.~~

~~(4)~~Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $33 related to future loss and loss expenses and $0 related to presented loss and loss expenses and subrogation.

~~| Ambac Financial Group, Inc.~~ 18~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

Surveillance Categories as of December 31, 2020
I IA II III IV V Total
Number of policies 40 25 15 15 132 5 232
Remaining weighted-average contract period (in years) (1)
10 18 8 16 14 7 14
Gross insured contractual payments outstanding:
Principal $ 842 $ 1,375 $ 595 $ 1,469 $ 3,246 $ 47 $ 7,573
Interest 279 1,011 484 215 1,427 26 3,443
Total $ 1,121 $ 2,386 $ 1,079 $ 1,685 $ 4,673 $ 72 $ 11,016
Gross undiscounted claim liability $ 3 $ 49 $ 40 $ 541 $ 1,690 $ 72 $ 2,395
Discount, gross claim liability 0 (2) (1) (85) (213) (3) (303)
Gross claim liability before all subrogation and before reinsurance 3 47 40 456 1,477 69 2,092
Less:
Gross RMBS subrogation (2)
0 0 0 0 (1,753) 0 (1,753)
Discount, RMBS subrogation 0 0 0 0 3 0 3
Discounted RMBS subrogation, before reinsurance 0 0 0 0 (1,751) 0 (1,751)
Less:
Gross other subrogation (3)
0 0 0 (36) (706) (12) (755)
Discount, other subrogation 0 0 0 1 18 1 20
Discounted other subrogation, before reinsurance 0 0 0 (35) (689) (11) (735)
Gross claim liability, net of all subrogation and discounts, before reinsurance 3 47 39 421 (963) 58 (394)
Less: Unearned premium revenue (2) (16) (5) (17) (30) (1) (72)
Plus: Loss expense reserves 1 2 1 5 59 0 68
Gross loss and loss expense reserves $ 2 $ 32 $ 35 $ 409 $ (933) $ 57 $ (397)
Reinsurance recoverable reported on Balance Sheet (4)
$ 0 $ 6 $ 9 $ 24 $ (6) $ 0 $ 33

~~(1)Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.~~

~~(2)RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.~~

~~(3)Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.~~

~~(4)~~Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $33 related to future loss and loss expenses and $1 related to presented loss and loss expenses and subrogation.

~~COVID-19:~~

In March 2020, the outbreak of COVID-19 pandemic, caused by a novel strain of the coronavirus, was recognized as a pandemic by the World Health Organization, and the outbreak is widespread globally, including in the markets in which we operate. The COVID-19 outbreak had, and continues to have, a notable impact on general economic conditions, including but not limited to higher unemployment; volatility in the capital markets; closure or severe curtailment of the operations and, hence, revenues, of many businesses and public and private enterprises to which we are directly or indirectly exposed, such as hotels, restaurants, sports and entertainment facilities, airports and other transportation facilities, and retail establishments, mostly due to social distancing guidelines, travel bans and restrictions, and business restrictions and shutdowns.

~~COVID-19 has adversely impacted Ambac's financial position and results of operations as credit risk in the insured and~~

~~investment portfolios has increased. In the insured portfolio, municipal, mortgage-backed, student loan and other asset securitization exposures could be materially adversely impacted.~~

In the U.S., significant fiscal stimulus measures, monetary policy actions and other relief measures have helped to moderate the negative economic impacts of COVID-19, and have supported the economic recovery which began in the second half of 2020 and continues into 2021. These measures include the March 2021, $1.9 trillion American Rescue Plan Act or ARPA, which together with other fiscal stimulus measures put in place in 2020, provide for, among other things, funding to state and local governments, direct payments to households, support for small businesses, renter assistance and funding for transport, airlines, healthcare and education. Monetary policy decisions have included quantitative easing and the provision of liquidity to financial institutions and credit markets. In addition, housing measures, such as forbearance on mortgages and suspension of foreclosures and evictions, and various executive orders have helped to

~~| Ambac Financial Group, Inc.~~ 19~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

provide relief. Outside of the US, and in the United Kingdom and Italy in particular, where Ambac has insured portfolio exposure, various monetary policy, fiscal stimulus measures and other actions have also helped to moderate the negative economic impact and support recovery.

We are continuously evaluating and updating our view of the macro economic environment as well as our specific credit view of each of our insured exposures considering the significant uncertainties brought upon us by the COVID-19 pandemic. Accordingly, despite the current economic recovery, our loss reserves may be under-estimated as a result of the ultimate scope, duration and magnitude of the effects of COVID-19 pandemic.

~~Puerto Rico:~~

Ambac has exposure to the Commonwealth of Puerto Rico (the "Commonwealth") and its instrumentalities across several different issuing entities with total net par exposure of $1,067. Components of Puerto Rico net par outstanding include capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds. Each issuing entity has its own credit risk profile attributable to discrete revenue sources, direct general obligation pledges or general obligation guarantees. The Commonwealth of Puerto Rico and certain of its instrumentalities have defaulted and may continue to default on debt service payments, including payments owed on bonds insured by AAC. AAC may be required to make significant amounts of policy payments over the next several years, the recoverability of which is subject to great uncertainty, which may lead to a material increase in permanent losses causing a material adverse impact on our results of operations and financial condition. Our exposure to Puerto Rico is impacted by the amount of monies available for debt service, which is in turn affected by a number of factors including variability in economic growth and demographic trends, tax revenues, changes in law or the effects thereof, essential services expense, federal funding of Commonwealth needs, as well as interpretation of legal documents, legislation, updated financial information (when available), and, overall, outcomes related to the debt restructuring process. In the near-term, the financial and economic outlook for Puerto Rico is dependent upon a still fragile infrastructure, heightening its vulnerability to additional weather events; and the trajectory of recovery from the COVID-19 pandemic. The longer-term recovery of the Commonwealth economy and its essential infrastructure will likely be dependent on, among other factors, the management, usage and efficacy of federal resources.

Also important to Puerto Rico's economic growth, government reform and creditor outcomes is the Commonwealth Fiscal Plan, the most recent of which was certified by the Financial Oversight and Management Board for Puerto Rico ("Oversight Board") on April 23, 2021. The most recent Commonwealth Fiscal Plan purports to incorporate the impact of the federal recovery money stemming from the 2017 hurricanes, 2019-2020 earthquakes, and the COVID-19 pandemic, including the recently enacted ARPA. As with previous fiscal plans, the current certified Commonwealth Fiscal Plan may significantly inform the Commonwealth Plan of Adjustment in the Commonwealth's Title III proceeding. However, as was the case with previous versions of the Commonwealth Fiscal Plan, the current version of the

Commonwealth Fiscal Plan lacks a high degree of transparency regarding the underlying data, assumptions and rationales supporting those assumptions, making reconciliation and due diligence difficult. As a result, it is difficult to predict the long-term capacity and willingness of the Puerto Rico government and its instrumentalities to pay debt service on bonded debt and how their debt burden and financial flexibility might affect AAC's claims development potential, risk profile and long-term financial strength.

In the first quarter of 2021, the Oversight Board, as representative of the Commonwealth of Puerto Rico, PBA, and the Employee Retirement System of the Government of the Commonwealth of Puerto Rico publicly disclosed the Second Amended Plan Support Agreement ("Second Amended PSA"). The Oversight Board announced that the Second Amended PSA had the support of 70% of all GO and PBA bonds claims, including the conditional support of several financial guarantee insurance companies. The Government of the Commonwealth of Puerto Rico and AAC are not currently parties to the Second Amended PSA. Later in the first quarter of 2021, the Oversight Board filed with the Title III court a Second Amended Title III Joint Plan of Adjustment of the Commonwealth ("Second Amended POA") that, among other things, incorporated the terms of the Second Amended PSA.

In April 2021, the Oversight Board announced that it had reached an agreement in principle with two financial guarantee insurance companies (not including AAC) regarding the Puerto Rico Highways and Transportation Authority ("PRHTA") claims, the Convention Center District Authority ("CCDA") claims and the Commonwealth treatment of deficiency claims. Under this agreement in principle, consideration for revenue bond creditors such as PRHTA, CCDA, or Puerto Rico Infrastructure Financing Authority ("PRIFA") Special Tax Revenue ("Rum Tax") bonds, on account of their deficiency claims ("Clawback claims") against the Commonwealth, consist of interests ("Clawback CVI") tied to the outperformance of the Puerto Rico Sales and Use Tax ("SUT") against the certified 2020 Commonwealth Fiscal Plan projections. Under the agreement, the PRHTA and CCDA creditors would also receive 'hard currency' in the form of new PRHTA bonds and cash for PRHTA creditors and cash for CCDA creditors. PRIFA is not part of this agreement and under the current construct, PRIFA bondholders would not receive any 'hard currency' and only receive the Clawback CVI. This agreement was finalized on May 5, 2021 (the "PRHTA/CCDA PSA").

Substantial uncertainty exists with respect to the ultimate outcome for creditors in Puerto Rico, such as AAC, due to, among other matters, the Second Amended PSA and Second Amended POA and potential incremental changes to both the PSA and POA; the PRHTA/CCDA PSA; legislation enacted by the Commonwealth and the federal government, including PROMESA; and actions taken pursuant to such laws, including Title III filings. AAC is involved in multiple litigations relating to such actions and other issues and may not be successful in pursuing claims or protecting its interests. As a result of litigation or other aspects of the restructuring processes, the differences among the credits insured by AAC may not be respected.

~~AAC has participated and may continue to participate in mediation related to potential debt restructurings. Mediation may~~

~~| Ambac Financial Group, Inc.~~ 20~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

not be productive or may not resolve AAC's claims in a manner that reduces or avoids significant losses. No assurances can be given that negotiations will be successfully concluded, that Commonwealth, Oversight Board and creditor parties will reach definitive agreements on additional debt restructurings, that any negotiated transaction debt restructuring, definitive agreement or plans of adjustment will be approved by the court and completed, or that any transaction or plans of adjustment will not have an adverse impact on Ambac's financial condition or results. It is possible that certain restructuring process solutions, together with associated legislation, budgetary, and/or public policy proposals could be adopted and could further impair our exposures, causing losses that could have a material adverse impact on our results of operations and financial condition.

While our reserving scenarios account for a wide range of possible outcomes, reflecting the significant uncertainty regarding future developments and outcomes, given our exposure to Puerto Rico and the economic, fiscal, legal and political uncertainties associated therewith our loss reserves may ultimately prove to be insufficient to cover our losses, potentially having a material adverse effect on our results of operations and financial position, and may be subject to material volatility.

Ambac has considered these developments and other factors in evaluating its Puerto Rico loss reserves. During the three months ended March 31, 2021, Ambac had incurred losses associated with its Domestic Public Finance insured portfolio of $9, which was primarily impacted by our interpretation of the terms of the May 5, 2021 PRHTA/CCDA PSA, including our assessment of the Clawback CVI, as well as the continued uncertainty and volatility of the situation in Puerto Rico. While management believes its reserves are adequate to cover losses in its Public Finance insured portfolio, there can be no assurance that Ambac may not incur additional losses in the future, given the circumstances described herein. Such additional losses may have a material adverse effect on Ambac’s results of operations and financial condition and may result in adverse consequences such as impairing the ability of AAC to honor its financial obligations; the initiation of rehabilitation proceedings against AAC; decreased likelihood of AAC delivering value to Ambac, through dividends or otherwise; and a significant drop in the value of securities issued or insured by Ambac or AAC. For public finance credits, including Puerto Rico, as well as other issuers, for which Ambac has an estimate of expected loss at March 31, 2021, the possible increase in loss reserves under stress or other adverse conditions and circumstances was estimated to be approximately $660. This possible increase in loss reserves under stress or other adverse conditions is significant and if we were to experience such incremental losses, our stockholders’ equity as of March 31, 2021, would decrease from $1,123 to $463. However, there can be no assurance that losses may not exceed such amount.

~~Representation and Warranty Recoveries:~~

Ambac records estimated RMBS R&W subrogation recoveries for breaches of R&W by sponsors of certain RMBS transactions. For a discussion of the approach utilized to estimate RMBS R&W subrogation recoveries, see ~~Note 2. Basis of Presentation and Significant Accounting Policies~~ ~~in the Notes to Consolidated Financial Statements included Part II, Item 8 in the Company’s~~

~~Annual Report on Form 10-K for the year ended December 31, 2020.~~

~~Ambac has recorded RMBS R&W subrogation recoveries of $1,748 ($1,722 net of reinsurance) and $1,751 ($1,725 net of reinsurance) at March 31, 2021 and December 31, 2020, respectively.~~

~~Below is the rollforward of RMBS R&W subrogation for the affected periods:~~

Three Months Ended March 31, 2021 2020
Discounted R&W subrogation (gross of reinsurance) at beginning of period $ 1,751 $ 1,727
All other changes (1)
(3) $ 36
Discounted R&W subrogation (gross of reinsurance) at end of period $ 1,748 $ 1,764

~~(1)~~All other changes which may impact RMBS R&W subrogation recoveries include changes in actual or projected collateral performance, changes in the creditworthiness of a sponsor and/or the projected timing of recoveries.

Our ability to realize R&W subrogation recoveries is subject to significant uncertainty, including risks inherent in litigation, including adverse rulings or decisions in our cases or in litigations to which AAC is not a party that set precedents or resolve questions of law that impact our own claims; collectability of such amounts from counterparties (and/or their respective parents and affiliates); timing of receipt of any such recoveries; intervention by OCI, which could impede our ability to take actions required to realize such recoveries; and uncertainty inherent in the assumptions used in estimating such recoveries. Failure to realize R&W subrogation recoveries for any reason or the realization of R&W subrogation recoveries materially below the amount recorded on Ambac's consolidated balance sheet would have a material adverse effect on our results of operations and financial condition. If we were unable to realize R&W subrogation recoveries recorded on Ambac's consolidated balance sheet, our stockholders’ equity as of March 31, 2021, would decrease from $1,123 to $(598). Additionally, failure to realize R&W subrogation recoveries, or the realization of recoveries significantly below those recorded on the balance sheet, may result in adverse consequences such as impairing the ability of AAC to honor its financial obligations; the initiation of rehabilitation proceedings against AAC; AAC not being able to deliver value to Ambac, through dividends or otherwise; and a significant drop in the value of securities issued or insured by Ambac or AAC.

~~Credit Impairment for Reinsurance Recoverables:~~

The key indicator management uses to assess the credit quality of reinsurance recoverables is collateral posted by the reinsurers and independent rating agency credit ratings. For the majority of reinsurance contracts where Ambac has recorded a recoverable, the fair value of collateral posted by the reinsurer to AAC exceeds AAC's reinsurance recoverable carrying value, net of ceded premiums payable. AAC has uncollateralized credit exposure of $4 and $1 and has recorded an allowance for credit losses of $— and $— at March 31, 2021 and December 31, 2020

~~| Ambac Financial Group, Inc.~~ 21~~2021 First Quarter FORM 10-Q~~ |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

~~7. INTANGIBLE ASSETS~~

~~Insurance intangible asset:~~

~~The insurance intangible asset and accumulated amortization are included in the Consolidated Balance Sheets, as shown below.~~

March 31,
2021 December 31,
2020
Gross carrying value of insurance intangible asset $ 1,282 $ 1,281
Accumulated amortization of insurance intangible asset 927 908
Net insurance intangible asset $ 356 373

~~Other Intangible Assets:~~

In connection with the acquisition of Xchange the fair value of identifiable intangible assets were recorded. The majority of these intangible assets relate to existing relationships Xchange maintained with a variety of brokers and distributors across its product lines. The gross carrying value of the identifiable intangibles, accumulated amortization and net identifiable intangibles is $36, $1 and $35, respectively at March 31, 2021 and $36, $0 and $36, respectively at December 31, 2020. The overall weighted average useful life of the identified amortizable intangible assets acquired is 14.0 years.

~~Amortization Expense:~~

~~Amortization expense is included in the Consolidated Statements of Total Comprehensive Income (Loss), as shown below.~~

Three Months Ended March 31, 2021 2020
Insurance amortization expense $ 19 $ 13
Other amortization expense 1 0
Total $ 19 $ 13

~~The estimated future amortization expense for intangible assets is as follows:~~

Amortization expense
Insurance Intangible Asset (1) (2)
Other Intangible Assets Total
2021 (Nine months) $ 28 $ 2 $ 30
2022 35 3 37
2023 31 3 34
2024 29 3 31
2025 26 3 29
Thereafter 207 22 229

~~(1)~~The insurance intangible asset will be amortized using a level-yield method based on par exposure of the related financial guarantee insurance or reinsurance contracts. Future amortization considers the use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral. Actual maturities will differ from contractual maturities because borrowers have the right to call or prepay certain obligations. If those obligations are retired early, amortization expense may differ in the period of call or refinancing. from the amounts provided in the table above.

~~(2)The weighted-average insurance intangible amortization period is 7.4 years.~~

8.5. FAIR VALUE MEASUREMENTS

The Fair Value Measurement Topic of the ASC establishes a framework for measuring fair value and disclosures about fair value measurements.

Fair Value Hierarchy:

The Fair Value Measurement Topic of the ASC specifies a fair value hierarchy based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company-based assumptions. The fair value hierarchy ~~prioritizes model inputs into~~has three broad levels as follows:


l	Level 1	Quoted prices for identical instruments in active markets. Assets and liabilities classified as Level 1 include US Treasury and other foreign government obligations traded in highly liquid and transparent markets, certain highly liquid pooled fund investments, exchange traded futures contracts, variable rate demand obligations and money market funds.

l	Level 2	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Assets and liabilities classified as Level 2 generally include investments in fixed maturity securities representing municipal, asset-backed and corporate obligations, certain interest rate swap contracts and most long-term debt of variable interest entities consolidated under the Consolidation Topic of the ASC.

l	Level 3	Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available. Assets and liabilities classified as Level 3 include credit derivative contracts, certain uncollateralized interest rate swap contracts, certain equity ~~interests in Ambac sponsored special purpose entities~~investments and certain investments in fixed maturity securities. Additionally, Level 3 assets and liabilities generally include loan receivables, and certain long-term debt of variable interest entities consolidated under the Consolidation Topic of the ASC.

~~| Ambac Financial Group, Inc.~~ 22~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

The Fair Value Measurement Topic of the ASC permits, as a practical expedient, the estimation of fair value of certain investments in funds using the net asset value per share of the investment or its equivalent (“NAV”). Investments in funds valued using NAV are not categorized as Level 1, 2 or 3 under the fair value hierarchy. The Investments — Equity Securities Topic of the ASC permits the measurement of certain equity securities without a readily determinable fair value at cost, less impairment, and adjusted to fair value when observable price changes in identical or similar investments from the same issuer occur (the "measurement alternative"). The fair values of investments measured under this measurement alternative are not included in the below disclosures of fair value of financial instruments. The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, including the level within the fair value hierarchy at which fair value measurements are categorized. As required by the Fair Value Measurement Topic of the ASC, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Carrying
Amount Total Fair
Value Fair Value Measurements Categorized as:
March 31, 2021: Level 1 Level 2 Level 3
Financial assets:
Fixed maturity securities:
Municipal obligations $ 366 $ 366 $ 0 $ 366 $ 0
Corporate obligations 1,108 1,108 2 1,106 0
Foreign obligations 97 97 97 0 0
U.S. government obligations 108 108 108 0 0
Residential mortgage-backed securities 269 269 0 269 0
Collateralized debt obligations 97 97 0 97 0
Other asset-backed securities 295 295 0 219 76
Fixed maturity securities, pledged as collateral:
U.S. government obligations 15 15 15 0 0
Short-term 105 105 105 0 0
Short term investments 397 397 311 86 0
Other investments (1)
600 600 99 0 0
Cash, cash equivalents and restricted cash 39 39 38 2 0
Derivative assets:
Interest rate swaps—asset position 73 73 0 7 66
Futures contracts 1 1 1 — —
Other assets - equity in sponsored VIE 1 1 0 0 1
Other assets-Loans 3 3 0 0 3
Variable interest entity assets:
Fixed maturity securities: Corporate obligations 3,103 3,103 0 0 3,103
Fixed maturity securities: Municipal obligations 133 133 0 133 0
Restricted cash 2 2 2 0 0
Loans 2,948 2,948 0 0 2,948
Derivative assets: Currency swaps-asset position 38 38 0 38 0
Total financial assets $ 9,799 $ 9,799 $ 778 $ 2,323 $ 6,197
Financial liabilities:
Long term debt, including accrued interest $ 3,177 $ 3,032 $ 0 $ 3,011 $ 20
Derivative liabilities:
Interest rate swaps—asset position 85 85 — 85 —
Liabilities for net financial guarantees written (2)
(751) 279 0 0 279
Variable interest entity liabilities:
Long-term debt (includes $4,264 at fair value) 4,427 4,451 0 4,290 160
Derivative liabilities: Interest rate swaps—liability position 1,739 1,739 0 1,739 0
Total financial liabilities $ 8,677 $ 9,586 $ 0 $ 9,126 $ 460

| Ambac Financial Group, Inc. 2318 ~~2021~~2022 First Quarter FORM 10-Q |

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)


		Carrying Amount		Total Fair Value		Fair Value Measurements Categorized as:							Carrying Amount		Total Fair Value		Fair Value Measurements Categorized as:
December 31, 2020:						Level 1		Level 2		Level 3
March 31, 2022:												March 31, 2022:					Carrying Amount				Total Fair Value				Level 1				Level 2	Level 3
Financial assets:	Financial assets:											Financial assets:
Fixed maturity securities:	Fixed maturity securities:											Fixed maturity securities:
Municipal obligations	Municipal obligations	$	358	$	358	$	0	$	358	$	0	Municipal obligations	$	188	$	188			$	—			$	188			$	—
Corporate obligations	Corporate obligations	1,077		1,077		4		1,073		0		Corporate obligations	577		577		1				564				12
Foreign obligations	Foreign obligations	98		98		98		0		0		Foreign obligations	88		88		88				—				—
U.S. government obligations	U.S. government obligations	106		106		106		0		0		U.S. government obligations	51		51		51				—				—

Residential mortgage-backed securities	Residential mortgage-backed securities	302		302		0		302		0		Residential mortgage-backed securities	225		225		—				225				—

Collateralized debt obligations	Collateralized debt obligations	74		74		0		74		0		Collateralized debt obligations	120		120		—				120				—
Other asset-backed securities	Other asset-backed securities	303		303		0		225		78		Other asset-backed securities	252		252		—				178				74
Fixed maturity securities, pledged as collateral:	Fixed maturity securities, pledged as collateral:											Fixed maturity securities, pledged as collateral:
U.S. government obligations	U.S. government obligations	15		15		15		0		0		U.S. government obligations	15		15		15				—				—
Short-term	Short-term	125		125		125		0		0		Short-term	99		99		99				—				—
Short term investments	Short term investments	492		492		415		76		0		Short term investments	540		540		526				13				—
Other investments (1)	Other investments (1)	595		597		91		0		53		Other investments (1)	660		652		92				—				—
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	33		33		32		2		0		Cash, cash equivalents and restricted cash	67		67		67				—				—
Derivative assets:	Derivative assets:											Derivative assets:

Interest rate swaps—asset position	Interest rate swaps—asset position	93		93		0		9		85		Interest rate swaps—asset position	56		56		—				3				52

Other assets - equity in sponsored VIE		1		1		0		0		1
Other assets-loans		3		3		0		0		3

Other assets-Loans												Other assets-Loans	3		3		—				—				3
Variable interest entity assets:	Variable interest entity assets:											Variable interest entity assets:

Fixed maturity securities: Corporate obligations		3,215		3,215		0		0		3,215
Fixed maturity securities: Municipal obligations		139		139		0		139		0
Fixed maturity securities: Corporate obligations, fair value option												Fixed maturity securities: Corporate obligations, fair value option	3,131		3,131		—				—				3,131
Fixed maturity securities: Municipal obligation, trading												Fixed maturity securities: Municipal obligation, trading	114		114		—				114				—
Fixed maturity securities: Municipal obligations, available-for-sale												Fixed maturity securities: Municipal obligations, available-for-sale	119		119		—				119				—
Restricted cash	Restricted cash	2		2		2		0		0		Restricted cash	49		49		49				—				—
Loans	Loans	2,998		2,998		0		0		2,998		Loans	2,469		2,469		—				—				2,469

Derivative assets: Currency swaps—asset position		41		41		0		41		0
Derivative assets: Currency swaps-asset position												Derivative assets: Currency swaps-asset position	42		42		—				42				—
Total financial assets	Total financial assets	$	10,071	$	10,073	$	888	$	2,299	$	6,433	Total financial assets	$	8,864	$	8,856	$	988			$	1,567			$	5,741
Financial liabilities:	Financial liabilities:											Financial liabilities:

Long term debt, including accrued interest	Long term debt, including accrued interest	$	3,255	$	3,071	$	0	$	2,670	$	401	Long term debt, including accrued interest	$	2,834	$	2,315	$	—			$	2,296			$	19
Derivative liabilities:	Derivative liabilities:											Derivative liabilities:

Credit derivatives												Credit derivatives	1		1		—				—				1

Interest rate swaps—liability position	Interest rate swaps—liability position	114		114		0		114		0		Interest rate swaps—liability position	75		75		—				75				—

Futures contracts												Futures contracts	1		1		1				—				—

Liabilities for net financial guarantees written (2)	Liabilities for net financial guarantees written (2)	(740)		539		0		0		539		Liabilities for net financial guarantees written (2)	(970)		(197)		—				—				(197)
Variable interest entity liabilities:	Variable interest entity liabilities:											Variable interest entity liabilities:
Long-term debt (includes $4,324 at fair value)		4,493		4,504		0		4,349		155
Long-term debt (includes $3,701 at fair value)												Long-term debt (includes $3,701 at fair value)	4,124		4,161		—				4,001				160

Derivative liabilities: Interest rate swaps—liability position	Derivative liabilities: Interest rate swaps—liability position	1,835		1,835		0		1,835		0		Derivative liabilities: Interest rate swaps—liability position	1,866		1,866		—				1,866				—

Total financial liabilities	Total financial liabilities	$	8,958	$	10,063	$	0	$	8,968	$	1,095	Total financial liabilities	$	7,930	$	8,221	$	1			$	8,238			$	(17)

| Ambac Financial Group, Inc. 192022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)


	Carrying Amount		Total Fair Value		Fair Value Measurements Categorized as:
December 31, 2021:					Level 1		Level 2		Level 3
Financial assets:
Fixed maturity securities:
Municipal obligations	$	340	$	340	$	—	$	340	$	—
Corporate obligations	613		613		1		600		12
Foreign obligations	87		87		87		—		—
U.S. government obligations	45		45		45		—		—

Residential mortgage-backed securities	252		252		—		252		—

Collateralized debt obligations	128		128		—		128		—
Other asset-backed securities	265		265		—		187		79
Fixed maturity securities, pledged as collateral:
U.S. government obligations	15		15		15		—		—
Short-term	105		105		105		—		—
Short term investments	414		414		369		46		—
Other investments (1)	690		683		106		—		—
Cash, cash equivalents and restricted cash	21		21		21		1		—
Derivative assets:

Interest rate swaps—asset position	76		76		—		5		71


Other assets - equity in sponsored VIE	—		—		—		—		—
Other assets-loans	3		3		—		—		3
Variable interest entity assets:

Fixed maturity securities: Corporate obligations, fair value option	3,320		3,320		—		—		3,320
Fixed maturity securities: Municipal obligations, available-for-sale	136		136		—		136		—
Restricted cash	2		2		2		—		—
Loans	2,718		2,718		—		—		2,718

Derivative assets: Currency swaps—asset position	38		38		—		38		—
Total financial assets	$	9,268	$	9,261	$	750	$	1,732	$	6,202
Financial liabilities:
Long term debt, including accrued interest	$	2,806	$	2,598	$	—	$	2,575	$	22
Derivative liabilities:
Credit derivatives	—		—		—		—		—

Interest rate swaps—liability position	94		94		—		94		—
Futures contracts	—		—		—		—		—

Liabilities for net financial guarantees written (2)	(866)		(112)		—		—		(112)
Variable interest entity liabilities:
Long-term debt (includes $4,056 at fair value)	4,216		4,255		—		4,086		169

Derivative liabilities: Interest rate swaps—liability position	1,940		1,940		—		1,940		—

Total financial liabilities	$	8,190	$	8,775	$	—	$	8,695	$	79

(1)Excluded from the fair value measurement categories in the table above are investment funds of ~~$501~~$560 and ~~$453~~$577 as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, which are measured using NAV as a practical expedient. Also excluded from the fair value measurements in the table above are equity securities with a carrying value of $8 and $8 as of March 31, 2022 and December 31, 2021, respectively, that do not have readily determinable fair values and have carrying amounts determined using the measurement alternative.

(2)The carrying value of net financial guarantees written includes financial guarantee amounts in the following balance sheet items: Premium receivables; Reinsurance recoverable on paid and unpaid losses; Deferred ceded premium; Subrogation recoverable; Insurance intangible asset; Unearned premiums; Loss and loss expense reserves; Ceded premiums payable, premiums taxes payable and other deferred fees recorded in Other liabilities.

Determination of Fair Value:

When available, Ambac uses quoted active market prices specific to the financial instrument to determine fair value, and classifies such items within Level 1. The determination of fair value for financial instruments categorized in Level 2 or 3 involves

judgment due to the complexity of factors contributing to the valuation. Third-party sources from which we obtain independent market quotes also use assumptions, judgments and estimates in determining financial instrument values and different third parties may use different methodologies or provide different values for

| Ambac Financial Group, Inc. 202022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

financial instruments. In addition, the use of internal valuation models may require assumptions about hypothetical or inactive markets. As a result of these factors, the actual trade value of a financial instrument in the market, or exit value of a financial instrument position by Ambac, may be significantly different from its recorded fair value.

Ambac’s financial instruments carried at fair value are mainly comprised of investments in fixed maturity securities, equity interests in pooled investment funds, derivative instruments

~~| Ambac Financial Group, Inc.~~ 24~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

and certain variable interest entity assets and ~~liabilities and interests in Ambac sponsored special purpose entities.~~liabilities. Valuation of financial instruments is performed by Ambac’s finance group using methods approved by senior financial management with consultation from risk management and portfolio managers as appropriate. Preliminary valuation results are discussed with portfolio managers quarterly to assess consistency with market transactions and trends as applicable. Market transactions such as trades or negotiated settlements of similar positions, if any, are reviewed to validate fair value model results. However, many of the financial instruments valued using significant unobservable inputs have very little or no observable market activity. Methods and significant inputs and assumptions used to determine fair values across portfolios are reviewed quarterly by senior financial management. Other valuation control procedures specific to particular portfolios are described further below.

Fixed Maturity Securities:

The fair values of fixed maturity investment securities are based primarily on market prices received from broker quotes or alternative pricing sources. Because many fixed maturity securities do not trade on a daily basis, pricing sources apply available market information through processes such as matrix pricing to calculate fair value. Such prices generally consider a variety of factors, including recent trades of the same and similar securities. In those cases, the items are classified within Level 2. For those fixed maturity investments where quotes were not available or cannot be reasonably corroborated, fair values are based on internal valuation models. Key inputs to the internal valuation models generally include maturity date, coupon and yield curves for asset-type and credit rating characteristics that closely match those characteristics of the specific investment securities being valued. Items valued using valuation models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be significant inputs that are readily observable. Longer (shorter) expected maturities or higher (lower) yields used in the valuation model will, in isolation, result in decreases (increases) in fair value. Generally, lower credit ratings or longer expected maturities will be accompanied by higher yields used to value a security. At March 31, ~~2021,~~2022, approximately 3%6%, ~~95%~~90% and 2%4% of the fixed maturity investment portfolio (excluding variable interest entity investments) was valued using broker quotes, alternative pricing sources and internal valuation models, respectively. At December 31, ~~2020,~~2021, approximately 2%6%, ~~95%~~90% and 3%4% of the fixed maturity investment portfolio (excluding variable interest entity investments) was valued using broker quotes, alternative pricing sources and internal valuation models, respectively.

Ambac performs various review and validation procedures to quoted and modeled prices for fixed maturity securities, including price variance analyses, missing and static price reviews, overall valuation analysis by portfolio managers and finance managers and reviews associated with our ongoing impairment analysis. Unusual prices identified through these procedures will be evaluated further against alternative third party quotes (if available), internally modeled prices and/or other relevant data, and the pricing source values will be challenged as necessary. Price challenges generally result in the use of the pricing source’s quote as originally provided or as revised by the source following

their internal diligence process. A price challenge may result in a determination by either the pricing source or Ambac management that the pricing source cannot provide a reasonable value for a security or cannot adequately support a quote, in which case Ambac would resort to using either other quotes or internal models. Results of price challenges are reviewed by portfolio managers and finance managers.

Information about the valuation inputs for fixed maturity securities classified as Level 3 is included below:

Other asset-backed securities:This security is a subordinated tranche of a securitization collateralized by Ambac-insured military housing bonds. The fair value classified as Level 3 was ~~$76~~$74 and ~~$78~~$79 at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Fair value was calculated using a discounted cash flow approach with expected future cash flows discounted using a yield consistent with the security type and rating. Significant inputs for the valuation at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 include the following:


March 31, ~~2021:~~2022:
a. Coupon rate:			5.98%
b. Average Life:			~~14.66~~13.97 years
c. Yield:			~~10.75%~~11.00%

December 31, ~~2020:~~2021:
a. Coupon rate:			5.97%
b. Average Life:			~~14.83~~14.14 years
c. Yield:			~~10.50%~~10.20%

Corporate obligations: This includes certain investments in convertible debt securities. The fair value classified as Level 3 was $12 and $12 at March 31, 2022 and December 31, 2021, respectively. Fair value was calculated by discounting cash flows to average maturity of 2.5 years and yield of 9.3% at March 31, 2022 and average maturity of 2.75 years and yield of 7.2% at December 31, 2021. Yields used are consistent with the security type and rating.

Other Investments:

Other investments primarily relate to investments in pooled investment funds. The fair value of pooled investment funds is determined using dealer quotes or alternative pricing sources when such investments have readily determinable fair values. When fair value is not readily determinable, pooled investment

| Ambac Financial Group, Inc. 212022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

funds are valued using NAV as a practical expedient as permitted under the Fair Value Measurement Topic of the ASC. Refer to Note 9.4. Investments for additional information about such investments in pooled funds that are reported at fair value using NAV as a practical expedient.

At December 31, 2020, other investments also included Ambac's equity interest in the Corolla Trust, a non-consolidated VIE created in connection with Ambac's monetization of AAC junior surplus notes. This equity interest was carried under the equity method and its fair value was internally calculated using a market approach classified as Level 3. As further described in ~~Note 1. Background and Business Description,~~ on January 22, 2021, AAC completed the Corolla Note Exchange transaction whereby it acquired 100% of the outstanding obligations and the owner trust certificate of, and subsequently dissolved, the Corolla Trust.

Derivative Instruments:

Ambac’s derivative instruments primarily comprise interest rate swaps, credit default swaps and exchange traded futures contracts. Fair value is determined based upon market quotes from independent sources, when available. When independent

~~| Ambac Financial Group, Inc.~~ 25~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

quotes are not available, fair value is determined using valuation models. These valuation models require market-driven inputs, including contractual terms, credit spreads and ratings on underlying referenced obligations, yield curves and tax-exempt interest ratios. The valuation of certain derivative contracts also require the use of data inputs and assumptions that are determined by management and are not readily observable in the market. Under the Fair Value Measurement Topic of the ASC, Ambac is required to consider its own credit risk when measuring the fair value of derivatives and other liabilities. Factors considered in estimating the amount of any Ambac credit valuation adjustment ("CVA") on such contracts include collateral posting provisions, right of set-off with the counterparty, the period of time remaining on the derivative and the pricing of recent terminations. The ~~aggregated~~aggregate Ambac CVA impact reduced the fair value of derivative liabilities by less than a million dollars at both March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively

Interest rate swaps that are not centrally cleared are valued using vendor-developed models that incorporate interest rates and yield curves that are observable and regularly quoted. These models provide the net present value of the derivatives based on contractual terms and observable market data. Generally, the need for counterparty (or Ambac) CVAs on interest rate derivatives is mitigated by the existence of collateral posting agreements under which adequate collateral has been posted. Certain of these derivative contracts entered into with financial guarantee customers are not subject to collateral posting agreements. Counterparty credit risk related to such customer derivative assets is included in our determination of their fair value.

Ambac's credit derivatives ("CDS") are valued using an internal model that uses traditional financial guarantee CDS pricing to calculate the fair value of the derivative contract based on the reference obligation's current pricing, remaining life and credit rating and Ambac's own credit risk. The model calculates the difference between the present value of the projected fees receivable under the CDS and our estimate of the fees a financial guarantor of comparable credit quality would charge to provide the same protection at the balance sheet date. Unobservable inputs used include Ambac's internal reference obligation credit ratings and remaining life, estimates of fees that would be charged to assume the credit derivative obligation and Ambac's CVA. Ambac is party to only ~~one~~1 remaining credit derivative with an internal credit rating of AA at March 31, ~~2021.~~2022. Ambac has not made any significant changes to its modeling techniques or related model inputs for the periods presented.

Financial Guarantees:

Fair value of net financial guarantees written represents our estimate of the cost to Ambac to completely transfer its insurance obligation to another market participant of comparable credit worthiness. In theory, this amount should be the same amount that another market participant of comparable credit worthiness would hypothetically charge in the marketplace, on a present value basis, to provide the same protection as of the balance sheet date. This fair value estimate of financial guarantees is presented on a net basis and includes direct and assumed contracts written, net of ceded reinsurance contracts.

Long-term Debt:

Long-term debt includes AAC surplus notes, ~~and junior surplus notes,~~ the ~~Ambac~~Sitka AAC Note, ~~and~~ Tier 2 Notes issued in connection with the Rehabilitation Exit Transactions and the Ambac UK debt issued in connection with the Ballantyne commutation. The fair values of surplus notes, ~~the Ambac~~Sitka AAC Note and Tier 2 Notes are classified as Level 2. The fair value of ~~junior surplus notes and~~ Ambac UK debt ~~are~~is classified as Level 3.

Other Financial Assets and Liabilities:

Included in Other assets are ~~Loans and Ambac’s equity interest in an Ambac sponsored VIE established to provide certain financial guarantee clients with funding for their debt obligations. The~~loans, the fair values of ~~these financial assets~~which are estimated based upon internal valuation models and are classified as Level 3.

Variable Interest Entity Assets and Liabilities:

The financial assets and liabilities of Legacy Financial Guarantee Insurance VIEs ("FG ~~VIEs~~VIEs") consolidated under the Consolidation Topic of the ASC consist primarily of fixed maturity securities and loans held by the VIEs, derivative instruments and notes issued by the VIEs which are reported as long-term debt. As described in Note 3.9. Variable Interest Entities, these FG VIEs are securitization entities which have liabilities and/or assets guaranteed by AAC or Ambac UK.

The fair values of FG VIE long-term debt are based on price quotes received from independent market sources when available. Such quotes are considered Level 2 and generally consider a variety of factors, including recent trades of the same and similar securities. For those instruments where quotes were not available or cannot be reasonably corroborated, fair values are based on internal valuation models. Comparable to the sensitivities of investments in fixed maturity securities described above, longer (shorter) expected maturities or higher (lower) yields used in the valuation model will, in isolation, result in decreases (increases) in fair value liability measurement for FG VIE long-term debt.

FG VIE derivative asset and liability fair values are determined using vendor-developed valuation models, which incorporated observable market data related to specific derivative contractual terms including interest rates, foreign exchange rates and yield curves.

The fair value of FG VIE fixed maturity securities and loan assets are generally based on Level 2 market price quotes received from independent market sources when available. ~~Typically,~~When FG VIE asset fair values are not readily available from market quotes, ~~and~~values are estimated internally. Internal ~~valuation~~valuations of ~~each~~ FG VIE’s fixed maturity securities or loan assets are derived from the fair values of the notes issued by the respective VIE and the VIE’s

| Ambac Financial Group, Inc. 222022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

derivatives, determined as described above, adjusted for the fair values of Ambac’s financial guarantees associated with the VIE. The fair value of financial guarantees consist of: (i) estimated future premium cash flows discounted at a rate consistent with that implicit in the fair value of the VIE’s liabilities and (ii) estimates of future claim payments discounted at a rate that

includes Ambac’s own credit risk. Estimated future premium payments to be paid by the VIEs were discounted at a weighted average rate of ~~2.8%~~3.9% and ~~2.4%~~3.0% at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. At March 31, ~~2021,~~2022, the range of these discount rates was between ~~2.3%~~3.2% and ~~3.5%~~5.3%.

~~| Ambac Financial Group, Inc.~~ 26~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

Additional Fair Value Information for Financial Assets and Liabilities Accounted for at Fair Value:

The following tables present the changes in the Level 3 fair value category for the periods presented in ~~2021~~2022 and ~~2020.~~2021. Ambac classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.


Level 3 - Financial Assets and Liabilities Accounted for at Fair Value	Level 3 - Financial Assets and Liabilities Accounted for at Fair Value													Level 3 - Financial Assets and Liabilities Accounted for at Fair Value
								VIE Assets and Liabilities													VIE Assets
															Investments(1)		Other Assets(2)		Derivatives			Investments		Loans		Total
Three Months Ended March 31, 2022:														Three Months Ended March 31, 2022:
Balance, beginning of period														Balance, beginning of period	$	91	$	—	$	70		$	3,320	$	2,718	$	6,199

Total gains/(losses) realized and unrealized:														Total gains/(losses) realized and unrealized:
Included in earnings														Included in earnings	—		—		(17)			(93)		(96)		(204)
Included in other comprehensive income														Included in other comprehensive income	(4)		—		—			(96)		(76)		(176)
Purchases														Purchases	—		—		—			—		—		—

Settlements														Settlements	(1)		—		(2)			—		(78)		(80)

Balance, end of period														Balance, end of period	$	86	$	—	$	52		$	3,131	$	2,469	$	5,738
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date														The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—	$	—	$	(17)		$	(93)	$	(96)	$	(204)
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date														The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(4)	$	—	$	—		$	(96)	$	(76)	$	(176)
		Investments(1)		Other Assets(2)		Derivatives		Investments		Loans		Total
Three Months Ended March 31, 2021:	Three Months Ended March 31, 2021:													Three Months Ended March 31, 2021:
Balance, beginning of period	Balance, beginning of period	$	78	$	1	$	84	$	3,215	$	2,998	$	6,376	Balance, beginning of period	$	78	$	1	$	84		$	3,215	$	2,998	$	6,376

Total gains/(losses) realized and unrealized:	Total gains/(losses) realized and unrealized:													Total gains/(losses) realized and unrealized:
Included in earnings	Included in earnings	0		0		(17)		(138)		9		(145)		Included in earnings	—		—		(17)			(138)		9		(145)
Included in other comprehensive income	Included in other comprehensive income	(2)		—		—		26		24		49		Included in other comprehensive income	(2)		—		—			26		24		49
Purchases	Purchases	—		—		—		—		—		—		Purchases	—		—		—			—		—		—
Issuances		—		—		—		—		—		—
Sales		—		—		—		—		—		—

Settlements	Settlements	0		—		(2)		—		(84)		(86)		Settlements	—		—		(2)			—		(84)		(86)

Balance, end of period	Balance, end of period	$	76	$	1	$	65	$	3,103	$	2,948	$	6,194	Balance, end of period	$	76	$	1	$	65		$	3,103	$	2,948	$	6,194
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—	$	0	$	(17)	$	(138)	$	9	$	(145)	The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—	$	—	$	(17)		$	(138)	$	9	$	(145)
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(2)	$	0	$	0	$	26	$	24	$	49	The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(2)	$	—	$	—		$	26	$	24	$	49

Three Months Ended March 31, 2020:
Balance, beginning of period		$	72	$	3	$	66	$	2,957	$	3,108	$	6,207

Total gains/(losses) realized and unrealized:
Included in earnings		0		0		12		30		88		130
Included in other comprehensive income		(6)		—		—		(181)		(190)		(377)
Purchases		—		—		—		—		—		—
Issuances		—		—		—		—		—		—
Sales		—		—		—		—		—		—
Settlements		0		—		(1)		—		(74)		(76)

Balance, end of period		$	66	$	3	$	77	$	2,806	$	2,932	$	5,884
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date		$	—	$	0	$	12	$	30	$	88	$	130
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date		$	(6)	$	0	$	0	$	(181)	$	(190)	$	(377)

(1) Investments classified as Level 3 consist of a single other asset-backed security.

(2) Other assets carried at fair value and classified as Level 3 relate to an equity interest in an Ambac sponsored VIE.

~~| Ambac Financial Group, Inc.~~ 27~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

~~The table below provides roll-forward information by class of derivatives measured using significant unobservable inputs.~~

Level 3 - Derivatives by Class
Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
Interest
Rate Swaps Credit
Derivatives Total
Derivatives Interest
Rate Swaps Credit
Derivatives Total
Derivatives
Balance, beginning of period $ 85 $ 0 $ 84 $ 67 $ 0 $ 66
Total gains/(losses) realized and unrealized:
Included in earnings (17) 0 (17) 13 (1) 12
Included in other comprehensive income 0 0 0 0 0 0
Purchases 0 0 0 0 0 0
Issuances 0 0 0 0 0 0
Sales 0 0 0 0 0 0
Settlements (2) 0 (2) (1) 0 (1)
Balance, end of period $ 66 $ 0 $ 65 $ 79 $ (2) $ 77
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date $ (17) $ 0 $ (17) $ 13 $ (2) $ 12
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date $ (17) $ 0 $ (17) $ 0 $ 0 $ 0

Invested assets and VIE long-term debt are transferred into Level 3 when internal valuation models that include significant unobservable inputs are used to estimate fair value. All such securities that have internally modeled fair values have been

classified as Level 3. Derivative instruments are transferred into Level 3 when the use of unobservable inputs becomes significant to the overall valuation. There were 0no transfers of financial instruments into or out of Level 3 in the periods disclosed.

| Ambac Financial Group, Inc. 232022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported as follows:


		Net Investment Income		Net Gains (Losses) on Derivative Contracts		Income (Loss) on Variable Interest Entities		Other Income or (Expense)			Net Investment Income		Net Gains (Losses) on Derivative Contracts		Income (Loss) on Variable Interest Entities		Other Income or (Expense)
Three Months Ended March 31, 2021:
Three Months Ended March 31, 2022:										Three Months Ended March 31, 2022:
Total gains (losses) included in earnings for the period	Total gains (losses) included in earnings for the period	$	0	$	(17)	$	(129)	$	0	Total gains (losses) included in earnings for the period	$	—	$	(17)	$	(188)	$	—
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	0		(17)		(129)		0		Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		(17)		(188)		—

Three Months Ended March 31, 2020:
Three Months Ended March 31, 2021:										Three Months Ended March 31, 2021:
Total gains (losses) included in earnings for the period	Total gains (losses) included in earnings for the period	$	0	$	12	$	118	$	0	Total gains (losses) included in earnings for the period	$	—	$	(17)	$	(129)	$	—
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	0		12		118		0		Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		(17)		(129)		—

6. INSURANCE CONTRACTS

Amounts presented in this Note relate only to Ambac’s non-derivative insurance business for insurance policies issued to beneficiaries, excluding consolidated VIEs.

Premiums:

The effect of reinsurance on premiums written and earned was as follows:

~~9. INVESTMENTS~~


	Three Months Ended March 31,
	2022				2021
	Written		Earned		Written		Earned
Direct	$	30	$	23	$	(2)	$	17
Assumed	—		—		—		—
Ceded	18		8		7		3
Net premiums	$	12	$	15	$	(9)	$	14

~~Ambac’s non-VIE invested assets are primarily comprised~~The following table summarizes net premiums earned by location of fixed maturity securities classified as available-for-sale and interests in pooled investment funds, which are reported within Other investments on the Consolidated Balance Sheets. Interests in pooled investment funds in the form of common stock or in-substance common stock are classified as trading securities, while limited partner interests in such funds are reported using the equity method. Other investments also included equity interests held by AFG, including the equity Certificates in Corolla Trust, an unconsolidated trust created in connection with its sale of Segregated Account junior surplus notes on August 28, 2014. Asrisk:


	Three Months Ended March 31,
	2022		2021
United States	$	9	$	7
United Kingdom	4		3
Other international	1		3
Total	$	15	$	14

~~further described in~~ ~~Note 1. Background and Business Description,~~ on January 22, 2021, AAC completed the Corolla Note Exchange transaction whereby it acquired 100% of the outstanding obligations and the Certificates of, and subsequently dissolved, the Corolla Trust. There are no equity interests held by AFG as ofPremium Receivables, including credit impairments:

Premium receivables at March 31, ~~2021.~~

~~Disclosures in this Note for the periods ended March 31, 2021~~2022 and December 31, ~~2020,~~2021 were $317 and $323, respectively.

•Legacy financial guarantee premium receivables are discounted using an appropriate risk-free rate corresponding to the weighted average life of each policy and currency to discount the future premiums contractually due or expected to be collected. The weighted average risk-free rate at March 31, 2022 and December 31, 2021, was 2.6% and 2.2%, respectively, and the weighted average period of future premiums used to estimate the premium receivable at March 31, 2022 and December 31, 2021, was 8.2 years and 8.0 years, respectively.

•Specialty property and casualty premium receivables are not discounted and are typically paid upfront. Any receivables for such amounts are generally collected in the following period. Non-payment of premium by the policyholder may lead to policy cancellation.

Management evaluates premium receivables for expected credit losses ("credit impairment") in accordance with the ~~new~~ CECL standard adopted January 1, 2020, which is ~~more fully~~further described in Note 2, 2. Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Ambac's Annual Report on Form 10-K for the year ended December 31, 2021. The key indicator management uses to assess the credit quality of the legacy financial guarantee premium receivables is Ambac's internal risk classifications for the insured obligation determined by the Risk Management Group. Below is the amortized cost basis of financial guarantee premium receivables by risk classification code and asset class as of March 31, 2022 and December 31, 2021:

| Ambac Financial Group, Inc. 2824 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)


Surveillance Categories as of March 31, 2022
Type of Guaranteed Bond	I		IA		II		III		IV		Total
Public Finance:
Housing revenue	$	147	$	3	$	5	$	—	$	—	$	155
Other	2		—		—		—		—		2
Total Public Finance	149		3		5		—		—		157

Structured Finance:
Mortgage-backed and home equity	1		—		—		2		11		15
Structured insurance	9		—		—		—		—		9
Student loan	1		1		—		8		—		11
Other	6		—		—		—		—		6
Total Structured Finance	18		1		—		11		11		41

International:
Sovereign/sub-sovereign	74		8		—		10		—		92
Investor-owned and public utilities	21		—		—		—		—		21
Other	5		—		—		—		—		5
Total International	100		8		—		10		—		118
Total (1) (2)	$	267	$	12	$	5	$	21	$	11	$	316

Surveillance Categories as of December 31, 2021
Type of Guaranteed Bond	I		IA		II		III		IV		Total
Public Finance:
Housing revenue	$	149	$	3	$	5	$	—	$	—	$	157
Other	2		—		—		—		—		2
Total Public Finance	151		3		5		—		—		159

Structured Finance:
Mortgage-backed and home equity	1		—		1		2		12		16
Student loan	1		1		—		9		—		12
Structured insurance	10		—		—		—		—		10
Other	7		—		—		—		—		7
Total Structured Finance	19		1		1		12		12		45

International:
Sovereign/sub-sovereign	74		8		—		11		—		93
Investor-owned and public utilities	28		—		—		—		—		28
Other	5		—		—		—		—		5
Total International	107		8		—		11		—		125
Total (1) (2)	$	277	$	12	$	6	$	22	$	12	$	329

(1) Excludes specialty property and casualty premium receivables of $9 and $2 at March 31, 2022 and December 31, 2021, respectively.

(2) The underwriting origination dates for all policies included are greater than five years prior to the current reporting date.

| Ambac Financial Group, Inc. 252022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Below is a rollforward of the premium receivable allowance for credit losses as of March 31, 2022 and 2021:



Three Months Ended March 31,	2022		2021
Beginning balance	$	9	$	17
Current period provision (benefit)	(1)		(4)
Write-offs of the allowance	—		—
Recoveries of previously written-off amounts	—		—
Ending balance (1)	$	8	$	13

~~Policies~~ (1)At March 31, 2022 and 2021, $1 and $— of premiums were past due.

Legacy Financial Guarantee Premium Receivables:

Gross premiums are received either upfront or in installments. For premiums received upfront, an unearned premium revenue (“UPR”) liability is established, which is initially recorded as the cash amount received. For installment premium policies, a premium receivable asset and offsetting UPR liability is initially established in an amount equal to: (i) the present value of future contractual premiums due (the “contractual” method) or (ii) if the assets underlying the insured obligation are homogenous pools which are contractually prepayable, the present value of premiums to be collected over the expected life of the transaction (the “expected” method).

Below is the gross premium receivable roll-forward (direct and assumed contracts) for the affected periods:


Three Months Ended March 31,	2022		2021
Beginning premium receivable	$	320	$	370


Premium receipts	(15)		(12)
Adjustments for changes in expected and contractual cash flows for contracts (1)	3		(8)
Accretion of premium receivable discount for contracts	2		2

Changes to allowance for credit losses	1		4
Other adjustments (including foreign exchange)	(3)		—
Ending premium receivable (2)	$	308	$	356

(1) Adjustments for changes in expected and contractual cash flows primarily due to indexation offset by reductions in insured exposure as a result of early policy terminations and unscheduled principal paydowns.

(2) Premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At March 31, 2022 and 2021, premium receivables include British Pounds of $101 (£77) and $122 (£89), respectively, and Euros of $16 (€15) and $21 (€18), respectively.

The following table summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at March 31, 2022:


	Future Premiums to be Collected (1)		Future Premiums to be Earned Net of Reinsurance (2)
Three months ended:

June 30, 2022	$	8	$	6
September 30, 2022	9		6
December 31, 2022	6		6
Twelve months ended:
December 31, 2023	30		24
December 31, 2024	29		23
December 31, 2025	28		22
December 31, 2026	27		22
Five years ended:
December 31, 2031	115		89
December 31, 2036	77		55
December 31, 2041	34		22
December 31, 2046	16		9
December 31, 2051	5		3
December 31, 2056	—		—


Total	$	384	$	288

(1)Future premiums to be collected are undiscounted, gross of allowance for credit losses, and are used to derive the discounted premium receivable asset recorded on Ambac's balance sheet.

(2)Future premiums to be earned, net of reinsurance relate to the unearned premiums liability and deferred ceded premium asset recorded on Ambac’s balance sheet. The use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral is required in the calculation of the premium receivable, as further described in Note 2. Basis of Presentation and Significant Accounting Policiesin the Notes to Consolidated Financial Statements included ~~Part II, Item 8~~ in ~~the Company’s~~Ambac's Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021. This results in a different premium receivable balance than if expected lives were considered. If installment paying policies are retired or prepay early, premiums reflected in the premium receivable asset and amounts reported in the above table for such policies may not be collected. Future premiums to be earned also considers the use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral, which may result in different unearned premium than if expected lives were considered. If those bonds types are retired early, premium earnings may be negative in the period of call or refinancing.

~~Fixed Maturity Securities:~~

~~The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at March 31, 2021 and December 31, 2020, were as follows:~~

Amortized
Cost Allowance for Credit Losses Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
March 31, 2021:
Fixed maturity securities:
Municipal obligations $ 329 $ 0 $ 38 $ 0 $ 366
Corporate obligations (1)
1,106 0 14 13 1,108
Foreign obligations 98 0 0 1 97
U.S. government obligations 109 0 1 2 108
Residential mortgage-backed securities 219 0 50 0 269
Collateralized debt obligations 97 0 0 0 97
Other asset-backed securities (2)
262 0 33 0 295
2,221 0 136 17 2,341
Short-term 398 0 0 0 397
2,619 0 136 17 2,738
Fixed maturity securities pledged as collateral:
U.S. government obligations 15 0 0 0 15
Short-term 105 0 0 0 105
120 0 0 0 120
Total available-for-sale investments $ 2,739 $ 0 $ 136 $ 17 $ 2,858

Amortized
Cost Allowance for Credit Losses Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
December 31, 2020:
Fixed maturity securities:
Municipal obligations $ 321 $ 0 $ 37 $ 0 $ 358
Corporate obligations (1)
1,059 0 24 6 1,077
Foreign obligations 97 0 1 0 98
U.S. government obligations 105 0 2 1 106
Residential mortgage-backed securities 256 0 46 0 302
Collateralized debt obligations 74 0 0 0 74
Other asset-backed securities (2)
263 0 40 0 303
2,175 0 149 8 2,317
Short-term 492 0 0 0 492
2,667 0 149 8 2,809
Fixed maturity securities pledged as collateral:
U.S. government obligations 15 0 0 0 15
Short-term 125 0 0 0 125
140 0 0 0 140
Total available-for-sale investments $ 2,807 $ 0 $ 149 $ 8 $ 2,949

~~(1)Includes Ambac's holdings of the secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions.~~

~~(2)Consists primarily of Ambac's holdings of the military housing and student loan securities.~~

| Ambac Financial Group, Inc. 2926 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

~~The amortized cost~~Loss and ~~estimated fair value~~Loss Expense Reserves:

Ambac’s loss and loss expense reserves (“loss reserves”) are based on management’s on-going review of ~~available-for-sale investments, excluding VIE investments,~~the insured portfolio. Below are the components of the loss and loss expense reserves and the subrogation recoverable asset at at March 31, ~~2021, by contractual maturity, were as follows:~~

Amortized
Cost Estimated
Fair Value
Due in one year or less $ 617 $ 618
Due after one year through five years 906 912
Due after five years through ten years 455 459
Due after ten years 183 209
2,160 2,197
Residential mortgage-backed securities 219 269
Collateralized debt obligations 97 97
Other asset-backed securities 262 295
Total $ 2,739 $ 2,858

~~Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.~~

~~Unrealized Losses on Fixed Maturity Securities:~~

~~The following table shows gross unrealized losses and fair values of Ambac’s available-for-sale investments, excluding VIE investments, which at March 31, 2021~~2022 and December 31, 2020, did not have an allowance for credit losses under the CECL standard. This information is aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2021 and December 31, 2020:2021:

Less Than 12 Months 12 Months or More Total
Fair Value Gross
Unrealized
Loss Fair Value Gross
Unrealized
Loss Fair Value Gross
Unrealized
Loss
March 31, 2021:
Fixed maturity securities:
Municipal obligations $ 19 $ 0 $ 16 $ 0 $ 35 $ 0
Corporate obligations 339 13 0 0 339 13
Foreign obligations 70 1 0 0 70 1
U.S. government obligations 25 2 0 0 25 2
Residential mortgage-backed securities 15 0 2 0 17 0
Collateralized debt obligations 13 0 13 0 26 0
Other asset-backed securities 0 0 0 0 0 0
481 17 31 0 512 17
Short-term 157 0 0 0 157 0
Total securities $ 638 $ 17 $ 31 $ 0 $ 669 $ 17

December 31, 2020:
Fixed maturity securities:
Municipal obligations $ 25 $ 0 $ 6 $ 0 $ 31 $ 0
Corporate obligations 543 6 0 0 543 6
Foreign obligations 3 0 0 0 3 0
U.S. government obligations 17 1 0 0 17 1
Residential mortgage-backed securities 14 0 0 0 14 0
Collateralized debt obligations 27 0 15 0 42 0
Other asset-backed securities 0 0 4 0 4 0
629 7 25 0 654 8
Short-term 187 0 0 0 187 0
Total securities $ 816 $ 7 $ 25 $ 0 $ 841 $ 8


			Legacy Financial Guarantee
	Specialty Property and Casualty		Present Value of Expected Net Cash Flows
Balance Sheet Line Item	Gross Loss and Loss Expense Reserves		Claims and Loss Expenses		Recoveries		Unearned Premium Revenue		Gross Loss and Loss Expense Reserves
March 31, 2022:
Loss and loss expense reserves	$	36	$	1,168	$	(95)	$	(42)	$	1,067
Subrogation recoverable	—		52		(1,766)		—		(1,714)
Totals	$	36	$	1,221	$	(1,861)	$	(42)	$	(647)

December 31, 2021:
Loss and loss expense reserves	$	32	$	1,749	$	(155)	$	(56)	$	1,570
Subrogation recoverable	—		88		(2,180)		—		(2,092)
Totals	$	32	$	1,837	$	(2,335)	$	(56)	$	(522)

Below is the loss and loss reserve expense roll-forward, net of subrogation recoverable and reinsurance, for the affected periods:


Three Months Ended March 31,	2022		2021
Beginning gross loss and loss expense reserves	$	(522)	$	(397)
Reinsurance recoverable	55		33
Beginning balance of net loss and loss expense reserves	(578)		(430)
Losses and loss expenses (benefit):
Current year	1		—
Prior years	23		8
Total (1) (2)	24		8
Loss and loss expenses paid (recovered):
Current year	—		—
Prior years	(150)		25
Total	(150)		25
Foreign exchange effect	(1)		—
Ending net loss and loss expense reserves	(404)		(447)
Impact of VIE consolidation	(292)		—
Reinsurance recoverable (3)	49		33
Ending gross loss and loss expense reserves	$	(647)	$	(414)

(1)Total losses and loss expenses (benefit) includes $(7) and $(1) for the three months ended March 31, 2022 and 2021, respectively, related to ceded reinsurance.

(2)Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties ("R&W's) by transaction sponsors within losses and loss expenses (benefit). The losses and loss expense incurred associated with changes in estimated R&W's for the three months ended March 31, 2022 and 2021, was $224 and $3, respectively.

(3)Represents reinsurance recoverable on future loss and loss expenses. Additionally, the Balance Sheet line "Reinsurance recoverable on paid and unpaid losses" includes reinsurance recoverables (payables) of $0 and $0 as of March 31, 2022 and 2021, respectively, related to previously presented loss and loss expenses and subrogation.

For 2022, the adverse development in prior years was primarily attributable to the reduction in the R&W recoverable partially offset by the positive benefit of the Puerto Rico restructuring.

For 2021, the adverse development in prior years was primarily due to deterioration of Puerto Rico credits.

| Ambac Financial Group, Inc. 3027 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Legacy Financial Guarantee Loss Reserves:

The tables below summarize information related to policies currently included in Ambac’s loss and loss expense reserves or subrogation recoverable at March 31, 2022 and December 31, 2021, excluding consolidated VIEs. Gross par exposures 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 bond. The weighted average risk-free rate used to discount loss reserves at March 31, 2022 and December 31, 2021,was 2.4% and 1.2%, respectively.


Surveillance Categories as of March 31, 2022
	I		IA		II		III		IV		V		Total
Number of policies	34		14		8		14		124		5		199
Remaining weighted-average contract period (in years) (1)	9		17		14		15		14		7		14
Gross insured contractual payments outstanding:
Principal	$	1,297	$	305	$	457	$	1,265	$	2,105	$	40	$	5,469
Interest	608		348		308		174		683		22		2,143
Total	$	1,905	$	653	$	766	$	1,439	$	2,788	$	62	$	7,612
Gross undiscounted claim liability	$	8	$	5	$	45	$	572	$	867	$	62	$	1,559
Discount, gross claim liability	(1)		(1)		(5)		(155)		(208)		(7)		(377)
Gross claim liability before all subrogation and before reinsurance	7		5		40		416		659		55		1,182
Less:
Gross RMBS subrogation (2)	—		—		—		—		(1,537)		—		(1,537)
Discount, RMBS subrogation	—		—		—		—		35		—		35
Discounted RMBS subrogation, before reinsurance	—		—		—		—		(1,502)		—		(1,502)
Less:
Gross other subrogation (3)	—		(5)		—		(33)		(350)		(12)		(401)
Discount, other subrogation	—		—		—		4		34		3		41
Discounted other subrogation, before reinsurance	—		(5)		—		(29)		(316)		(10)		(360)
Gross claim liability, net of all subrogation and discounts, before reinsurance	7		—		40		387		(1,159)		45		(680)
Less: Unearned premium revenue	(5)		(3)		(5)		(12)		(16)		(1)		(42)
Plus: Loss expense reserves	1		—		—		3		35		—		39
Gross loss and loss expense reserves	$	3	$	(3)	$	35	$	378	$	(1,140)	$	44	$	(683)
Reinsurance recoverable reported on Balance Sheet (4)	$	1	$	—	$	9	$	22	$	(18)	$	—	$	14

(1)Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.

(2)RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty ("R&W") breaches.

(3)Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions including RMBS.

(4)Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $14 related to future loss and loss expenses and $0 related to presented loss and loss expenses and subrogation.

| Ambac Financial Group, Inc. 282022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)


Surveillance Categories as of December 31, 2021
	I		IA		II		III		IV		V		Total
Number of policies	34		15		7		14		130		5		205
Remaining weighted-average contract period (in years) (1)	9		12		14		15		13		7		14
Gross insured contractual payments outstanding:
Principal	$	904	$	840	$	459	$	1,300	$	2,759	$	40	$	6,302
Interest	589		612		308		169		1,284		22		2,984
Total	$	1,493	$	1,452	$	767	$	1,469	$	4,043	$	62	$	9,286
Gross undiscounted claim liability	$	5	$	16	$	45	$	544	$	1,423	$	62	$	2,095
Discount, gross claim liability	—		(1)		(3)		(109)		(185)		(4)		(303)
Gross claim liability before all subrogation and before reinsurance	5		15		42		435		1,238		57		1,792
Less:
Gross RMBS subrogation (2)	—		—		—		—		(1,737)		—		(1,737)
Discount, RMBS subrogation	—		—		—		—		7		—		7
Discounted RMBS subrogation, before reinsurance	—		—		—		—		(1,730)		—		(1,730)
Less:
Gross other subrogation (3)	—		(5)		—		(33)		(583)		(12)		(633)
Discount, other subrogation	—		—		—		2		24		2		28
Discounted other subrogation, before reinsurance	—		(5)		—		(31)		(559)		(10)		(605)
Gross claim liability, net of all subrogation and discounts, before reinsurance	5		10		42		404		(1,051)		47		(543)
Less: Unearned premium revenue	(3)		(10)		(5)		(14)		(24)		(1)		(56)
Plus: Loss expense reserves	1		—		—		4		40		—		45
Gross loss and loss expense reserves	$	3	$	1	$	38	$	394	$	(1,036)	$	46	$	(554)
Reinsurance recoverable reported on Balance Sheet (4)	$	1	$	1	$	10	$	22	$	(11)	$	—	$	23

(1)Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.

(2)RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.

(3)Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.

(4)Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $24 related to future loss and loss expenses and $0 related to presented loss and loss expenses and subrogation.

COVID-19:

The COVID-19 pandemic had an impact on general economic conditions; including, but not limited to, higher unemployment; volatility in the capital markets; closure or severe curtailment of the operations and, hence, revenues, of many businesses and public and private enterprises to which we are directly or indirectly exposed. While the impact of the pandemic on the economy and markets in general has mostly subsided, there remains lingering effects, such as government relief programs, supply chain disruptions, inflation, and employment shortages, which may continue to adversely impact transactions insured in our legacy financial guarantee business.

In particular, this includes the U.S. government's temporary relief measures that required mortgage loan servicers to offer relief to borrowers who suffer hardship as a result of COVID-19. These relief measures included moratoriums on foreclosures and evictions as well as the expansion of forbearance and subsequent

repayment options. While these relief measures have largely since expired, the resulting delays in starting mortgage foreclosure processes and the impact of potential post-forbearance related mortgage loan modifications may have an adverse impact on our insured RMBS transactions. Consequently, we could experience a modest increase in claim payments for certain of our insured RMBS obligations following the resumption of foreclosure activity and the implementation of post-forbearance mortgage loan modifications.

| Ambac Financial Group, Inc. 292022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

~~Management~~Through March 31, 2022, we have not paid any claims related to COVID-19.

Puerto Rico

Ambac has ~~determined~~exposure to the Commonwealth of Puerto Rico (the "Commonwealth") and its instrumentalities across several different issuing entities with total net par exposure of $784. Components of Puerto Rico net par outstanding include capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds. The Commonwealth of Puerto Rico and certain of its instrumentalities have defaulted on their debt service payments, including payments owed on bonds insured by AAC.

We have been paying claims for several years on most of our exposure to Puerto Rico, which consisted of several different issuing entities (all below investment grade). These issuing entities, which have been part of the PROMESA restructuring process that began in 2016, each have their own credit risk profile attributable to discrete revenue sources, direct general obligation pledges, and/or general obligation guarantees. On March 15, 2022, the ~~securities~~Eighth Amended Plan Title III Joint Plan of Adjustment for the Commonwealth of Puerto Rico, et al. ("Eighth Amended POA") together with the Qualifying Modifications for PRIFA and CCDA ("PRIFA QM" and "CCDA QM", respectively) became effective and resolved the PROMESA restructuring process for the GO, PBA, PRIFA and CCDA issuing entities that have portions of their bonds insured by AAC.

Ambac insured bond effective date transactions

On March 15, 2022, and pursuant to bondholder elections: (i) all of the remaining outstanding AAC-insured GO and PBA bonds or about 94 were satisfied and eliminated via commutation or acceleration and (ii) about 39% and 19% of the par of AAC's outstanding AAC-insured PRIFA and CCDA bonds, respectively, or about $172, were reduced via commutation. The AAC-insured PRIFA and CCDA bondholders who failed to elect commutation had their bondholders’ respective shares of consideration available under the Commonwealth Plan and the PRIFA QM, or CCDA QM, as applicable, deposited into newly formed trusts. These trusts are being consolidated by Ambac as further discussed in Note 9. Variable Interest Entities. Since the effective date, the remainder of those PRIFA and CCDA bonds belonging to bondholders who elected not to commute their AAC insurance policies and were deposited into trusts together with such policies have all been accelerated, satisfying and eliminating all of the Ambac-insured PRIFA and CCDA bonds.

Puerto Rico Highway and Transportation Authority Bonds

AAC's remaining unrestructured PROMESA Puerto Rico exposure, the Puerto Rico Highway and Transportation Authority ("PRHTA"), is subject to the PRHTA Plan of Adjustment ("PRHTA POA"), which was filed on May 2, 2022. A confirmation hearing for the PRHTA POA is expected to follow later in 2022.

Creditor recoveries under the PRHTA POA are based upon the PRHTA/CCDA PSA. AAC signed a joinder to the PRHTA/

CCDA PSA on July 15, 2021. The PRHTA/CCDA PSA, originally executed on May 5, 2021, provides for certain consideration for holders of bonds issued by certain Commonwealth instrumentalities, PRHTA, and CCDA on account of their claims against the Commonwealth arising from such bonds ("Clawback" claims). Under the PRHTA/CCDA PSA, PRHTA creditors will share $389 of cash proceeds, including a $264 interim distribution, payable once the PRHTA distribution condition has been met pursuant to the Eighth Amended POA. In addition, PRHTA creditors will receive an approximately 69% share, subject to a lifetime nominal cap of $3,698, of the Clawback Creditors' portion of the outperformance of the Commonwealth's sales and use tax ("SUT") relative to the certified 2020 Commonwealth Fiscal Plan's projections (the "Clawback CVI"). The Clawback CVI instrument will be distributed once the PRHTA distribution condition has been met pursuant to the Eighth Amended POA. The PRHTA Clawback CVI is subject to a PRHTA-specific waterfall: holders of PRHTA ’68 bonds will receive the first dollars of Clawback CVI, followed by holders of PRHTA ’98 bonds. The value of the Clawback CVI is highly uncertain, given the contingent, outperformance-driven structure of the instrument. Changes in our assumed values of the Clawback CVI or in the ~~above table do not have credit impairment as of March 31, 2021 and December 31, 2020, based upon (i) no~~ actual ~~or expected principal and interest payment defaults on these securities; (ii) analysis~~performance of the creditworthiness of the issuer and financial guarantor, as applicable, and (iii) for debt securities that are non-highly rated beneficial interests in securitized financial assets, analysis of whether there wasClawback CVI could cause an adverse change in ~~projected~~our reserves, which could be material. As a result, a significant decrease in our assumed values of the Clawback CVI could have a material adverse impact on our results of operations and financial condition. PRHTA bondholders will also receive new PRHTA bonds or cash ~~flows. Management's evaluation as~~with a face amount of ~~March 31, 2021, includes~~$1,245. Of the ~~expectation that all principal and interest payments on securities guaranteed by AAC~~$1,245 in new bonds or ~~Ambac UK~~cash, approximately $646.4 will be ~~made timely~~allocated to holders of PRHTA '68 bonds and ~~in full.~~

~~Ambac’s assessment about whether a security is credit impaired reflects management’s current judgment regarding facts and circumstances specific~~approximately $598.6 will be allocated to ~~the security and other factors. If that judgment changes, Ambac may record a charge for credit impairment in future periods.~~

~~Realized Gains and Losses including Impairments:~~

holders of PRHTA '98 bonds. The ~~following table details amounts included in net realized gains (losses) and impairments included in earnings for the affected periods:~~

Three Months Ended March 31, 2021 2020
Gross realized gains on securities $ 7 $ 6
Gross realized losses on securities (1) 0
Foreign exchange (losses) gains (4) 2
Credit impairments 0 0
Intent / requirement to sell impairments 0 0
Net realized gains (losses) $ 2 $ 8

~~Ambac had 0 allowance for credit losses at March 31, 2021 and 2020.~~

~~Ambac did not purchase any financial assets with credit deterioration for the three months ended March 31, 2021 and 2020.~~

~~Counterparty Collateral, Deposits with Regulators and Other Restrictions:~~

~~Ambac routinely pledges and receives collateral related~~new PRHTA bonds or cash will be distributed to ~~certain transactions. Securities held directly in Ambac’s investment~~

portfolio with a fair value of $120 and $140 at March 31, 2021 and December 31, 2020, respectively, were pledged to derivative counterparties. Ambac’s derivative counterparties have the right to re-pledge the investment securities and as such, these pledged securities are separately classified on the Consolidated Balance Sheets as “Fixed maturity securities pledged as collateral, at fair value” and "Short-term investments pledged as collateral, at fair value.". Refer to ~~Note 10. Derivative Instruments~~ ~~for further information on cash collateral. There was no cash or securities received from other counterparties that were re-pledged by Ambac.~~

Securities carried at $8 and $8 at March 31, 2021 and December 31, 2020, respectively, were deposited by Ambac's insurance subsidiaries with governmental authorities or designated custodian banks as required by laws affecting insurance companies. Invested assets carried at $1 and $1 at March 31, 2021 and December 31, 2020, were deposited as security in connection with a letter of credit issued for an office lease.

Securities with a fair value of $163 and $178 at March 31, 2021 and December 31, 2020, respectively, were pledged as collateral and as sources of funding to repay the Secured Notes issued by Ambac LSNI. The securities may not be transferred or re-pledged by Ambac LSNI. Collateral may be sold to fund redemptionscreditors upon consummation of the ~~Secured Notes.~~

AAC also pledged for the benefit of the holders of Secured Notes (other than AAC) the proceeds of interest payments and partial redemptions of the Secured Notes held by AAC. The amount of such proceeds held by AAC was $12 and $9 at March 31, 2021 and December 31, 2020, respectively, and is included in Restricted cash on the Consolidated Balance Sheet. AAC may, from time to time, sell all or a portion of the Secured Notes it owns. In the event that AAC sells any of the Secured Notes it owns, the proceeds must be used to redeem a like amount of the Ambac Note at par. The price at which AAC sells the Secured Notes may differ from the price at which it redeems the Secured Notes.

~~Guaranteed Securities:~~

~~Ambac’s fixed maturity portfolio includes securities covered by guarantees issued by~~PRHTA POA. AAC and other ~~financial guarantors (“insured securities”). The published rating agency ratings on these securities reflect~~PRHTA creditors will receive restriction fees and consummation costs payable at the ~~higher~~effective date of the ~~financial strength rating~~PRHTA POA.

Puerto Rico Considerations

The Eighth Amended POA and the qualifying modifications for PRIFA and CCDA became effective on March 15, 2022, and on that date and since, AAC-insured Puerto Rico exposures have been significantly reduced via commutation and acceleration. However, uncertainty remains as to our remaining exposures as to (i) the value or perceived value of the ~~financial guarantor~~consideration provided by or ~~the rating~~on behalf of the ~~underlying issuer. Rating agencies do not always publish separate underlying ratings (those ratings excluding~~debtors under the ~~insurance~~Eighth Amended POA, PRIFA QM, and CCDA QM; (ii) the extent to which exposure management strategies, such as commutation and acceleration, will be executed for PRHTA; (iii) the tax treatment of the consideration provided by or on behalf of the ~~financial guarantor). In~~debtors under the ~~event these underlying ratings are not available from~~Eighth Amended POA, PRIFA QM, and CCDA QM; (iv) whether and when the ~~rating agencies, Ambac~~PRHTA POA will ~~assign an internal rating. The following table represents the fair value~~be confirmed; and ~~weighted-average underlying rating of insured securities in Ambac's investment portfolio at March 31, 2021~~(vii) other factors, including market conditions such as interest rate movements and ~~December 31, 2020, respectively:~~

~~| Ambac Financial Group, Inc.~~ 31~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

Municipal
Obligations
Corporate
Obligations (2)
Mortgage
and Asset-
backed
Securities Total
Weighted
Average
Underlying
Rating (1)
March 31, 2021:
Ambac Assurance Corporation $ 323 $ 464 $ 465 $ 1,252 CCC+
National Public Finance Guarantee Corporation 4 0 — 4 BBB-
Assured Guaranty Municipal Corporation 1 0 — 1 C
Total $ 328 $ 464 $ 465 $ 1,257 CCC+
December 31, 2020:
Ambac Assurance Corporation $ 320 $ 465 $ 481 $ 1,266 CCC+
National Public Finance Guarantee Corporation 6 0 — 6 BBB-
Assured Guaranty Municipal Corporation 1 0 — 1 C
Total $ 327 $ 465 $ 481 $ 1,273 CCC+

~~(1)Ratings are based~~credit spread changes on the ~~lower of Standard & Poor’s~~new CVI instruments. Ambac’s loss reserves may prove to be understated or ~~Moody’s rating. If unavailable, Ambac’s internal rating is used.~~

~~(2)Represents Ambac's holdings of secured notes issued by Ambac LSNI in connection~~overstated, possibly materially, due to favorable or unfavorable developments or results with ~~the Rehabilitation Exit Transactions. These secured notes are insured by AAC.~~

~~Other Investments:~~

Ambac's investment portfolio includes interests in various pooled investment funds. Fair value and additional information about investments in pooled funds, by investment type, is summarized in the table below. Except as noted in the table, fair value as reported is determined using net asset value ("NAV") as a practical expedient. Redemption of certain funds valued using NAV may be subject to withdrawal limitations and/or redemption fees which could vary with the timing and notification of withdrawal provided by the investor. In additionrespect to these ~~investments, Ambac has unfunded commitments of $102 to private credit and private equity funds at March 31, 2021.~~factors.

Fair Value
Class of Funds March 31,
2021 December 31,
2020 Redemption Frequency Redemption Notice Period
Real estate properties (1)
$ 16 $ 16 quarterly 10 business days
Hedge funds (2)
210 196 quarterly or semi-annually 90 days
High yields and leveraged loans (3) (10)
77 78 daily 0 - 30 days
Private credit (4)
67 65 quarterly if permitted 180 days if permitted
Insurance-linked investments (5)
3 3
see footnote (5)
see footnote (5)
Equity market investments (6) (10)
82 73 daily or quarterly 0 - 90 days
Investment grade floating rate income (7)
98 73 weekly 0 days
Private equity (8)
14 13 quarterly if permitted 90 days if permitted
Emerging markets debt (9) (10)
33 25 daily 0 days
Total equity investments in pooled funds $ 600 $ 543

~~(1)Investments consist of UK property to generate income and capital growth.~~

~~(2)This class seeks to generate superior risk-adjusted returns through selective asset sourcing, active trading and hedging strategies across~~While our reserving scenarios account for a wide range of ~~asset types.~~

~~(3)This class of funds includes investments in a range of instruments including high-yield bonds, leveraged loans, CLOs, ABS~~possible outcomes, reflecting the significant uncertainty regarding future developments and ~~floating rate notes to generate income and capital appreciation.~~

~~(4)This class aims to obtain high long-term returns primarily through credit and preferred equity investments with low liquidity and defined term.~~

~~(5)~~This class seeks to generate returns from insurance markets through investments in catastrophe bonds, life insurance and other insurance linked investments. This investment is restricted in connection with the unwind of certain insurance linked exposures. Ambac has redeemed its investment to the extent permitted by the fund.

~~(6)This class of funds aim to achieve long term growth through diversified exposure to global equity-markets.~~

~~(7)This class of funds includes investments in high quality floating rate debt securities including ABS and corporate floating rate notes.~~

~~(8)This class seeks to generate long-term capital appreciation through investments in private equity, equity-related and other instruments.~~

~~(9)This class seeks long-term income and growth through investments in the bonds of issuers in emerging markets.~~

~~(10)~~These categories include fair value amounts totaling $99 and $89 at March 31, 2021 and December 31, 2020, respectively, that are readily determinable and are priced through pricing vendors, including for High yield and leveraged loans products: $0 and $3; for Equity market investments: $66 and $60; and for Emerging markets debt $33 and $25.outcomes, given our significant

| Ambac Financial Group, Inc. 3230 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

exposure to Puerto Rico and the economic, fiscal, legal and political uncertainties associated therewith, our loss reserves may ultimately prove to be insufficient to cover our losses, potentially having a material adverse effect on our results of operations and financial position, and may be subject to material volatility. Conversely, Ambac’s loss reserves may prove to be overstated, possibly materially, due to favorable developments or results with respect to the factors described in the preceding paragraph.

Ambac ~~held direct~~has considered these developments and other factors in evaluating its Puerto Rico loss reserves. While management believes its reserves are adequate to cover losses in its Public Finance insured portfolio, there can be no assurance that Ambac may not incur additional losses in the future, given the circumstances described herein. Such additional losses may have a material adverse effect on Ambac’s results of operations and financial condition and may result in adverse consequences such as impairing the ability of AAC to honor its financial obligations; the initiation of rehabilitation proceedings against AAC; decreased likelihood of AAC delivering value to Ambac, through dividends or otherwise; and a significant drop in the value of securities issued or insured by Ambac or AAC. For public finance credits, including Puerto Rico, as well as other issuers, for which Ambac has an estimate of expected loss at March 31, 2022, the possible increase in loss reserves under stress or other adverse conditions and circumstances was estimated to be approximately $220. This possible increase in loss reserves under stress or other adverse conditions is significant and if we were to experience such incremental losses, our stockholders’ equity ~~interests~~ as of March 31, 2022, would decrease from $974 to $754. However, there can be no assurance that losses may not exceed such amount.

Representation and Warranty Recoveries:

Ambac records estimated RMBS R&W subrogation recoveries for breaches of R&W by sponsors of certain RMBS transactions. For a discussion of the approach utilized to estimate RMBS R&W subrogation recoveries, see Note 2. Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements included Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020, including~~2021.

Ambac has recorded RMBS R&W subrogation recoveries of $1,502 ($1,480 net of reinsurance) and $1,730 ($1,704 net of reinsurance) at March 31, 2022 and December 31, 2021, respectively. The reduction in ~~an unconsolidated trust created in connection with the 2014 sale of Segregated Account junior surplus notes, which was accounted for under the equity method.~~

~~Investment Income (Loss):~~

~~Net investment income (loss) was comprised~~recorded RMBS R&W recoveries since December 31, 2021, is primarily attributable to management’s view of the ~~following~~effect on certain of AAC��s R&W litigations of the March 17, 2022 decision of the New York Court of Appeals in the case entitled U.S. Bank National Association v. DLJ Mortgage Capital, Inc. relating to Home Equity Asset Trust 2007-1, a residential mortgage-backed securities trust. The decision is relevant to AAC's breach-of-contract cases relating to its insured RMBS transactions and may affect one of the bases upon which AAC seeks recovery with respect to a significant portion of breaching loans in AAC's RMBS cases. However, management believes there remain other alternative paths to recovery for ~~the affected periods:~~

Three Months Ended March 31, 2021 2020
Fixed maturity securities $ 23 $ 30
Short-term investments 0 2
Investment expense (1) (2)
Securities available-for-sale and short-term 22 31
Other investments 27 (52)
Total net investment income (loss) $ 49 $ (21)

~~Net investment income (loss) from Other investments primarily represents changes in fair value on securities classified as trading~~such breaching loans.

Our ability to realize R&W subrogation recoveries is subject to significant uncertainty, including risks inherent in litigation, including adverse rulings or ~~accounted~~decisions in our cases or in litigations to which AAC is not a party that set precedents or resolve questions of law that impact our own claims; collectability of such amounts from counterparties (and/or their respective parents and affiliates); timing of receipt of any such recoveries; intervention by OCI, which could impede our ability to take actions required to realize such recoveries; and uncertainty inherent in the assumptions used in estimating such recoveries. Failure to realize R&W subrogation recoveries for ~~under~~any reason or the realization of R&W subrogation recoveries materially below the amount recorded on Ambac's consolidated balance sheet would have a material adverse effect on our results of operations and financial condition. If we were unable to realize R&W subrogation recoveries recorded on Ambac's consolidated balance sheet, our stockholders’ equity as of March 31, 2022, would decrease from $974 to $(505). Additionally, failure to realize R&W subrogation recoveries, or the realization of recoveries significantly below those recorded on the balance sheet, may result in adverse consequences such as impairing the ability of AAC to honor its financial obligations; the initiation of rehabilitation proceedings against AAC; AAC not being able to deliver value to Ambac, through dividends or otherwise; and a significant drop in the value of securities issued or insured by Ambac or AAC.

Reinsurance Recoverables, Including Credit Impairments:

Amounts recoverable from reinsurers are estimated in a manner consistent with the associated loss and loss expense reserves. The Company reports its reinsurance recoverables net of an allowance for amounts that are estimated to be uncollectible.

The allowance for credit losses is based upon Ambac's ongoing review of amounts outstanding. Key indicators management uses to assess the credit quality of reinsurance recoverables are financial performance of the reinsurers, collateral posted by the reinsurers and independent rating agency credit ratings. The evaluation begins with a comparison of the fair value ~~option~~of collateral posted by the reinsurer to the recoverable, net of ceded premiums payable. Any shortfall of collateral posted is evaluated against our assessment of the reinsurer's financial strength, including its credit rating to determine whether an allowance is considered necessary.

Ambac has uncollateralized credit exposure of $30 and ~~income~~$31 and has recorded an allowance for credit losses of less than a million at March 31, 2022 and December 31, 2021. The uncollateralized credit exposure includes legacy liabilities obtained from ~~investment limited partnerships accounted for under~~ the ~~equity method.~~

~~The portion~~acquisitions of ~~net unrealized gains (losses) related to trading securities still held at~~PWIC and the ~~end~~21st Century Companies of ~~each period is as follows:~~

Three Months Ended March 31, 2021 2020
Net gains (losses) recognized during the period on trading securities $ 7 $ (32)
Less: net gains (losses) recognized during the reporting period on trading securities sold during the period 0 (3)
Unrealized gains (losses) recognized during the reporting period on trading securities still held at the reporting date $ 6 $ (29)

$29, which are also supported by an unlimited, uncapped indemnity from Enstar Holdings (US) and 21st Century Premier Insurance Company, respectively.

~~10.~~

| Ambac Financial Group, Inc. 312022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

7. DERIVATIVE INSTRUMENTS

The following tables summarize the gross fair values of individual derivative instruments and the impact of legal rights of offset as reported in the Consolidated Balance Sheets as of March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:


		Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet		Gross Amount of Collateral Received / Pledged Not Offset in the Consolidated Balance Sheet		Net Amount			Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet		Gross Amount of Collateral Received / Pledged Not Offset in the Consolidated Balance Sheet		Net Amount
March 31, 2021:
March 31, 2022:												March 31, 2022:
Derivative Assets:	Derivative Assets:											Derivative Assets:

Interest rate swaps	Interest rate swaps	$	73	$	0	$	73	$	—	$	73	Interest rate swaps	$	56	$	—	$	55	$	—	$	55
Futures contracts		1		—		1		—		1

Total non-VIE derivative assets	Total non-VIE derivative assets	$	74	$	0	$	74	$	0	$	74	Total non-VIE derivative assets	$	56	$	—	$	55	$	—	$	55
Derivative Liabilities:	Derivative Liabilities:											Derivative Liabilities:
Credit derivatives	Credit derivatives	$	0	$	0	$	0	$	—	$	0	Credit derivatives	$	1	$	—	$	1	$	—	$	1
Interest rate swaps	Interest rate swaps	85		0		85		85		1		Interest rate swaps	75		—		74		73		2

Futures contracts												Futures contracts	1		—		1		—		1

Total non-VIE derivative liabilities	Total non-VIE derivative liabilities	$	86	$	0	$	86	$	85	$	1	Total non-VIE derivative liabilities	$	76	$	—	$	76	$	73	$	3
Variable Interest Entities Derivative Assets:	Variable Interest Entities Derivative Assets:											Variable Interest Entities Derivative Assets:

Currency swaps	Currency swaps	$	38	$	0	$	38	$	—	$	38	Currency swaps	$	42	$	—	$	42	$	—	$	42
Total VIE derivative assets	Total VIE derivative assets	$	38	$	0	$	38	$	0	$	38	Total VIE derivative assets	$	42	$	—	$	42	$	—	$	42
Variable Interest Entities Derivative Liabilities:	Variable Interest Entities Derivative Liabilities:											Variable Interest Entities Derivative Liabilities:
Interest rate swaps	Interest rate swaps	$	1,739	$	—	$	1,739	$	—	$	1,739	Interest rate swaps	$	1,866	$	—	$	1,866	$	—	$	1,866

Total VIE derivative liabilities	Total VIE derivative liabilities	$	1,739	$	0	$	1,739	$	0	$	1,739	Total VIE derivative liabilities	$	1,866	$	—	$	1,866	$	—	$	1,866

~~| Ambac Financial Group, Inc.~~ 33~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~


		Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet		Gross Amount of Collateral Received / Pledged Not Offset in the Consolidated Balance Sheet		Net Amount
December 31, 2020:
December 31, 2021:												December 31, 2021:
Derivative Assets:	Derivative Assets:											Derivative Assets:

Interest rate swaps	Interest rate swaps	$	93	$	0	$	93	$	0	$	93	Interest rate swaps	$	76	$	—	$	76	$	—	$	76

Total non-VIE derivative assets	Total non-VIE derivative assets	$	93	$	0	$	93	$	0	$	93	Total non-VIE derivative assets	$	76	$	—	$	76	$	—	$	76
Derivative Liabilities:	Derivative Liabilities:											Derivative Liabilities:

Credit derivatives												Credit derivatives	$	—	$	—	$	—	$	—	$	—
Interest rate swaps	Interest rate swaps	114		0		114		113		1		Interest rate swaps	94		—		94		93		1

Futures contracts												Futures contracts	—		—		—		—		—

Total non-VIE derivative liabilities	Total non-VIE derivative liabilities	$	114	$	0	$	114	$	113	$	1	Total non-VIE derivative liabilities	$	95	$	—	$	95	$	93	$	2
Variable Interest Entities Derivative Assets:	Variable Interest Entities Derivative Assets:											Variable Interest Entities Derivative Assets:

Currency swaps	Currency swaps	$	41	$	—	$	41	$	0	$	41	Currency swaps	$	38	$	—	$	38	$	—	$	38
Total VIE derivative assets	Total VIE derivative assets	$	41	$	0	$	41	$	0	$	41	Total VIE derivative assets	$	38	$	—	$	38	$	—	$	38
Variable Interest Entities Derivative Liabilities:	Variable Interest Entities Derivative Liabilities:											Variable Interest Entities Derivative Liabilities:
Interest rate swaps	Interest rate swaps	$	1,835	$	—	$	1,835	$	—	$	1,835	Interest rate swaps	$	1,940	$	—	$	1,940	$	—	$	1,940

Total VIE derivative liabilities	Total VIE derivative liabilities	$	1,835	$	0	$	1,835	$	0	$	1,835	Total VIE derivative liabilities	$	1,940	$	—	$	1,940	$	—	$	1,940

Amounts representing the right to reclaim cash collateral or the obligation to return cash collateral are not offset against fair value amounts recognized for derivative instruments on the Unaudited Consolidated Balance Sheets. The amounts representing the right to reclaim cash collateral and posted margin, recorded in “Other assets” were $4$6 and $1$13 as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. There were 0no amounts held representing an obligation to return cash collateral as of March 31, ~~2021~~2022 and December 31, ~~2020.~~2021.

| Ambac Financial Group, Inc. 322022 First Quarter FORM 10-Q |

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

The following tables summarize the location and amount of gains and losses of derivative contracts in the Unaudited Consolidated Statements of Total Comprehensive Income (Loss) for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:


		Location of Gain (Loss) Recognized in Consolidated Statements of Total Comprehensive Income (Loss)		Amount of Gain (Loss) Recognized in Consolidated Statement of Total Comprehensive Income (Loss)								Location of Gain (Loss) Recognized in Consolidated Statements of Total Comprehensive Income (Loss)		Amount of Gain (Loss) Recognized in Consolidated Statement of Total Comprehensive Income (Loss)
			Three Months Ended March 31,										Location of Gain (Loss) Recognized in Consolidated Statements of Total Comprehensive Income (Loss)			Three Months Ended March 31,
			2021			2020									Location of Gain (Loss) Recognized in Consolidated Statements of Total Comprehensive Income (Loss)						2022			2021
Non-VIE derivatives:	Non-VIE derivatives:																	Non-VIE derivatives:

Credit derivatives			Net gains (losses) on derivative contracts			$	0			$	(1)

Interest rate swaps	Interest rate swaps	Net gains (losses) on derivative contracts		17				(29)										Interest rate swaps		Net gains (losses) on derivative contracts			$	30		$	17

Futures contracts	Futures contracts	Net gains (losses) on derivative contracts		8				(40)									Futures contracts		Net gains (losses) on derivative contracts			27			8

Total Non-VIE derivatives	Total Non-VIE derivatives			$	25			$	(70)								Total Non-VIE derivatives					$	57		$	25
Variable Interest Entities:	Variable Interest Entities:																Variable Interest Entities:
Currency swaps	Currency swaps	Income (loss) on variable interest entities		$	(2)			$	10								Currency swaps		Income (loss) on variable interest entities			$	6		$	(2)
Interest rate swaps	Interest rate swaps	Income (loss) on variable interest entities		97				47									Interest rate swaps		Income (loss) on variable interest entities			5			97
Total Variable Interest Entities	Total Variable Interest Entities			96				57									Total Variable Interest Entities					11			96
Total derivative contracts	Total derivative contracts			$	121			$	(13)								Total derivative contracts					$	68		$	121

Credit Derivatives:

Credit derivatives, which are privately negotiated contracts, provide the counterparty with credit protection against the occurrence of a specific event such as a payment default or bankruptcy relating to an underlying obligation. Credit derivatives issued are insured by AAC. The outstanding credit derivative transaction at March 31, ~~2021,~~2022, does not include ratings-based collateral-posting triggers or otherwise require Ambac to post collateral regardless of Ambac’s ratings or the size of the mark to market exposure to Ambac.

Our credit derivatives were written on a “pay-as-you-go” basis. Similar to an insurance policy, pay-as-you-go provides that Ambac pays interest shortfalls on the referenced transaction as

they are incurred on each scheduled payment date, but only pays principal shortfalls upon the earlier of (i) the date on which the assets designated to fund the referenced obligation have been disposed of and (ii) the legal final maturity date of the referenced obligation.

Ambac maintains internal credit ratings on its guaranteed obligations, including credit derivative contracts, solely to indicate management’s view of the underlying credit quality of the guaranteed obligations. The principal notional outstanding for credit derivative contracts was ~~$247~~$196 and ~~$257~~$201 as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, all of which had internal Ambac ratings of AA in both periods.

~~| Ambac Financial Group, Inc.~~ 34~~2021 First Quarter FORM 10-Q~~ |

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

Interest Rate Derivatives:

Ambac, through its subsidiary Ambac Financial Services (“AFS”), uses interest rate swaps, US Treasury futures contracts and other derivatives, to provide a partial economic hedge against the effects of rising interest rates elsewhere in the ~~Company,~~Legacy Financial Guarantee Insurance segment, including on Ambac’s financial guarantee exposures. Additionally, AFS provided interest rate swaps to states, municipalities and their authorities, asset-backed issuers and other entities in connection with their financings. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the notional amounts of AFS’s derivatives are as follows:

Notional
Type of Derivative March 31,
2021 December 31,
2020
Interest rate swaps—pay-fixed/receive-variable $ 987 $ 726
US Treasury futures contracts—short 470 240
Interest rate swaps—receive-fixed/pay-variable 190 195


	Notional
Type of Derivative	March 31, 2022		December 31, 2021
Interest rate swaps—pay-fixed/receive-variable	$	1,262	$	1,275
US Treasury futures contracts—short	470		470
Interest rate swaps—receive-fixed/pay-variable	181		185

Derivatives of Consolidated Variable Interest Entities

Certain VIEs consolidated under the Consolidation Topic of the ASC entered into derivative contracts to meet specified purposes within the securitization structure. The notional for VIE derivatives outstanding as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, were as follows:

Notional
Type of VIE Derivative March 31,
2021 December 31,
2020
Interest rate swaps—receive-fixed/pay-variable $ 1,243 $ 1,233
Interest rate swaps—pay-fixed/receive-variable 1,143 1,151
Currency swaps 302 308


	Notional
Type of VIE Derivative	March 31, 2022		December 31, 2021
Interest rate swaps—receive-fixed/pay-variable	$	1,185	$	1,221
Interest rate swaps—pay-fixed/receive-variable	1,020		1,069
Currency swaps	256		272

Contingent Features in Derivatives Related to Ambac Credit Risk

Ambac’s over-the-counter interest rate swaps are centrally cleared when eligible. Certain interest rate swaps remain with professional swap-dealer counterparties and direct customer counterparties. These non-cleared swaps are generally executed under standardized derivative documents including collateral support and master netting agreements. Under these agreements, Ambac is required to post collateral in the event net unrealized losses exceed predetermined threshold levels. Additionally, given

| Ambac Financial Group, Inc. 332022 First Quarter FORM 10-Q |

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

that AAC is no longer rated by an independent rating agency, counterparties have the right to terminate the swap positions.

As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the net liability fair value of derivative instruments with contingent features linked to Ambac’s own credit risk was ~~$85~~$73 and ~~$113,~~$93, respectively, related to which Ambac had posted cash and securities as collateral with a fair value of ~~$103~~$87 and ~~$130,~~$109, respectively. All such ratings-based contingent features have been triggered requiring maximum collateral levels to be posted by Ambac while preserving counterparties’ rights to terminate the contracts. Assuming all such contracts terminated at fair value on

March 31, ~~2021,~~2022, settlement of collateral balances and net derivative liabilities would result in a net receipt of cash and/or securities by Ambac. If counterparties elect to exercise their right to terminate, the actual termination payment amounts will be determined in accordance with derivative contract terms, which may result in amounts that differ from market values as reported in Ambac’s financial statements.

8. INTANGIBLE ASSETS

Insurance intangible asset:

The insurance intangible asset and accumulated amortization are included in the Consolidated Balance Sheets, as shown below.


	March 31, 2022		December 31, 2021
Finite-lived Intangible Assets:
Insurance intangible:
Gross carrying value	$	1,264	$	1,278
Accumulated amortization	961		958
Net insurance intangible asset	303		320
Other intangibles:
Gross carrying value	$	36	36
Accumulated amortization	3		3
Net other intangible assets	32		33
Total finite-lived intangible assets	336		353
Indefinite-lived Intangible Assets:
Insurance licenses	14		9
Total intangible assets	$	350	362

Amortization Expense:

Amortization expense is included in the Consolidated Statements of Total Comprehensive Income (Loss), as shown below.



Three Months Ended March 31,	2022		2021
Insurance amortization expense	$	14	$	19
Other amortization expense	1		1
Total	$	14	$	19

The estimated future amortization expense for finite-lived intangible assets is as follows:


Amortization expense	Insurance Intangible Asset (1)		Other Intangible Assets (1)		Total
2022 (Nine months)	$	24	$	2	$	26
2023	30		3		32
2024	27		3		30
2025	25		3		27
2026	22		2		25
Thereafter	176		20		196

(1)The weighted-average insurance intangible amortization and other intangible amortization periods are 7.3 years and 5.8 years, respectively.

9. VARIABLE INTEREST ENTITIES

Ambac, with its subsidiaries, has engaged in transactions with variable interest entities ("VIEs,") in various capacities.

•AAC and Ambac UK provide financial guarantees for various debt obligations issued by special purpose entities, including VIEs ( i.e. FG VIEs);

•Ambac sponsors special purpose entities that issued notes to investors for various purposes; and

•AAC and Ambac UK invests in collateralized debt obligations, mortgage-backed and other asset-backed securities issued by VIEs and their ownership interest is generally insignificant to the VIE and/or they do not have rights that direct the activities that are most significant to such VIE.

FG VIEs:

AAC and Ambac UK provide financial guarantees in respect of assets held or debt obligations of VIEs. AAC and Ambac UK's primary variable interest exists through this financial guarantee insurance. The transaction structures provide certain financial protection to AAC or Ambac UK. Generally, upon deterioration in the performance of a transaction or upon an event of default as specified in the transaction legal documents, AAC or Ambac UK will obtain certain control rights that enable them to remediate losses. These rights may enable them to direct the activities of the entity that most significantly impact the entity’s economic performance. Under the 2018 Stipulation and Order, AAC is required to obtain OCI approval with respect to the exercise of certain significant control rights in connection with policies that had previously been allocated to the Segregated Account. Accordingly, AAC does not have the right to direct the most significant activities of those FG VIEs.

•We determined that AAC or Ambac UK generally have the obligation to absorb a FG VIE's expected losses given that they have issued financial guarantees supporting certain liabilities (and in some cases certain assets). As further described below, Ambac consolidates certain FG VIEs in cases where we also have the power to direct the activities that most significantly impact the VIE’s economic performance due to one or more of the following: (i) the

| Ambac Financial Group, Inc. 342022 First Quarter FORM 10-Q |

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

transaction experiencing deterioration and breaching performance triggers, giving AAC or Ambac UK the ability to exercise certain control rights, (ii) AAC or Ambac UK being involved in the design of the VIE and receiving control rights from its inception, such as may occur from loss remediation activities, or (iii) the transaction not experiencing deterioration, however due to the passive nature of the VIE, AAC or Ambac UK's contingent control rights upon a future breach of performance triggers is considered to be the power over the most significant activity.

•A VIE is generally deconsolidated in the period that AAC or Ambac UK no longer has such control rights, which could occur in connection with the execution of remediation activities on the transaction or amortization of insured exposure, either of which may reduce the degree of control over a VIE.

•Assets and liabilities of FG VIEs that are consolidated are reported within Variable interest entity assets or Variable interest entity liabilities on the Consolidated Balance Sheets.

•The election to use the fair value option is made on an instrument by instrument basis. Ambac has elected the fair value option for consolidated FG VIE financial assets and financial liabilities, except in cases where AAC or Ambac UK was involved in the design of the VIE and was granted control rights at its inception.

◦In cases where the fair value option has not been elected, the FG VIE's invested assets are fixed maturity securities and are classified as either available-for-sale or trading as defined by the Investments - Debt Securities Topic of the ASC. Available-for-sale assets are reported in the financial statements at fair value with unrealized gains and losses reflected in Accumulated Other Comprehensive Income (Loss) in Stockholders' Equity. Trading assets are reported at fair value with unrealized gains and losses reflected within net income. The financial liabilities of these FG VIEs consist of long term debt obligations and are carried at par less unamortized discount. Income from the FG VIE's securities (including investment income, realized gains and losses and credit impairments as applicable) and interest expense on long term debt are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss).

•Upon initial consolidation of a FG VIE, Ambac recognizes a gain or loss in earnings for the difference between: (i) the fair value of the consideration paid, the fair value of any non-controlling interests and the reported amount of any

previously held interests and (ii) the net amount, as measured on a fair value basis, of the assets and liabilities consolidated. Upon deconsolidation of a FG VIE, Ambac recognizes a gain or loss for the difference between: (i) the fair value of any consideration received, the fair value of any retained non-controlling investment in the VIE and the carrying amount of any non-controlling interest in the VIE and (ii) the carrying amount of the VIE’s assets and liabilities. Gains or losses from consolidation and deconsolidation that are reported in earnings are reported within Income (loss) on variable interest entities on the Consolidated Statements of Total Comprehensive Income (Loss).

•The impact of consolidating such FG VIEs on Ambac’s balance sheet is the elimination of transactions between the consolidated FG VIEs and AAC or Ambac UK and the inclusion of the FG VIE’s third party assets and liabilities. For a financial guarantee insurance policy issued to a consolidated VIE, Ambac does not reflect the financial guarantee insurance policy in accordance with the related insurance accounting rules under the Financial Services – Insurance Topic of the ASC. Consequently, upon consolidation, Ambac eliminates the insurance assets and liabilities associated with the policy from the Consolidated Balance Sheets. Such insurance assets and liabilities may include premium receivables, reinsurance recoverable, deferred ceded premium, subrogation recoverable, unearned premiums, loss and loss expense reserves, ceded premiums payable and insurance intangible assets. For investment securities owned by AAC or Ambac UK that are debt instruments issued by the VIE, the associated debt and investment balances are eliminated upon consolidation.

FG VIEs which are consolidated may include recourse and non-recourse liabilities. FG VIEs' liabilities that are insured by the AAC or Ambac UK are with recourse, because the AAC or Ambac UK guarantees the payment of principal and interest in the event the issuer defaults. FG VIEs' liabilities that are not insured by the AAC or Ambac UK are without recourse, because AAC or Ambac UK has not issued a financial guarantee and is under no obligation for the payment of principal and interest of these instruments. AAC or Ambac UK's economic exposure to consolidated FG VIEs is limited to the financial guarantees issued for recourse liabilities and any additional variable interests held by them. Additionally, AAC or Ambac UK’s general creditors, other than those specific policy holders which own the VIE debt obligations, do not have rights with regard to the assets of the VIEs. Ambac evaluates the net income effects and earnings per share effects to determine attributions between AAC or Ambac UK and non-controlling interests as a result of consolidating a VIE. Ambac has determined that the net income and earnings per share effect of consolidated FG VIEs are attributable to AAC or Ambac UK's interests through financial guarantee premium and loss payments with the VIE.

| Ambac Financial Group, Inc. 352022 First Quarter FORM 10-Q |

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

The following table summarizes the carrying values of assets and liabilities, along with other supplemental information related to FG VIEs that are consolidated as a result of financial guarantees of Ambac UK and AAC:


	March 31, 2022						December 31, 2021
	Ambac UK		Ambac Assurance		Total VIEs		Ambac UK		Ambac Assurance		Total VIEs
ASSETS:
Fixed maturity securities, at fair value:
Corporate obligations, fair value option	$	3,131	$	—	$	3,131	$	3,320	$	—	$	3,320
Municipal obligations, trading	—		114		114		—		—		—
Municipal obligations, available-for-sale (1)	—		119		119		—		136		136
Total FG VIE fixed maturity securities, at fair value	3,131		233		3,364		3,320		136		3,455
Restricted cash	1		48		49		1		1		2
Loans, at fair value (2)	2,469		—		2,469		2,718		—		2,718
Derivative assets	42		—		42		38		—		38
Other assets	—		1		1		—		2		2
Total FG VIE assets	$	5,643	$	283	$	5,925	$	6,077	$	139	$	6,216
LIABILITIES:

Long-term debt:
Long-term debt, at fair value (3)	$	3,701	$	—	$	3,701	$	4,056	$	—	$	4,056
Long-term debt, at par less unamortized discount	—		422		422		—		160		160
Total long-term debt	3,701		422		4,124		4,056		160		4,216
Derivative liabilities	1,866		—		1,866		1,940		—		1,940
Other liabilities	—		3		3		—		—		—
Total FG VIE liabilities	$	5,568	$	426	$	5,993	$	5,996	$	160	$	6,156
Number of FG VIEs consolidated	5		3		8		5		1		6

(1)Available-for-sale FG VIE fixed maturity securities consist of municipal obligations with an amortized cost basis of $103 and $106, and aggregate gross unrealized gains of $17and $29 at March 31, 2022 and December 31, 2021, respectively. All such securities had contractual maturities due after ten years as of March 31, 2022.

(2)The unpaid principal balances of loan assets carried at fair value were $2,257 as of March 31, 2022 and $2,363 as of December 31, 2021.

(3)The unpaid principal balances of long-term debt carried at fair value were $3,439 as of March 31, 2022 and $3,579 as of December 31, 2021.

The following schedule details the components of Income (loss) on variable interest entities for the affected periods:



Three Months Ended March 31,	2022		2021
Net change in fair value of VIE assets and liabilities reported under the fair value option	$	(1)	$	(1)
Less: Credit risk changes of fair value option long-term debt reported through other comprehensive income (loss)	(1)		1
Net change in fair value of VIE assets and liabilities reported in earnings under the fair value option	(1)		(1)
Investment income (loss)	(4)		2
Net realized investment gains (losses) on available-for-sale securities	1		1
Interest expense on long-term debt carried at par less unamortized cost	(2)		(1)

Gain (loss) from consolidating VIEs	28		—

Income (loss) on variable interest entities	$	22	$	—

As further discussed in Note 6. Insurance Contracts, on March 17, 2022, in connection with the Puerto Rico restructuring, 2 new trusts were established. Ambac was required to consolidate these trusts which resulted in a combined gain of $28. Including these new trusts, Ambac consolidated 2 and zero additional FG VIEs for the three months ended March 31, 2022 and 2021, respectively. Ambac did not deconsolidate any FG VIEs for the three months ended March 31, 2022 and 2021.

The following table displays the carrying amount of the assets, liabilities and maximum exposure to loss of Ambac’s variable interests in non-consolidated VIEs resulting from financial guarantee and derivative contracts by major underlying asset classes, as of March 31, 2022 and December 31, 2021:

| Ambac Financial Group, Inc. 362022 First Quarter FORM 10-Q |

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)


	Carrying Value of Assets and Liabilities
	Maximum Exposure To Loss (1)		Insurance Assets (2)		Insurance Liabilities (3)		Net Derivative Assets (Liabilities) (4)
March 31, 2022:
Global structured finance:

Mortgage-backed—residential	$	3,089	$	1,637	$	466	$	—
Other consumer asset-backed	743		16		231		—

Other	775		2		9		3
Total global structured finance	4,608		1,655		706		3
Global public finance	19,910		244		255		(1)
Total	$	24,517	$	1,899	$	962	$	2

December 31, 2021:
Global structured finance:

Mortgage-backed—residential	$	3,265	$	1,929	$	521	$	—
Other consumer asset-backed	788		17		234		—

Other	826		3		10		5
Total global structured finance	4,879		1,949		765		5
Global public finance	20,233		246		257		—
Total	$	25,112	$	2,195	$	1,023	$	5

(1)Maximum exposure to loss represents the maximum future payments of principal and interest on insured obligations and derivative contracts. Ambac’s maximum exposure to loss does not include the benefit of any financial instruments (such as reinsurance or hedge contracts) that Ambac may utilize to mitigate the risks associated with these variable interests.

(2)Insurance assets represent the amount included in “Premium receivables” and “Subrogation recoverable” for financial guarantee insurance contracts on Ambac’s Consolidated Balance Sheets.

(3)Insurance liabilities represent the amount included in “Loss and loss expense reserves” and “Unearned premiums” for financial guarantee insurance contracts on Ambac’s Consolidated Balance Sheets.

(4)Net derivative assets (liabilities) represent the fair value recognized on credit derivative contracts and interest rate swaps on Ambac’s Consolidated Balance Sheets.

Ambac Sponsored Non-consolidated VIEs:

For a full description of Ambac sponsored non-consolidated VIEs, see Note 9. Variable Interest Entities in Part II, Item 8 in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

On July 6, 2021, Sitka Holdings, LLC ("Sitka"), Ambac's newly formed non-consolidated VIE, issued the Sitka Senior Secured Notes. Ambac's debt obligation to Sitka had a carrying value of $1,155 and $1,154 at March 31, 2022 and December 31, 2021, respectively and is reported within Long-term debt on the Consolidated Balance Sheets.

10. REVENUES FROM CONTRACTS WITH CUSTOMERS

The following table presents the Insurance Distribution business operations revenues recognized in accordance with the Revenue from Contracts with Customers Topic of the ASC disaggregated by policy type for the affected periods:


Three Months Ended March 31,	Employer Stop Loss		Affinity Products		Other		Total
2022	$	4	$	5	$	—	$	9
2021	$	3	$	4	$	—	$	7

During the three months ended March 31, 2022 and 2021, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates was approximately $4 and $3, respectively.

Contract Assets and Liabilities

The balances of contract assets and contract liabilities with customers were as follows:


	March 31, 2022		December 31, 2021
Commissions receivable	$	3	$	2
Contract assets	6		4
Contract liabilities	1		1

Contract assets represent estimated future consideration related to base commissions and profit-sharing commissions that were recognized as revenue upon the placement of the policy. The

| Ambac Financial Group, Inc. 372022 First Quarter FORM 10-Q |

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Company does not have the right to bill or collect payment on i) base commissions until the insurer has collected the related premiums from policyholders nor ii) profit-sharing commissions until after the contract year is completed. The change in contract assets during the three months ended March 31, 2022 and year ended December 31, 2021, is primarily due to reclassification to receivables (unconditional right) and collections.

Contract liabilities represent advance consideration received from customers related to Employer stop loss base commissions that will be recognized over time as claims servicing is performed, which typically occurs between 17 and 20 months from contract inception. During the three months ended March 31, 2022 and 2021, the Company recognized revenue that was included in the contract liability balance as of the beginning of the period of $1.

11. COMPREHENSIVE INCOME

The following tables detail the changes in the balances of each component of accumulated other comprehensive income for the affected periods:


	Unrealized Gains (Losses) on Available for Sale Securities (1)		Amortization of Postretirement Benefit (1)		Gain (Loss) on Foreign Currency Translation (1)		Credit Risk Changes of Fair Value Option Liabilities (1) (2)		Total
Three Months Ended March 31, 2022:
Beginning Balance	$	154	$	4	$	(100)	$	(1)	$	58


Other comprehensive income (loss) before reclassifications	(104)		—		(23)		—		(127)
Amounts reclassified from accumulated other comprehensive income (loss)	(1)		—		—		—		(1)


Net current period other comprehensive income (loss)	(105)		—		(23)		—		(127)
Balance at March 31, 2022	$	49	$	4	$	(123)	$	(1)	$	(70)

Three Months Ended March 31, 2021:
Beginning Balance	$	166	$	5	$	(92)	$	—	$	79


Other comprehensive income (loss) before reclassifications	(21)		—		6		—		(15)
Amounts reclassified from accumulated other comprehensive income (loss)	(3)		—		—		(1)		(4)


Net current period other comprehensive income (loss)	(24)		—		6		(1)		(18)
Balance at March 31, 2021	$	142	$	5	$	(86)	$	(1)	$	61

(1)All amounts are net of tax and noncontrolling interest. Amounts in parentheses indicate reductions to Accumulated Other Comprehensive Income.

(2)Represents the changes in fair value attributable to instrument-specific credit risk of liabilities for which the fair value option is elected.

| Ambac Financial Group, Inc. 382022 First Quarter FORM 10-Q |

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

The following table details the significant amounts reclassified from each component of accumulated other comprehensive income, shown in the above rollforward tables, for the affected periods:


Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Consolidated Statement of Total Comprehensive Income (Loss)
	Three Months Ended March 31,
	2022		2021
Unrealized Gains (Losses) on Available-for-Sale Securities
	$	(1)	$	(2)		Net realized investment gains (losses)
	—		(1)			Provision for income taxes
	$	(1)	$	(3)		Net of tax and noncontrolling interest
Amortization of Postretirement Benefit
Prior service cost	$	—	$	—		Other income
Actuarial (losses)	—		—			Other income
	—		—			Total before tax
	—		—			Provision for income taxes
	$	—	$	—		Net of tax and noncontrolling interest
Credit risk changes of fair value option liabilities
	$	1	$	(1)		Credit risk changes of fair value option liabilities
	—		—			Provision for income taxes
	$	—	$	(1)		Net of tax and noncontrolling interest
Total reclassifications for the period	$	(1)	$	(3)		Net of tax and noncontrolling interest

12. NET INCOME PER SHARE

As of March 31, 2022, 46,545,232 shares of AFG's common stock (par value $0.01) and warrants entitling holders to acquire up to 4,877,617 shares of new common stock at an exercise price of $16.67 per share were issued and outstanding. Common shares outstanding increased by 241,093 during the three months ended March 31, 2022, primarily due to settlements of employee restricted and performance stock units.

Share Repurchases

On March 29, 2022, AFG's Board of Directors approved a share repurchase program authorizing up to $20 in share repurchases, with an expiration date of March 31, 2024, which may be terminated at any time. As of March 31, 2022, no shares were repurchased under this program. From April 1, 2022, through May 10, 2022, AFG repurchased 1,505,316 shares for $13.2 with an average purchase price of $8.78 per share. On May 5, 2022, the Board of Directors authorized an additional $15 in share repurchase bringing the total unused authorized amount to $21.8.

Earnings Per Share Calculation

The numerator of the basic and diluted earnings per share computation represents net income (loss) attributable to common stockholders adjusted by the retained earnings impact of the noncontrolling adjustment to redemption value under ASC 480. The redemption value adjustment is further described in the Redeemable Noncontrolling Interest section of Note 2. Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The following table provides a reconciliation of net income attributable to common stockholders to the numerator in the basic and diluted earnings per share calculation, together with the resulting earnings per share amounts:



Three Months Ended March 31,	2022		2021
Net income attributable to common stockholders	$	2	$	17
Adjustment to redemption value (ASC 480)	—		(13)
Numerator of basic and diluted EPS	$	2	$	4
Per Share:
Basic	$	0.04	$	0.08
Diluted	$	0.04	$	0.08

| Ambac Financial Group, Inc. 392022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

The following table provides a reconciliation of the weighted average shares denominator used for basic net income per share to the denominator used for diluted net income per share:



Three Months Ended March 31,	2022	2021
Basic weighted average shares outstanding denominator	46,731,459	46,314,049
Effect of potential dilutive shares :

Warrants	—	214,904
Restricted stock units	82,066	121,215
Performance stock units (1)	546,206	207,896
Diluted weighted average shares outstanding denominator	47,359,731	46,858,064
Anti-dilutive shares excluded from the above reconciliation:

Warrants	4,877,617	—
Restricted stock units	253,828	165,529
Performance stock units (2)	—	—

(1) Performance stock units are reflected based on the performance metrics through the balance sheet date. Vesting of these units is contingent upon meeting certain performance metrics. Although a portion of these performance metrics have been achieved as of the respective period end, it is possible that awards may no longer meet the metric at the end of the performance period.

13. INCOME TAXES

AFG files a consolidated Federal income tax return with its subsidiaries. AFG and its subsidiaries also file separate or combined income tax returns in various states, local and foreign jurisdictions. The following are the major jurisdictions in which Ambac and its subsidiaries operate and the earliest tax years subject to examination:


Jurisdiction			Tax Year
United States			2010
New York State			2013
New York City			~~2016~~2017
United Kingdom			~~2017~~2018
Italy			~~2016~~2017

In accordance with the Income Tax Topic of the ASC, a valuation allowance is recognized if, based on the weight of available evidence, it is more-likely-than-not that some, or all, of the deferred tax asset will not be realized. As a result of the risks and uncertainties associated with future operating results, management believes it is more likely than not that the Company will not generate sufficient U.S. federal, state and/or local taxable income to recover its deferred tax operating assets and therefore maintains a full valuation allowance.

Consolidated Pretax Income (Loss)

U.S. and foreign components of pre-tax income (loss) were as follows:

Three Months Ended March 31, 2021 2020
U.S. $ 17 $ (257)
Foreign 2 (30)
Total $ 19 $ (287)



Three Months Ended March 31,	2022		2021
U.S.	$	(1)	$	17
Foreign	4		2
Total	$	3	$	19

Provision (Benefit) for Income Taxes

The components of the provision for income taxes were as follows:

Three Months Ended March 31, 2021 2020
Current taxes
U. S. federal $ 0 $ 0
U.S. state and local 2 0
Foreign 3 (2)
Current taxes 5 (2)
Deferred taxes
Foreign (3) (5)
Deferred taxes (3) (5)
Provision for income taxes $ 2 $ (7)

~~| Ambac Financial Group, Inc.~~ 35~~2021 First Quarter FORM 10-Q~~ |



Three Months Ended March 31,	2022		2021
Current taxes
U. S. federal	$	—	$	—
U.S. state and local	—		2
Foreign	1		3
Total Current taxes	2		5
Deferred taxes

Foreign	(1)		(3)
Total Deferred taxes	(1)		(3)
Provision for income taxes	$	—	$	2

~~Table of Contents~~

~~AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollar Amounts in Millions, Except Share Amounts)~~

~~12.~~14. COMMITMENTS AND CONTINGENCIES

The following commitments and contingencies provide an update of those discussed in Note ~~17:~~19: Commitments and Contingencies in the Notes to Consolidated Financial Statements included Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, and should be read in conjunction with the complete descriptions provided in the aforementioned Form 10-K.

Litigation Against Ambac

Monterey Bay Military Housing, LLC, et al. v. Ambac Assurance Corporation, et al. (United States District Court, Southern District of New York, Case No. 1:19-cv-09193-PGG, transferred on October 4, 2019 from the United States District Court, Northern District of California, San Jose Division, Case No. 17-cv-04992-BLF, filed August 28, 2017). Plaintiffs, the corporate developers of various military housing projects, filed ~~a second~~an amended complaint on ~~December 17, 2018,~~October 27, 2017 against AAC, a former employee of AAC, and certain unaffiliated persons and entities, asserting claims for (i) violation of 18 U.S.C §§ 1962(c) and 1962(d) (civil Racketeer Influenced and Corrupt Organizations Act (“RICO”) and conspiracy to commit civil RICO), (ii) breach of fiduciary duty, (iii) aiding and abetting breach of fiduciary duty, (iv) fraudulent misrepresentation, (v) fraudulent concealment and (vi) conspiracy to commit fraud. On September 26, 2019, the court issued a decision denying a motion to dismiss filed by defendants and sua sponte reconsidering its previous denial of defendants’ motion to transfer venue to the Southern District of New York (“SDNY”). On October 10, 2019, after(After the case was transferred to the SDNY, the ~~defendants filed motions in the SDNY to vacate or reconsider the decision by the Northern District of California on the defendants’ motion to dismiss. On March 31, 2021, the~~ court ~~granted defendants’ motions for reconsideration and, upon reconsideration,~~ dismissed the claims against AAC and its former employee for breach of fiduciary duty and for aiding and abetting breach of AAC’s or its former employee’s fiduciary duty; dismissed two plaintiffs’ RICO claims against AAC and its former employee; and in all other respects ~~denied defendants’ motions. Defendants served answers~~allowed plaintiffs' claims to go forward.) On April 6, 2022, certain co-defendants filed a motion to sever the plaintiffs’ claims and to dismiss all claims except for claims asserted by the Monterey Bay plaintiffs.

| Ambac Financial Group, Inc. 402022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Financial Oversight and Management Board for Puerto Rico, et al. v. Autonomy Master Fund Limited, et al. (United States District Court, District of Puerto Rico, No. 19-ap-00291, filed May 2, 2019). On May 2, 2019, the Financial Oversight and Management Board for Puerto Rico (the "Oversight Board"), together with the Official Committee of Unsecured Creditors for the Commonwealth (the "Committee") filed an adversary proceeding against certain parties that filed proofs of claim on account of general obligation bonds issued by the Commonwealth of Puerto Rico, including AAC. The complaint seeks declarations that the general obligation bonds are unsecured obligations and, in the alternative, seeks to avoid any security interests that holders of such bonds may have. On June 13, 2019, the District Court stayed the case; the case remained stayed until early 2020. On March 10, 2020, the District Court again ordered that this case remain stayed while the Oversight Board attempted to confirm the a plan of adjustment for the Commonwealth (as amended, the “Commonwealth Plan”). On January 18, 2022, the Court entered an order confirming the Commonwealth Plan. The Commonwealth Plan resolves the issues raised in this adversary proceeding. Several parties appealed the District Court’s confirmation order to the ~~second amended complaint~~First Circuit, including a number of teachers’ unions (the “Teachers’ Unions”), a number of credit unions (the “Credit Unions”), Suiza Dairy Corporation (“Suiza”), the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order; on ~~April 21, 2021.~~May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending. On May 9, 2022, the Court dismissed this adversary proceeding, subject to a request for reinstatement if and when the First Circuit’s dispositions of the appeals concerning the confirmation order are final.

Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corp., et al. (United States District Court, District of Puerto Rico, No. 20-ap-00003, filed Jan. 16, 2020). Pursuant to an order of the District Court setting out an agreed schedule for litigation submitted by the team of mediators designated in the Commonwealth’s restructuring cases (the “Mediation Team“), onOn January 16, 2020, the Oversight Board filed an adversary proceeding against monoline insurers insuring bonds issued by the Puerto Rico Infrastructure Financing Authority (“PRIFA”) and the PRIFA bond trustee, all of which defendants filed proofs of claim against the Commonwealth relating to PRIFA bonds. The complaint seeks to disallow defendants’ proofs of claim against the Commonwealth in their entirety, including for lack of secured status. ~~Oral argument on the Oversight Board’s motion for summary judgment was held on September 23, 2020.~~ On ~~January 20,~~August 3, 2021, the District Court ~~granted defendants’ request for deferral~~ordered that this case be stayed on the joint motion of the ~~adjudication~~parties as a result of an agreement with the ~~summary judgment motion until defendants have~~Oversight Board with respect to the ~~opportunity to conduct certain discovery. Discovery is ongoing. On May 5, 2021, monoline defendants Assured Guaranty Corporation, Assured Guaranty Municipal Corporation, and National Public~~

~~Finance Guarantee Corporation (“Assured and National”~~treatment of PRIFA bonds (the “PRIFA Settlement”) ~~announced~~, an agreement with the Oversight Board with respect to the treatment of bonds issued by the Puerto Rico Highways and Transportation Authority ~~("PRHTA"~~(“PRHTA”) and the Puerto Rico Convention Center District Authority (“PRCCDA”) (the “PRHTA/PRCCDA Settlement”), and the settlement related to general obligation and PBA bonds (“GO/PBA Settlement”). ~~Per~~On January 18, 2022, the ~~terms of~~Court entered an order confirming the ~~agreement, AAC anticipates~~Commonwealth Plan. The Commonwealth Plan resolves the issues raised in this adversary proceeding. Several parties appealed the District Court’s confirmation order to the First Circuit, including the Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, ~~Assured,~~ and ~~National will seek~~certain individual creditors. On April 26, 2022, the First Circuit

rejected the Teachers’ Unions’ challenges to ~~stay this case with respect to Assured~~the Commonwealth Plan and ~~National as a result of~~affirmed the ~~PRHTA/PRCCDA Settlement.~~confirmation order; on May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corp., et al. (United States District Court, District of Puerto Rico, No. 20-ap-00004, filed Jan. 16, 2020). ~~Pursuant to an order of the District Court setting out an agreed schedule for litigation submitted by the Mediation Team, on~~On January 16, 2020, the Oversight Board filed an adversary proceeding against monoline insurers insuring bonds issued by the PRCCDA and the PRCCDA bond trustee, all of which defendants filed proofs of claim against the Commonwealth relating to PRCCDA bonds. The complaint seeks to disallow defendants’ proofs of claim against the Commonwealth in their entirety, including for lack of secured status. ~~Oral argument on the Oversight Board’s motion for summary judgment was held on September 23, 2020.~~ On ~~January 20,~~August 3, 2021, the District Court ~~granted defendants’ request for deferral~~ordered that this case be stayed on the joint motion of the adjudication of the summary judgment motion until defendants have the opportunity to conduct certain discovery. Discovery is ongoing. On May 5, 2021, Assured and National announced an agreement with the Oversight Board with respect to the PRHTA/PRCCDA Settlement. Per the terms of the agreement, AAC anticipates the Oversight Board, Assured, and National will seek to stay this case with respect to Assured and Nationalparties as a result of the PRIFA Settlement, the PRHTA/PRCCDA Settlement, and the GO/PBA Settlement. On January 18, 2022, the Court entered an order confirming the Commonwealth Plan. The Commonwealth Plan resolves the issues raised in this adversary proceeding. Several parties appealed the District Court’s confirmation order to the First Circuit, including the Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order; on May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corp., et al. (United States District Court, District of Puerto Rico, No. 20-ap-00005, filed Jan. 16, 2020). ~~Pursuant to an order of the District Court setting out an agreed schedule for litigation submitted by the Mediation Team, on~~On January 16, 2020, the Oversight Board filed an adversary proceeding against monoline insurers insuring bonds issued by PRHTA, certain PRHTA bondholders, and the PRHTA fiscal agent for bondholders, all of which defendants filed proofs of claim against the Commonwealth relating to PRHTA bonds. The complaint seeks to disallow defendants’ proofs of claim against the Commonwealth in their entirety, including for lack of secured status. ~~Oral argument on the Oversight Board’s motion for summary judgment was held on September 23, 2020.~~ On ~~January 20,~~August 3, 2021, the District Court ~~granted defendants’ request for deferral~~ordered that this case be stayed on the joint motion of the adjudication of the summary judgment motion until defendants have the opportunity to conduct certain discovery. Discovery is ongoing. On May 5, 2021, Assured and National announced an agreement with the Oversight Board with respect to the PRHTA/PRCCDA Settlement. Per the terms of the agreement, AAC anticipates the Oversight Board, Assured, and National will seek to stay this case with respect to Assured and Nationalparties as a result of the PRIFA Settlement, the PRHTA/PRCCDA Settlement, and the GO/PBA Settlement. On January 18, 2022, the Court entered an order confirming the Commonwealth Plan. The Commonwealth Plan resolves the issues raised in this adversary proceeding. Several parties appealed the District Court’s confirmation order to the First Circuit, including the Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order; on May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corp., et al. (United States District Court, District of Puerto Rico, No. 20-ap-00007, filed Jan. 16, 2020). On January 16, 2020, the Oversight Board and the Committee filed an adversary proceeding against monoline insurers insuring bonds issued by PRHTA, certain PRHTA bondholders, and the

| Ambac Financial Group, Inc. 3641 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Pursuant to an order of the District Court setting out an agreed schedule for litigation submitted by the Mediation Team, on January 16, 2020, the Oversight Board and the Committee filed an adversary proceeding against monoline insurers insuring bonds issued by PRHTA, certain PRHTA bondholders, and the PRHTA fiscal agent for bondholders, all of which defendants filed proofs of claim against PRHTA relating to PRHTA bonds. The complaint seeks to disallow portions of defendants’ proofs of claim against the PRHTA, including for lack of secured status. On ~~March 10, 2020,~~August 3, 2021, the District Court ordered that this case be stayed ~~this case. On May 5, 2021, Assured and National announced an agreement with~~on the ~~Oversight Board with respect to the PRHTA/PRCCDA Settlement. Per the terms~~joint motion of the ~~agreement, AAC anticipates the Oversight Board, Assured, and National will seek to stay this case with respect to Assured and National~~parties as a result of the PRIFA Settlement, the PRHTA/PRCCDA Settlement, and the GO/PBA Settlement. On January 18, 2022, the Court entered an order confirming the Commonwealth Plan. On April 14, 2022, the Oversight Board filed a notice that this case has not been resolved by the Commonwealth Plan and should remain pending. On May 2, 2022, the Oversight Board filed a disclosure statement (the “PRHTA DS”) and plan of adjustment (the “PRHTA POA”) for PRHTA; if confirmed, the PRHTA POA would resolve this litigation. A hearing on approval of the PRHTA DS is scheduled for June 17, 2022.

NC Residuals Owners Trust, et al. v. Wilmington Trust Co., et al. (Delaware Court of Chancery, C.A. No. 2019-0880, filed Nov. 1, 2019). On April 1, 2022, the Vice Chancellor entered another thirty-day stay to facilitate good-faith settlement discussions.

AAC’s estimates of projected losses for RMBS transactions consider, among other things, the RMBS transactions’ payment waterfall structure, including the application of interest and principal payments and recoveries, and depend in part on our interpretations of contracts and other bases of our legal rights. From time to time, bond trustees and other transaction participants have employed different contractual interpretations and have commenced, or threatened to commence, litigation to resolve these differences. It is not possible to predict whether additional disputes will arise, nor the outcomes of any potential litigation. It is possible that there could be unfavorable outcomes in this or other disputes or proceedings and that our interpretations may prove to be incorrect, which could lead to changes to our estimate of loss reserves.

AAC has periodically received various regulatory inquiries and requests for information with respect to investigations and inquiries that such regulators are conducting. AAC has complied with all such inquiries and requests for information.

The Company is involved from time to time in various routine legal proceedings, including proceedings related to litigation with present or former employees. Although the Company’s litigation with present or former employees is routine and incidental to the conduct of its business, such litigation can result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive damages for, among other things, termination of employment that is wrongful or in violation of implied contracts.

From time to time, Ambac is subject to allegations concerning its corporate governance that may lead to litigation, including derivative litigation, and while the monetary impacts may not be material, the matters may distract management and the Board of Directors from their principal focus on Ambac's business, strategy and objectives.

It is not reasonably possible to predict whether additional suits will be filed or whether additional inquiries or requests for

information will be made, and it is also not possible to predict the outcome of litigation, inquiries or requests for information. It is possible that there could be unfavorable outcomes in these or other proceedings. Legal accruals for litigation against the Company which are probable and reasonably estimable, and management's estimated range of loss for such matters, are either

not applicable or are not material to the operating results or financial position of the Company. For the litigation matters the Company is defending that do not meet the “probable and reasonably estimable” accrual threshold and where no loss estimates have been provided above, management is unable to make a meaningful estimate of the amount or range of loss that could result from unfavorable outcomes. Under some circumstances, adverse results in any such proceedings could be material to our business, operations, financial position, profitability or cash flows. The Company believes that it has substantial defenses to the claims above and, to the extent that these actions proceed, the Company intends to defend itself vigorously; however, the Company is not able to predict the outcomes of these actions.

Litigation Filed or Joined by Ambac

In the ordinary course of their businesses, certain of Ambac’s subsidiaries assert claims in legal proceedings against third parties to recover losses already paid and/or mitigate future losses. The amounts recovered and/or losses avoided which may result from these proceedings is uncertain, although recoveries and/or losses avoided in any one or more of these proceedings during any quarter or fiscal year could be material to Ambac’s results of operations in that quarter or fiscal year.

Puerto Rico

~~In re~~ Financial Oversight and Management Board for Puerto Rico v. Public Buildings Authority (United States District Court, District of Puerto Rico, No. 1:17-bk-03283), Ambac Assurance Corporation’s Motion to Strike Certain Provisions of the Plan Support Agreement By and Among the Financial Oversight and Management Board for Puerto Rico, Certain GO Holders, and Certain PBA Holders (Dkt. No. 13573,18-ap-00149, filed ~~July 7, 2020) (“Amended Motion to Strike PSA”)~~December 21, 2018). On ~~June 16, 2019,~~December 21, 2018, the Oversight Board, ~~announced~~together with the Committee, as Plaintiffs, filed a complaint against the Puerto Rico Public Buildings Authority (“PBA”) seeking declaratory judgment that ~~it had entered into a PSA with certain general obligation~~the leases between PBA and ~~PBA bondholders that includes a proposed resolution~~its lessees-many of ~~claim objections to~~whom are agencies and ~~issues surrounding both general obligation~~instrumentalities of the Commonwealth are “disguised financings,” not true leases, and ~~PBA bonds.~~therefore should not be afforded administrative expense priority under the Bankruptcy Code. On July ~~16,~~24, 2019, ~~AAC filed a motion to strike certain provisions of~~ the ~~PSA that it believes violate PROMESA, including~~District Court stayed the ~~potential payment of a breakup fee to creditors who have supported the PSA (Dkt. No. 8020) (Original Motion to Strike PSA). On February 9, 2020, the Oversight Board executed the Amended PSA and~~case; on March 10, 2020, the District Court denied the Original Motion to Strike PSA without prejudice given the execution of the Amended PSA. On July 7, 2020, AAC filed the Amended Motion to Strike PSA seeking similar relief with respect to the Amended PSA. On February 23, 2021,again ordered that this case be stayed while the Oversight Board ~~announced that it~~attempted to confirm the Commonwealth Plan. On January 18, 2022, the Court entered ~~into a further revised PSA (the “Second Amended PSA”), and that all~~an order confirming the Commonwealth Plan. The Commonwealth Plan resolves this litigation. Several parties appealed the District Court’s confirmation order to the ~~Amended PSA had jointly terminated~~First Circuit, including the ~~Amended PSA,~~Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order; on ~~March 31, 2021,~~May 10, 2022, the ~~District Court denied the Amended Motion to Strike PSA without prejudice given the execution of the Second Amended PSA.~~Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No. 1:17-bk-03283), ~~Ambac Assurance Corporation's Motion~~Omnibus Objection of (I) Financial Oversight and Memorandum of Law in Support of Its Motion Concerning Application of the Automatic Stay to the Revenues Securing PRIFA Rum Tax Bonds (Dkt. No. 7176, filed May 30, 2019) (“PRIFA Stay Motion”). On May 30, 2019, AAC filed a motion

| Ambac Financial Group, Inc. 3742 ~~2021~~2022 First Quarter FORM 10-Q |

Table of Contents

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Management Board, Acting Through its Special Claims Committee, and (II) Official Committee of Unsecured Creditors, Pursuant to Bankruptcy Code Section 502 and Bankruptcy Rule 3007, to Claims Filed or Asserted by Holders of Certain Commonwealth General Obligation Bonds (Dkt. No. 4784, filed January 14, 2019) (“GO Bond Claim Objection”). On January 14, 2019, the Oversight Board and the Committee filed an omnibus claim objection in the Commonwealth’s Title III case challenging claims arising from certain general obligation bonds issued by the Commonwealth in 2012 and 2014 totaling approximately $6 billion, none of which are held or insured by AAC. On April 11, 2019, AAC filed a notice of participation in support of the objection, advancing the argument, among other things, that the PBA leases are true leases, but the associated debt nonetheless should be included in the Commonwealth’s debt ceiling calculation such that the 2012 and 2014 general obligation bond issuances are null and void and claims arising therefrom should be disallowed. On July 24, 2019, the District Court stayed the case; the case remained stayed until early 2020. On March 10, 2020, the District Court again ordered that this matter remain stayed while the Oversight Board attempted to confirm the Commonwealth Plan. On January 18, 2022, the Court entered an order confirming the Commonwealth Plan. The Commonwealth Plan resolves the GO Bond Claim Objection. Several parties appealed the District Court’s confirmation order to the First Circuit, including the Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order; on May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No. 1:17-bk-03283), Ambac Assurance Corporation's Motion and Memorandum of Law in Support of Its Motion Concerning Application of the Automatic Stay to the Revenues Securing PRIFA Rum Tax Bonds (Dkt. No. 7176, filed May 30, 2019) (“PRIFA Stay Motion”). On May 30, 2019, AAC filed a motion seeking an order that the automatic stay does not apply to certain lawsuits AAC seeks to bring or to continue relating to bonds issued by PRIFA, or, in the alternative, for relief from the automatic stay to pursue such lawsuits or for adequate protection of AAC's collateral. On July 2 ~~2020, the District Court denied the motion to lift the stay on certain grounds. Briefing regarding additional grounds on which AAC~~ and ~~other movants seek stay relief concluded on August 5, 2020; on~~ September 9, 2020, the District Court denied the motion to lift the ~~stay on the additional grounds. On September 23, 2020, AAC and the other movants appealed this decision to the First Circuit.~~stay. On March 3, 2021, the First Circuit affirmed the District Court’s opinions denying the motion to lift the stay. On ~~May 5,~~August 3, 2021, ~~Assured and National announced an agreement with~~ the ~~Oversight Board with respect to~~District Court ordered that this matter be stayed on the ~~PRHTA/PRCCDA Settlement. Per the terms~~joint motion of the ~~agreement, AAC anticipates the Oversight Board, Assured, and National will seek to stay this case with respect to Assured and National~~parties as a result of the PRIFA Settlement, the PRHTA/PRCCDA Settlement, and the GO/PBA Settlement. On January 18, 2022, the Court entered an order confirming the Commonwealth Plan; on January 20, 2022, the Court entered an order approving the Title VI Qualifying Modification for PRIFA (the “PRIFA QM”). The Commonwealth Plan and the PRIFA QM resolve the PRIFA Stay Motion. Several parties appealed the District Court’s confirmation order to the First Circuit, including the Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the

Commonwealth Plan and affirmed the confirmation order; on May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No. 1:17-bk-03283), Motion of Assured Guaranty Corp., Assured Municipal Corp., Ambac Assurance Corporation, National Public Finance Guarantee Corporation, and Financial Guaranty Insurance Company for Relief from the Automatic Stay, or, in the Alternative, Adequate Protection (Dkt. No. 10102, filed January 16, 2020) (“PRHTA Stay Motion”). Pursuant to an order of the District Court setting out an agreed schedule for litigation submitted by the Mediation Team, on January 16, 2020, AAC, together with Assured Guaranty Corp., Assured Municipal Corp., National Public Finance Guarantee Corporation, and Financial Guaranty Insurance Company filed a motion seeking an order that the automatic stay does not apply to movants’ enforcement of the application of pledged revenues to the PRHTA bonds or the enforcement of movants’ liens on revenues pledged to such bonds, or, in the alternative, for adequate protection of movants’ interests in the revenues pledged to PRHTA bonds. On July 2 ~~2020, the District Court denied the motion to lift the stay on certain grounds. Briefing regarding additional grounds on which AAC~~ and ~~other movants seek stay relief concluded on August 5, 2020; on~~ September 9, 2020, the District Court denied the motion to lift the ~~stay on the additional grounds. On September 23, 2020, AAC and the other movants appealed this decision to the First Circuit.~~stay. On March 3, 2021, the First Circuit affirmed the District Court’s opinions denying the motion to lift the stay. On ~~May 5,~~August 3, 2021, ~~Assured and National announced an agreement with~~ the ~~Oversight Board with respect to~~District Court ordered that this matter be stayed on the ~~PRHTA/PRCCDA Settlement. Per the terms~~joint motion of the ~~agreement, AAC anticipates the Oversight Board, Assured, and National will seek to stay this case with respect to Assured and National~~parties as a result of the PRIFA Settlement, the PRHTA/PRCCDA Settlement, and the GO/PBA Settlement. On January 18, 2022, the Court entered an order confirming the Commonwealth Plan. The Commonwealth Plan resolves the PRHTA Stay Motion. Several parties appealed the District Court’s confirmation order to the First Circuit, including the Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order; on May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

In re Financial Oversight and Management Board for Puerto Rico ~~(United~~(United States District Court, District of Puerto Rico, No. 1:17-bk-03283), Ambac Assurance Corporation, Financial Guaranty Insurance Company, Assured Guaranty Corp., Assured Municipal Corp., and the Bank of New York Mellon’s Motion Concerning Application of the Automatic Stay to the Revenues Securing the CCDA Bonds (Dkt. No. 10104, filed January 16, 2020) (“PRCCDA Stay Motion”). Pursuant to an order of the District Court setting out an agreed schedule for litigation submitted by

the Mediation Team, on January 16, 2020, AAC, together with Financial Guaranty Insurance Company, Assured Guaranty Corp., Assured Municipal Corp., and the PRCCDA bond trustee, filed a motion seeking an order either (i) that the automatic stay does not apply to movants’ enforcement of their rights to revenues pledged to PRCCDA bonds by bringing an enforcement action against PRCCDA; or, in the alternative, (ii) lifting the automatic stay to enable movants to pursue an enforcement action against PRCCDA; or, in the further alternative, (iii) ordering adequate protection of movants’ interests in the PRCCDA pledged to PRCCDA bonds. On July 2, 2020, the District Court denied the motion to lift the stay on

| Ambac Financial Group, Inc. 432022 First Quarter FORM 10-Q |

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

certain grounds, but found that the movants had stated a colorable claim that a certain account was the “Transfer Account” on which movants hold a lien. ~~Briefing regarding additional grounds on which AAC and other movants seek stay relief concluded on August 5, 2020; on~~On September 9, 2020, the District Court denied the motion to lift the stay on the additional grounds, and found that a final determination on issues related to the identity of the Transfer Account would be made in the decision on the motions for summary judgment issued in the ~~CCDA-related~~PRCCDA-related adversary proceeding, No. 20-ap-00004. On ~~May 5,~~August 3, 2021, ~~Assured and National announced an agreement with~~ the ~~Oversight Board with respect to~~District Court ordered that this matter be stayed on the ~~PRHTA/PRCCDA Settlement. Per the terms~~joint motion of the ~~agreement, AAC anticipates the Oversight Board, Assured, and National will seek to stay this case with respect to Assured and National~~parties as a result of the PRIFA Settlement, the PRHTA/PRCCDA Settlement, and the GO/PBA Settlement. On January 18, 2022, the Court entered an order confirming the Commonwealth Plan; on January 20, 2022, the Court entered an order approving the Title VI Qualifying Modification for PRCCDA (the “PRCCDA QM”). The Commonwealth Plan and the PRCCDA QM resolve the PRCCDA Stay Motion. Several parties appealed the District Court’s confirmation order to the First Circuit, including the Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order; on May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

Ambac Assurance Corporation v. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Oriental Financial Services LLC; Popular Securities LLC; Raymond James & Associates, Inc., RBC Capital Markets LLC; Samuel A. Ramirez & Co. Inc., Santander Securities LLC; UBS Financial Services Inc.; and UBS Securities LLC (Commonwealth of Puerto Rico, Court of First Instance, San Juan Superior Court, Case No. SJ-2020-CV-01505, filed February 19, 2020). On ~~February 19, 2020, AAC filed a complaint in~~April 27, 2022, the Commonwealth ~~of Puerto Rico,~~ Court of ~~First Instance, San Juan Superior Court, against certain underwriters of Ambac-insured bonds issued~~Appeals affirmed the dismissal by PRIFA and PRCCDA, with causes of action under the Puerto Rico civil law doctrines of actos proprios and Unilateral Declaration of Will. AAC alleges defendants engaged in inequitable conduct in underwriting Ambac-insured bonds issued by PRIFA and PRCCDA, including failing to investigate and adequately disclose material information in the official statements for the bonds that defendants provided to AAC regarding systemic deficiencies in the Commonwealth’s financial reporting. AAC seeks damages in compensation for claims paid by AAC on its financial guaranty insurance policies insuring such bonds, pre-judgment and post-judgment interest, and attorneys’ fees. On March 20, 2020, defendants removed this case to the Title III Court. On April 20, 2020, AAC moved to remand the case back to the Court of First Instance. On July 29, 2020, the District Court granted AAC’s motion to remand the case to the Commonwealth court. AAC filed an amended complaint in the Commonwealth court ~~on October 28, 2020. In the~~of AAC’s Amended ~~Complaint, AAC added claims on bonds issued by the Commonwealth, PBA and PRHTA and added defendants that had underwritten these bonds. Defendants filed motions to dismiss on~~Complaint.

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~~(Dollar Amounts in Millions, Except Share Amounts)~~

~~December 8 and 14, 2020; briefing on the motions to dismiss was completed on March 5, 2021.~~

Ambac Assurance Corporation v. ~~Autopistas Metropolitanas de~~Financial Oversight and Management Board for Puerto Rico ~~LLC~~ (United States District Court, District of Puerto Rico, No. 3:~~20-cv-01094,~~20-ap-00068, filed ~~February 19,~~May 26, 2020). On ~~February 19,~~May 26, 2020, AAC filed aan adversary complaint in the U.S. District Court for the District of Puerto Rico, against Autopistas Metropolitanas de Puerto Rico, LLC (“Metropistas”), which holds a concession from PRHTA for two Puerto Rico highways, PR-5 and PR-22, in connection with a 10-year extension of the concession that was entered into in April 2016. The complaint includes claims for fraudulent conveyance and unjust enrichment, alleging that the consideration paid by Metropistas for the extension was less than reasonably equivalent value and most of the benefit of such payment was received by the Commonwealth instead of PRHTA. AAC also seeks a declaratory judgment that it has a valid and continuing lien on certain toll revenues that are being collected by Metropistas. On June 16, 2020,before the Title III Court ~~ordered AAC~~seeking (i) a declaration that titles I, II, and III of PROMESA are unconstitutional because they violate the Bankruptcy Clause of the U.S. Constitution (which requires all bankruptcy laws to ~~withdraw its complaint. AAC withdrew its complaint on June 23, 2020,~~be uniform) and ~~noticed an appeal from~~(ii) dismissal of the pending Title III petitions. On August 3, 2021, the District Court ordered that this case be stayed on the joint motion of the parties as a result of the PRIFA Settlement, the PRHTA/PRCCDA Settlement, and the GO/PBA Settlement. On January 18, 2022, the Court entered an order confirming the Commonwealth Plan. The Commonwealth Plan resolves this litigation. Several parties appealed the District Court’s confirmation order to ~~withdraw on June 30, 2020. AAC’s opening appeal brief was filed before~~ the First Circuit, including the Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order; on ~~October 19, 2020; briefing was completed on February 12, 2021 and oral argument was held on March 8, 2021.~~May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No. 1:17-bk-03283), ~~Urgent Motion for Bridge Order, and Motion for Appointment as Trustees Under 11 U.S.C. § 926,~~Objection of Ambac Assurance Corporation, Assured Guaranty Corp., Assured Guaranty Municipal Corp., Financial Guaranty Insurance Company, and National Public Finance Guarantee Corporation (Dkt. No. 13708, filed July 17, 2020) (“PRHTA Trustee Motion”). On July 17, 2020, AAC, together with Assured Guaranty Corporation, Assured Guaranty Municipal Corporation, and Financial Guaranty Insurance Company, filed a motion seeking appointment as trustees under Section 926 of thePursuant to Bankruptcy Code Section 502 and Bankruptcy Rule 3007, to ~~pursue certain avoidance actions on behalf~~Claim Asserted by the Official Committee of ~~PRHTA against~~Retired Employees of the Commonwealth of Puerto ~~Rico. The PRHTA Trustee Motion attached~~Rico Appointed in the Commonwealth’s Title III Case (Dkt. No. 16884, filed June 3, 2021) (“Pension Claim Objection”). On June 3, 2021, AAC filed a ~~proposed complaint detailing~~claim objection in the ~~avoidance claims~~Commonwealth’s Title III case challenging the amount of the claim filed by the Retiree Committee against the Commonwealth, which asserted pension liabilities of at least $58.5 billion. AAC contended that ~~movants would pursue.~~this asserted pension liability was overstated by at least $9 billion, and sought disallowance of the Retiree Committee’s proof of claim to the extent of the overstatement. On August ~~11, 2020,~~3, 2021, the District Court ~~denied~~ordered that this case be stayed on the ~~PRHTA Trustee Motion; on August 24, 2020, movants noticed an appeal~~joint motion of the denial of the PRHTA Trustee Motion to the First Circuit. Movants’ opening brief before the First Circuit was filed on February 17, 2021; briefing is expected to conclude on May 24, 2021. On May 5, 2021, Assured and National announced an agreement with the Oversight Board with respect to the PRHTA/PRCCDA Settlement. Per the terms of the agreement, AAC anticipates the Oversight Board, Assured, and National will seek to stay this case with respect to Assured and Nationalparties as a result of the PRIFA Settlement, the PRHTA/PRCCDA Settlement, and the GO/PBA Settlement. On January 18, 2022, the Court entered an order confirming the Commonwealth Plan. The Commonwealth Plan resolves this matter. Several parties appealed the District Court’s confirmation order to the First Circuit, including the Teachers’ Unions, the Credit Unions, Suiza, the Oversight Board, and certain individual creditors. On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order; on May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc. All other appeals remain pending.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No. 1:17- bk-03567). On May 21, 2017, the Oversight Board filed a petition to adjust PRHTA’s debts under Title III of PROMESA, resulting in an automatic stay of litigation against PRHTA. On May 2, 2022, the Oversight Board filed the PRHTA DS and PRHTA POA. A hearing on approval of the PRHTA DS is scheduled for June 17, 2022.

Student Loans Exposure

CFPB v. Nat’l Collegiate Master Student Loan Trust (United States District Court, District of Delaware, Case No. 1:17-cv-01323, filed September 18, 2017). On March ~~19, 2020, intervenor Transworld Systems Inc.~~3, 2022, the CFPB filed ~~a motion~~its opposition to ~~dismiss this action~~the petition filed on February 21, 2022 by the ~~Consumer Financial Protection Bureau (“CFPB”) against fifteen National Collegiate Student Loan~~ Trusts ~~regarding~~

~~alleged improprieties and deficiencies in servicing practices for lack of subject matter jurisdiction. On July 10, 2020, AAC~~ and several ~~other~~ intervenors, ~~filed a~~including AAC, for permission to appeal to the Third Circuit the District Court’s order denying their motion to dismiss the ~~action for lack of subject matter jurisdiction~~amended complaint. On April 29, 2022, the Third Circuit granted the Trusts' and for failure to state a claim. Additionally, on July 2, 2020, the CFPB submitted an application for entry of default against the Trusts. On March 26, 2021, the court granted intervenors’ motion to dismiss for failure to state a claim and denied the motion to dismiss for lack of subject matter jurisdiction. The court also denied as moot the CFPB’s application for entry of default against the Trusts. The CFPB filed an amended complaint on April 30, 2021.intervenors' petition.

RMBS Litigation

In connection with AAC’s efforts to seek redress for breaches of representations and warranties and fraud related to the information provided by both the underwriters and the sponsors of various transactions and for failure to comply with the obligation by the sponsors to repurchase ineligible loans, AAC has filed various lawsuits:

• Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. ~~Countrywide Securities Corp., Countrywide~~First Franklin Financial ~~Corp. (a.k.a.~~Corporation, Bank of America, ~~Home Loans) and Bank of America Corp.~~ (Supreme Court of the State of New York, County of New York, Case No. 651612/2010, filed on September 28, 2010). Oral argument on AAC’s appeal of the court’s dismissal on December 4, 2020, of its fraud claim was held on April 20, 2021. We can provide no assurance as to the outcome of the appeal. Investors should not assume that AAC's fraud claim will be reinstated.

• ~~Ambac Assurance Corporation v. U.S. Bank National Association~~ ~~(United States District Court, Southern District of New York, Docket No. 18-cv-5182 (LGS)~~N.A., ~~filed June 8, 2018 (the “SDNY Action”));~~ ~~In the matter of HarborView Mortgage Loan Trust 2005-10~~ (Minnesota state court, Docket No. 27-TR-CV-17-32 (the “Minnesota Action”)). On March 9, 2021, AAC filed its opening brief for its appeal of the granting by the court in the SDNY Action of U.S. Bank’s motion for summary judgment with respect to AAC’s repayment right in the trust waterfall.

• ~~In re application of Deutsche Bank National Trust Company as Trustee of the Harborview Mortgage Loan Trust Mortgage Loan Pass-Through Certificates, Series 2006-9~~ (Supreme Court of the State of New York, County of New York, No. 654208/2018), filed August 23, 2018 (the “Trust Instruction Proceeding”). This action relates to Deutsche Bank National Trust Company’s (“DBNT”) proposed settlement of claims related to the Harborview Mortgage Loan Trust Series 2006-9 (“Harborview 2006-9”). On August 23, 2018, DBNT filed a Petition commencing the Trust Instruction Proceeding, seeking judicial instruction pursuant to CPLR Article 77, inter alia, to accept the proposed settlement with respect of claims relating to Harborview 2006-9. On November 2, 2018, AAC and other interested persons filed notices of intention to appear and answers to DBNT’s petition. AAC sought a period of discovery before resolution on the merits. Discovery is now complete. Under the operative case schedule, merits briefing was completed on January 12, 2021. On April 21, 2021, AAC and another interested party sought leave to file a joint surreplyMerrill Lynch, Pierce,

| Ambac Financial Group, Inc. 3944 ~~2021~~2022 First Quarter FORM 10-Q |

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(Dollar Amounts in Millions, Except Share Amounts)

Fenner & Smith Inc., Merrill Lynch Mortgage Lending, Inc., and Merrill Lynch Mortgage Investors, Inc. (Supreme Court of the State of New York, County of New York, Case No. 651217/2012, filed April 16, 2012). On March 17, 2022, the New York Court of Appeals decided an appeal in ~~further~~an unrelated RMBS case involving the issue of whether an RMBS sponsor can be held liable for damages for breaching loans that a trustee does not provide specific notice of pre-suit. The decision may affect one of the bases upon which AAC seeks recovery with respect to a significant portion of breaching loans. On April 27, 2022, the parties jointly requested an extension of the deadline for AAC to file a note of issue to June 23, 2022 (from April 28, 2022) and the deadline for summary judgment motions to August 22, 2022 (from June 27, 2022).

• Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Countrywide Securities Corp., Countrywide Financial Corp. (a.k.a. Bank of America Home Loans) and Bank of America Corp. (Supreme Court of the State of New York, County of New York, Case No. 651612/2010, filed on September 28, 2010). On March 17, 2022, the New York Court of Appeals decided an appeal in an unrelated RMBS case involving the issue of whether an RMBS sponsor can be held liable for damages for breaching loans that a trustee does not provide specific notice of pre-suit. The decision is relevant to this action and may affect one of the bases upon which AAC seeks recovery with respect to a significant portion of breaching loans.

• Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Nomura Credit & Capital, Inc. and Nomura Holding America Inc. (Supreme Court of the State of New York, County of New York, Case No. 651359/2013, filed on April 15, 2013). On March 21, 2022, each party filed an opposition to ~~DBNT’s petition. The~~the motion for summary judgment filed by the other on December 21, 2021.

• Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation v. Countrywide Home Loans, Inc. (Supreme Court of the State of New York, County of New York, Case No. 652321/2015, filed on June 30, 2015). On March 11, 2022, AAC filed a motion for leave to appeal to the New York Court of Appeals, to which Countrywide filed a response on March 28, 2022.

• Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation v. Countrywide Home Loans, Inc., Countrywide Securities Corp., Countrywide Financial Corp., and Bank of America Corp. (Supreme Court of the State of New York, County of New York, Case No. 653979/2014, filed on December 30, 2014). On April 4, 2022, AAC filed its opposition to the motion for summary judgment that Countrywide filed on February 18, 2022, which was fully submitted as of May 4, 2022.

• In the matter of HarborView Mortgage Loan Trust 2005-10 (Minnesota state court, ~~has not yet scheduled~~Docket No. 27-TR-CV-17-32 (the “Minnesota Action”)). Trial was completed on May 6, 2022. Proposed findings of facts and conclusions of law and post-trial briefs are due on June 30, 2022, and the court will hear oral arguments on July 14, 2022.

• Ambac Assurance Corporation v. U.S. Bank National Association (United States District Court, Southern District of New York, Docket No. 17-cv-02614, filed April 11, 2017). On March 7, 2022, the court entered a ~~hearing or oral argument.~~revised stipulated scheduling order whereby, following decision about summary judgment motions in Phase 1 and to the extent necessary, the parties will brief AAC’s proposed use of statistical sampling before proceeding with Phase 2 discovery.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Following this summary is a discussion addressing the consolidated results~~The objectives of operations and financial condition of Ambac Financial Group, Inc. (“AFG”) for the periods indicated. References to “Ambac,” the “Company,” “we,” “our,” and “us” are to AFG and its subsidiaries, as the context requires. This discussion should be read in conjunction with Ambac’s Annual Report on Form 10-K for the year ended December 31, 2020, the Cautionary Statement Pursuant To The Private Securities Litigation Reform Act Of 1995 below and Risk Factors set forth in Part II, Item 1A of this Form 10-Q and in Ambac’s Annual Report on Form 10-K for the year ended December 31, 2020.

~~This~~our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) ~~contains certain financial measures, in particular the presentation of Adjusted Earnings and Adjusted Book Value, which~~ are ~~not presented in accordance with U.S. generally accepted accounting principles (“GAAP”). We are presenting these non-GAAP financial measures because they~~to provide ~~greater transparency and enhanced visibility into the underlying drivers~~users of our ~~business. We do not intend for these non-GAAP~~consolidated financial ~~measures~~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 unaudited consolidated financial statements; and

•Information that allows assessment of the likelihood that past performance is indicative of future performance.

The following discussion should be ~~a substitute for any GAAP financial measure and they may differ from similar reporting provided by other companies. Readers of this Form 10-Q should use these non-GAAP financial measures only~~read in conjunction with ~~the comparable GAAP~~our consolidated financial measures. Adjusted Earnings and Adjusted Book Value are non-GAAP financial measures that adjust for the impact of certain non-recurring or non-economic GAAP accounting requirements and include the addition of certain items that the Company has or expects to realizestatements in the future, but that are not reported under GAAP. We provide reconciliations to the most directly comparable GAAP measures; Adjusted Earnings to Net income attributable to common stockholders and Adjusted Book Value to Total Ambac Financial Group, Inc. stockholders’ equity.

~~CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995~~

~~Management has included in Parts I and II~~Item 8 of this ~~Quarterly~~ Report ~~on Form 10-Q, including this MD&A, statements that may constitute “forward-looking statements” within~~and the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “plan,” “believe,” “anticipate,” “intend,” “planned,” “potential” and similar expressions, or future or conditional verbs such as “will,” “should,” “would,” “could,” and “may,” or the negative of those expressions or verbs, identify forward-looking statements. We caution readers that these statements are not guarantees of future performance. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, which may by their nature be inherently uncertain and some of which may be outside our control. These statements may relate to plans and objectives with respect to the future, among other things which may change. We are alerting you to the possibility that our actual results may differ, possibly materially, from the

expected objectives or anticipated results that may be suggested, expressed or implied by these forward-looking statements. Important factors that could cause our results to differ, possibly materially, from those indicated in the forward-looking statements include, among others, those discussedmatters described under ~~“Risk Factors” in Part I, Item 1A of the 2020 Annual Report on Form 10-K and in~~ Part II, Item 1A ~~of this quarterly Report on Form 10-Q.~~

Any or all of management’s forward-looking statements here or in other publications may turn out to be incorrect and are based on management’s current belief or opinions. Ambac’s actual results may vary materially, and there are no guarantees about the performance of Ambac’s securities. Among events, risks, uncertainties or factors that could cause actual results to differ materially are: (1) the highly speculative nature of AFG’s common stock and volatility in the price of AFG’s common stock; (2) Ambac's inability to realize the expected recoveries, including RMBS litigation recoveries, included in its financial statements which would have a materially adverse effect on Ambac Assurance Corporation's ("AAC") financial condition and may lead to regulatory intervention; (3) failure to recover claims paid on Puerto Rico exposures or realization of losses in amounts higher than expected; (4) increases to loss and loss expense reserves; (5) inadequacy of reserves established for losses and loss expenses and possibility that changes in loss reserves may result in further volatility of earnings or financial results; (6) uncertainty concerning the Company’s ability to achieve value for holders of its securities, whether from AAC and its subsidiaries or from transactions or opportunities apart from AAC and its subsidiaries, including new business initiatives relating to the specialty property and casualty program insurance business, the managing general agency/underwriting business, or related businesses; (7) potential of rehabilitation proceedings against AAC; (8) increased fiscal stress experienced by issuers of public finance obligations or an increased incidence of Chapter 9 filings or other restructuring proceedings by public finance issuers, including an increased risk of loss on revenue bonds of distressed public finance issuers due to judicial decisions adverse to revenue bond holders; (9) our inability to mitigate or remediate losses, commute or reduce insured exposures or achieve recoveries or investment objectives, or the failure of any transaction intended to accomplish one or more of these objectives to deliver anticipated results; (10) insufficiency or unavailability of collateral to pay secured obligations; (11) credit risk throughout Ambac’s business, including but not limited to credit risk related to residential mortgage-backed securities, student loan and other asset securitizations, public finance obligations and exposures to reinsurers; (12) the impact of catastrophic environmental or natural events, including catastrophic public health events like the COVID-19 pandemic, on significant portions of our insured and investment portfolios; (13) credit risks related to large single risks, risk concentrations and correlated risks; (14) the risk that Ambac’s risk management policies and practices do not anticipate certain risks and/or the magnitude of potential for loss; (15) risks associated with adverse selection as Ambac’s insured portfolio runs off; (16) Ambac’s substantial indebtedness could adversely affect its financial condition and operating flexibility; (17) Ambac may not be able to obtain financing or raise capital on acceptable terms or at all due to its substantial indebtedness and financial condition; (18) Ambac may not be able to generate the significant

~~| Ambac Financial Group, Inc.~~ 40~~2021 First Quarter FORM 10-Q~~ |

amount of cash needed to service its debt and financial obligations, and may not be able to refinance its indebtedness; (19) restrictive covenants in agreements and instruments may impair Ambac’s ability to pursue or achieve its business strategies; (20) adverse effects on operating results or the Company’s financial position resulting from measures taken to reduce risks in its insured portfolio; (21) disagreements or disputes with Ambac's insurance regulators; (22) default by one or more of Ambac's portfolio investments, insured issuers or counterparties; (23) loss of control rights in transactions for which we provide insurance due to a finding that Ambac has defaulted; (24) adverse tax consequences or other costs resulting from the characterization of the AAC’s surplus notes or other obligations as equity; (25) risks attendant to the change in composition of securities in the Ambac’s investment portfolio; (26) adverse impacts from changes in prevailing interest rates; (27) our results of operation may be adversely affected by events or circumstances that result in the impairment of our intangible assets and/or goodwill that was recorded in connection with Ambac’s acquisition of 80% of the membership interests of Xchange; (28) risks associated with the expected discontinuance of the London Inter-Bank Offered Rate; (29) factors that may negatively influence the amount of installment premiums paid to the Ambac; (30) market risks impacting assets in the Ambac’s investment portfolio or the value of our assets posted as collateral in respect of interest rate swap transactions; (31) risks relating to determinations of amounts of impairments taken on investments; (32) the risk of litigation and regulatory inquiries or investigations, and the risk of adverse outcomes in connection therewith, which could have a material adverse effect on Ambac’s business, operations, financial position, profitability or cash flows; (33) actions of stakeholders whose interests are not aligned with broader interests of the Ambac's stockholders; (34) system security risks, data protection breaches and cyber attacks; (35) changes in accounting principles or practices that may impact Ambac’s reported financial results; (36) regulatory oversight of Ambac Assurance UK Limited ("Ambac UK") and applicable regulatory restrictions may adversely affect our ability to realize value from Ambac UK or the amount of value we ultimately realize; (37) operational risks, including with respect to internal processes, risk and investment models, systems and employees, and failures in services or products provided by third parties; (38) Ambac’s financial position that may prompt departures of key employees and may impact the its ability to attract qualified executives and employees; (39) fluctuations in foreign currency exchange rates could adversely impact the insured portfolio in the event of loss reserves or claim payments denominated in a currency other than US dollars and the value of non-US dollar denominated securities in our investment portfolio; (40) disintermediation within the insurance industry that negatively impacts our managing general agency/underwriting business; (41) changes in law or in the functioning of the healthcare market that impair the business model of our accident and health managing general underwriter; and (42) other risks and uncertainties that have not been identified at this time.

~~EXECUTIVE SUMMARY ($ in millions)~~

~~Company Overview:~~

~~See~~ ~~Note 1. Background and Business Description~~ ~~to the Unaudited Consolidated Financial Statements, included in Part I, Item 1~~Risk Factors in this ~~Form 10-Q~~Quarterly Report and ~~Note 1. Background and Business Description~~under Item 1A. Risk Factors in ~~the Notes to Consolidated Financial Statements included in the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021. Refer to Item 1. Business and Note 1. Background and Business Description for a description of ~~the Company~~our business and our key ~~strategic priorities~~strategies to achieve our primary goal to maximize ~~stockholder~~shareholder value.

~~AFG~~Organization of Information

~~During 2021, AFG continued its progress~~MD&A includes the following sections:


			Page
Executive Summary			45
Critical Accounting Estimates			48
Financial Guarantees in Force			48
Results of Operations			53
Liquidity and Capital Resources			58
Balance Sheet			60
Variable Interest Entities			66
Accounting Standards			66
U.S. Insurance Statutory Basis Financial Results			66
Ambac UK Financial Results under UK Accounting Principles			67
Non-GAAP Financial Measures			67

EXECUTIVE SUMMARY ($ in ~~the development of its specialty property and casualty program insurance and activities included the following:~~millions)

•~~AFG contributed additional capital to the Everspan Group in the amount of $82 million.~~

•~~The Everspan Group platform received an A- Financial Strength Rating from A.M. Best in February 2021.~~

AFG Net Assets

| Ambac Financial Group, Inc. 452022 First Quarter FORM 10-Q |

AFG has the following net assets to support the development and growth of its existing subsidiaries and future acquisitions. AFG does not have any capital commitments or other obligations to provide capital or liquidity to AAC whose financial guarantee business has been in run-off since 2008. As of March 31, ~~2021,~~2022, net assets of AFG, excluding its equity investments in subsidiaries, were ~~$274.~~$243.


Cash and short-term investments	$	~~147~~118
Other investments (1)	~~123~~113
Other net assets	512
Total	$	~~274~~243

(1)Includes surplus notes (fair value of ~~$114)~~$77) issued by AAC that are eliminated in consolidation.

~~AAC~~AFG's subsidiaries/businesses are divided into three segments, the key value metrics of which are summarized below along with other recent developments.

Specialty Property and ~~Subsidiaries~~Casualty Insurance Segment

The key value metrics for the Specialty Property and Casualty Insurance segment for the three months ended March 31, 2022 were as follows:


Three Months Ended March 31,	2022
Gross premiums written	$	24
Net premiums written	5












Earnings before interest, taxes, depreciation and amortization	(2)

Pretax income (loss)	$	(2)

Stockholders Equity	$	115

To support expansion of the admitted insurance component of its business, on January 3, 2022, Everspan (rated 'A-' (Excellent) by AM Best) completed the acquisition of the 21st Century Companies (three carriers) from a national insurance group that has a Financial Strength Rating of “A” (Excellent) from AM Best. The 21st Century Companies collectively possess certificates of authority in thirty-nine states. All legacy liabilities remain with affiliates of the sellers through reinsurance and contractual indemnities. The 21st Century Companies will be re-named during 2022. Such acquisitions will enhance Everspan's capabilities to launch new admitted programs, develop innovative products and provide enhanced flexibility to foster strategic relationships with prospective program partners.

For additional information on the Specialty Property and Casualty Insurance Segment see the Results of Operations section below in this Management Discussion and Analysis.

Insurance Distribution Segment

The key value metrics for the Insurance Distribution segment for the three months ended March 31, 2022 were as follows:


Three Months Ended March 31,	2022		2021
Premiums placed	$	45	$	40

Commission income	$	9	$	7
Sub-producer commission expense (1)	5		4
Net commissions	4		3




Earnings before interest, taxes, depreciation and amortization	2		2



Pretax income (loss)	$	2	$	2

Stockholders Equity	$	66

(1)The Consolidated Statements of Comprehensive Income presents this item within Operating Expenses.

For additional information about the Insurance Distribution Segment see the Results of Operations section below in this Management Discussion and Analysis.

Legacy Financial Guarantee Insurance Segment

The key value metrics for the Legacy Financial Guarantee Insurance segment for the three months ended March 31, 2022 were as follows:


Three Months Ended March 31,	2022

Net premiums earned	$	13
Net investment income	5






Loss and loss expenses (benefit)	23
Operating expenses	21







Pretax income (loss)	$	6

Stockholders Equity	$	567

Adversely Classified Credit Net Par Outstanding	$	5,884

A key strategy for Ambac is to increase the value of its investment in AAC by actively managing its assets and liabilities. Asset management primarily entails maximizing the risk-adjusted return on non-VIE invested assets and managing liquidity to help ensure resources are available to meet operational and strategic cash needs. These strategic cash needs include activities associated with Ambac's liability management and loss mitigation programs.

Asset Management

Investment portfolios are subject to internal investment guidelines, as well as limits on the types and quality of investments imposed by insurance laws and regulations. The investment portfolios of AAC and Ambac UK ~~also~~ hold fixed maturity securities and various pooled investment funds. Refer to Note 9.4. Investments to the Unaudited Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q for further details of fixed maturity investments by asset category and pooled investment funds by investment type.

| Ambac Financial Group, Inc. 462022 First Quarter FORM 10-Q |

At March 31, ~~2021, Ambac and its subsidiaries~~2022, AAC owned ~~$615~~$313 of distressed Ambac-insured bonds, including significant concentrations of insured RMBS bonds. As a result of the Puerto Rico restructurings discussed under "Liability and ~~RMBS~~Insured Exposure Management" below, the amount of Ambac-insured Puerto Rico bonds ~~and excluding Ambac's holdings of secured notes issued by Ambac LSNI.~~held in the investment portfolio was significantly reduced during the three months ended March 31, 2022. Subject to internal and regulatory guidelines, market

~~| Ambac Financial Group, Inc.~~ 41~~2021 First Quarter FORM 10-Q~~ |

conditions and other constraints, Ambac may continue to opportunistically purchase orand sell Ambac-insured securities.

Liability and Insured Exposure Management

~~AAC's~~Ambac's Risk Management Group focuses on the implementation and execution of risk reduction, defeasance and loss recovery strategies. Analysts evaluate the estimated timing and severity of projected policy claims as well as the potential impact of loss mitigation or remediation strategies in order to target and prioritize policies, or portions thereof, for commutation, reinsurance, refinancing, restructuring or other risk reduction strategies. For targeted policies, analysts will engage with issuers, bondholders and other economic stakeholders to negotiate, structure and execute such strategies. ~~During 2021, successful~~Ambac completed risk reduction transactions ~~included:~~

•~~In January 2021, AAC completed the purchase~~consisting of ~~quota share reinsurance on a portfolio~~refinancings and commutations of ~~public finance credits with~~$310 of net par ~~outstanding~~exposure for the three months ended March 31, 2022, of ~~approximately $823 at December 31, 2020. Par ceded included general obligation ($347), lease~~which $266 related to the Puerto Rico restructuring. In the second quarter of 2022, the remainder of the PRIFA and ~~tax-backed revenue ($234), higher education ($161)~~CCDA bonds or about $317 belonging to bondholders who elected not to commute their AAC insurance policies (which were deposited into trusts) together with such policies have all been accelerated by Ambac, satisfying and ~~transportation ($81)~~eliminating all of the Ambac-insured PRIFA and ~~included $158~~CCDA bonds. Refer below to the Financial Guarantees In Force section of ~~watch list~~the Management Discussion and ~~adversely classified credits.~~

•~~In February 2021, AAC's exposure to an adversely classified stadium transaction with net par outstanding~~Analysis for Results of ~~$540 at December 31, 2020, was eliminated through~~Operations, Financial Guarantees in Force for additional details of the ~~combination of a refinancing and quota share reinsurance.~~Puerto Rico restructuring. Puerto Rico.

The following table provides a comparison of total, adversely classified ("ACC") and watch list credit net par outstanding in the insured portfolio at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. 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.

March 31,
2021 December 31,
2020 Decrease
Total $ 31,447 $ 33,888 $ (2,441) (6) %
ACC 7,603 8,458 (855) (10) %
Watch list 4,532 4,720 (188) (4) %


	March 31, 2022		December 31, 2021		Decrease
Total	$	27,118	$	28,020	$	(902)	(3)	%
ACC	5,884		6,361		(477)		(7)	%
Watch list	3,729		3,824		(95)		(2)	%

The decrease in total and ACC credit net par outstanding resulted from the active de-risking ~~initiatives, including the transactions~~ noted above, as well as scheduled maturities, amortizations, refundings and calls.

The decrease in ACC exposures is primarily due to the de-risking of an adversely classified stadium transaction with net par outstanding of $540 at December 31, 2020 and the aforementioned purchase of quota share reinsurance in the amount of $59.

~~The decrease in Watch List net par outstanding resulted from scheduled maturities, amortizations, refundings and calls and the aforementioned purchase of quota share reinsurance in the amount of $99.~~

COVID-19

The COVID-19 pandemic ~~has~~ had, and to a lesser degree, continues to have, ~~a notable~~an impact on general economic ~~conditions,~~conditions; including, but not limited to, higher unemployment; volatility in the capital markets; closure or severe curtailment of the operations and, ~~hence,~~

hence, revenues, of many businesses and public and private enterprises to which we are directly or indirectly ~~exposed, such as hotels, restaurants, sports~~exposed.

COVID-19 and ~~entertainment facilities, airports~~the public health responses by the US federal and ~~other transportation facilities,~~state governments at the onset of the pandemic resulted in a shut down for several months of significant portions of the US economy, including areas that AAC's insured obligors rely upon to generate the revenues and ~~retail establishments, mostly due~~cash flows necessary to ~~social distancing guidelines, travel bans and restrictions, and business restrictions and shutdowns.~~

service debts we insure. In the U.S., and Europe, where most of Ambac's financial guaranty exposure is located, significant fiscal stimulus measures, monetary policy actions ~~fiscal stimulus measures~~ and other relief measures ~~have~~ helped to moderate the negative economic impacts of COVID-19 and ~~have~~ supported the economic recovery which began in the second half of 2020 and continues into 2021. These measures include monetary policy decisions, such as quantitative easing, providing liquidity to financial institutions, providing liquidity to credit markets and the Paycheck Protection Program Lending Facility; Congressional fiscal stimulus and other actions, such as the $1.9 trillion American Rescue Plan Act or ARPA, which was enacted in2022. As of March 2021, and a number of programs enacted in 2020, including the $2.4 trillion Coronavirus Aid, Relief and Economic Security ("CARES") Act, the $483 billion Paycheck Protection Program And Health Care Enactment Act, the $190 billion Families First Coronavirus Response Act, and the $920 billion 2021 Consolidated Appropriations Act. Collectively, these programs provide, among other things, direct payments to households, support for small businesses, renter assistance and funding for transport, airlines, healthcare, education and state and local governments. In addition, housing measures, such as forbearance on mortgages and suspension of foreclosures and evictions, and various executive orders have helped to provide relief. Outside of the U.S., and in the United Kingdom and Italy in particular, where Ambac has insured portfolio exposure, various monetary policy, fiscal stimulus measures and other actions have helped to moderate the economic impact.

In the U.S., the economic recovery, which began in the second half of 2020, continues through the first quarter of 2021, supported by the aforementioned monetary policy and fiscal stimulus measures as well as a rapidly increasing COVID 19 vaccination rate. Economic recovery and, in particular, fiscal stimulus measures such as the $350 billion of assistance earmarked for state and local governments under ARPA and other funding to support households under ARPA and other programs, should be an overall benefit to most issuers in Ambac's insured portfolio negatively impacted by the COVID-19 pandemic. Nonetheless, credit risk in the insured portfolio remains elevated due to, among other things, uncertainty over the trajectory and continuity of the economic recovery due to still high COVID-19 infection rates globally as well as the spread of new virus variants. In addition, the near-term efficacy of fiscal stimulus and related measures on certain exposures in the insured portfolio impacted by the COVID-19 pandemic, such as those with exposure to the performance of hotels, restaurants, and entertainment centers, is uncertain.

Since 2020, COVID-19 has adversely impacted Ambac's financial position and results of operations as credit risk in the insured and investment portfolios has increased. In the insured portfolio, municipal, mortgage-backed and other asset securitization exposures31, 2022, there have been ~~adversely impacted and, despite the ongoing economic recovery, could still be materially adversely impacted in the future. We are continuously evaluating and updating our~~

~~| Ambac Financial Group, Inc.~~ 42~~2021 First Quarter FORM 10-Q~~ |

~~view~~no defaults of ~~the macro economic environment~~Ambac-insured obligations as well as our specific credit view of each of our insured exposures considering the significant uncertainties brought upon us by the COVID-19 pandemic. The overall financial impact from COVID-19 has been and will be a function of (i) the willingness and ability of issuers of insured debt and other counterparties to pay their obligations when due; (ii) the impact of changes to interest rates on policy and derivative payments; and (iii) the performance of the investment portfolio.

•~~Ambac’s insurance policies will be drawn in the event that the issuers of insured obligations do not make payments on their obligations when due. As~~ a result of the COVID-19 related economic impact on issuers and markets where Ambac provides financial guarantees; including lower tax, project, and business revenues and increases in forbearances or delinquencies on mortgage and student loan payments, we increased our loss reserves across affected exposures. The crisis may also impair certain issuers' ability to pay premiums owed to Ambac; however, we believe such issuers currently have the ability to continue to pay such premiums timely, but this is subject to change.

•Ambac has exposure to reinsurance counterparties for their portions of future claim payments. Ambac has reinsured approximately 15.8% of its gross par outstanding to five reinsurance counterparties. Each of these reinsurance counterparties is experienced in the business of reinsuring and/or writing financial guaranty insurance. All have current ratings of A+ (by S&P) or better and have collateralization or replacement triggers upon downgrade. Ambac actively monitors each of these reinsurance entities and currently believes they have the ability to perform under their respective reinsurance policies, but this is subject to change.

•Ambac is exposed to the risk that contractual counterparties (including those under our RMBS litigations and derivative counterparties) may default on their financial obligations, whether as the result of insolvency, lack of liquidity, operational failure, fraud or other reasons. At present, Ambac has no concerns about the ability of our contractual counterparties, which include certain regulated exchanges in the case of interest rate swaps and futures, to perform under their contracts, but this is subject to change.pandemic.

Given the economic uncertainties associated with the duration and effects of the COVID-19 pandemic, it is impossible to fully predict all of its long-term consequences and, as a result, it is possible that our future operating results and financial condition may be materially adversely ~~affected. Refer to "Financial Guarantees In Force," "Results of Operations" and "Balance Sheet Commentary" for further financial details on~~affected by the ~~current impact from COVID-19.~~

~~With regard to Ambac's new business strategic objective, we continue to evaluate opportunities in a disciplined manner. Our evaluation process has been revised to incorporate consideration~~continuance of the pandemic.

Russia and Ukraine Conflict

The current conflict between Russia and Ukraine and the related sanctions and other penalties imposed by countries across the globe against Russia are creating substantial uncertainty in the global economy. We do not have operations in Russia or Ukraine or any insured exposures in those countries. Ambac's investment portfolio exposure to Russian issuers is not significant. Given our insignificant exposure, we have not experienced, and do not expect this conflict to have, a material adverse impact on our results of ~~COVID-19~~operations, financial condition or cash flows. However, as the conflict continues and if it were to escalate, the global economy and capital markets will be adversely impacted in ways that we cannot predict and therefore we are unable to estimate the ultimate impact that this conflict may have on ~~new business prospects as well as Ambac's existing business~~our future financial condition, results of operations, and ~~operations.~~cash flows.

Financial Statement Impact of Foreign Currency:

The impact of foreign currency as reported in Ambac's Unaudited Consolidated Statement of Total Comprehensive Income for the three months ended March 31, ~~2021,~~2022, included the following:



Net income (1)	$	~~(5)~~1
Gain (loss) on foreign currency translation (net of tax)	6(23)
Unrealized gains (losses) on non-functional currency available-for-sale securities (net of tax)	—2
Impact on total comprehensive income (loss)	$	1(20)

(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 Unaudited Consolidated Statement of Total Comprehensive Income (Loss).

Future changes to currency rates may adversely affect our financial results. Refer to Part II, Item 7A in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~

| Ambac Financial Group, Inc. 472022 First Quarter FORM 10-Q |

2021, for further information on the impact of future currency rate changes on Ambac's financial instruments.

LIBOR Sunset

Ambac continuously monitors regulatory and industry developments related to the transition from LIBOR to alternative reference rates. ~~On April 6,~~In 2021, New York State passed legislation addressing the cessation of U.S. Dollar ("USD") LIBOR and specified a recommended benchmark replacement based on the Secured Overnight Financing Rate ~~(SOFR)~~("SOFR") for certain legacy transactions. Similar Federal legislation gained approval in March of 2022. The Alternative Reference Rates Committee, the Federal Reserve Board and several industry associations and groups have expressed support for the new ~~law and are encouraging comparable Federal legislation.~~law. While Ambac believes the ~~New York~~ LIBOR law is generally a positive step, there remains ~~significant~~ uncertainty about how it will be interpreted or challenged as well as about other aspects of the discontinuance of ~~LIBOR, including~~LIBOR. At the ~~impact~~same time, regulatory and governmental authorities continue to promote the creation and functioning of ~~any Federal legislation.~~post-LIBOR indices, SOFR in particular. See the ~~risk factor~~Risk Factor entitled "Uncertainties regarding the expected discontinuance of the London Inter-Bank Offered Rate or any other interest rate benchmark could have adverse consequences" found in Part I, Item 1A of Ambac’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Also, for further background and information about management's evaluation of Ambac's potential exposures to LIBOR transition, see "Executive Summary — LIBOR Sunset" in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Ambac’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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”). For large accelerated filers, such as Ambac, the Scope 1 and 2 emissions disclosures would require attestation from a third party. These new requirements, if adopted, would at the earliest take effect in fiscal year 2023 and begin to apply to SEC filings in 2024. Ambac is reviewing the Proposed Rule and assessing related compliance obligations and other effects on our operations.

CRITICAL ACCOUNTING ~~POLICIES AND~~ ESTIMATES

Ambac’s Unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which require the use of material estimates and assumptions. For a discussion of Ambac’s critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

~~| Ambac Financial Group, Inc.~~ 43~~2021 First Quarter FORM 10-Q~~ |

included in Ambac’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

FINANCIAL GUARANTEES IN FORCE
($ in millions)

Financial guarantee products were sold in three principal markets: U.S. public finance, U.S. structured finance and international finance. The following table provides a breakdown of guaranteed net par outstanding by market at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. 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. Guaranteed net par outstanding includes the exposures of policies insuring variable interest entities (“VIEs”) consolidated in accordance with the Consolidation Topic of the ASC. Guaranteed net par outstanding excludes the exposures of policies that insure bonds which have been refunded or pre-refunded and excludes exposure of the ~~policy that insures~~policies insuring the ~~notes issued by Ambac LSNI~~Sitka Senior Secured Notes as defined in

Note ~~3. Variable Interest Entities~~1. Background and Business Description in the Notes to the ~~Unaudited~~ Consolidated Financial Statements included in Part I,II, Item 18 in ~~this Quarterly~~the Company’s Annual Report on Form ~~10-Q:~~10-K for the year ended December 31, 2021:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Public Finance (1) (2)	Public Finance (1) (2)	$	13,942	$	15,497	Public Finance (1) (2)	$	11,980	$	12,360
Structured Finance	Structured Finance	6,066		6,337		Structured Finance	4,688		4,904
International Finance	International Finance	11,439		12,054		International Finance	10,450		10,756
Total net par outstanding	Total net par outstanding	$	31,447	$	33,888	Total net par outstanding	$	27,118	$	28,020

(1)Includes ~~$5,555~~$5,469 and ~~$5,575~~$5,490 of Military Housing net par outstanding at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

(2)Includes ~~$1,067~~$784 and ~~$1,070~~$1,054 of Puerto Rico net par outstanding at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Components of Puerto Rico net par outstanding include capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds.

| Ambac Financial Group, Inc. 482022 First Quarter FORM 10-Q |

The table below shows Ambac’s ten largest insured exposures, by repayment source, as a percentage of total financial guarantee net par outstanding at March 31, ~~2021:~~2022:


			Risk Name	Country-Bond Type	Ambac Ratings (1)	Ultimate Maturity Year	Net Par Outstanding (2)		% of Total Net Par Outstanding				Risk Name	Country-Bond Type	Ambac Ratings (1)	Ultimate Maturity Year	Net Par Outstanding		% of Total Net Par Outstanding
IF											IF	AUK	Capital Hospitals plc (2)	UK-Infrastructure	A-	2046	$	899	3.3	%
IF	IF	AUK	Mitchells & Butlers Finance plc-UK Pub Securitisation	UK-Asset Securitizations	BBB	2033	$	961	3.1	%	IF	AUK	Anglian Water	UK-Utility	A-	2035	895		3.3	%
IF	IF	AUK	Capital Hospitals plc (3)	UK-Infrastructure	A-	2046	902		2.9	%	IF	AUK	Mitchells & Butlers Finance plc-UK Pub Securitisation	UK-Asset Securitizations	BBB	2033	852		3.1	%
IF	IF	AUK	Anglian Water	UK-Utility	A-	2035	868		2.8	%	IF	AUK	Aspire Defence Finance plc	UK-Infrastructure	A-	2040	799		2.9	%
IF	IF	AUK	Aspire Defence Finance plc	UK-Infrastructure	A-	2040	864		2.7	%	IF	AUK	National Grid Gas	UK-Utility	BBB+	2037	783		2.9	%
IF	IF	AUK	National Grid Gas	UK-Utility	BBB+	2037	801		2.5	%	IF	AUK	Posillipo Finance II S.r.l	Italy-Sub-Sovereign	BIG	2035	643		2.4	%
PF	PF	AAC	New Jersey Transportation Trust Fund Authority - Transportation System	US-Lease and Tax-backed Revenue	BBB-	2036	767		2.4	%	PF	AAC	New Jersey Transportation Trust Fund Authority - Transportation System	US-Lease and Tax-backed Revenue	BBB-	2036	623		2.3	%
IF	IF	AUK	Posillipo Finance II S.r.l	Italy-Sub-Sovereign	BIG	2035	713		2.3	%	IF	AUK	National Grid Electricity Transmission	UK-Utility	BBB+	2036	551		2.0	%
IF	IF	AUK	Ostregion Investmentgesellschaft NR 1 SA (3)	Austria-Infrastructure	BIG	2039	679		2.2	%	IF	AUK	RMPA Services plc	UK-Infrastructure	BBB+	2038	524		1.9	%
IF	IF	AUK	RMPA Services plc	UK-Infrastructure	BBB+	2038	570		1.8	%	IF	AUK	Catalyst Healthcare (Manchester) Financing plc (2)	UK-Infrastructure	BBB-	2040	522		1.9	%
IF		AUK	National Grid Electricity Transmission	UK-Utility	BBB+	2036	540		1.7	%
Total	Total						$	7,665	24.4	%	Total						$	7,091	26.0	%
PF = Public Finance, SF = Structured Finance, IF = International Finance AAC = Ambac Assurance, AUK = Ambac UK	PF = Public Finance, SF = Structured Finance, IF = International Finance AAC = Ambac Assurance, AUK = Ambac UK										PF = Public Finance, SF = Structured Finance, IF = International Finance AAC = Ambac Assurance, AUK = Ambac UK

(1) Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac. In cases where Ambac has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used. Ambac credit ratings are subject to revision at any time and do not constitute investment advice. BIG denotes credits deemed below investment grade.

(2) ~~Net Par 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.~~

~~(3)~~ A portion of this transaction is insured by an insurance policy issued by AAC. AAC has issued policies for these transactions that will only pay in the event that Ambac UK does not pay under its insurance policies ("second to pay policies").

Net par related to the top ten exposures reduced ~~$54~~$234 from December 31, ~~2020.~~2021. Exposures are impacted by changes in foreign exchange rates ($189 reduction during the three months ended March 31, 2022), certain indexation rates, reinsurance transactions and scheduled and unscheduled paydowns. ~~The decrease from 2020 was primarily related to foreign exchange and scheduled paydowns.~~ As a result of recent increases in inflation, such indexation 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 24%~~remained unchanged at 26% at March 31,

~~2021, from 23% at~~ 2022, and December 31, ~~2020. National Grid Gas had an Ambac rating downgrades since December 31, 2020. The~~2021. Excluding the top ten exposures, the remaining insured portfolio of financial guarantees has an average net par outstanding of $32 per single risk, with insured exposures ranging up to ~~$530~~$454 and a median net par outstanding of $5.

Given that Ambac has not written any new financial guaranty insurance policies since 2008, the risk exists that the legacy financial guarantee insured portfolio becomes

~~| Ambac Financial Group, Inc.~~ 44~~2021 First Quarter FORM 10-Q~~ |

increasingly concentrated to large and/or below investment grade exposures.

~~COVID-19~~Puerto Rico

COVID-19 and the public health responses by the US federal and state governments at the onset of the pandemic resulted in a shut down for several months of significant portions of the US economy, including areas thatThe following table outlines Ambac's insured obligors rely upon to generate the revenues and cash flows necessary to service debts we insure. Governments outside the US, in markets in which Ambac operates, also implemented similar measures to the US. Ambac undertook a detailed analysis of the potential impact of the closure of certain portions of the US economy and certain other economies, including the UK, Italy, and Australia, to assess the impact of the resulting global economic contraction on its insured financial guarantee portfolio.

The economic contraction and the subsequent recovery; actions such as fiscal stimulus and related programs and monetary policy decisions; and our insured obligors' financial flexibility and ability to mitigate the operational and economic impact of the recession will determine the ultimate impact to Ambac's insured portfolio.

~~Fiscal Stimulus and Monetary Policy~~

In the U.S., significant fiscal stimulus measures, monetary policy actions and other relief measures have helped to moderate the negative economic impacts of COVID-19 and have supported the economic recovery which began in the second half of 2020 and continues into 2021. These measures include the $1.9 trillion American Rescue Plan Act or ARPA, signed into law in March 2021, which together with other fiscal stimulus measures put in place in 2020, provide for, among other things, funding to state and local governments, direct payments to households, support for small businesses, renter assistance and funding for transport, airlines, healthcare and education. Monetary policy decisions have included quantitative easing and the provision of liquidity to financial institutions and credit markets. In addition, housing measures, such as forbearance on mortgages and suspension of foreclosures and evictions, and various executive orders have helped to provide relief. Outside of the US, and in the United Kingdom and Italy in particular, where Ambac has insured portfolio exposure, various monetary policy, fiscal stimulus measures and other actions have helped to moderate the negative economic impact and support recovery.

Despite the above measures, which are designed to help mitigate the economic impact of the COVID-19 pandemic generally, certain of these measures may adversely affect Ambac. These include the federal government's temporary relief measures to which servicers of mortgage loans must adhere. The Federal Housing Administration ("FHA") of the US Department of Housing and Urban Development and the Federal Housing Finance Agency ("FHFA") are providing temporary relief measures that require mortgage loan servicers to offer relief to borrowers who suffer hardship as a result of COVID-19. The relief measures include moratoriums on foreclosures and

evictions as well as the expansion of forbearance and subsequent repayment options. Such servicers are generally applying these guidelines to non-FHFA loans, including those loans owned by special purpose entities that have their securitized obligations guaranteed by AAC. Forbearances increased sharply across the AAC's insured first lien RMBS obligations during the second quarter of 2020 and early in the third quarter of 2020, but then dropped later in the third quarter of 2020 through March 31, 2021, albeit to still elevated levels. The ultimate impact of forbearances and other relief measures, such as foreclosure and eviction moratoriums, on AAC's insured RMBS obligations are still unclear. However, we have assumed that such measures will have an adverse impact on our insured RMBS transactions. Consequently, we have anticipated that we will experience an increase in claim payments for certain of our insured RMBS obligations as these measures are unwound.

While Ambac expects the foregoing measures to help mitigate economic damage and aid the functioning of the capital markets, Ambac's exposure to credit risk as a result of the economic fallout from the COVID-19 pandemic remains elevated, and we could still experience material losses that would adversely impact our future results of operations and financial condition.

~~Insured Portfolio:~~

The U.S. economy continues to recover from COVID-19 pandemic, aided by rapid vaccine diffusion, increased fiscal stimulus, and a continued reopening of the economy. After contracting in 2020, the U.S. economy is projected to grow strongly in 2021, exceeding 2019 levels of economic output during the course of the year. Unemployment has recovered 80% from the highs of about 15% in April 2020, but still remains elevated at about 6% relative to pre-pandemic levels of about 3.5%. Potential headwinds include rising COVID-19 infection rates globally and the spread of COVID-19 variants.

The improving economy, increased fiscal stimulus and other relief measures should benefit the overall credit quality of Ambac's insured portfolio. In particular, the expanded fiscal stimulus resulting from March 2021's $1.9 trillion ARPA should significantly benefit state and local governments that have faced significant budget constraints as tax revenues faltered as a result of COVID-19 related shutdowns, job losses and travel restrictions. ARPA provides $350 billion to state and local governments, including to Public Finance issuers with debt insured by Ambac. However, the ultimate impact of ARPA and the economic recovery in general on the Ambac insured portfolio remains to be seen, as it will not benefit all insured exposures equally and may not benefit certain exposures at all.

As part of a detailed analysis of the insured portfolio, we have identified certain Public Finance sectors that are most susceptible to potential claims or impairments as a result of a prolonged or uneven recovery from the COVID-19 pandemic. Our near-term concerns are concentrated on exposures substantially reliant on narrow, economically sensitive revenue streams. The ability of issuers of these obligations to pay is expected to be stressed although several issuers expressed a willingness to use their balance sheets to support their obligations and avoid defaults in the near-term. Ambac's insurednet par outstanding ~~net~~to each Commonwealth of ~~reinsurance ("NPO"), to these Public Finance sectors are as follows:~~

~~| Ambac Financial Group, Inc.~~ 45~~2021 First Quarter FORM 10-Q~~ |

Market / Sector Total NPO Total Debt Service Due Next Twelve Months
Toll Roads / Bridges $ 457 $ 43
Dedicated Tax 345 51
Rail / Mass Transit 289 15
Higher Education Auxiliary 190 21
Hotels / Convention Centers 188 39
Stadiums 92 8
Airports 22 15
Total Public Finance $ 1,583 $ 192

The RMBS insured portfolios were adversely impacted by the previously mentioned forbearances and the moratorium on foreclosures as well as the general uncertainty about the trajectory of the economic recover and the impact of fiscal stimulus on the U.S. households. This has been offset by the benefit to excess spread within the securitization structures as a result of the reduction in interest rates over the past year, which will result in higher excess spread recoveries to Ambac.

Ambac insured exposure includes a number of international policies where the revenue of the issuer is demand dependent. Such transactions have been impacted by the reduction of revenue due to the COVID-19 pandemic. Ambac and its advisors are working closely with impacted issuers to review their plans and liquidity facilities in light of these events. Ambac's remaining NPO with respect to these international demand dependent policies are as follows:

Market / Sector Total NPO Total Debt Service Due for Twelve Months
Asset Securitizations $ 961 $ 87
Toll Roads / Bridges 738 59
Airports 212 7
Higher Education 179 10
Total $ 2,090 $ 163

At this time, there are still significant uncertainties surrounding the ultimate number of claims and scope of damage resulting from this pandemic. Actual losses from these events may vary materially from Ambac's loss and loss expense reserves due to several factors, including the inherent uncertainties in making such determinations and the evolving nature of this pandemic. Potential losses from the economic consequences of the COVID-19 pandemic could be material and therefore may have a material adverse effect on our results of operations and financial condition.

~~Puerto Rico~~

~~We continue to experience stress in our exposure to~~ Puerto Rico ~~(the "Commonwealth") that consists of several different issuing entities (all below investment grade) with total net par exposure of $1,067 as of March 31, 2021.~~issuer. Each issuing entity has its own credit risk profile attributable to, as applicable, discreet revenue sources, direct general obligation pledges and general obligation guarantees.

~~guarantees. Refer to Part 1, Item 1 in~~


Net Par Outstanding ($ in millions)	March 31, 2022		December 31, 2021
PR Highways and Transportation Authority (1998 Resolution - Senior Lien Transportation Revenue)	$	394	$	394
PR Infrastructure Financing Authority (Special Tax Revenue) (1)	247		403
PR Convention Center District Authority (Hotel Occupancy Tax) (2)	70		86
PR Sales Tax Financing Corporation - Senior Sales Tax Revenue (COFINA)	69		73
PR Highways and Transportation Authority (1968 Resolution - Highway Revenue)	4		4
Commonwealth of Puerto Rico - General Obligation Bonds	—		11
PR Public Buildings Authority - Guaranteed by the Commonwealth of Puerto Rico	—		83
Total Net Exposure to The Commonwealth of Puerto Rico and Related Entities	$	784	$	1,054

(1) As of April 29, 2022, all remaining exposure has been called

(2) As of May 2, 2022, all remaining exposure has been called

Commonwealth Plan of Adjustment (Title III Case)

On March 15, 2022, the ~~Company’s Annual Report on Form 10-K for~~Eighth Amended Title III Joint Plan of Adjustment of the ~~year ended December 31, 2020, for additional information regarding the different issuing entities that encompass Ambac's exposures to Puerto Rico.~~

~~COVID-19~~

~~The COVID-19 pandemic had a significant impact on~~ Commonwealth of Puerto Rico, ~~much as it did in~~et al. ("Eighth Amended POA") together with the ~~50 U.S. states~~Qualifying Modifications for PRIFA and ~~other U.S. territories. However, the Puerto Rico economy is currently in recovery with vaccination rates increasing~~CCDA ("PRIFA QM" and ~~infection rates declining. Hotel occupancy in the first week~~"CCDA QM", respectively) became effective, restructuring approximately $33,000 of April 2021 reached 84%, which is the highest level since March 2019. Overall, the Commonwealth's general fund revenues in the eight-month period ending February 2021 were up 1.8% year-on-year to $6.75 billion from $6.63 billion and were $1.18 billion higher than the budgeted amount for the period. As reported in the April 23, 2021,debt across various Commonwealth ~~Fiscal Plan, Puerto Rico is also expected to benefit from about $43.5 billion in COVID-19-related federal funds from the initial CARES related measures in 2020 through the recently enacted ARPA.~~

It is unclear if the recovery will hold, what this implies for the Commonwealth’s ability and willingness to pay debt service, and what if any lasting effects COVID-19 will have on the economic and financial profile of Puerto Rico.

~~Over the longer-term, Puerto Rico's recovery profile will be impacted by a wide range of factors as well as financial considerations including, but not limited to:~~

•~~the fiscal and monetary policies of the federal government which will shape the trajectory of the U.S. economy;~~

•the speed and efficacy of targeted federal aid packages to (1) help Puerto Rico address the negative economic effects of the pandemic and (2) rebuild better and more resilient infrastructure post-Hurricanes Irma and Maria in 2017 and earthquakes in 2020;

•~~supplemental Medicaid funding relief; and~~

•~~the willingness and ability of the Commonwealth government to implement much needed fiscal and structural reforms.~~

~~Commonwealth Fiscal Plan~~

On April 23, 2021, the Oversight Board certified its own version of a new Commonwealth Fiscal Plan. This most recent Commonwealth Fiscal Plan purports to incorporate the impact of the $120 billion of federal recovery money stemming from the 2017 hurricanes, 2019-2020 earthquakes, and COVID-19 pandemic, including the recently enacted American Rescue Plan Act or ARPA. The current certified Commonwealth Fiscal Plan projects a surplus of $15.2 billion in years 2022-2035, with deficits beginning in 2036, whereas as May 2020's COVID-19 affected certified Commonwealth Fiscal Plan projected a surplus of $5.8 billion over a similar period. Debt sustainability analysis in the new plan suggests a modest increase to $5.6 billion from $5.0 billion (based upon mid-point of ranges shown in the plan).

~~As with previous fiscal plans, the current certified Commonwealth Fiscal Plan may significantly inform the Commonwealth Plan of Adjustment in the Commonwealth's Title~~instrumentalities,

| Ambac Financial Group, Inc. 4649 ~~2021~~2022 First Quarter FORM 10-Q |

~~III proceeding. However,~~including obligations insured by AAC, and approximately $50,000 in pension obligations.

The Eighth Amended POA, among other things, incorporated the settlement reflected in the PRIFA Related Plan Support Agreement (“PRIFA PSA”) that was signed on July 27, 2021, by the Oversight Board, as ~~was also the case with previous versions~~representative of the Commonwealth ~~Fiscal Plan, the current version~~ of the Commonwealth Fiscal Plan lacks a high degree of transparency regarding the underlying data, assumptions and rationales supporting those assumptions, making reconciliation and due diligence difficult.

No assurances can be given that Ambac's financial condition will not suffer a materially negative impact as an ultimate result of decisions based on the Commonwealth Fiscal Plan or any future changes or revisions to the Commonwealth Fiscal Plan or future fiscal plans for Puerto Rico, ~~Highways~~AAC, FGIC, and ~~Transportation Authority ("PRHTA"~~other holders of bonds issued by PRIFA. The Eighth Amended POA also incorporated the settlements reflected in the PRHTA/CCDA Related Plan Support Agreement (“PRHTA/CCDA PSA”) ~~or other Puerto Rico instrumentalities.~~

~~Commonwealth~~dated May 5, 2021, and the Amended and Restated Plan ~~of Adjustment~~

~~On February 23, 2021,~~Support Agreement with the Oversight Board, as representative of the Commonwealth of Puerto Rico, PBA, and the Employee Retirement System of the Government of the Commonwealth of Puerto Rico ~~publicly disclosed~~("Amended and Restated GO / PBA PSA") dated as of July 12, 2021.

The plan consideration made available to creditors under these plan support agreements on the ~~Second~~Eighth Amended Plan Support Agreement ("Second Amended PSA"). Assured Guaranty Corp. and Assured Guaranty Municipal Corp. ("Assured") and National Public Finance Guarantee Corporation ("National") conditionally agreed to the Second Amended PSA. On February 23, 2021, the Oversight Board announced that the Second Amended PSA had the support of 70% of all GO and PBA bonds claims, including the conditional support of Assured and National.

~~Assured and National originally had until March 31, 2021, to terminate their agreement to the Second Amended PSA, however, that~~POA effective date was ~~extended a number~~as follows:

PRIFA Plan Consideration

PRIFA creditors receive, on account of ~~times, including most recently to May 5, 2021, due to ongoing negotiations between the Oversight Board and the two monolines regarding the treatment~~approximately $1,929 of ~~certain revenue bond claims. The Government of the Commonwealth of Puerto Rico and Ambac Assurance are not currently parties to the second Amended PSA.~~

On March 8, 2021, the Oversight Board filed with the Title III court a Second Amended Title III Joint Plan of Adjustment of the Commonwealth ("Second Amended POA") that purports to restructure approximately $35 billion of debt (including GO and PBA bonds) and otherallowed claims ~~against the government of Puerto Rico and certain entities and $50 billion in pension obligations. The Second Amended POA includes the terms of the settlement relating to the GO~~arising from PRIFA bonds, ~~embodied in the Second Amended PSA, dated February 22, 2021.~~

On April 12, 2021, the Oversight Board announced that it had reached an agreement in principle with Assured and National regarding the PRHTA claims, the Convention Center District Authority ("CCDA") claims and the Commonwealth treatment of deficiency claims. In conjunction with this agreement in principle, the two monolines were granted further extensions to terminate their conditional support for the Second Amended PSA while the agreement in principle was further negotiated and documented.

In general, the Second Amended PSA provides for lower Commonwealth debt service payments per annum relative to the Plan Support Agreement signed in February 2020 (Amended PSA), extends the tenor of new recovery bonds, increases the amount of cash distributed to creditors, and provides additional consideration in the form of (i) $193.5 cash and (ii) a contingent value instrument ("CVI") premised on (a) a share of the outperformance of general fund rum tax collections relative to the certified 2021 Commonwealth Fiscal Plan's projections (the "Rum Tax CVI") and (b) an approximately 27% share, subject to a lifetime cap of about $1,302, of the Clawback Creditors' portion of the outperformance of the Commonwealth's sales and use tax ("SUT") relative to the certified 2020 Commonwealth Fiscal Plan's projections (the "Clawback CVI"). ~~This~~

CCDA Plan Consideration

CCDA creditors receive, on account of approximately $384 of allowed claims against the Commonwealth arising from CCDA bonds, consideration in the form of (i) $97 cash and (ii) an approximately 4% share, subject to a lifetime cap of about $217, of the Clawback CVI.

GO/PBA Plan Consideration

GO/PBA creditors receive, on account of approximately $18,409 of allowed claims arising from various GO and PBA bonds and other loans, consideration of (i) approximately $7,074 of cash, including plan support fees, (ii) approximately $6,683 of new GO current interest bonds, $1,170 face value of new GO capital appreciation bonds and (iv) GO Bond CVI, subject to a lifetime cap of about $3,500. The GO Bond CVI is intended to provide creditors with additional

returns tied to outperformance of the Puerto Rico Sales and Use Tax ("SUT") against certified 2020 Commonwealth Fiscal Plan projections. More specifically, fixed consideration as part of the Second Amended POA includes a combination of cash, new GO current interest bonds as well as new GO capital appreciation bonds. Recovery derived from fixed consideration is estimated to vary between approximately 67% and 77% (as of petition date) for GO creditors, and between approximately 75% and 80% (as of petition date) for PBA creditors.

Under the May 5, 2021, PRHTA/CCDA PSA, consideration for revenue bond creditors such as PRHTA, CCDA, or Puerto Rico Infrastructure Financing Authority ("PRIFA") Special Tax Revenue ("Rum Tax") bonds, on account of their deficiency claims ("Clawback claims") against the Commonwealth, consists of CVI tied to the outperformance of the SUT against the certified 2020 Commonwealth Fiscal ~~Plan~~Plan's projections. ~~For years one through 30, a portion~~

AAC-Insured Bond Effective Date Transactions

GO / PBA

On the Eight Amended POA effective date, AAC-insured GO and PBA bondholders who elected commutation of their insurance received: 1) their respective shares of GO/PBA plan consideration available under the Eighth Amended POA, and 2) cash from

Ambac. Ambac’s obligations to the bondholders under the Ambac insurance policies who elected this option were deemed to be fully satisfied. On the plan effective date, about 50% and 27% of the ~~CVI~~outstanding par of the Ambac-insured GO and PBA bonds, respectively, totaling about $28 of insured par was commuted. The AAC-insured GO and PBA bondholders who failed to elect commutation received payment, in cash, of the outstanding principal amount of the bondholders’ insured bonds plus the accrued and unpaid interest thereon as of the effective date (the “Ambac Acceleration Price.”). Pursuant to this option, bondholders received the Ambac Acceleration Price in full and final discharge of Ambac’s obligations under the Ambac insurance policies. As of the effective date, all the remaining outstanding AAC-insured GO and PBA bonds totaling about $94 of insured par were satisfied and eliminated via commutation or acceleration.

PRIFA / CCDA

On the Eight Amended POA effective date, AAC-insured PRIFA and CCDA bondholders who elected commutation of their insurance received: 1) their respective shares of PRIFA or CCDA plan consideration available under the Eighth Amended POA and the PRIFA QM, or CCDA QM, as applicable, and 2) cash from Ambac. Ambac’s obligations to the bondholders under the Ambac insurance policies who elected this option were deemed to be ~~made~~fully satisfied. The AAC-insured PRIFA and CCDA bondholders who failed to elect commutation had their bondholders’ respective shares of consideration available tounder the ~~revenue bond creditors reflects~~Commonwealth Plan and the PRIFA QM, or CCDA QM, as applicable, deposited into a ~~40% share~~trust. On the plan effective date, about 39% and 19% of ~~cumulative outperformance, starting July 1, 2021, subject to a combined 95% outperformance limit~~the outstanding par of the Ambac-insured PRIFA and CCDA bonds, respectively, totaling about $172 of insured par was commuted with the ~~subsequently mentioned amounts subject~~remainder totaling about $317 of insured par deposited into the trusts. Since the effective date, the remainder of those PRIFA and CCDA bonds belonging to ~~a waterfall. The other portion~~bondholders who elected not to commute their AAC Insurance Policies and were deposited into trusts together with such policies have all been accelerated, satisfying and eliminating all of the ~~CVI consideration receives, on an annual basis, the lesser of (i) 50% of cumulative outperformance, less payments previously made,~~Ambac-insured PRIFA and ~~(ii) 75% of annual outperformance, subject to a waterfall with the GO creditors receiving the first $100 of annual payments in years one through 22~~CCDA bonds.

Puerto Rico Highway and ~~the Clawback creditors receiving the next $11.1 and any amount thereafter split pro rata with 90% going to GO creditors and 10% going to Clawback creditors. For years 23 through 30,~~Transportation Authority (“PRHTA”)

AAC's remaining unrestructured PROMESA Puerto Rico exposure, PRHTA, is subject to the ~~limits~~PRHTA Plan of Adjustment ("PRHTA POA"), which was filed on May 2, 2022. A confirmation hearing for the PRHTA POA is expected to follow later in ~~(i)~~2022.

PRHTA/CCDA PSA

AAC signed a joinder to the PRHTA/CCDA PSA on July 15, 2021. The PRHTA/CCDA PSA, originally executed on May 5, 2021, provides for certain consideration for holders of bonds issued by certain Commonwealth instrumentalities, PRHTA, and ~~(ii) above, 100%~~CCDA on account of their claims against the Commonwealth arising from such bonds ("Clawback" claims). Under the PRHTA/CCDA PSA, PRHTA creditors will share $389 of cash proceeds, including a $264 interim distribution, payable once the PRHTA distribution condition has been met pursuant to the Eighth Amended POA. In addition, PRHTA creditors will receive an

| Ambac Financial Group, Inc. 502022 First Quarter FORM 10-Q |

approximately 69% share of the ~~outperformance goes to the~~ Clawback ~~creditors. Overall,~~ CVI, ~~recoveries are~~ subject to a lifetime nominal cap of ~~75%~~about $3,698, which is also payable once the PRHTA distribution condition has been met pursuant to the Eighth Amended POA. The PRHTA Clawback CVI is subject to a PRHTA-specific waterfall: holders of ~~deficiency amounts.~~PRHTA ’68 bonds will receive the first dollars of Clawback CVI, followed by holders of PRHTA ’98 bonds. The value of the Clawback CVI is highly uncertain, given the contingent, outperformance-driven ~~structure of the instrument coupled with the likely back-ended potential cash flows (years 23 through 30).~~structure. Changes in our assumed values of the Clawback CVI ~~will~~or in the actual performance of the Clawback CVI could cause aan adverse change in our ~~reserves.~~

~~In addition, under~~reserves which could be material. As a result, a significant decrease in our assumed values of the ~~PRHTA/CCDA PSA, the~~Clawback CVI could have a material adverse impact on our results of operations and financial condition. PRHTA ~~creditors would~~bondholders will also receive ~~'hard currency' in the form of~~ new PRHTA bonds ~~totaling $1,245~~or cash with ~~maturities~~a face amount of ~~up to 40 years and an average interest rate of 5.0%.~~$1,245. Of the $1,245 in new bonds or cash, approximately $646.4 ~~would~~will be allocated to holders of PRHTA '68 bonds and approximately $598.6 ~~would~~will be allocated to holders of PRHTA '98 bonds. The new PRHTA bonds or cash will be distributed to creditors upon consummation of the PRHTA POA. AAC and other PRHTA creditors ~~would also share $389 of cash proceeds, including a $264 interim distribution, payable at the effective date of the Commonwealth plan of adjustment, and $125 of~~will receive restriction fees and consummation costs payable at the effective date of the PRHTA ~~plan. Of~~POA.

Puerto Rico Considerations

The Eighth Amended POA and the ~~$264 interim cash distribution, $184.8 would be allocated~~qualifying modifications for PRIFA and CCDA became effective on March 15, 2022, and on that date and since, AAC-insured Puerto Rico exposures have been significantly reduced via commutation and acceleration. However, uncertainty remains as to ~~holders of PRHTA ’68 bonds and $79.2 would be allocated~~our remaining exposures as to ~~holders of PRHTA ’98 bonds. Claim recovery expectations for PRHTA creditors under~~(i) the ~~PRHTA/CCDA PSA are uncertain and subject to interpretation due to the current lack of clarity related to the aforementioned uncertainty related to the~~value or perceived value of the ~~Clawback CVI.~~

~~Under the May 5, 2021 PRHTA/CCDA PSA, CCDA creditors would also receive $112 of cash, inclusive of up to $15 related to restriction fees and consummation costs payable at the effective~~

~~| Ambac Financial Group, Inc.~~ 47~~2021 First Quarter FORM 10-Q~~ |

~~date~~consideration provided by or on behalf of the ~~Commonwealth plan of adjustment.~~debtors under the Eighth Amended POA, PRIFA ~~was not part~~QM, and CCDA QM; (ii) the extent to which exposure management strategies, such as commutation and acceleration, will be executed for PRHTA; (iii) the tax treatment of the ~~May 5, 2021 PRHTA/CCDA PSA and, consequently, there are no additional recoveries~~consideration provided ~~for in~~by or on behalf of the ~~agreement in principle or Second~~debtors under the Eighth Amended POA, ~~for~~ PRIFA ~~beyond~~QM, and CCDA QM; (iv) whether and when the ~~proposed treatment of deficiency claims.~~

~~While we expect the Second Amended POA to be modified to reflect the settlements agreed in the PRHTA/CCDA PSA, it is unclear if the Second Amended~~PRHTA POA will be ~~otherwise modified further. However, if~~confirmed; and (vii) other factors, including market conditions such as interest rate movements and credit spread changes on the ~~Second Amended POA were confirmed in its current form, Ambac's financial condition would suffer a material negative impact.~~new CVI instruments. Ambac’s loss reserves may prove to be understated or overstated, possibly materially, due to favorable or unfavorable developments or results with respect to these factors. Refer to ~~Note 6.~~Management's Discussion and Analysis of Financial ~~Guarantee Insurance Contracts~~Condition and Results of Operations - Balance Sheet to the Unaudited Consolidated Financial Statements included in Part I, Item 12 in this Form 10-Q for the possible increase in loss reserves under stress or other adverse ~~conditions, including the impact of the Second Amended POA.~~conditions. There can be no assurance that losses may not exceed such estimates.

Ambac Title III Litigation Update

AAC ~~is party~~continues to ~~a number of litigations related to its Puerto Rico exposures, and~~ actively ~~participates~~participate in ~~the Commonwealth’s~~PRHTA’s Title III ~~proceedings before the United States District Court for the District of Puerto Rico.~~

On January 16, 2020, AAC, together with other monoline insurers, filed motions which sought to lift the automatic stay and allow Ambac and others to enforce their rights related to PRHTA, CCDA and PRIFA in an alternative forum. Through orders issued on July 2 and September 9, 2020, Judge Swain largely denied the motions, while holding in abeyance further proceedings in the CCDA motion relating to a particular account over which it is undisputed the monolines have a lien. AAC and the other movants appealed the PRHTA and PRIFA decisions. On March 3, 2021, the First Circuit affirmed the District Court’s opinions denying the motions to lift the stay with respect to bonds issued by HTA and bonds issued by PRIFA on procedural grounds, leaving the question of whether the monolines have a lien with respect to such bonds to be resolved in the pending summary judgment proceedings before the District Court.

On January 16, 2020 the Oversight Board filed four adversary proceeding complaints against AAC, and other monoline insurers, seeking to disallow their proofs of claim against the Commonwealth as they relate to HTA, CCDA, and PRIFA bonds. On April 28, 2020, the Oversight Board filed partial motions for summary judgment. Briefing has concluded on those motions for summary judgment and oral argument was held on September 23, 2020. On January 20, 2021, the District Court granted defendants’ request for deferral of the adjudication of the summary judgment motion until defendants have the opportunity to conduct certain discovery. Discovery is ongoing.

AAC, along with other monoline insurers, filed a motion seeking appointment as trustees under Section 926 of the Bankruptcy Code to pursue certain avoidance actions on behalf of HTA against the Commonwealth of Puerto Rico. The motion attached a proposed complaint detailing the avoidance claims that movants would pursue. On August 11, 2020 the Court denied the motion and AAC and the other movants have appealed that denial. Movants' opening brief before the First Circuit was filed on

~~February 17, 2021; briefing is expected to conclude on May 24, 2021.~~

~~If AAC is unsuccessful in any of these proceedings, Ambac’s financial condition, including liquidity, loss reserves and capital resources may suffer a material negative impact.~~proceedings.

Refer to "Financial Guarantees in Force" in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Ambac’s Annual Report on Form 10-K for the year ended December 31, 2020 and Note ~~12.~~14. Commitments and Contingencies to the Consolidated Financial Statements included in Part I, Item 1 ofin this Form 10-Q for further information about Ambac's litigation relating to Puerto Rico.

~~Mediation~~

~~The status, timing and subject of any past or future mediation discussion has not yet been publicly disclosed. The timeline for resolution of Puerto Rico's debt restructuring process is uncertain.~~

The Oversight Board disclosed, in a status report filed with the Title III court in September 2020, that it has resumed formal discussions with creditors with the guidance of the mediation team led by Judge Houser. Prior to the talks with creditors, the Oversight Board held discussions with AAFAF concerning the terms of a Commonwealth Plan of Adjustment and what, if any, modifications or amendments needed to be proposed.

On February 10, 2021, the Oversight Board disclosed that mediation resulted in an agreement in principle with certain GO and PBA bondholders. The Second Amended PSA was publicly disclosed on February 23, 2021.

On April 12, 2021, the Oversight board disclosed that mediation resulted in an agreement in principle with Assured and National regarding the PRHTA claims, the CCDA claims and the Commonwealth treatment of deficiency claims. On May 5, 2021, the Oversight Board published the PRHTA/CCDA PSA finalizing this agreement in principle.

No assurances can be given that debt restructuring negotiations will be successfully concluded, that the Commonwealth, Oversight Board and creditor parties will reach definitive agreements on debt restructurings, that any additional negotiated transaction, debt restructuring, definitive agreement or Plan of Adjustment will be approved by the court and completed, or that any transaction or Plan of Adjustment will not have a materially adverse impact on Ambac's financial condition or results of operations.

~~Federal Aid~~

The full extent of federal government support to Puerto Rico is estimated to be $120 billion per the April 23, 2021, certified Commonwealth Fiscal Plan and stretch from FY 2018 to FY 2035. The federal government support includes FEMA, HUD and other disaster relief funds stemming from the 2017 hurricanes and 2019-2020 earthquakes and includes about $43 billion of support related to the COVID-19 pandemic, including funding form the recently enacted ARPA.

~~While the previously allocated federal disaster relief funds and the more recent COVID-19 crisis related funds are all expected to support economic recovery and growth and in Puerto Rico, there~~

~~| Ambac Financial Group, Inc.~~ 48~~2021 First Quarter FORM 10-Q~~ |

~~can be no assurances as to the certainty, timing, usage, efficacy or magnitude of benefits to creditor outcomes related to disaster aid and ensuing economic growth, if any.~~

Summary

Ambac has considered these developments and other factors in evaluating its Puerto Rico loss reserves. During the three months ended March 31, 2021, Ambac had incurred losses associated with its Domestic Public Finance insured portfolio of $9, which was impacted by the continued uncertainty and volatility of the situation in Puerto Rico, including the potential impact of the Second Amended PSA and the PRHTA/CCDA PSA. While management believes its reserves are adequate to cover losses in its Public Finance insured portfolio, there can be no assurance that Ambac may not incur additional losses in the future, particularly given the developing economic, political, and legal circumstances in Puerto Rico and the overall uncertain impact of the COVID-19 crisis on the Commonwealth and the Domestic Public Finance Insured Portfolio in general.future. Such additional losses may have a material adverse effect on Ambac’s results of operations and financial condition. Due to uncertainty regarding numerous factors, described above, that will ultimately determine the extent of Ambac's losses, it is also possible that favorable developments and results with respect to such factors may cause losses to be lower than current reserves, possibly materially.

Exposure Currency

The table below shows the distribution by currency of AAC’s insured exposure as of March 31, ~~2021:~~2022:


Currency	Currency	Net Par Amount Outstanding in Base Currency		Net Par Amount Outstanding in U.S. Dollars		Currency	Net Par Amount Outstanding in Base Currency		Net Par Amount Outstanding in U.S. Dollars
U.S. Dollars	U.S. Dollars	$	20,259	$	20,259	U.S. Dollars	$	16,878	$	16,878
British Pounds	British Pounds	£	6,584	9,072		British Pounds	£	6,642	8,725
Euros	Euros	€	1,451	1,702		Euros	€	1,112	1,231
Australian Dollars	Australian Dollars	A$	545	414		Australian Dollars	A$	380	284

Total	Total			$	31,447	Total			$	27,118

| Ambac Financial Group, Inc. 512022 First Quarter FORM 10-Q |

Ratings Distribution

The following charts provide a rating distribution of net par outstanding based upon internal Ambac credit ratings(1) and a distribution by bond type of Ambac's below investment grade ("BIG") net par exposures at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. BIG is defined as those exposures with an Ambac internal credit rating below BBB-:

Note: AAA is less than 1% in both periods.

(1)Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac. In cases where Ambac has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used. Ambac credit ratings are subject to revision at any time and do not constitute investment advice.

~~| Ambac Financial Group, Inc.~~ 49~~2021 First Quarter FORM 10-Q~~ |Summary of Below Investment Grade Exposure:

Net Par Outstanding
Summary of Below Investment
Grade Exposure March 31,
2021 December 31,
2020
Public Finance:
Lease and tax-backed (1)
$ 1,181 $ 1,194
General obligation (1)
322 325
Housing (2)
493 308
Stadium — 540
Transportation 29 30
Other 38 38
Total Public Finance 2,063 2,435
Structured Finance:
RMBS 2,657 2,800
Student loans 484 512
Total Structured Finance 3,141 3,312
International Finance:
Other 1,507 1,574
Total International Finance 1,507 1,574
Total $ 6,711 $ 7,321

~~(1)~~Lease and tax-backed revenue includes $965 and $969 of Puerto Rico net par at March 31, 2021 and December 31, 2020, respectively. General obligation includes $101 and $101 of Puerto Rico net par at March 31, 2021 and December 31, 2020, respectively. Components of Puerto Rico net par outstanding includes capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds.

~~(2)Relates to military housing net par.~~


	Net Par Outstanding
Bond Type	March 31, 2022		December 31, 2021
Public Finance:
Puerto Rico	$	784	$	1,054
Military Housing	369		370




Other	308		317
Total Public Finance	1,461		1,741
Structured Finance:
RMBS	2,080		2,170

Student loans	293		302

Total Structured Finance	2,373		2,472
International Finance:
Sovereign/sub-sovereign	752		774
Transportation	375		389
Other	59		62
Total International Finance	1,186		1,225
Total	$	5,020	$	5,438

The net decline in below investment grade exposures is primarily due to de-risking activities, including the ~~de-risking of an adversely classified stadium transaction.~~Puerto Rico restructuring.

Below investment grade exposures could increase as a relative proportion of the guarantee portfolio given that stressed borrowers generally have less ability to prepay or refinance their debt. Accordingly, due to these and other factors, it is not unreasonable to expect the proportion of below investment grade exposure in the guarantee portfolio to ~~continue to~~ increase in the future.

| Ambac Financial Group, Inc. 522022 First Quarter FORM 10-Q |

Results of Operations
($ ($ in millions)

Consolidated Results

A summary of our financial results is shown below:


Three Months Ended March 31,	Three Months Ended March 31,	2021		2020		Three Months Ended March 31,	2022		2021
Gross premiums written						Gross premiums written	$	30	$	(2)
Revenues:	Revenues:					Revenues:
Net premiums earned	Net premiums earned	$	14	$	10	Net premiums earned	$	15	$	14
Net investment income	Net investment income	49		(21)		Net investment income	5		49

Net realized investment gains (losses)		2		8
Net investment gains (losses), including impairments						Net investment gains (losses), including impairments	10		2

Net gains (losses) on derivative contracts	Net gains (losses) on derivative contracts	25		(70)		Net gains (losses) on derivative contracts	57		25
Net realized gains (losses) on extinguishment of debt	Net realized gains (losses) on extinguishment of debt	33		—		Net realized gains (losses) on extinguishment of debt	—		33
Commission income						Commission income	9		7
Other income (expense)	Other income (expense)	5		—		Other income (expense)	2		(2)
Income (loss) on variable interest entities	Income (loss) on variable interest entities	—		3		Income (loss) on variable interest entities	22		—
Expenses:	Expenses:					Expenses:
Losses and loss expenses (benefit)	Losses and loss expenses (benefit)	8		117		Losses and loss expenses (benefit)	24		8
Insurance intangible amortization		19		13
Intangible amortization						Intangible amortization	14		19
Operating expenses	Operating expenses	33		24		Operating expenses	34		33
Interest expense	Interest expense	50		63		Interest expense	44		50

Provision for income taxes		2		(7)
Provision (benefit) for income taxes						Provision (benefit) for income taxes	—		2

Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders	$	17	$	(280)	Net income (loss) attributable to common stockholders	$	2	$	17

Ambac's results of operations and financial position have been adversely impacted by the COVID-19 pandemic's effect on the global economy and financial markets. Significant interest rate declines during the first quarter of 2020 contributed materially to a net increase in loss reserves and losses on interest rate derivative contracts. Credit driven losses were also recognized infor the three months ended March 31, ~~2020, within losses incurred (primarily from public finance insurance policies) and losses from counterparty credit adjustments on derivative asset valuations. Financial market disruptions~~2022 were ~~reflected through lower valuations~~significantly impacted by the following:

•AAC has successfully implemented the restructuring of ~~certain fixed maturity securities (recorded through other comprehensive income) and~~a significant portion of its remaining Puerto Rico exposures, following the majority of other investments (recorded through net investment income). During the remaining quarters of 2020 and into 2021, credit spreads recovered (favorably impacting counterparty credit adjustments on derivative assets and valuations of investment securities). The scope, duration and magnitudeoccurrence of the ~~direct~~effective dates for the Plan of Adjustment related to AAC-insured Puerto Rico General Obligation bonds (“GO”) and ~~indirect effects of COVID-19 are evolving in ways that are difficult or impossible to anticipate.~~Public Buildings Authority (“PBA”) bonds, and Qualifying Modifications for AAC-insured Puerto Rico Infrastructure Authority (“PRIFA”) and Convention Center District Authority (“CCDA”) bonds, all effective March 15, 2022. As a result itof these successful restructurings, Ambac recorded a gain in the amount of $198 as part of its first quarter 2022 consolidated financial results. This gain includes (i) a net benefit in losses; (ii) gain on the consolidation of newly established variable interest entities; partially offset by losses from sales and changes to the fair value of securities received in the restructuring and amortization of the insurance intangible asset.

•Management recorded a reduction to AAC’s estimated R&W subrogation recoveries in the amount of $224, $186 of which was based on AAC's evaluation of the effect on certain of AAC's R&W litigations of the New York Court of Appeals’ decision in the case entitled U.S. Bank National Association v. DLJ Mortgage Capital, Inc. relating to Home Equity Asset Trust 2007-1 ("HEAT"), a residential mortgage-backed securities trust, and the remainder of which reflects the impact of changes in discount rates and underlying insured RMBS transaction performance. The decision in HEAT is ~~possible that Ambac's results~~relevant to AAC's breach-of-contract cases relating to its insured RMBS transactions and may affect one of ~~operations and financial condition~~the bases upon which AAC seeks recovery with

respect to a significant portion of breaching loans in AAC's RMBS cases. However, management believes there remain other alternative paths to recovery for such breaching loans. AAC’s ultimate recoveries in its RMBS litigations may be ~~further adversely affected by~~materially higher or lower than its estimated subrogation recoveries based on a number of factors, including those described in Ambac’s Form 10-K for the ~~evolving affects of the COVID-19 pandemic. For additional information on the risks posed by COVID-19, refer to “Part II, Item 1A-Risk Factors”~~fiscal year ended December 31, 2021 and elsewhere in this Quarterly ~~Report on Form 10-Q.~~Report.

The following paragraphs describe the consolidated results of operations of Ambac and its subsidiaries for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

~~Net~~Gross Premiums ~~Earned~~. Net premiums earned primarily represent the amortization into income of insurance premiums. We present accelerated premiums, which result from calls and other accelerations of insured obligations separate from normal net premiums earned. When an insured bond has been retired, any remaining unearned premium revenue ("UPR") is recognized at that time to the extent the financial guarantee contract is legally extinguished, causing accelerated premium revenue. For installment premium paying transactions, we offset the

~~| Ambac Financial Group, Inc.~~ 50Written. ~~2021 First Quarter FORM 10-Q~~ |

recognition of any remaining UPR by the reduction of the related premium receivable to zero (as it will not be collected as a result of the retirement), which may cause negative accelerated premium revenue.

~~Net~~Gross premiums ~~earned~~written increased $4$32 for the three months ended March 31, ~~2021,~~2022, compared to the same ~~periods~~period in the prior year. ~~Normal net~~The increase was driven by the growth in the Specialty Property & Casualty Insurance segment of $24.

Net Premiums Earned.Net premiums earned ~~and accelerated premiums are reconciled to total net premiums earned in the table below. The following table provides a breakdown of normal premiums earned by market:~~

Three Months Ended March 31, 2021 2020
Normal premiums earned
Public finance $ 5 $ 5
Structured finance 3 1
International finance 7 4
Total normal premiums earned 15 10
Accelerated earnings — —
Total net premiums earned $ 14 $ 10

~~The increase in normal premiums earned~~increased $1 for the three months ended March 31, ~~2021, is primarily due~~2022, compared to ~~changes~~the same period in ~~allowances for credit losses on premium receivables,~~the prior year.

The increase was driven by $1 of specialty property and casualty net premiums earned, partially offset by ~~the continued runoff of the insured portfolio~~a slight reduction in all markets. Ambac adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments ("CECL"), on January 1, 2020, and assesses the allowance for credit losses on premium receivables on a quarterly basis. The three months ended March 31, 2021, ~~includes a decrease in the allowance for credit losses of $4 as compared to an increase of $2 for the three months ended March 31, 2020. Terminations and accelerations, including those which occurred in prior periods, result in lower normal~~legacy financial guarantee premiums ~~earned in current and future periods. Public Finance normal earned premiums for the three months ended March 31, 2021, were also impacted by reinsurance cessions in the first quarter of 2021.~~earned.

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 8.4. 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:

Three Months Ended March 31, 2021 2020
Securities available-for-sale: Ambac-insured (including Secured Notes) $ 15 $ 16
Securities available-for-sale and short-term other than Ambac-insured 7 15
Other investments (includes trading securities) 27 (52)
Net investment income $ 49 $ (21)

| Ambac Financial Group, Inc. 532022 First Quarter FORM 10-Q |


	Three Months Ended March 31,
	2022		2021
Securities available-for-sale: Ambac-insured (including LSNI Secured Notes)	$	7	$	15
Securities available-for-sale and short-term other than Ambac-insured	7		7
Other investments (includes trading securities)	(9)		27
Net investment income	$	5	$	49

Net investment income ~~increased $70~~decreased $(44) for the three months ended March 31, ~~2021, respectively,~~2022, compared to the same periods in the prior year. As described further below, the variances were primarily driven by pricing volatility within fund investments resulting from the impact of the COVID-19 pandemic on financial markets and re-allocation of the investment portfolio during 2020 toward pooled funds and Ambac-insured bonds from investment grade corporate bonds, commercial mortgage backed securities and certain CLOs.three months ended March 31, 2021.

•Other investments income (loss) ~~increased $79~~decreased $36 for the three months ended March 31, ~~2021,~~2022, compared to the same period in the prior year. The three months ended March 31, 2022, included a loss of $9 on securities received in the Puerto Rico restructuring which are classified as trading. Pooled fund investment returns were lower for most asset classes, particularly equity and hedge funds. Hedge funds had modest positive performance in the three months ended March 31, 2022, while equities experienced losses as global markets declined. Both of these fund categories reported very strong positive performance in the first quarter of 2021. Performance of other fund categories were mixed relative to the prior year ~~reflecting strong performance~~period.

•Net investment income from Ambac-insured securities for the three months ended March 31, 2021, particularly in hedge funds and equity funds. Losses on Other investments for the three months ended March 31, 2020, were in hedge and other fund investments focusing on asset-backed securities, equities, high-yield, leveraged loans and private credit. These losses were primarily driven by adverse changes in fair values, rather than realized losses, stemming from an increase in risk premiums (particularly credit spreads) as a consequence of the initial economic and financial market impact of the COVID-19 pandemic.

•~~Income from Ambac-insured securities was lower for the three months ended March 31, 2021, as~~2022 decreased $8 compared to the ~~three months ended March 31, 2020,~~prior year period, due primarily to ~~the effects ongoing redemptions of~~lower income on LSNI Secured Notes ~~issued by Ambac LSNI, LLC and lower LIBOR indexed coupon rates, partially offset by a higher allocation to Ambac-insured~~which were redeemed in July 2021. Additionally, continued runoff of insured RMBS and the March 15, 2022, Puerto Rico ~~bonds.~~

•~~Net~~restructuring both contributed to declines in investment income from ~~available-for-sales securities other than~~ Ambac-insured securities decreased as a result of a lower asset base and average yield for this portion of the portfolio. The lower asset base resulted primarily from re-allocation of the portfolio in 2020 toward pooled funds and Ambac-insured bonds from investment grade corporate and certain asset-backed securities. Additionally, cash has been used to fund operations, early debt redemptions, and Ambac's acquisition of Xchange. Lower yields in the three months ended March 31, 2021, compared to the three months ended March 31, 2020, reflect the higher rated securities purchased during the 2020 portfolio re-allocation, lower relative yields on new investments and near-zero short term rates prevailing during the first quarter of 2021.

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

~~| Ambac Financial Group, Inc.~~ 51~~2021 First Quarter FORM 10-Q~~ |


Three Months Ended March 31,		2021		2020

Three months ended March 31						Three months ended March 31	2022		2021
Net gains (losses) on securities sold or called	Net gains (losses) on securities sold or called	$	6	$	6	Net gains (losses) on securities sold or called	$	8	$	6
Net foreign exchange gains (losses)	Net foreign exchange gains (losses)	(4)		2		Net foreign exchange gains (losses)	3		(4)
Credit impairments	Credit impairments	—		—		Credit impairments	(1)		—
Intent / requirement to sell impairments	Intent / requirement to sell impairments	—		—		Intent / requirement to sell impairments	—		—
Total net realized gains (losses)	Total net realized gains (losses)	$	2	$	8	Total net realized gains (losses)	$	10	$	2

Net ~~realized~~ gains onfor the three months ended March 31, 2022, included a recovery of $9 from a class-action settlement relating to certain RMBS securities ~~sold or called~~previously held in the investment portfolio. Net gains for the three months ended March 31, 2021, included a gain of $4 realized on the sale AFG's equity interest in the Corolla Trust in connection with the Corolla Exchange Transaction. Other net realized gains on securities sold or called during both periods were primarily from sales in connection with routine portfolio management.

~~Impairments are reported through earnings if management intends to sell securities or it is more likely than not that the Company will be required to sell before recovery of amortized cost.~~ Credit impairments are recorded as an allowance for credit losses with changes in ~~earnings only to~~ the ~~extent management does not intend to sell, and it is not more likely than not that the Company will be required to sell the securities, before recovery of their amortized cost.~~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 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 include results from the Company's interest rate derivatives portfolio and its runoff credit derivatives portfolio. The interest rate derivatives portfolio is positioned to benefit from rising rates as a partial economic hedge against interest rate exposure in the financial guarantee insurance and investment portfolios. 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 credit derivatives were not significant to the periods presented.

Net gains (losses) on interest rate derivatives for the three months ended March 31, ~~2021,~~2022, were ~~$25~~$57 compared to ~~($68)~~$25 for the three months ended March 31, ~~2020.~~2021. The net ~~gain~~gains for ~~the three months ended March 31, 2021, reflects~~both periods reflect changes in fair value from ~~rising~~increases in forward interest rates and lower counterparty credit adjustments on certain derivative ~~assets.~~assets, partially offset by portfolio carrying costs. The higher net ~~loss~~gain for the three months ended March 31, ~~2020, reflects~~2022, resulted from the significant ~~declines~~rate increases in ~~forward interest rates, triggered~~the period combined with favorable portfolio positioning, partially offset by the ~~COVID-19 pandemic, and losses from the application~~impact of ~~counterparty~~wider credit ~~adjustments,~~spreads described further below.

Counterparty credit adjustments are generally applicable for uncollateralized derivative assets that may not be offset by derivative liabilities under a master netting agreement. 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 $9 for the three months ended March 31, 2022 and 2021, ~~and $(30) for the three months ended March 31, 2020.~~respectively. In addition to the impact of interest rates on the underlying derivative asset values, the changes in counterparty credit adjustments ~~were~~are driven by ~~narrowing~~movement of credit spreads. Credit spreads widened in the three months ended March 31, ~~2021,~~2022 and narrowed in the three months ended March 31, 2021.

Commissions Income. Commission income for the three months ended March 31, 2022 was $9 compared to ~~spread widening experienced~~$7, for the three months ended March 31, 2021. Commissions include both base and profit sharing commissions of the Insurance Distribution segment. The increase is primarily driven by greater premiums placed for the three months ended March 31, 2022. Gross commission income has an accompanying expense, sub-producer commissions (included in Operating Expenses in the ~~first quarter~~Consolidated Statements of ~~2020 associated with the market disruption from the COVID-19 pandemic.~~

~~Other income (expense)~~. ~~Other income (expense) includes commission revenues of Xchange, various financial guarantee fees and foreign exchange gains/(losses) unrelated to investments or loss reserves.~~Total Comprehensive Income (Loss), which will largely track changes in gross commission. For the three months ended March 31, ~~2021, other income includes Xchange revenues~~2022 Sub-producer commissions of ~~$7.~~$5 million were up from $4 million in three months ended March 31, 2021.

| Ambac Financial Group, Inc. 542022 First Quarter FORM 10-Q |

Net Realized Gains on Extinguishment of ~~Debt~~.Debt. Net realized gains on extinguishment of debt was $33 for the three months ended March 31, 2021, resulting from the first quarter 2021 exchanges of junior surplus notes below their carrying values. Refer to Note 1. Background and Business Description in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion of the 2021 Surplus Notes Exchanges.

Income (Loss) on Variable Interest ~~Entities~~.Entities. 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. Generally, the Company’s consolidated FG VIEs are entities for which Ambac has provided financial guarantees on all of or a portion of its assets or liabilities. In consolidation, assets and liabilities of the FG VIEs are initially reported at fair value and the related insurance assets and liabilities are eliminated. However, the amount of FG VIE net assets (liabilities) that remain in consolidation generally result from the net positive (negative) projected cash flows from (to) the FG VIEs which are attributable to Ambac’s insurance subsidiaries in the form of financial guarantee insurance premiums, fees and losses. In the case of FG VIEs with net negative projected cash flows, the net liability is generally to be funded by Ambac’s insurance subsidiaries through insurance claim payments. 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. 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.

Income ~~(loss)~~ on variable interest entities was ~~income of less than a million and income of $3~~$22 for the three months ended March 31, ~~2021 and 2020, respectively.~~2022, compared to income of less than a million for the three months ended March 31, 2021. Results for the three months ended March 31, 2022, were driven by net income of $22 related to two new trusts created in connection with the Puerto Rico restructurings in March 2022, including an initial gain upon consolidation of $28 partially offset by subsequent declines in the fair value of the trusts' assets through March 31, 2022. Income on variable interest entities for the three months ended March 31, 2022 and 2021 both included realized gains of $1 on sales of assets from one FG VIE (the COFINA Trust) ~~partially~~ offset by declines in the ~~lower~~ valuation of net assets ~~on a VIE impacted by credit downgrades. Results for the three months ended March 31, 2020, were due primarily to realized gains~~ of ~~$8 on sales of assets from the COFINA Trust partially offset by the lower valuation of net assets on a VIE impacted by COVID-19.~~other VIEs.

Refer to Note 3.9. 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 FG VIEs.

Losses and Loss Expenses. ~~Losses~~Loss and loss expenses ~~are based upon estimates~~increased $16 for the three months ended March 31, 2022, compared to the same period in the prior year. The increase was driven by a

reduction to AAC’s estimated R&W subrogation recoveries in the amount of $224, partially offset by favorable loss development in domestic public finance, primarily due to the Puerto Rico restructuring.

Intangible Amortization.Insurance intangible amortization for the three months ended March 31, 2022 and 2021, was $14 and 19, a decrease of $5 over the three months ended March 31, 2021. The decrease was driven by run-off of the ~~aggregate losses inherent~~insured portfolio and de-risking activity. Other intangible amortization for the three months ended March 31, 2022 and 2021, was $1 and $1, respectively.

Operating Expenses.Operating expenses consist of gross operating expenses plus reinsurance commissions. The following table provides a summary of operating expenses for the periods presented:



Three Months Ended March 31,	2022		2021
Compensation	$	16	$	16
Non-compensation	18		17
Gross operating expenses	34		33
Reinsurance commissions, net	(1)		—

Total operating expenses	$	34	$	33

Gross operating expenses increased $1 for the three months ended March 31, 2022, respectively, compared to the same periods in the ~~non-derivative financial guarantee portfolio~~prior year.

The increase in operating expenses during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was due to the following:

•Higher compensation costs due to a net increase in staffing resulting from additions in the Specialty Property & Casualty Insurance segment offset by lower incentive compensation expense including the timing of performance factor adjustments.

•Higher non-compensation costs primarily related to sub-producers commissions as part of the Insurance Distribution segment and Legacy Financial Guarantee Insurance legal costs, partially offset by lower transaction driven consulting fees.

Interest Expense.All interest expense relates to the Legacy Financial Guarantee Insurance segment and includes accrued interest on the LSNI Ambac Note, Sitka AAC Note, Tier 2 Notes, 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 ~~insurance policies issued to beneficiaries, including unconsolidated VIEs.~~the periods presented:



Three Months Ended March 31,	2022		2021
Surplus notes (1)	$	20	$	18

LSNI Ambac Note	—		25
Sitka AAC note	17		—
Tier 2 Notes	7		7
Other	—		—

Total interest expense	$	44	$	50

(1)Includes junior surplus notes that were acquired and retired in the first quarter of 2021.

| Ambac Financial Group, Inc. 5255 ~~2021~~2022 First Quarter FORM 10-Q |

~~Ambac records as a component of its loss reserve estimate subrogation recoveries related to securitized loans~~The decrease in ~~RMBS transactions with respect to which AAC is pursuing claims~~interest expense for breaches of representations and warranties. Ambac does not include potential recoveries attributed solely to fraudulent inducement claims in our litigations in our estimate of subrogation recoveries. Generally, the ~~sponsor of an RMBS transaction provided representations and warranties with respect~~three months ended March 31, 2022, compared to the securitized loans, including representations with respect to the loan characteristics, the absence of borrower fraud in the underlying loan pools or other misconduct in the origination process and attesting to the compliance of loans with the prevailing underwriting policies. Ambac has recorded representation and warranty subrogation recoveries, net of reinsurance, of $1,722 and $1,725 atthree months ended March 31, 2021, was mainly driven by the impact of the Secured Note Refinancing as further described in Note 1. Background and ~~December 31, 2020, respectively. Refer to Note 2. Basis of Presentation and Significant Accounting Policies~~Business Description, in the Notes to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020, for more information regarding the estimation process for R&W subrogation recoveries.~~

~~The following provides details, by bond type, for losses and loss expenses (benefit) incurred for the periods presented:~~

Three Months Ended March 31, 2021 2020
RMBS $ (8) $ (83)
Domestic Public Finance 9 178
Student Loans — 14
Ambac UK and Other Credits 6 7
Totals (1)
$ 8 $ 117

~~(1) Includes loss expenses incurred of $10 and $3 for the three months ended March 31,~~ 2021, ~~and 2020, respectively.~~

~~Losses and loss expenses (benefit) for the three months ended March 31, 2021, were driven by higher projected losses in domestic public finance from adverse development related to Puerto Rico,~~ partially offset by the positive impact of higher discount rates. The underlying assumptions impacting our reserves for Puerto Rico during the three months ended March 31, 2021, were within the range of assumptions underlying our probability weighted reserves as of December 31, 2020.

~~Losses and loss expenses (benefit) for the three months ended March 31, 2020, were driven by the following:~~

•Higher projected losses in domestic public finance driven by lower discount rates (primarily relating to Puerto Rico), and incurred losses related to transactions directly impacted by the economic impact from COVID-19;

•~~An increase in student loan losses as a result of lower discount rates and the impact from COVID-19; partially offset by,~~

•Favorable RMBS development as a result of the positive impact of lower interest rates on excess spread, reduced by the negative impact of lower discount rates and expected losses from COVID-19 related delinquencies.

~~Intangible Amortization~~

Insurance intangible amortization for the three months ended March 31, 2021, was $19 an increase of $5 over the three months ended March 31, 2020. The increase was driven primarily by de-risking activity. Other intangible amortization for the three months ended March 31, 2021, was $1.

~~Operating Expenses.~~ ~~Operating expenses consist of gross operating expenses plus reinsurance commissions. The following table provides a summary of operating expenses for the periods presented:~~

Three Months Ended March 31, 2021 2020
Compensation $ 16 $ 14
Non-compensation 17 9
Gross operating expenses 33 24
Reinsurance commissions, net — —
Total operating expenses $ 33 $ 24

Gross operating expenses increased $9 for the three months ended March 31, 2021 compared to the same period in the prior year. The increase in operating expenses during the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, was due to the following:

•Higher compensation costs due to the inclusion of Xchange compensation costs for the first time since its acquisition, accelerated expense recognition for retirement eligible stock-based compensation awards and lower capitalization for internal software projects, partially offset by lower bonus expense recognized in the three months ended March 31, 2021.

•Higher non-compensation costs primarily due to the inclusion of Xchange's commissions to sub-producers of $4, consulting and legal fees associated with the surplus note exchange transactions and a $1 UK Value Added Tax (VAT) refund which lowered expenses for the three months ended March 31, 2020.

~~Interest Expense.~~ Interest expense includes accrued interest on the Ambac Note, Tier 2 notes, 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:~~

Three Months Ended March 31, 2021 2020
Surplus notes (1)
$ 18 $ 26
Ambac note 25 31
Tier 2 notes 7 7
Other — —
Total interest expense $ 50 $ 63

~~(1)Includes junior surplus notes~~

~~The decrease in interest expense for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, was primarily driven by lower~~ discount accretion on surplus notes ~~together with optional redemptions and lower rate~~

~~| Ambac Financial Group, Inc.~~ 53~~2021 First Quarter FORM 10-Q~~ |

~~resets of the floating rate Ambac Note, partially offset by interest compounding on the surplus notes and the Tier 2 Notes. The first quarter 2021 transactions resulting~~reissued in the acquisition and retirement of all junior surplus notes in exchange for re-issuance of surplus notes did not significantly impact the interest expense for the three months ended March 31, 2021, compared to the prior year period.2021.

Surplus note principal and interest payments require the approval of OCI. ~~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.~~

In May ~~2021,~~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, ~~2021.~~2022. As a result, the scheduled payment date for interest, and the scheduled maturity date for payment of principal of the surplus notes, shall be extended until OCI grants approval to make the 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 will 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. The interest on the outstanding surplus notes ~~and junior surplus notes~~ were 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 to third parties were ~~$516~~$593 at March 31, ~~2021.~~2022. 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~~.Taxes. The provision for income taxes for the three months ended March 31, 2022 and 2021, was $0, and $2 ~~an increase~~a decrease of $9$1 compared to the provision for income taxes reported for three months ended March 31, ~~2020.~~ 2021.

Results of Operations by Segment

Legacy Financial Guarantee Insurance


Three Months Ended March 31,	2022		2021
Revenues:
Net premiums earned	$	13	$	14
Net investment income	5		49
Net investment gains (losses), including impairments	10		(2)
Net gains on derivative contracts	57		25
Net realized gains on extinguishment of debt	—		33
Other	24		(2)
Total	109		118
Expenses:
Loss and loss expenses (benefit)	23		8
Operating expenses	21		17

Total	44		25
Earnings before interest, taxes, depreciation and amortization	65		93
Interest expense	44		50
Depreciation	—		—
Intangible amortization	14		19
Pretax income (loss)	$	6	$	24

Stockholders equity	$	567	$	727

The ~~change~~Legacy Financial Guarantee Insurance segment is in active runoff. This will generally result in lower premium earnings, investment income, operating expenses and intangible amortization. The variability in the financial results are primarily driven by changes in loss and loss expenses and de-risking transactions. Additionally, the segment results are impacted by changes in interest rates (net gains on derivative contracts and interest expense as the AAC Sitka Note is a floating rate obligation). Key variances not discussed above in the Consolidated Results section are as follows:

Net premiums earned.Net premiums earned decreased $1 for the three months ended March 31, 2022, compared to the same period in the prior year. Net premiums earned were impacted by the runoff of the financial guarantee insured portfolio, including through transaction terminations, calls and scheduled maturities, which reduce current and future net premiums earned and were also impacted by 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 and $4 for the for the three months ended March 31, 2022 and 2021.

•Accelerated financial guarantee premium earnings as a result of calls and other accelerations on insured obligations largely due to de-risking activity of $4 and $0 for the for the three months ended March 31, 2022 and 2021.

| Ambac Financial Group, Inc. 562022 First Quarter FORM 10-Q |

Losses and Loss Expenses.Losses and loss expenses are based upon estimates of the aggregate losses inherent in the non-derivative portfolio for insurance policies issued to beneficiaries, excluding consolidated VIEs.

Ambac records as a component of its loss reserve estimate subrogation recoveries related to securitized loans in RMBS transactions with respect to which AAC is pursuing claims for breaches of representations and warranties. Ambac does not include potential recoveries attributed solely to fraudulent inducement claims in our litigations in our estimate of subrogation recoveries. Nor does Ambac include potential recoveries attributable to pre-judgment interest in the estimate of subrogation recoveries. Generally, the sponsor of an RMBS transaction provided representations and warranties with respect to the securitized loans, including representations with respect to the loan characteristics, the absence of borrower fraud in the underlying loan pools or other misconduct in the origination process and attesting to the compliance of loans with the prevailing underwriting policies. Ambac has recorded representation and warranty subrogation recoveries, net of reinsurance, of $1,480 and $1,704 at March 31, 2022, and December 31, 2021, respectively. Refer to Note 2. Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for more information regarding the estimation process for R&W subrogation recoveries.

The following provides details for losses and loss expenses (benefit) incurred for the periods presented:



Three Months Ended March 31,	2022		2021

Structured Finance	$	213	$	(8)
Domestic Public Finance	(190)		9
Other	1		6
Totals (1)	$	23	$	8

(1) Includes loss expenses incurred of $1 and $10 for the three months ended March 31, 2022 and 2021, respectively.

Losses and loss expenses (benefit) for the three months ended March 31, 2022, were driven by a reduction to AAC’s estimated R&W subrogation recoveries in the amount of $224, partially offset by favorable loss development in domestic public finance, primarily due to the Puerto Rico restructuring.

Losses and loss expenses (benefit) for the three months ended March 31, 2021, were driven by higher projected losses in domestic public finance from adverse development related to Puerto Rico, partially offset by the positive impact of higher discount rates.

Operating Expenses.The increase in operating expenses of $4 during the three months ended March 31, 2022, as compared to the three months ended March 31, ~~2020, was~~2021, is primarily ~~driven by state income tax~~due additional legal fees related to defensive litigation costs. In addition, incentive compensation expense increased due to performance factors, partially offset by lower other compensation costs resulting from a net reduction in headcount within the ~~gains~~segment.

Specialty Property and Casualty Insurance


Three Months Ended March 31,	2022			2021
Gross premiums written	$	24		$	—
Net premiums written	5			—
Revenues:
Premiums earned	$	1		$	—
Investment income	—			—
Net investment gains (losses), including impairments	—			—
Other income (program fees)	—			—
Total	2			—
Expenses:
Losses and loss expenses incurred	1			—
Operating expenses	3			1
Other expense	—			—
Total	4			1
Earnings before interest, taxes, depreciation and amortization	(2)			$	(1)
Pretax income (loss)	$	(2)		$	(1)
Loss and LAE Ratio	65.3		%	NM
Combined Ratio	331.9		%	NM

Stockholders Equity	$	115		$	106

The Specialty Property and Casualty Insurance segment has grown significantly since underwriting its first program in May 2021. Ten programs have been signed as of March 31, 2022. 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.

Loss and loss expenses incurred may be adversely impacted by increasing economic and social inflation, particularly within the commercial auto business. 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 market. In addition to the impact of inflation on reserves, on a going forward basis, 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 claimants and policyholders, including an increase in 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 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.

Segment pre-tax net income was impacted by the growth in operating expenses, including costs associated with the acquisition additional shell insurance companies, as we continue to ramp up Everspan's operations.

| Ambac Financial Group, Inc. 572022 First Quarter FORM 10-Q |

Insurance Distribution


Three Months Ended March 31,	2022		2021
Premiums placed	$	45	$	40

Commission income	$	9	$	7
Sub-producer commission expense (1)	5		4
Net commissions	4		3
Expenses:
Other Operating expenses (1)	1		1
Net (gain) attributable to noncontrolling interest	—		—
Earnings before interest, taxes, depreciation and amortization	2		2
Depreciation	—		—
Intangible amortization	1		1
Pretax income (loss)	2		$	2

Stockholders Equity, net of NCI	$	66	$	69

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

Ambac's Insurance Distribution segment currently includes Xchange Benefits, a P&C MGA specializing in accident and health products, 80% of which was acquired by AFG on December 31, 2020. Xchange is compensated for its services primarily by commissions paid by insurance carriers for underwriting, structuring and/or administering polices and, in the case of ESL, managing claims under an agency agreement. Commission revenues are usually based on a percentage of the premiums placed. Xchange is also eligible to receive profit sharing contingent commissions on certain of its Affinity programs based on the ~~surplus note exchanges, whereas 2020 was attributable~~underwriting results of the policies it places with the carrier, which may cause some variability in revenue and earning recognition.

Xchange underwrote and placed premiums for its carriers of approximately $45 for the three months ended March 31, 2022, an increase of $5 or 12% as compared to ~~Ambac UK,~~the three months ended March 31, 2021. Higher premiums placed were the primary drivers to the increases in both gross and sub-producer commissions.

Employer Stop Loss business underwritten by Xchange has seasonality in January and July, which ~~had a taxable loss, related to investment losses on pooled funds.~~result in revenue and earnings concentrations in the first and third quarters each calendar year. Employer Stop Loss is Xchange's largest business.

LIQUIDITY AND CAPITAL RESOURCES
($ in millions)

~~Ambac Financial Group, Inc. ("AFG")~~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. AFG's liquidity is primarily dependent on its ~~cash, investments (excluding equity investments in subsidiaries), and~~ net ~~receivables~~assets, excluding the operating subsidiaries that it owns, totaling ~~$274~~$243 as of March 31, ~~2021,~~2022, and secondarily on ~~dividends~~distributions and expense sharing payments from its operating subsidiaries. AFG's investments include securities directly issued

•~~During the three months ended March 31, 2021, AFG further capitalized the Everspan Group with a cash contribution to Everspan Indemnity Insurance Company~~

by AAC (i.e. surplus notes), which are eliminated in consolidation. Securities issued by AAC and certain other of ~~approximately $82.~~AFG's investments are generally less liquid than investment grade and highly traded investments.

•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. The $4 reimbursement for ~~2020~~2021 expenses was approved ~~(by OCI)~~by OCI and paid ~~(by AAC)~~to AFG in April ~~2021.~~

AFG's investments include securities directly and indirectly issued by and/or insured by AAC, some of which are eliminated in consolidation. Securities issued and/or insured by AAC are generally less liquid than investment grade and other traded investments.

~~AFG has not received dividends from any of its subsidiaries during the first quarter of 2021 or the full year of 2020.~~

•It is highly unlikely that AAC will be able to make dividend payments to AFG for the foreseeable future. Therefore, payments under the intercompany cost allocation agreement will be AFG’s principal sources of liquidity from AAC in the near-term. Refer to Part I, Item 1, “Insurance Regulatory Matters — Dividend Restrictions, Including Contractual Restrictions” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, and Note 8. Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for more information on dividend payment restrictions.2022.

•Everspan does not have sufficient earned surplus at this time to pay ordinary dividends under the Arizona Insurance Laws. Payments from Everspan to AFG may include expense allocation payments and tax payments.

•~~Xchange currently does not have any regulatory restrictions on its ability to pay dividends and AFG expects it to begin paying dividends beginning in the second quarter of 2021.~~

~~The~~AFG's principal uses of liquidity ~~include~~are: (i) the payment of operating expenses, including costs to explore opportunities to grow and diversify ~~Ambac;~~Ambac, (ii) the making of strategic investments, which may include ~~securities issued~~ illiquid investments and (iii) making capital investments to acquire, grow and/or ~~insured~~capitalize new and/or existing businesses. 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 P&C Insurance business, and its acquisitions, by contributing $6 of capital to Everspan Indemnity in first quarter of 2022 and $92 in 2021, respectively.

Xchange currently does not have any regulatory restrictions on its ability to make distributions. AFG received distributions from Xchange of $2 and $- during the three months ended March 31, 2022 and 2021. It is highly unlikely that AAC or ~~Ambac UK and other less liquid investments; and~~Everspan will be able to make dividend payments to AFG for the ~~acquisition or capitalization~~foreseeable future.

In the opinion of ~~new businesses. Contingencies could cause material liquidity strains.~~

~~Ambac Assurance Liquidity~~. ~~AAC’s liquidity is dependent on~~ the ~~balance of liquid investments and, over time,~~Company’s management the net ~~impact~~assets of ~~sources and uses~~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 ~~funds.~~ debt, equity or hybrid securities or facilities).

Operating Companies' Liquidity

Insurance

The ~~principal sources~~liquidity requirements of ~~AAC’s liquidity~~the Company’s insurance subsidiaries are ~~gross installment premiums on insurance policies; principal and interest payments~~met primarily by funds generated from ~~investments; sales of investments; proceeds from repayment of affiliate loans; and~~premiums; recoveries on claim payments, including RMBS representation and warranty subrogation recoveries (AAC only); reinsurance recoveries; fees; investment income and maturities and sales of investments.

•AAC's ability to realize RMBS representation and warranty subrogation recoveries is subject to significant uncertainty, including risks inherent in litigation, such as adverse rulings or decisions in our cases or in litigations to which AAC is not a party that set precedents or resolve questions of law that impact our own claims; collectability of such amounts from ~~litigation~~counterparties (and/or their respective parents and ~~reinsurance~~ affiliates); timing of receipt of any such recoveries, including due to delays in court proceedings; intervention by the OCI, which could impede our ability to take actions required to realize such recoveries; and uncertainty inherent in the assumptions used in estimating the amount of such

| Ambac Financial Group, Inc. 582022 First Quarter FORM 10-Q |

recoveries. The amount of these subrogation recoveries is material and if AAC is unable to recover any amounts or recovers materially less than its estimated recoveries, its future available liquidity to pay claims, debt service and meet other obligations would be materially adversely impacted. See Part I, Item 1A. Risk Factors in AFG's Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report for more information about risks relating to RMBS R&W subrogation recoveries.

•See Note 6. Insurance Contracts to the Consolidated Financial Statements included in Part II, Item 8, in this Form 10-Q for a summary of future gross financial guarantee premiums to be collected by AAC and Ambac UK. Termination of ~~installment premium~~financial guarantee policies on an accelerated basis may adversely impact AAC’s liquidity.

~~The principal uses of AAC’s liquidity are the payment of~~Cash provided from these sources is used primarily for claim payments and commutations, loss expenses and acquisition costs (Specialty Property & Casualty Insurance segment only), debt service on outstanding debt (AAC only), operating ~~and loss adjustment expenses; claims; commutation~~expenses, reinsurance payments ~~on insurance policies; ceded reinsurance premiums; principal and interest payments on the Ambac Note, surplus notes and Tier 2 Notes; additional loans to affiliates;~~ and purchases of securities and other investments that may not be immediately converted into cash.

•Although AAC has not experienced incremental claim payments as a result of the impact of COVID-19, such claims may occur as issuers, particularly those with revenues that have been interrupted by the effects of the pandemic (including social distancing, other restrictions on activities

~~| Ambac Financial Group, Inc.~~ 54~~2021 First Quarter FORM 10-Q~~ |

and the increase in unemployment) may not have sufficient cash inflows to pay debt service on Ambac-insured debt. Refer to "Financial Guarantees in Force" in this Management's Discussion and Analysis for further discussion of the potential impact of the COVID-19 pandemic on claim payments.

•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. Any such payment on surplus notes would require either payment or collateralization of a portion of the Tier 2 Notes under the terms of the Tier 2 Note indenture. See Note 13. Long-term Debt in the Notes to Consolidated Financial Statements, included in Part II, Item 8, in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, for further discussion of the payment terms and conditions of the Tier 2 Notes. As discussed more fully in "Results of Operations" above in this Management's Discussion and Analysis, OCI declined AAC's request to pay the principal amount of the surplus notes, plus all accrued and unpaid interest thereon, on June 7, 2022. See Note 12. Long-term Debt to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion of the payment terms and conditions of the Tier 2 Notes as well as the aggregate annual maturities of all debt outstanding. In addition to principal amounts of $2,341 as of March 31, 2022, with various maturities as described in Note 12. Long-term Debt to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on ~~each prior~~Form 10-K for the year ended December 31, 2021, AAC's future interest obligations include $65, subject to changes in interest rates, annually on the Sitka AAC Note through maturity on July 6, 2026, $605 of accrued and unpaid interest that would be payable on surplus notes if approved by OCI on the next scheduled payment ~~date.~~date of June 7, 2022, and Tier 2 Note interest that may be paid-in-kind until maturity on February 12, 2055 at which time $5,060 would be due.

~~AAC's intercompany loans are with~~•AAC lends its wholly-owned subsidiary, Ambac Financial Services ("AFS"). cash to support its operations. AFS uses interest rate derivatives (primarily interest rate swaps and US Treasury futures) as ana partial economic hedge against the effects of rising interest rates elsewhere in the ~~Company, including on AAC’s~~legacy financial guarantee ~~exposures.~~segment. AFS's derivatives also include interest rate swaps previously provided to asset-backed issuers and other entities in connection with their financings.

AAC loans cash and securities to AFS as needed to fund payments under these derivative contracts, collateral posting requirements and operating expenses. Intercompany loans are governed by an established lending agreement with defined borrowing limits that has received non-disapproval from OCI.

~~AAC manages its~~Insurance subsidiaries manage their liquidity risk by maintaining comprehensive analyses of projected cash flows and maintaining specified levels of cash and short-term investments at all times.

~~AAC~~ It is ~~limited in its ability to pay dividends pursuant to~~ the ~~terms~~opinion of its Auction Market Preferred Shares (“AMPS”), which state that 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. If dividends are paid on the common stock for such purposes, dividends on the AMPS become cumulative until the date that all accumulated and unpaid dividends have been paid on the AMPS. AAC has not paid dividends on the AMPS since 2010. AAC is also subject to additional restrictions on the payment of dividends pursuant to certain contractual and regulatory restrictions. Refer to Part I, Item 1, “Insurance Regulatory Matters - Dividend Restrictions, Including Contractual Restrictions” in the Company’s ~~Annual Report on Form 10-K~~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 MGA subsidiaries are met primarily by funds generated from commission receipts (both base and profit commissions). Base commissions 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 ~~the year ended December 31, 2020,~~commissions paid to sub-producers, operating expenses and ~~Note 9. Insurance Regulatory Restrictions~~distributions to ~~the~~ AFG and other members.

Consolidated ~~Financial Statements included in Part II, Item 8, in the Company’s Annual~~

~~Report on Form 10-K for the year ended December 31, 2020, for more information on dividend payment restrictions.~~

Our ability to realize RMBS representation and warranty ("R&W") subrogation recoveries is subject to significant uncertainty, including risks inherent in litigation, including adverse rulings or decisions in our cases or in litigations to which AAC is not a party that set precedents or resolve questions of law that impact our own claims; collectability of such amounts from counterparties (and/or their respective parents and affiliates); timing of receipt of any such recoveries, including uncertainty due to delays in court proceedings as a result of the COVID-19 pandemic; intervention by the OCI, which could impede our ability to take actions required to realize such recoveries; and uncertainty inherent in the assumptions used in estimating the amount of such recoveries. The amount of these subrogation recoveries is significant and if we are unable to recover any amounts or recover materially less than our estimated recoveries, our future available liquidity to pay claims, debt service and meet our other obligations would be reduced materially. See Part I, Item 1A. ~~Risk Factors~~ ~~in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, for more information about risks relating to our RMBS R&W subrogation recoveries.~~

Cash Flow Statement Discussion.

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


Three Months Ended March 31,	Three Months Ended March 31,	2021		2020		Three Months Ended March 31,	2022		2021
Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	$	(40)	$	(87)	Operating activities	$	9	$	(40)
Investing activities	Investing activities	116		244		Investing activities	136		116
Financing activities(1)	Financing activities(1)	(69)		(146)		Financing activities(1)	(52)		(69)
Foreign exchange impact on cash and cash equivalents	Foreign exchange impact on cash and cash equivalents	—		—		Foreign exchange impact on cash and cash equivalents	—		—
Net cash flow	Net cash flow	$	6	$	10	Net cash flow	$	93	$	6

(1) During the second quarter of 2022, AAC made $393 of payments in connection with the acceleration of the AAC-insured PRIFA and CCDA bonds that were not commuted during the first quarter of 2022 and were deposited into the respective trusts. As a result of these claim payments and associated full redemption of the trust certificates, the remaining assets of the trusts, valued at $114 at March 31, 2022, were distributed to AAC. Additionally, AAC was the holder of $164 of the PRIFA trust certificates that were fully redeemed. Because these trusts are consolidated VIEs, this activity will be reflected as $221 payments of VIE liabilities in second quarter 2022 financing activities.

Operating activities

The following represents the significant cash operating activity during the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:

•Debt service payments on the Sitka AAC Note were $15 for the three months ended March 31, 2022. Debt service payments on the LSNI Ambac Note were $25 for the three months ended March 31, 2021.

•Payments related to (i) operating expenses were $34 and $31 for the three months ended March 31, 2022 and 2021, respectively; and ~~2020, respectively.~~(ii) reinsurance premiums were $7 and $9


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	(212)	658-7470
(Registrant's telephone number, including area code)


Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995							Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995					1

Item Number	Item Number		Page	Item Number		Page	Item Number		Page	Item Number		Page
PART I. FINANCIAL INFORMATION	PART I. FINANCIAL INFORMATION			PART I (CONTINUED)			PART I. FINANCIAL INFORMATION			PART I (CONTINUED)
1	1	Unaudited Consolidated Financial Statements of Ambac Financial Group, Inc. and Subsidiaries			U.S. Insurance Statutory Basis Financial Results	62	1	Unaudited Consolidated Financial Statements of Ambac Financial Group, Inc. and Subsidiaries			U.S. Insurance Statutory Basis Financial Results	66
		Consolidated Balance Sheets (Unaudited)	1		Ambac Assurance UK Limited Financial Results Under UK Accounting Principles	63		Consolidated Balance Sheets (Unaudited)	3		Ambac Assurance UK Limited Financial Results Under UK Accounting Principles	67
		Consolidated Statements of Total Comprehensive Income (Loss) (Unaudited)	2		Non-GAAP Financial Measures	63		Consolidated Statements of Total Comprehensive Income (Loss) (Unaudited)	4		Non-GAAP Financial Measures	67
		Consolidated Statements of Stockholders' Equity (Unaudited)	3					Consolidated Statements of Stockholders' Equity (Unaudited)	5	3	Quantitative and Qualitative Disclosures About Market Risk	69
		Consolidated Statements of Cash Flows (Unaudited)	4	3	Quantitative and Qualitative Disclosures About Market Risk	65		Consolidated Statements of Cash Flows (Unaudited)	6	4	Controls and Procedures	69
		Notes to Unaudited Consolidated Financial Statements	5	4	Controls and Procedures	65		Notes to Unaudited Consolidated Financial Statements	7
2	2	Management's Discussion and Analysis of Financial Condition and Results of Operations	40				2	Management's Discussion and Analysis of Financial Condition and Results of Operations	45	PART II. OTHER INFORMATION
		Cautionary Statement Pursuant To The Private Securities Litigation Reform Act Of 1995	40	PART II. OTHER INFORMATION				Executive Summary	45	1	Legal Proceedings	69
		Executive Summary	41	1	Legal Proceedings	65		Critical Accounting Policies and Estimates	48	1A	Risk Factors	69
		Critical Accounting Policies and Estimates	43	1A	Risk Factors	65		Financial Guarantees in Force	48	2	Unregistered Sales of Equity Securities and Use of Proceeds	71
		Financial Guarantees in Force	44	2	Unregistered Sales of Equity Securities and Use of Proceeds	68		Results of Operations	53	3	Defaults Upon Senior Securities	71
		Results of Operations	50	3	Defaults Upon Senior Securities	68		Liquidity and Capital Resources	58	5	Other Information	72
		Liquidity and Capital Resources	54	5	Other Information	69		Balance Sheet	60	6	Exhibits	71
		Balance Sheet	56	6	Exhibits	68		Variable Interest Entities	66	SIGNATURES		72
		Variable Interest Entities	62	SIGNATURES		69		Accounting Standards	66
		Accounting Standards	62


		March 31,		December 31,			March 31,		December 31,
(Dollars in millions, except share data) (March 31, 2021 (Unaudited))		2021		2020
(Dollars in millions, except share data) (March 31, 2022 (Unaudited))						(Dollars in millions, except share data) (March 31, 2022 (Unaudited))	2022		2021
Assets:	Assets:					Assets:
Investments:	Investments:					Investments:
Fixed maturity securities, at fair value (amortized cost of $2,221 and $2,175)		$	2,341	$	2,317
Fixed maturity securities - available-for-sale, at fair value (amortized cost of $1,352 and $1,605)						Fixed maturity securities - available-for-sale, at fair value (amortized cost of $1,352 and $1,605)	$	1,383	$	1,730
Fixed maturity securities pledged as collateral, at fair value (amortized cost of $15 and $15)	Fixed maturity securities pledged as collateral, at fair value (amortized cost of $15 and $15)	15		15		Fixed maturity securities pledged as collateral, at fair value (amortized cost of $15 and $15)	15		15
Short-term investments, at fair value (amortized cost of $398 and $492)		397		492
Short-term investments pledged as collateral, at fair value (amortized cost of $105 and $125)		105		125
Other investments (includes $600 and $544 at fair value)		600		595
Total investments (net of allowance for credit losses of $0 and $0)		3,458		3,544
Fixed maturity securities - trading (includes $119 and $0 at fair value)						Fixed maturity securities - trading (includes $119 and $0 at fair value)	119		—
Short-term investments, at fair value (amortized cost of $540 and $415)						Short-term investments, at fair value (amortized cost of $540 and $415)	540		414
Short-term investments pledged as collateral, at fair value (amortized cost of $99 and $105)						Short-term investments pledged as collateral, at fair value (amortized cost of $99 and $105)	99		105
Other investments (includes $652 and $683 at fair value)						Other investments (includes $652 and $683 at fair value)	660		690
Total investments (net of allowance for credit losses of $1 and $0)						Total investments (net of allowance for credit losses of $1 and $0)	2,815		2,955
Cash and cash equivalents	Cash and cash equivalents	23		20		Cash and cash equivalents	60		17
Restricted cash	Restricted cash	16		13		Restricted cash	7		5

Premium receivables (net of allowance for credit losses of $13 and $17)		356		370
Premium receivables (net of allowance for credit losses of $8 and $9)						Premium receivables (net of allowance for credit losses of $8 and $9)	317		323
Reinsurance recoverable on paid and unpaid losses (net of allowance for credit losses of $0 and $0)	Reinsurance recoverable on paid and unpaid losses (net of allowance for credit losses of $0 and $0)	33		33		Reinsurance recoverable on paid and unpaid losses (net of allowance for credit losses of $0 and $0)	48		55
Deferred ceded premium	Deferred ceded premium	74		70		Deferred ceded premium	100		90
Subrogation recoverable	Subrogation recoverable	2,076		2,156		Subrogation recoverable	1,714		2,092

Derivative assets	Derivative assets	74		93		Derivative assets	55		76

Intangible assets	Intangible assets	391		409		Intangible assets	350		362

Goodwill						Goodwill	46		46
Other assets	Other assets	115		114		Other assets	94		68
Variable interest entity assets:	Variable interest entity assets:					Variable interest entity assets:
Fixed maturity securities, at fair value	Fixed maturity securities, at fair value	3,236		3,354		Fixed maturity securities, at fair value	3,364		3,455
Restricted cash	Restricted cash	2		2		Restricted cash	49		2

Loans, at fair value	Loans, at fair value	2,948		2,998		Loans, at fair value	2,469		2,718

Derivative assets	Derivative assets	38		41		Derivative assets	42		38
Other assets	Other assets	1		2		Other assets	1		2
Total assets	Total assets	$	12,840	$	13,220	Total assets	$	11,531	$	12,303
Liabilities and Stockholders’ Equity:	Liabilities and Stockholders’ Equity:					Liabilities and Stockholders’ Equity:
Liabilities:	Liabilities:					Liabilities:

Unearned premiums	Unearned premiums	$	438	$	456	Unearned premiums	$	393	$	395
Loss and loss expense reserves	Loss and loss expense reserves	1,662		1,759		Loss and loss expense reserves	1,067		1,570
Ceded premiums payable	Ceded premiums payable	24		27		Ceded premiums payable	40		33

Deferred taxes		20		24
Current taxes		2		6

Long-term debt	Long-term debt	2,661		2,739		Long-term debt	2,242		2,230
Accrued interest payable	Accrued interest payable	516		517		Accrued interest payable	593		576
Derivative liabilities	Derivative liabilities	86		114		Derivative liabilities	76		95
Other liabilities	Other liabilities	123		106		Other liabilities	135		133

Variable interest entity liabilities:	Variable interest entity liabilities:					Variable interest entity liabilities:

Long-term debt (includes $4,264 and $4,324 at fair value)		4,427		4,493
Long-term debt (includes $3,701 and $4,056 at fair value)						Long-term debt (includes $3,701 and $4,056 at fair value)	4,124		4,216
Derivative liabilities	Derivative liabilities	1,739		1,835		Derivative liabilities	1,866		1,940

Other liabilities						Other liabilities	3		—
Total liabilities	Total liabilities	11,697		12,074		Total liabilities	10,538		11,187
Commitments and contingencies (See Note 12)
Commitments and contingencies (See Note 14)						Commitments and contingencies (See Note 14)
Redeemable noncontrolling interest	Redeemable noncontrolling interest	20		7		Redeemable noncontrolling interest	18		18
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, par value $0.01 per share;20,000,000 shares authorized shares; issued and outstanding shares—NaN		0		0
Common stock, par value $0.01 per share; 130,000,000 shares authorized; issued shares: 46,477,067 and 45,865,081		0		0
Preferred stock, par value $0.01 per share;20,000,000 shares authorized shares; issued and outstanding shares—none						Preferred stock, par value $0.01 per share;20,000,000 shares authorized shares; issued and outstanding shares—none	—		—
Common stock, par value $0.01 per share; 130,000,000 shares authorized; issued shares: 46,658,990 and 46,477,068						Common stock, par value $0.01 per share; 130,000,000 shares authorized; issued shares: 46,658,990 and 46,477,068	—		—
Additional paid-in capital	Additional paid-in capital	246		242		Additional paid-in capital	262		257
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	61		79		Accumulated other comprehensive income (loss)	(70)		58
Retained earnings	Retained earnings	761		759		Retained earnings	723		726
Treasury stock, shares at cost: 279,965 and 55,942		(5)		(1)
Treasury stock, shares at cost: 113,758 and 172,929						Treasury stock, shares at cost: 113,758 and 172,929	(2)		(3)
Total Ambac Financial Group, Inc. stockholders’ equity	Total Ambac Financial Group, Inc. stockholders’ equity	1,063		1,080		Total Ambac Financial Group, Inc. stockholders’ equity	914		1,038
Nonredeemable noncontrolling interest	Nonredeemable noncontrolling interest	60		60		Nonredeemable noncontrolling interest	60		60
Total stockholders’ equity	Total stockholders’ equity	1,123		1,140		Total stockholders’ equity	974		1,098
Total liabilities, redeemable noncontrolling interest and stockholders’ equity	Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	12,840	$	13,220	Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	11,531	$	12,303


			Ambac Financial Group, Inc.
(Dollars in millions)	Total		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Preferred Stock		Common Stock		Additional Paid-in Capital		Common Stock Held in Treasury, at Cost		Nonredeemable Noncontrolling Interest
Balance at December 31, 2020	$	1,140	$	759	$	79	$	0	$	0	$	242	$	(1)	$	60
Total comprehensive income (loss)	(2)		17		(18)		0		0		0		0		0





Stock-based compensation	4		0		0		0		0		4		0		0
Cost of shares (acquired) issued under equity plan	(6)		(2)		0		0		0		0		(4)		0
Changes to Redeemable NCI	(13)		(13)		—		—		—		—		—		—





Balance at March 31, 2021	$	1,123	$	761	$	61	$	0	$	0	$	246	$	(5)	$	60


Balance at December 31, 2019	$	1,536	$	1,203	$	42	$	0	$	0	$	232	$	0	$	60
Total comprehensive income (loss)	(470)		(280)		(191)		0		0		0		0		0

Adjustment to initially apply ASU 2016-13	(4)		(4)		—		—		—		—		—		—



Stock-based compensation	3		0		0		0		0		3		0		0
Cost of shares (acquired) issued under equity plan	(3)		(1)		0		0		0		0		(1)		0






Balance at March 31, 2020	$	1,062	$	917	$	(149)	$	0	$	0	$	235	$	(2)	$	60


Three months ended March 31, 2022 and 2021

			Ambac Financial Group, Inc.
(Dollars in millions)	Total		Retained Earnings		Accumulated Other Comprehensive Income		Preferred Stock		Common Stock		Additional Paid-in Capital		Common Stock Held in Treasury, at Cost		Nonredeemable Noncontrolling Interest
Balance at December 31, 2021	$	1,098	$	726	$	58	$	—	$	—	$	257	$	(3)	$	60
Total comprehensive income (loss)	(125)		2		(127)		—		—		—		—		—





Stock-based compensation	5		—		—		—		—		5		—		—
Cost of shares (acquired) issued under equity plan	(3)		(5)		—		—		—		—		1		—
Changes to Redeemable NCI	—		—		—		—		—		—		—		—





Balance at March 31, 2022	$	974	$	723	$	(70)	$	—	$	—	$	262	$	(2)	$	60


Balance at December 31, 2020	$	1,140	$	759	$	79	$	—	$	—	$	242	$	(1)	$	60
Total comprehensive income (loss)	(2)		17		(18)		—		—		—		—		—





Stock-based compensation	4		—		—		—		—		4		—		—
Cost of shares (acquired) issued under equity plan	(6)		(2)		—		—		—		—		(4)		—
Changes to redeemable NCI	(13)		(13)






Balance at March 31, 2021	$	1,123	$	761	$	61	$	—	$	—	$	246	$	(5)	$	60




Note 1. Background and Business Description	8	Note 8. Intangible Assets	34
Note 2. Basis of Presentation and Significant Accounting Policies	9	Note 9. Variable Interest Entities	34
Note 3. Segment Information	11	Note 10. Revenues From Contracts with Customers	37
Note 4. Investments	12	Note 11. Comprehensive Income	38
Note 5. Fair Value Measurements	18	Note 12. Net Income Per Share	39
Note 6. Insurance Contracts	24	Note 13. Income Taxes	40
Note 7. Derivative Instruments	32	Note 14. Commitments and Contingencies	40


	March 31, 2021						December 31, 2020
	Ambac UK		Ambac Assurance		Total VIEs		Ambac UK		Ambac Assurance		Total VIEs
ASSETS:
Fixed maturity securities, at fair value:
Corporate obligations, fair value option	$	3,103	$	0	$	3,103	$	3,215	$	0	$	3,215
Municipal obligations, available-for-sale (1)	0		133		133		0		139		139
Total FG VIE fixed maturity securities, at fair value	3,103		133		3,236		3,215		139		3,354
Restricted cash	1		1		2		1		1		2
Loans, at fair value (2)	2,948		0		2,948		2,998		0		2,998
Derivative assets	38		0		38		41		0		41
Other assets	0		1		1		0		2		2
Total FG VIE assets	$	6,090	$	135	$	6,225	$	6,255	$	143	$	6,398
LIABILITIES:

Long-term debt:
Long-term debt, at fair value (3)	$	4,264	$	0	$	4,264	$	4,324	$	0	$	4,324
Long-term debt, at par less unamortized discount	0		163		163		0		169		169
Total long-term debt	4,264		163		4,427		4,324		169		4,493
Derivative liabilities	1,739		0		1,739		1,835		0		1,835

Total FG VIE liabilities	$	6,003	$	163	$	6,166	$	6,159	$	169	$	6,328
Number of FG VIEs consolidated	5		1		6		5		1		6


	March 31, 2021:								December 31, 2020:
	Present Value of Expected Net Cash Flows				Unearned Premium Revenue		Gross Loss and Loss Expense Reserves		Present Value of Expected Net Cash Flows				Unearned Premium Revenue		Gross Loss and Loss Expense Reserves
Balance Sheet Line Item	Claims and Loss Expenses		Recoveries						Claims and Loss Expenses		Recoveries
Loss and loss expense reserves	$	1,831	$	(102)	$	(67)	$	1,662	$	2,060	$	(229)	$	(72)	$	1,759
Subrogation recoverable	99		(2,175)		0		(2,076)		100		(2,256)		0		(2,156)
Totals	$	1,930	$	(2,277)	$	(67)	$	(414)	$	2,160	$	(2,486)	$	(72)	$	(397)


Commission File Number:						1-10777


	March 31, 2021		December 31, 2020
Gross carrying value of insurance intangible asset	$	1,282	$	1,281
Accumulated amortization of insurance intangible asset	927		908
Net insurance intangible asset	$	356	373


Amortization expense	Insurance Intangible Asset (1) (2)		Other Intangible Assets		Total
2021 (Nine months)	$	28	$	2	$	30
2022	35		3		37
2023	31		3		34
2024	29		3		31
2025	26		3		29
Thereafter	207		22		229


Level 3 - Derivatives by Class
	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
	Interest Rate Swaps		Credit Derivatives		Total Derivatives		Interest Rate Swaps		Credit Derivatives		Total Derivatives
Balance, beginning of period	$	85	$	0	$	84	$	67	$	0	$	66

Total gains/(losses) realized and unrealized:
Included in earnings	(17)		0		(17)		13		(1)		12
Included in other comprehensive income	0		0		0		0		0		0
Purchases	0		0		0		0		0		0
Issuances	0		0		0		0		0		0
Sales	0		0		0		0		0		0
Settlements	(2)		0		(2)		(1)		0		(1)



Balance, end of period	$	66	$	0	$	65	$	79	$	(2)	$	77
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(17)	$	0	$	(17)	$	13	$	(2)	$	12
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(17)	$	0	$	(17)	$	0	$	0	$	0


	Municipal Obligations		Corporate Obligations (2)		Mortgage and Asset- backed Securities		Total		Weighted Average Underlying Rating (1)
March 31, 2021:
Ambac Assurance Corporation	$	323	$	464	$	465	$	1,252	CCC+
National Public Finance Guarantee Corporation	4		0		—		4		BBB-
Assured Guaranty Municipal Corporation	1		0		—		1		C



Total	$	328	$	464	$	465	$	1,257	CCC+

December 31, 2020:
Ambac Assurance Corporation	$	320	$	465	$	481	$	1,266	CCC+
National Public Finance Guarantee Corporation	6		0		—		6		BBB-
Assured Guaranty Municipal Corporation	1		0		—		1		C



Total	$	327	$	465	$	481	$	1,273	CCC+


Market / Sector	Total NPO		Total Debt Service Due Next Twelve Months

Toll Roads / Bridges	$	457	$	43
Dedicated Tax	345		51
Rail / Mass Transit	289		15
Higher Education Auxiliary	190		21
Hotels / Convention Centers	188		39
Stadiums	92		8
Airports	22		15
Total Public Finance	$	1,583	$	192


Market / Sector	Total NPO		Total Debt Service Due for Twelve Months


Asset Securitizations	$	961	$	87
Toll Roads / Bridges	738		59
Airports	212		7
Higher Education	179		10
Total	$	2,090	$	163


	Net Par Outstanding
Summary of Below Investment Grade Exposure	March 31, 2021		December 31, 2020
Public Finance:
Lease and tax-backed (1)	$	1,181	$	1,194
General obligation (1)	322		325
Housing (2)	493		308
Stadium	—		540
Transportation	29		30

Other	38		38
Total Public Finance	2,063		2,435
Structured Finance:
RMBS	2,657		2,800

Student loans	484		512

Total Structured Finance	3,141		3,312
International Finance:
Other	1,507		1,574
Total International Finance	1,507		1,574
Total	$	6,711	$	7,321


	March 31, 2022		December 31, 2021
Fixed maturity securities(1), (2)	$	1,383	$	1,730
Fixed maturity securities - trading	119		—
Short-term(1), (2)	540		414
Other investments(2)	660		690
Fixed maturity securities pledged as collateral	114		120
Total investments (3)	$	2,815	$	2,955


Currency	Currency	Premium Receivable in Payment Currency		Premium Receivable in U.S. Dollars		Currency	Premium Receivable in Payment Currency		Premium Receivable in U.S. Dollars
U.S. Dollars	U.S. Dollars	$	213	$	213	U.S. Dollars	$	200	$	200
British Pounds	British Pounds	£	89	122		British Pounds	£	77	101
Euros	Euros	€	18	21		Euros	€	15	16

Total	Total			$	356	Total			$	317


	Gross Par Outstanding (1)(2)		Present Value of Expected Net Cash Flows			Unearned Premium Revenue			Gross Loss and Loss Expense Reserves (1)(3)
				Claims and Loss Expenses				Recoveries
March 31, 2021:
RMBS	$	2,405		$	599	$	(2,029)		$	(11)	$	(1,441)
Domestic Public Finance	3,097			963		(215)			(40)		708
Student Loans	399			270		(33)			(2)		235
Ambac UK and Other Credits	1,186			41		—			(14)		27

Loss expenses	—			57		—			—		57
Totals	$	7,087		$	1,930	$	(2,277)		$	(67)	$	(414)


	Gross Par Outstanding (1)		Present Value of Expected Net Cash Flows				Unearned Premium Revenue		Gross Loss and Loss Expense Reserves (1)(2)
			Claims and Loss Expenses		Recoveries
March 31, 2022:
Structured Finance	$	2,293	$	782	$	(1,715)	$	(10)	$	(943)
Domestic Public Finance (3)	1,914		365		(141)		(20)		204
Other	1,262		34		(5)		(12)		17
Loss expenses	—		39		—		—		39
Totals	$	5,469	$	1,221	$	(1,861)	$	(42)	$	(683)
December 31, 2021:
Structured Finance	$	2,371	$	852	$	(2,018)	$	(12)	$	(1,178)
Domestic Public Finance	2,742		905		(312)		(31)		562
Other	1,189		35		(5)		(13)		17
Loss expenses	$	—	$	45	$	—	$	—	$	45
Total	$	6,302	$	1,837	$	(2,485)	$	(56)	$	(554)


	March 31, 2021				December 31, 2020
Issuer Type	Gross Par Outstanding (1)		Gross Loss Reserves		Gross Par Outstanding (1)		Gross Loss Reserves
Lease and tax-backed	$	1,394	$	671	$	1,366	$	693
General obligation	464		(29)		589		(37)
Housing	636		27		453		27
Transportation revenue	217		28		220		30
Other	386		11		388		11
Total	$	3,097	$	708	$	3,016	$	724


	March 31, 2022		December 31, 2021
Surplus notes	$	732	$	729


Sitka AAC note	1,155		1,154
Tier 2 notes	340		333
Ambac UK debt	15		15


Total Long-term Debt	$	2,242	$	2,230


	Jan-2021		Feb-2021		Mar-2021		First Quarter 2021
Total Shares Purchased (1)	32,010		318		312,381		344,709
Average Price Paid Per Share	$	15.38	$	14.42	$	17.03	$	16.87
Total Number of Shares Purchased as Part of Publicly Announced Plan (1)	—		—		—		—
Maximum Number of Shares That may Yet be Purchased Under the Plan	—		—		—		—


	Jan-2022		Feb-2022		Mar-2022		First Quarter 2022
Total Shares Purchased	37,151		—		198,693		235,844
Average Price Paid Per Share	$	16.05	$	—	$	14.04	$	14.36
Total Number of Shares Purchased as Part of Publicly Announced Plan	—		—		—		—
Approximate Dollar Value of Shares That may Yet be Purchased Under the Plan (in millions)	$	—	$	—	$	35


Exhibit Number						Description
Other exhibits, filed or furnished, as indicated:
10.1+						Form of ~~2021~~2022 Restricted Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and Ksenak.
10.2+						F ~~orm~~Form of ~~202~~1 2022 Restricted Stock Unit Award Agreement between Ambac Financial Group, Inc. and ~~Messrs~~.Messrs. Barranco, Eisman, ~~Reilly~~McGinnis and Ms. Smith.
10.3+						Form of ~~2021~~2022 Performance Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and Ksenak.
10.4+						Form of ~~2021~~2022 Performance Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. Barranco, Eisman, ~~Reilly~~McGinnis and Ms. Smith.
31.1+						Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) Promulgated under the Securities Exchange Act of 1934, as amended.
31.2+						Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) Promulgated under the Securities Exchange Act of 1934, as amended.
32.1++						Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document - the instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema Document.
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB						XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.
104						Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags or embedded within the Inline XBRL document

						+ Filed herewith. ++ Furnished herewith.


		AMBAC FINANCIAL GROUP, INC.

Dated:	May 10, ~~2021~~2022	By:	/S/ DAVID TRICK
		Name:	David Trick
		Title:	Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer)