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DISCONTINUED OPERATION | 12 Months Ended
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Dec. 31, 2025
Discontinued Operations and Disposal Groups [Abstract] |
DISCONTINUED OPERATION | 5. DISCONTINUED OPERATIONS Sale of Ambac Assurance Corporation ("AAC") On September 29, 2025, pursuant to the stock purchase agreement dated as of June 4, 2024, as amended by the First Amendment thereto dated as of July 3, 2025, (the "Purchase Agreement") and the Letter Agreements dated July 3, 2025, and September 22, 2025 with American Acorn Corporation (the “Buyer”), a Delaware corporation owned by funds managed by Oaktree Capital Management, L.P., OSG sold all of the issued and outstanding shares of common stock of AAC, a wholly-owned subsidiary of OSG, to the Buyer for $420,000 in cash (the "Sale"). The Buyer acquired complete ownership of the common stock of AAC and all of its wholly owned subsidiaries, including Ambac Assurance UK Limited. In connection with and pursuant to the Purchase Agreement, OSG issued to Buyer a warrant exercisable for 5,092,707 shares of common stock, par value $0.01, of OSG. The warrant has an exercise price per share of $18.50 and expires March 29, 2032. Under the terms of the Letter Agreement dated July 3, 2025 between the parties to the Purchase Agreement, the Buyer may convert the warrant at a value equal to its Black-Sholes value, over specified time periods, with the conversion value delivered in shares of OSG common stock or cash at OSG's election. In addition, the Buyer made an incremental payment to OSG totaling $4,300 to resolve other agreed upon matters. OSG recorded an expected loss on sale in the Statement of Comprehensive Income (Loss) for the year ended December 31, 2024 of $(570,145), equal to the difference between the sale proceeds (net of the value of the warrants to be issued) and the carrying value of AAC's net assets held-for-sale, less expected closing costs. OSG recorded adjustments to the loss on sale of AAC equal to $(117,468) for the year ended December 31, 2025, reflecting remeasurement of net assets held-for-sale, changes in fair value of the warrant issued to Buyer, other agreed upon payments, and re-estimation of closing costs during the periods leading up to the final Sale closing. The loss on sale for the year ended December 31, 2025, included the reclassification of net unrealized gains (losses) on available-for-sale investment securities, cumulative foreign currency translation adjustments and cumulative credit risk changes of fair value option liabilities attributable to AAC and subsidiaries, totaling $(85,096), from Accumulated Other Comprehensive Income (Loss) ("AOCI") to Net income (loss) from discontinued operations at Sale closing. The components of the loss on sale, reflected in the valuation allowance on net assets of discontinued operations as of December 31, 2024 and at Sale closing on September 29, 2025, are summarized below:
|  | Sale Closing on September 29, 2025 |  | December 31, 2024
Fair value of net consideration to be received |  | $ | 407,300 |  |  | $ | 399,727 |
Less: estimated closing costs |  | 7,098 |  |  | 7,235 |
|  | 400,202 |  |  | 392,492 |
Carrying amount of net assets held-for-sale |  | 1,002,719 |  |  | 962,637 |
Reclassification of AOCI |  | $ | (85,096) |  |  |
Loss on disposal |  | $ | (687,613) |  |  | $ | (570,145) |
The following table summarizes the major classes of assets and liabilities of discontinued operations on the Consolidated Balance Sheet at December 31, 2024 after elimination of intercompany balances:
|  | December 31, 2024
ASSETS: |  |
Total investments |  | $ | 2,226,505 |
Cash and equivalents |  | 8,322 |
Premiums receivable |  | 217,096 |
Reinsurance recoverable on paid and unpaid losses |  | 25,274 |
Deferred ceded premiums |  | 79,074 |
Subrogation recoverable |  | 113,962 |
Intangible assets |  | 213,457 |
Other assets, net |  | 49,396 |
VIE assets (including restricted cash of $57,754) |  | 3,904,259 |
Valuation allowance on assets held-for-sale |  | (570,145) |
Total assets held-for-sale |  | $ | 6,267,200 |
LIABILITIES: |  |
Unearned premiums |  | $ | 228,177 |
Loss and loss adjustment reserves |  | 577,167 |
Ceded premiums payable |  | 56,404 |
Long-term debt and accrued interest |  | 1,046,658 |
Other liabilities, net |  | 105,772 |
VIE liabilities |  | 3,873,507 |
Total liabilities held-for-sale |  | $ | 5,887,685 |
The following table summarizes the major line items constituting net income (loss) from discontinued operations reconciled to net income (loss) from discontinued operations presented in the Consolidated Statement of Comprehensive Income (Loss):
|  | Year ended December 31,
|  | 2025 |  | 2024 |  | 2023
REVENUES: |  |  |  |  |  |
Net premiums earned |  | $ | 15,145 |  |  | $ | 23,879 |  |  | $ | 26,040 |
Net investment income |  | 100,203 |  |  | 133,933 |  |  | 126,957 |
Net investment gains (losses), including impairments |  | (12,616) |  |  | 4,416 |  |  | (22,507) |
Net gains (losses) on derivative contracts |  | 302 |  |  | 3,958 |  |  | (699) |
Other revenues |  | 18,016 |  |  | 31,096 |  |  | 14,533 |
Total revenues |  | 121,050 |  |  | 197,282 |  |  | 144,324 |
EXPENSES: |  |  |  |  |  |
Loss and loss adjustment expenses (benefit) |  | 10,444 |  |  | (45,767) |  |  | (69,320) |
Intangible amortization |  | 17,097 |  |  | 30,508 |  |  | 24,736 |
General & administrative and other expenses |  | 81,034 |  |  | 57,491 |  |  | 88,306 |
Interest expense |  | 47,617 |  |  | 63,587 |  |  | 64,025 |
Total expenses |  | 156,192 |  |  | 105,819 |  |  | 107,747 |
Pretax income (loss) |  | (35,142) |  |  | 91,463 |  |  | 36,577 |
Provision for income taxes |  | 10,678 |  |  | 18,485 |  |  | 8,394 |
Loss on disposal |  | (117,468) |  |  | (570,145) |  |  | — |
Net income (loss) from discontinued operations |  | $ | (163,288) |  |  | $ | (497,167) |  |  | $ | 28,183 |
Significant Accounting Policies The held-for-sale assets and liabilities and results of operations were subject to certain additional significant accounting policies to those described in Note 2. Basis of Presentation and Significant Accounting Policies. Fair value of assets held-for-sale: Total assets held-for-sale are carried at fair value as of December 31, 2024. 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. Measurement of fair value of assets held-for-sale was based on information from the purchase agreement and other unobservable information and was considered by management to be a Level 3 valuation under the Fair Value Measurement Topic of the ASC. Investments: Equity interests in pooled investment funds which are accounted for in accordance with the Investments - Equity Securities Topic of the ASC include equity interests in the form of common stock or in-substance common stock which are classified as trading securities and reported at fair value with changes in fair value reported through income. Investments in fixed maturity securities classified at trading are reported within Assets held-for-sale at fair value with unrealized gains and losses reported through income. Consolidation of Variable Interest Entities: The consolidated financial statements include the accounts of VIEs for which AAC or Ambac UK was deemed the primary beneficiary in accordance with the Consolidation Topic of the ASC. A VIE is an entity: (a) that lacks enough equity investment at risk to permit the entity to finance its activities without additional subordinated financial support from other parties; or (b) where the group of equity holders does not have: (1) the power, through voting rights or similar rights, to direct the activities of an entity that most significantly impact the entity’s economic performance; (2) the obligation to absorb the entity’s expected losses; or (3) the right to receive the entity’s expected residual returns. The determination of whether a variable interest holder was the primary beneficiary involved performing a qualitative analysis of the VIE that includes, among other factors, its capital structure, contractual terms including the rights of each variable interest holder, the activities of the VIE, whether the variable interest holder had the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, whether the variable interest holder had the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, related party relationships and the design of the VIE. An entity that was deemed the primary beneficiary of a VIE was required to consolidate the VIE. We determined that AAC or Ambac UK generally had the obligation to absorb a Legacy Financial Guarantee ("LFG") VIE's expected losses given that they had issued financial guarantees supporting certain liabilities (and in some cases certain assets). AAC consolidated certain LFG VIEs in cases where we also have the power to direct the activities that most significantly impact the VIE’s economic performance. A VIE was generally deconsolidated in the period that AAC or Ambac UK no longer had such control rights. The impact of consolidating such LFG VIEs on Octave’s balance sheet was the elimination of transactions between the consolidated LFG VIEs and AAC or Ambac UK and the inclusion of the LFG VIE’s third party assets and liabilities. For a financial guarantee insurance policy issued to a consolidated VIE, Octave did 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, Octave eliminated the insurance assets and liabilities associated with the policy from the Consolidated Balance Sheets, including premium receivables, unearned premiums, loss and loss expense reserves, and insurance intangible assets. For investment securities owned by AAC or Ambac UK that were debt instruments issued by the VIE, the associated debt and investment balances were eliminated upon consolidation. Generally, AAC had elected the fair value option for consolidated LFG 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 or when the financial liabilities are primarily supported by non-financial assets. The election to use the fair value option was made on an instrument by instrument basis. In cases where the fair value option had not been elected, the LFG VIE's invested assets were fixed maturity securities and were classified as either available-for-sale or trading as defined by the Investments - Debt Securities Topic of the ASC. When the fair value option was elected for LFG VIE long-term debt, changes in the fair value of the long-term debt was reported in income on 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 was presented separately in Other comprehensive income (loss). In cases where the fair value option was not elected, the LFG VIEs' long-term debt was carried at par less unamortized discount, with interest expense reported in income on the Consolidated Statements of Total Comprehensive Income (Loss). Consolidated VIE assets and liabilities were presented in VIE assets and VIE liabilities in the above table. Results of consolidated VIEs were included in other revenues above. Financial Guarantee Insurance Intangible: Upon Octave's emergence from bankruptcy in 2013, an insurance intangible asset was recorded which represented the difference between the fair value and aggregate carrying value of the financial guarantee insurance and reinsurance assets and liabilities. The carrying values of financial guarantee insurance and reinsurance contracts continue to be reported and measured in accordance with their existing accounting policies. Pursuant to the Financial Services-Insurance Topic of the ASC, the insurance intangible was to be measured on a basis consistent with the related financial guarantee insurance and reinsurance contracts. The initial insurance intangible asset was assigned to groups of insurance and reinsurance contracts with similar characteristics and has been amortized using a level-yield method based on par exposure of the related groups. Legacy Financial Guarantee Loss and Loss Adjustment Expenses: The loss and loss adjustment expense reserve (“loss reserve”) policy related only to Octave’s non-derivative financial guarantee insurance business for insurance policies issued to beneficiaries, including VIEs, for which we do not consolidate the VIE. Losses and loss expenses were based upon estimates of the ultimate aggregate losses inherent in the insured portfolio as of the reporting date. A loss reserve was recorded on the balance sheet on a policy-by-policy basis based upon the present value ("PV") of expected net claim cash outflows or expected net recovery cash inflows, discounted at risk-free rates. The estimate for future net cash flows consider the likelihood of all possible outcomes that may occur from missed principal and/or interest payments on the insured obligation. This estimate also considered future recoveries related to remediation strategies and other contractual or subrogation-related cash flows. ▪Net claim cash outflow policies represented contracts where the PV of expected cash outflows are greater than the PV of expected recovery cash inflows. For such policies, a “loss and loss adjustment expense reserves” liability was recorded for the excess of the PV of expected net claim cash outflows over the unearned premium revenue. ▪Net recovery cash inflow policies represented contracts where the PV of expected recovery cash inflows were greater than the PV of expected claim cash outflows. For such policies, a “Subrogation recoverable” asset was recorded. The evaluation process for determining expected losses was subject to certain judgments based on our assumptions regarding the probability of default by the issuer of the insured security, probability of settlement outcomes (which may include commutation settlements, refinancing and/or other settlement outcomes) and expected severity of credits for each insurance contract. Octave’s loss reserves are based on management’s ongoing review of the financial guarantee credit portfolio. Active surveillance of the insured portfolio enables Octave’s Risk Management Group ("RMG") to track credit migration of insured obligations from period to period and update internal classifications and credit ratings for each transaction. Non-adversely classified credits are assigned a Class I rating while adversely classified credits are assigned a rating ranging from Class IA ("Potential Problem with Risks to be Dimensioned") through Class V (“Fully Reserved”). The criteria for an exposure to be assigned an adversely classified credit rating includes the deterioration of an issuer’s financial condition, underperformance of the underlying collateral (for collateral dependent transactions such as mortgage-backed or student loan securitizations), poor performance by the servicer of the underlying collateral and other adverse economic events or trends. The servicer of the underlying collateral of an insured securitization transaction was a consideration in assessing credit quality because the servicer’s performance can directly impact the performance of the related issue. All credits were assigned risk classifications by RMG using established guidelines. The population of credits evaluated in Octave’s loss reserve process were: (i) all adversely classified credits and (ii) non-adversely classified credits which had an internal Octave rating downgrade since the transaction’s inception. One of two approaches is then utilized to estimate losses to ultimately determine if a loss reserve should be established. ▪The first approach was a statistical expected loss approach, which considers the likelihood of all possible outcomes. The “base case” statistical expected loss was the product of: (i) the par outstanding on the credit; (ii) internally developed default information (taking into consideration internal ratings and average life of an obligation); (iii) internally developed loss severities; and (iv) a discount factor. The loss severities and default information were based on rating agency information, were specific to each bond type and were established and approved by senior RMG officers. For certain credit exposures, Octave’s additional monitoring, loss remediation efforts and probabilities of potential settlement outcomes may provide information relevant to adjust this estimate of “base case” statistical expected losses. RMG may accept the “base case” statistical expected loss as the best estimate of expected loss or assign multiple probability weighted scenarios to determine an adjusted statistical expected loss that better reflects management’s view of a given transaction’s expected losses, as well as the potential for additional remediation activities (e.g., commutations). ▪The second approach entails the use of cash-flow based models to estimate expected losses (future claims, net of potential recoveries, expected to be paid to the holder of the insured financial obligation). Octave’s RMG group will consider the likelihood of all possible outcomes and develop appropriate cash flow scenarios. This approach can include the utilization of internal or third party models and tools to project future losses and resultant claim payment estimates. We utilize cash flow models for RMBS, student loans and other exposures. RMBS and student loan models use historical performance of the collateral pools in order to then derive future performance characteristics, such as default and voluntary prepayment rates, which in turn determine projected future claim payments. In other cases, such as many public finance exposures we do not specifically forecast resources available to pay debt service in the cash flow model itself. Rather, we consider the issuers’ overall ability and willingness to pay, including the fiscal, economic, legal and political framework to develop projected future claim payment estimates. In this approach, a probability-weighted expected loss estimate was developed based on assigning probabilities to multiple claim payment scenarios and applying an appropriate discount factor. Additionally, we consider the issuer’s ability to refinance an insured issue, Octave’s ability to execute a potential settlement (i.e., commutation) of the insurance policy, including the impact on future installment premiums, and/or other restructuring possibilities in our scenarios. The commutation scenarios and the related probabilities of occurrence vary by transaction, depending on our view of the likelihood of negotiating such a transaction with issuers and/or investors. The discount factor applied to the statistical expected loss approach was based on a risk-free discount rate corresponding to the remaining expected weighted-average life of the exposure and the exposure currency. For the cash flow scenario approach, discount factors were applied based on a risk-free discount rate term structure and correspond to the date of each respective cash flow payment or recovery and the exposure currency. Discount factors were updated for the current risk-free rate each reporting period. Octave establishes loss expense reserves based on our estimate of expected net cash outflows for loss expenses, such as legal and consulting costs. Long-term Debt Long-term debt issued was carried at par value less unamortized discount. Accrued interest and discount accretion on long-term debt was reported through income on the Consolidated Statements of Total Comprehensive Income (Loss). To the extent Octave repurchases or redeems its long-term debt, such repurchases or redemptions may be settled for an amount different than the carrying value of the obligation. Any difference between the payment and carrying value of the obligation was reported in income on the Consolidated Statements of Total Comprehensive Income (Loss). For surplus note repurchases, the pro-rata purchase price related to principal and accrued interest was reported as a financing and operating activity, respectively, on the Statement of Cash Flows. On September 29, 2025, the Company completed the sale of AAC, and accordingly, the Company no longer had surplus notes outstanding as they are obligations of AAC. Ambac UK debt, issued in connection with the commutation of an exposure on June 18, 2019, had a par value of $40,600 and a carrying value of $18,079 at December 31, 2024. The Ambac UK debt had a legal maturity of May 2, 2036. Interest on the Ambac UK debt was at an annual rate of 0.0%. The Ambac UK debt was recorded at its fair value at the date of issuance with the discount amortizing at an effective interest rate of 7.4%. NOL & Investment Interest Carryforward As of December 31, 2024, AAC had (i) $1,952,621 of NOLs, which if not utilized will begin expiring in 2030, and will fully expire in 2045, and (ii) $110,494 of interest expense tax deduction carryover, which had an indefinite carryforward period but was limited in any particular year based on certain provisions. AAC had maintained a full valuation allowance since 2010.

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/205-20/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 360 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/360/tableOfContent + Details
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