Octave Specialty Group, Inc. · NYSE:OSG
Octave Specialty — Ambac Financial Group — Q4 2023 Earnings Presentation
34 slides from Octave Specialty's earnings presentation, Feb 28, 2024
Slide 1: Fourth Quarter 2023 Investor Presentation
Fourth 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 $1.36 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 minority program investments (“Redgrove”) underwriting solut
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 • $91 million of GPW in 4Q23 up 76% vs. 4Q22 Gross Premium Written (GPW) and Number of Programs $100 28 • $273 million of GPW in
Slide 11: Everspan: Underwriting Strategy
Everspan: Underwriting Strategy Everspan’s disciplined underwriting strategy begins with its rigorous program partner selection process • Combined Ratio of 100.3% improved from 124.3% in 4Q22 Combined Ratio driven mainly by the scale benefit on the expense ratio 180% • Loss Ratio of 67.4% in 4Q23 vs
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 • $50 million and $231 million of premium placed in 4Q23 and 2023, Premium Placed by Line ($ in millions) which were increases of 31% and 70% from prior periods respect
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) $10 • Moelis & Company exploring potential strategic transactions with ($ in billions) interested 3rd parties for Legacy Financial Guarantee $5 • Finalized the
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 71% • Puerto Rico Exposure/BV 93% • Adverse Credit Exposure/BV 75% Since 2017 • Net Loss Reserves/BV 91% • Net Par “NPO” Exposure/BV 69% 10.2x $1,500 $1,592 $1,477 $1,381 $1,362
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 75% • Puerto Rico Exposure/ABV 94% • Adverse Credit Exposure/ABV 79% Since 2017 • Net Loss Reserves/ABV 92% • Net Par “NPO” Exposure/ABV 74% $1,500 12 12.8x $1,313 $1,299 $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 • $273 million of GPW last 4 • $231 million of placed premium • 11 : 1 total claims paying ratio insurance services businesses quarters last 4 qua
Slide 20: 4Q23 Financial Review
Ambac 4Q23 Financial Review
Slide 21: 4Q23 Consolidated Financial Overview
4Q23 Consolidated Financial Overview Net income attributable to common stockholders for 4Q23 was $(15.7) million Adjusted net income for 4Q23 of $10.2 million compared to an adjusted net income compared to net income of $175.2 million in 4Q22 mainly from the litigation for 4Q22 of $182.7 million; dr
Slide 22: Ambac's Operating Segment Highlights
Ambac’s Operating Segment Highlights Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & ($ in millions) Insurance Insurance Distribution Other Consolidated Three Months Ended December 31, 2023 Gross premiums written $ 2.3 $ 90.7 $ 93.1 Net premiums written 7.3 36.7 44.1 T
Slide 23: 4Q23 vs 4Q22 - Key Consolidated Financial Metrics
4Q23 vs 4Q22 - Key Consolidated Financial Metrics $200 $183 $175 $150 $126 $100 (in millions) $55 $50 $40 $31 $23 $24 $17 $10 $— $— $— $— $(16) $(19) $(16) $(16) $(35) $(30) $(50) $(51) $(100) Net premiums Net investment Net investment Net realized gain on Litigation recoveries Loss and expense Gene
Slide 24: Net Investment Income & Invested Assets as of December 31, 2023
Net Investment Income & Invested Assets as of December 31, 2023 Net Investment Income Total Portfolio — $2.7 billion Other Investments — $475 million (Loss) $50 $40 MBS and ABS 34% 23% ($ in millions) U.S. Government 1% $30 obligations Alternative fixed income Short-term & hedge funds 17% Municipal,
Slide 25: General And Administrative Expenses
General And Administrative Expenses Compensation Expense Non-Compensation Expense $22.0 $21.1 $35.0 $33.9 $20.0 $31.5 $17.5 $17.6 $17.7 $18.0 $30.0 $16.4 $16.0 $25.0 $14.0 $20.0 ($ in millions) ($ in millions) $20.0 $18.4 $12.0 $10.0 $15.0 $13.6 $8.0 $10.0 $6.0 $4.0 $5.0 $2.0 $— $— 4Q2022 1Q2023 2Q2
Slide 26: Non-GAAP Reconciliations
Ambac Non-GAAP Reconciliations
Slide 27: Ambac Non-GAAP Financial Data
Ambac Non-GAAP Financial Data Non-GAAP Financial Data In addition to reporting the Company’s quarterly financial results in accordance with GAAP, the Company is reporting non-GAAP financial measures: EBITDA, Adjusted Net Income and Adjusted Book Value. These amounts are derived from our consolidated
Slide 28: Ambac Non-GAAP Financial Data - Adjusted Net Income (Loss)
Ambac Non-GAAP Financial Data - Adjusted Net Income (Loss) A New Key Performance Metric Financial Objectives: • Non-GAAP financial measure comparable to measures utilized by P&C peers • Removes adjustments that may not be indicative of Ambac’s underlying business trends, operating results or future
Slide 29: EBITDA Reconciliation
EBITDA Reconciliation The following table reconciles Net income (loss) to the non-GAAP measure EBITDA as of each date presented: Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & Insurance Insurance Distribution Other Consolidated Three Months Ended December 31, 2023 Net
Slide 30: Ambac Non-GAAP Financial Data - Adjusted Book Value
Ambac Non-GAAP Financial Data - Adjusted Book Value The following table reconciles Total Ambac Financial Group, Inc. stockholders’ equity to the non-GAAP measure adjusted book value as of each date presented: December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 ($ in m
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: ($ in millions) 4Q2023 3Q2023 2Q2023 1Q2023 Ambac’s Shareholders' Equity (Legacy
Slide 32: Appendix
Ambac Appendix
Slide 33: Risk Adverse Credit Classifications
Risk Adverse Credit Classifications Classification Description Class IA Potential Problem with Risks to be Dimensioned Class II Substandard Requiring Intervention Adversely Classified Class III Doubtful with Clear Potential for Loss Credits Class IV Imminent Default or Defaulted Class V Fully Reserv
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
Ambac Financial Group — Q4 2023 Earnings Presentation on 6ix