Octave Specialty Group, Inc. · NYSE:OSG
Octave Specialty — Ambac Financial Group — Q3 2023 Earnings Presentation
34 slides from Octave Specialty's earnings presentation, Nov 8, 2023
Slide 1: Third Quarter 2023 Investor Presentation
Third Quarter 2023 Investor Presentation Quarterly Highlights
Slide 2: Forward Looking Statement
Forward Looking Statement In this presentation, we have included statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “plan,” “believe,” “anticipate,”
Slide 3: Overview
Overview Ambac Financial Group, Inc. (NYSE: AMBC) is a financial services holding company headquartered in New York City with shareholders’ equity of $1.27 billion1. Ambac’s core operating business is a growing specialty P&C distribution and program underwriting platform. Ambac also has a legacy fin
Slide 4: Specialty P&C: A Diversified, Capital Light Specialty Platform
Specialty P&C: A Diversified, Capital Light Specialty Platform • Ambac’s growing Specialty P&C Platform includes its program insurer (“Everspan”), Everspan MGA/MGU specialty program insurance distribution business (“Cirrata”) and strategic investments program (“Redgrove”) underwriting solutions • Th
Slide 5: 2024 Strategic Priorities
2024 Strategic Priorities AFG Everspan Insurance Cirrata Legacy Financial Guarantee • Grow and maximize • GPW +$400 million forecast in • Premiums placed +$300 million • Moelis & Company engaged to shareholder value over medium 20241,2 forecast in 20241,2 discuss potential transactions and long term
Slide 6: Select Partnerships and Strategic Investments
Select Partnerships and Strategic Investments Everspan 3Q21 1Q22 1Q22 1Q22 2Q22 3Q22 4Q22 4Q22 4Q22 4Q21 4Q22 1Q23 1Q23 2Q23 Cirrata Strategic Investments 4Q20 Confidential 4Q22 3Q23 MGA 3Q22 4Q22 4Q21 3Q22 3Q22 6
Slide 7: Projected MGA/U Growth Provides Compelling Opportunity
Projected MGA/U Growth Provides Compelling Opportunity Ambac’s Specialty P&C Platform is poised to benefit from growth in the MGA/U market U.S. MGA U.S. MGA Direct Premium Written U.S. MGA Premium Distribution by Market1 ($bn)1 MGA Size2 $68 bn 14% $70 $68 2022 DPW YoY Growth $60 $59 22.0% 25.0% $51
Slide 8: Rising Demand for Specialty Risk Coverage
Rising Demand for Specialty Risk Coverage The specialty insurance market continues to be underpinned by macroeconomic factors as alternative risks continue to grow and change E&S Industry1 Sweeping technological Continued economic investment disruption Infrastructure and economic $99 bn 17% Innovati
Slide 9: Specialty Insurance Poised for Continued Growth
Specialty Insurance Poised for Continued Growth Ambac’s Specialty P&C Platform is well positioned to capitalize on the fast-growing specialty P&C insurance market Historical E&S Trends1 E&S Industry vs. P&C Industry DPW CAGRs1 12% 11% • 2022 E&S direct premiums written were $99 billion implying 10%
Slide 10: Everspan: Specialty P&C Program Insurer
Everspan: Specialty P&C Program Insurer Everspan has assembled a ‘Best-in-Class’ team of Specialty P&C program insurance executives with deep experience scaling businesses • $77 million of GPW in 3Q23 up 160% vs. 3Q22 Gross Premium Written (GPW) and Number of Programs $80 24 • First quarterly pre-ta
Slide 11: Everspan: Underwriting Strategy
Everspan: Underwriting Strategy Everspan’s disciplined underwriting strategy begins with its rigorous program partner selection process • Combined Ratio of 106.5% improved from 147.8% in 3Q22 Combined Ratio driven mainly by the scale benefit and sliding scale impacts 180% on the expense ratio 160% 1
Slide 12: Everspan: Diverse Product Line & Risk Appetite
Everspan: Diverse Product Line & Risk Appetite Active risk management Disciplined underwriting approach Strategic partners focused on value creation Continuity, consistency and stability are critical to an Led by a well-seasoned underwriting team, Everspan is Everspan takes an active role in oversee
Slide 13: Cirrata: Insurance Distribution via Majority Owned MGAs
Cirrata: Insurance Distribution via Majority Owned MGAs High margin businesses that generate predictable recurring fee-based income • $62 million of premium placed in 3Q23, up 119% from 3Q22 on Premium Placed by Line ($ in millions) organic growth and acquisitions $100 $80 $60 $40 • $15 million of t
Slide 14: Cirrata: MGA/U Distribution and Product Development
Cirrata: MGA/U Distribution and Product Development Cirrata’s growth roadmap will be achieved through strategic acquisitions and organic expansion Two Key Growth Drivers Opportunistic Acquisitions De Novo Startups & Organic Expansion • Provide immediate scale, diversification and potential • Partner
Slide 15: Building an MGU with Cirrata
Building an MGU with Cirrata AFG's Business Services Business Model Cirrata’s 22° Business Services unit offers distribution partners a comprehensive suite of business services, led by a differentiated technology solution to support their growth, operations, and risk management Value Drivers • Techn
Slide 16: Legacy FG Run-Off Subsidiaries: Ambac Assurance & Ambac UK
Legacy FG Run-Off Subsidiaries: Ambac Assurance & Ambac UK Segment Overview Adversely Classified Credits - Net Par (definitions in Appendix) $10 • Moelis & Company appointed to explore potential transactions with ($ in billions) interested 3rd parties for Legacy Financial Guarantee $5 • New OCI Runo
Slide 17: Ambac's Balance Sheet (BV) Quality has Improved Materially
Ambac’s Balance Sheet (BV) Quality has Improved Materially De-Leverage of BV • R&W Recoverable/BV 100% • Debt Leverage/BV 67% • Puerto Rico Exposure/BV 93% • Adverse Credit Exposure/BV 67% Since 2017 • Net Loss Reserves/BV 91% • Net Par “NPO” Exposure/BV 66% 10.2x $1,500 $1,592 $1,477 $1,381 9 $1,26
Slide 18: Ambac's Balance Sheet (ABV) Quality has Improved Materially
Ambac’s Balance Sheet (ABV) Quality has Improved Materially De-Leverage of ABV • R&W Recoverable/ABV 100% • Debt Leverage/ABV 74% • Puerto Rico Exposure/ABV 94% • Adverse Credit Exposure/ABV 73% Since 2017 • Net Loss Reserves/ABV 92% • Net Par “NPO” Exposure/ABV 73% $1,500 12 12.8x $1,313 $1,251 $1,
Slide 19: Ambac's Key Components of Value
Ambac’s Key Components of Value Growing Fee & Underwriting Businesses AFG Everspan Insurance Cirrata Legacy Financial Guarantee • Minority investments in • $234 million of GPW last 4 • $219 million of placed premium • 11 : 1 total claims paying ratio insurance services businesses quarters last 4 qua
Slide 20: Financial Review
Ambac Financial Review 3Q23
Slide 21: 3Q23 Consolidated Financial Overview
3Q23 Consolidated Financial Overview Net income attributable to common stockholders for 3Q23 was $65.9 million driven Adjusted net income for 3Q23 of $93.6 million compared to an adjusted net income by RMBS recoveries and the impact of higher discount rates at the Legacy Financial for 3Q22 of $339.4
Slide 22: Ambac's Operating Segment Highlights
Ambac’s Operating Segment Highlights Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & ($ in millions) Insurance Insurance Distribution Other Consolidated Three Months Ended September 30, 2023 Gross premiums written $ 2.1 $ 77.5 $ 79.6 Net premiums written 2.5 24.8 27.2
Slide 23: 3Q23 vs 3Q22 - Key Consolidated Financial Metrics
3Q23 vs 3Q22 - Key Consolidated Financial Metrics $400 $353 $350 $340 $339 $300 $250 $200 (in millions) $150 $94 $100 $76 $66 $50 $30 $37 $18 $11 $11 $4 $— $(16) $(50) $(31) $(49) $(49) $(100) Net premiums Net investment Loss and expense benefit Net gains (losses) on General and Interest expense Net
Slide 24: Net Investment Income & Invested Assets as of September 30, 2023
Net Investment Income & Invested Assets as of September 30, 2023 Net Investment Income Total Portfolio — $2.5 billion Other Investments — $461 million (Loss) $50 $40 $30 MBS and ABS 33% $20 1% 25% ($ in millions) U.S. Government $10 obligations Alternative fixed income Short-term & hedge funds 18% $
Slide 25: General And Administrative Expenses
General And Administrative Expenses Compensation Expense Non-Compensation Expense $18 $18 $18 $18 $17 $17 $35 $34 $16 $31 $30 $14 $25 $12 $20 ($ in millions) ($ in millions) $10 $20 $18 $8 $15 $14 $6 $10 $4 $5 $2 $— $— 3Q2022 4Q2022 1Q2023 2Q2023 3Q2023 3Q2022 4Q2022 1Q2023 2Q2023 3Q2023 Legacy Fina
Slide 26: Non-GAAP Reconciliations
Ambac Non-GAAP Reconciliations
Slide 27: Ambac Non-GAAP Financial Data
Ambac Non-GAAP Financial Data Non-GAAP Financial Data In addition to reporting the Company’s quarterly financial results in accordance with GAAP, the Company is reporting non-GAAP financial measures: EBITDA, Adjusted Net Income and Adjusted Book Value. These amounts are derived from our consolidated
Slide 28: Ambac Non-GAAP Financial Data - Adjusted Net Income (Loss)
Ambac Non-GAAP Financial Data - Adjusted Net Income (Loss) A New Key Performance Metric Financial Objectives: • Non-GAAP financial measure comparable to measures utilized by P&C peers • Removes adjustments that may not be indicative of Ambac’s underlying business trends, operating results or future
Slide 29: EBITDA Reconciliation
EBITDA Reconciliation The following table reconciles Net income (loss) to the non-GAAP measure EBITDA as of each date presented: Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & Insurance Insurance Distribution Other Consolidated Three Months Ended September 30, 2023 Ne
Slide 30: Ambac Non-GAAP Financial Data - Adjusted Book Value
Ambac Non-GAAP Financial Data - Adjusted Book Value The following table reconciles Total Ambac Financial Group, Inc. stockholders’ equity to the non-GAAP measure adjusted book value as of each date presented: September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 ($ in
Slide 31: LFG Segment Non-GAAP Financial Data - Adjusted Book Value
LFG Segment Non-GAAP Financial Data - Adjusted Book Value The following table reconciles Stockholders’ equity of the subsidiaries in the Financial Guarantee Insurance Segment to the non-GAAP measure adjusted book value. Financial Guarantee Insurance segment adjusted book value eliminates the shareho
Slide 32: Appendix
Ambac Appendix
Slide 33: Risk Adverse Credit Classifications
Risk Adverse Credit Classifications Classification Description Fully Performing – Meets Ambac Criteria with Remote Probability of Claim and includes: • Survey List - credits that may lack information or demonstrate a weakness but further deterioration is not expected Class I • Watch list - credits t
Slide 34: About Ambac
About Ambac Ambac Financial Group, Inc. (“Ambac” or “AFG”) is a financial services holding company headquartered in New York City. Ambac’s core business is a growing specialty P&C Contact distribution and underwriting platform. Ambac also has a legacy financial guaranty business in run off. Ambac’s
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