Octave Specialty Group, Inc. · NYSE:OSG
Octave Specialty — Ambac Financial Group — Q3 2022 Earnings Presentation
36 slides from Octave Specialty's earnings presentation, Nov 9, 2022
Slide 1: Third Quarter 2022 Investor Presentation
Third Quarter 2022 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 1 with shareholders’ equity of $1.0 billion . Ambac’s core business is a growing specialty P&C distribution and underwriting platform. Ambac also has a legacy financial guarantee
Slide 4: Specialty P&C: A Diversified, Capital Light Specialty Platform
Specialty P&C: A Diversified, Capital Light Specialty Platform • Ambac’s Specialty P&C Platform includes its growing hybrid carrier (Everspan), the specialty program insurance distribution segment Everspan MGA/MGU (Cirrata) and the strategic investments strategy (Redgrove) program and fronting solut
Slide 5: 2023 Strategic Priorities
2023 Strategic Priorities Legacy Financial AFG Everspan Insurance Cirrata Guarantee • Grow and maximize • Target GPW +$250 million in • Premiums placed +$200 • De-risk and de-lever the 1,2 shareholder value over 2023 growing to +$500 million targeted in 2023 balance sheet 1,2 medium and long term mi
Slide 6: Select Partnerships and Strategic Investments
Select Partnerships and Strategic Investments Everspan 3Q21 1Q22 1Q22 1Q22 2Q22 3Q22 3Q22 4Q22 4Q22 Cirrata Strategic Investments Confidential MGA 4Q20 2Q22 4Q22 4Q22 4Q21 3Q22 3Q22 6
Slide 7: Projected MGA/U Growth Provides Compelling Opportunity
Projected MGA/U Growth Provides Compelling Opportunity Ambac’s Specialty P&C Platform is poised to benefit from growth in the MGA/U market 1 U.S. MGA Market U.S. MGA Direct Written U.S. MGA Premium Distribution 2,3 2 Premiums ($bn) by MGA Size $70 bn 16% $70 $63 2021E DPW YoY Growth $60 22.0% 25.0%
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 1 E&S Industry Sweeping technological Continued economic disruption investment $82 bn 14% Innovation brings unforeseen Infras
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 1 1 Historical E&S Trends E&S Industry vs. P&C Industry DPW CAGRs 12% • 2021 E&S direct premiums written are estimated to be 10% 10% $82
Slide 10: Everspan Group: Specialty P&C Hybrid Program Insurer
Everspan Group: Specialty P&C Hybrid Program Insurer Everspan has assembled a ‘Best-in-Class’ team of Specialty P&C program insurance executives with deep experience scaling businesses • $30 million of GPW in 3Q22 up 6x over 3Q2021 Gross Premium Written (GPW) and Number of Programs • $95 million of
Slide 11: Everspan: Diverse Product Line & Risk Appetite
Everspan: Diverse Product Line & Risk Appetite Active risk management Disciplined underwriting approach Strategic partners focused on value Continuity, consistency and stability are critical to Led by a well seasoned underwriting team, creation an active risk management program; Everspan Everspan is
Slide 12: Cirrata: Insurance Distribution via Majority Owned MGAs
Cirrata: Insurance Distribution via Majority Owned MGAs High margin businesses that generate predictable recurring fee-based income • $28 million of premium placed in 3Q22 relatively flat to Premium Placed by Line ($ in millions) 3Q2021 $50 $40 $12.2 • $97 million of premium placed YTD 2022 up 7% ov
Slide 13: 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 • Provide immediate scale and operating synergies • Partner with ‘Best-in-class’ under
Slide 14: Cirrata: Recent Acquisitions
Cirrata: Recent Acquisitions Successful close on accretive acquisitions expands the platform and adds approximately $60 million of additional premiums placed Business Lines Business Lines School Bus Charter Bus Paratransit Marine Insurance International Risk Business Overview Business Overview • Pro
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) $20 • Active de-risking of legacy financial guarantee ($ in billions) insured portfolios towards stable run-off $10 • Adjusted Book Value of $592 million up by
Slide 17: Ambac's Balance Sheet Quality has Improved Materially
Ambac’s Balance Sheet Quality has Improved Materially Improving Quality • Rep & Warranty Recoverable 95% • Adverse Credit Exposure 65% • Net Loss Reserves 87% • Net Par “NPO” Exposure 62% of ABV Since 2017 • Puerto Rico Exposure 77% • Debt Leverage 59% 15 $1,500 12.8x $1,313 12 $1,251 $1,200 Adj Boo
Slide 18: Ambac Assurance What's Next?
Ambac Assurance What’s Next? Acceleration of strategic options following the $1.84 billion settlement with Bank of America Settlement Overview Future Strategic Considerations Settlement amount: Re-imagining AAC as the run-off portfolio $1.84 bn transitions into a positive carry position following $1
Slide 19: Ambac's Key Components of Value
Ambac’s Key Components of Value Growing Fee & Underwriting Businesses Legacy Financial AFG Everspan Insurance Cirrata Guarantee • Minority investments in • $95 million of GPW YTD 2022 • $97 million of placed • 8 : 1 total claims paying ratio insurance services vs. $6 million last year premium YTD 20
Slide 20: Ambac Financial Review 3Q22
Ambac Financial Review 3Q22
Slide 21: 3Q2022 Consolidated Financial Overview
3Q2022 Consolidated Financial Overview Net income attributable to common stockholders for 3Q2022 was $340.0 Adjusted earnings for 3Q2022 of $338.1 million and adjusted earnings for million compared to net income of $16.9 million in 3Q2021 3Q2021 of $25.4 million excludes insurance intangible asset a
Slide 22: Computation of Bank of America Settlement Gains (Losses)
Computation of Bank of America Settlement Gains (Losses) GAAP STAT Cash ($ in millions) Flows Gain / (Loss) 3Q 22 4Q 22 Gain / (Loss) 3Q 22 4Q 22 R&W Receipts Gross $ 1,840 Ceded (27) Net 1,813 $ 450 $ 324 $ 126 $ 309 $ 178 $ 131 Reduction of other potential litigation recoveries — (5) (5) — — — — 1
Slide 23: 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, 2022 Gross premiums written $ (13.5) $ 29.8 $ 16.3 Net premiums written (6.1) 5.6 (
Slide 24: 3Q2022 vs 3Q2021 - Key Consolidated Financial Metrics
3Q2022 vs 3Q2021 - Key Consolidated Financial Metrics Results for 3Q2022 were primarily driven by the $319 million gain from the Bank of America settlement reflected in the loss and loss expense benefit. Lower net investment income from equity, hedge fund, and high yield loan fund losses; was more t
Slide 25: N.I.I. & Investment Portfolio as of September 30, 2022
N.I.I. & Investment Portfolio as of September 30, 2022 Net investment income in 3Q2022 was $11 million compared to income of $21 million for 3Q2021 reflecting a net loss on funds of $5 million, a decline of $12 million from 3Q2021 driven primarily by equity market losses and negative performance fro
Slide 26: Incurred Losses (Benefit) by Category - 3Q2022 vs 3Q2021
1 Incurred Losses (Benefit) by Category - 3Q2022 vs 3Q2021 Structured Finance benefit of $351 million in 3Q2022 was primarily driven Domestic Public Finance benefit of $1 million in 3Q2022 was driven by by the $319 million gain from the Bank of America settlement and the credit improvements and high
Slide 27: Expense Management
Expense Management Compensation Expense Non-Compensation Expense $18 $18 $16 $16 $14 $14 $12 $12 ($ in millions) ($ in millions) $10 $10 $8 $8 $6 $6 $4 $4 $2 $2 $— $— $(2) 3Q2021 4Q2021 1Q2022 2Q2022 3Q2022 3Q2021 4Q2021 1Q2022 2Q2022 3Q2022 Legacy Financial Guarantee Specialty P&C Insurance Legacy
Slide 28: Ambac Non-GAAP Reconciliations
Ambac Non-GAAP Reconciliations
Slide 29: Ambac Non-GAAP Financial Data
Ambac Non-GAAP Financial Data Non-GAAP Financial Data The Company currently reports three non-GAAP financial measures: EBITDA, adjusted earnings and adjusted book value. The most directly comparable GAAP measures are pre-tax net income for EBITDA, net income attributable to common stockholders for a
Slide 30: EBITDA Reconciliation
EBITDA Reconciliation Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & Insurance Insurance Distribution Other Consolidated Three Months Ended September 30, 2022 Pretax income (loss) $ 348.7 $ (1.5) $ 0.9 $ (5.6) $ 342.5 Adjustments: Interest expense 48.6 — — — 48.6 Depr
Slide 31: Ambac Non-GAAP Financial Data - Adjusted Earnings (Loss)
Ambac Non-GAAP Financial Data - Adjusted Earnings (Loss) 1,2 Adjusted Earnings The following table reconciles net income attributable to common stockholders to the non-GAAP measure, adjusted earnings, for the periods listed: 3Q2022 2Q2022 1Q2022 4Q2021 3Q2021 1,3 1,3 1,3 1,3 1,3 ($ in millions, exce
Slide 32: Ambac Non-GAAP Financial Data - Adjusted Book Value
Ambac Non-GAAP Financial Data - Adjusted Book Value 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, 2022 June 30, 2022 March 31, 2022 December 31, 2021 Septe
Slide 33: LFG Segment Non-GAAP Financial Data - Adjusted Book Value
LFG Segment Non-GAAP Financial Data - Adjusted Book Value 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 el
Slide 34: Appendix
Ambac Appendix
Slide 35: 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 36: 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 Contact specialty P&C distribution and underwriting platform. Ambac also has a legacy financial guaranty business in run off. Ambac’s
Ambac Financial Group — Q3 2022 Earnings Presentation on 6ix