Octave Specialty Group, Inc. · NYSE:OSG
Octave Specialty — Ambac Financial Group — BMO Capital Markets Insurance Conference 2024
36 slides from Octave Specialty's conference presentation, Jun 13, 2024
Slide 1: Investor Presentation – BMO Capital Markets Insurance Conference
Ambac Financial Group One World Trade Center, 41st Floor, New York, NY 10007 All Rights Reserved | 800-221-1854 | www.ambac.com • June 13, 2024 INVESTOR PRESENTATION BMO CAPITAL MARKETS INSURANCE CONFERENCE pursuant to Rule 14a-12 under the Securities Exchange Act of 1934 Subject Company: Ambac Fina
Slide 2: Disclaimers
PAGE 1 Disclaimers 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,” “inten
Slide 3: Disclaimers (continued)
PAGE 2 Disclaimers (continued) (38) 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; (39) failures in services or products provided by t
Slide 4: Ambac 2025 investment highlights
PAGE 3 • A pure-play P&C business focused on the dynamic MGA sector following the completion of two strategic transactions: (1) Sale of Legacy Financial Guarantee business and (2) Acquisition of controlling interest in Beat • Positioned to be the premier destination for specialty programs & MGAs Amb
Slide 5: Ambac 2025 Future State
PAGE 4 NYSE: AMBC ~$380M Net Hold Co. Assets1,2 1. Assumes the sale of the AAC business and the purchase of Beat, assuming the repayment of debt related to the Beat acquisition 2. Based on estimates, which are subject to market conditions, risk factors described in Ambac's Annual Report on Form 10-K
Slide 6: Two-Step Path to Achieving the Future State Ambac 2025
PAGE 5 Two-Step Path to Achieving the Future State “Ambac 2025” The sale of AAC crystalizes value from our Legacy Finacial Guarantee run-off business The acquisition of Beat aligns with our vision of being the premier destination for MGAs for $282M Acquiring a (60%) controlling interest in for $420M
Slide 7: Rationale for the AAC sale
PAGE 6 • Stability – Removes volatility related to long-tail run-off liabilities, significant financial leverage and interest rate sensitivity • Warrants – Ambac controls settlement currency (cash or net stock settlement) – Strike price of $18.50 – Net share issuance based on dollar value in the mon
Slide 8: Ambac 2025: Capital-Light, High-Growth Insurance Distribution Platform
AMBAC 2025 CAPITAL-LIGHT, HIGH-GROWTH INSURANCE DISTRIBUTION PLATFORM
Slide 9: Our Vision: Premier Destination for MGAs
PAGE 8 Become the premier pure-play MGA platform specialist attracting high quality, entrepreneurial talent Our Vision Direct exposure into the growing and dynamic global MGA and E&S program market Superior return profile compared to general P&C Create the Premier Destination for MGAs Goal Opportuni
Slide 10: Well Positioned to Compete in Program & MGA Sector
PAGE 9 Permanent Capital Partnership Model MGA/Program Pure-Play Risk & Control Environment Nimble Structure Private Equity Roll-ups Large, Publicly Traded Brokers Large Private Consolidators Strengthened capital and strategic position supports profile as an attractive destination for MGAs/MGUs Well
Slide 11: Cirrata and Beat partnership model
PAGE 10 1. Cirrata only, before the Beat acquisition 2. Combined is the consolidation of 2025 full year management estimates for Cirrata and Beat Capital, Represents management forecasts, which are subject to market conditions, risk factors described in Ambac's Annual Report on Form 10-K filed with
Slide 12: Beat Has a Strong Performance History
PAGE 11 $44.8 $50.7 $60.8 $11.9 $13.7 $18.9 $292.7 $377.5 $533.8 2021A 2022A 2023A Revenue EBITDA GWP 1. Gross Written Premiums 2. Includes investment income and estimated for profit commissions under US GAAP for 2021-2023 3. Estimated US GAAP equivalent results 4. Refer to slides 34 for a reconcili
Slide 13: Beat Acquisition Creates a Leading Global MGA Platform
PAGE 12 Advances insurance underwriting and distribution strategy and improves margin profile Creates global specialty MGA platform, expanding access to capital Provides immediate scale and diversification to the Cirrata platform while supporting future growth Aligns interests between Ambac and Beat
Slide 14: Everspan: Specialty P&C Program Insurer Overview
PAGE 13 • Established in 2021 • Everspan reached initial profitability in 3Q23 and has produced improving underwriting results over the last six quarters • May retain up to 30% program risk • Pathway to mid-teen ROEs at scale • Highly selective ~5% submission acceptance • Rigorous risk management an
Slide 15: Everspan: Underwriting Results Improving with Scale
PAGE 14 Combined Ratio 1. Expense Ratio is defined as acquisition costs and general and administrative expenses, reduced by program fees divided by net premiums earned 0% 50% 100% 150% 200% 2022A 2023A 2024E Loss Ratio Expense Ratio • Employs disciplined underwriting strategy, beginning with rigorou
Slide 16: Cirrata & Everspan Combined Production
PAGE 15 MGA Programs2Premium Production1 (in millions, unless otherwise noted) $42 MILLION3,4 of P&C EBITDA in 2025E 1. Premium production includes Gross Written Premiums at Everspan and Premiums Placed at Cirrata 2. MGA Programs count includes owned MGAs at Cirrata and Everspan’s MGA programs 3. Re
Slide 17: Ambac 2025 Expected Sources of Value
PAGE 16 “Ambac 2025” Expected Sources of Value 1. Represents management forecasts, which are subject to market conditions, risk factors described in Ambac's Annual Report on Form 10-K filed with the SEC on February 27, 2024, and changes in the views of management. Actual results may differ materiall
Slide 18: Sale of Legacy Financial Guarantee Business
SALE OF LEGACY FINANCIAL GUARANTEE BUSINESS AMBAC HAS SIGNED A DEFINITIVE AGREEMENT TO SELL 100% OWNERSHIP IN AMBAC ASSURANCE CORPORATION AND AMBAC ASSURANCE UK LIMITED ("AAC") TO FUNDS MANAGED BY OAKTREE CAPITAL MANAGEMENT, L.P. (“OAKTREE”)
Slide 19: Strategic Rationale for the Sale of the Legacy Financial Guarantee Business
PAGE 18 Strategic Rationale for the Sale of the Legacy Financial Guarantee Business Attractive Return on a time & risk adjusted basis Increased financial flexibility for capital deployment and management Reduces earnings volatility and uncertainty Cements Ambac as a pure-play Specialty P&C company S
Slide 20: Key Transaction Details
PAGE 19 Key Transaction Details Overview Financial Impact Use of Proceeds 9.9% equity warrants issued to buyer priced at $18.50 per share Selling 100% of AAC to Oaktree Estimated closing 4Q24 $420M cash sale price with potential upward adjustments1 AFG Pro-forma Book Value $857M1 Everspan capacity e
Slide 21: Pro-forma Financial Impact of AAC Sale
PAGE 20 Pro-forma Financial Impact1 of AAC Sale (in millions) 1Q24 Actual 1Q24 Pro-Forma3 % Change Total assets $8,429 $1,396 (83%) Loss and loss adjustment expense reserves $851 $237 (72%) Long-term debt $999 $0 (100%) Adjustable Market Preferred “AMPS” $115 $0 (100%) Insured net par outstanding “N
Slide 22: Ambac Acquiring Beat Capital Partners
AMBAC ACQUIRING BEAT CAPITAL PARTNERS AMBAC HAS SIGNED A DEFINITIVE AGREEMENT TO ACQUIRE A 60% STAKE IN BEAT CAPITAL PARTNERS (“BEAT”), A LONDON-BASED UNDERWRITING FRANCHISE AND MANAGING GENERAL AGENCY (MGA) PLATFORM
Slide 23: Ambac to acquire 60% controlling interest in Beat
PAGE 22 Ambac Financial Group to acquire a 60% controlling interest in Beat from Bain Capital and Beat Management A Leading London-Based Underwriting & MGA Platform $90M Revenue1,2,3 in ’24E $27M of EBITDA1,2,3,4 1. Represents management forecasts, which are subject to market conditions, risk factor
Slide 24: Strategic Rationale for Beat Acquisition
PAGE 23 Strategic Rationale for Beat Acquisition Scales and diversifies Cirrata into a leading MGA platform Accelerates progress toward achieving our 3-year goal of +$100M of EBITDA1 Beat platform and leadership team are an MGA growth engine Strong strategic and cultural alignment Opportunity for op
Slide 25: Transaction Summary
PAGE 24 Transaction Summary Terms Financing Estimated closing 3Q24 Acquiring 60% of Beat, a premier underwriting platform for $282M Beat Management & Bain Capital each retaining 20% ownership in Beat Funded with a mix of cash, committed financing, and up to $40M of AFG common stock to Bain Capital a
Slide 26: A Leading UK MGA
PAGE 25 $534M1 & $733M1,2 GWP4,5 in 2023A & 2024E FY21 – FY23 GWP4,5 CAGR ~20% A Leading UK MGA Based on 2022 Revenue Management of Lloyd’s Syndicate & Bermuda Reinsurer ~$90M1,2 Revenue 2024E ’23 EBITDA3,4 Margin ~27% Highly regarded and experienced management team 11 franchises writing 22 lines of
Slide 27: Connecting Risk to Capital
PAGE 26 Connecting Risk to Capital Underwriting Franchises Managed Portfolios Long-term Capital Partners Including: London / Bermuda USA Strategic Capital Partners Syndicates 4242 & 1416 Third-party carriers BCPL owns majority stakes in individual MGA franchises Capacity providers can back Beat MGA
Slide 28: Portfolio by risk type: Beat and Cirrata
PAGE 27 16% 14% 11% 8%8% 7% 6% 5% 5% 5% 4% 3% 3% 2% 1% Niche Specialty Risks Small Property Large Property Specialty Reinsurance Employee stop loss Specialty commercial auto Limited & Short-term medical Professional E&O Energy Credit Environmental Insurance Other Professional D&O Marine Professional
Slide 29: A Compelling Long-term Opportunity for Cirrata
PAGE 28 $16 Cirrata '25E Combined '25E $58 $359 Cirrata '25E Combined '25E Premium Production1 (in millions, unless otherwise noted) EBITDA4 (100% for consolidation) (in millions) $80 Cirrata '25E Combined '25E $196 $13 Cirrata '25E Combined '25E $31 EBITDA4 (AFG’s Interest; excluding Everspan) (in
Slide 30: EBITDA Walk on Non-Controlling Interests
PAGE 29 EBITDA Walk on Non-Controlling Interests “NCI” 1. Represents management forecasts, which are subject to market conditions, risk factors described in Ambac's Annual Report on Form 10-K filed with the SEC on February 27, 2024, and changes in the views of management. Actual results may differ m
Slide 31: Appendix
Ambac APPENDIX
Slide 32: Reconciliation of Non-GAAP Earnings Measures by Reporting Segment (2023)
PAGE 31 Reconciliation of Non-GAAP Earnings Measures by Reporting Segment (2023) Year Ended December 31, 2023 ($ in millions) AAC SPC ID CORP CONS ($ in millions) AAC SPC ID CORP CONS Gross Written Premiums $ 14.8 $ 273.3 $ 288.1 Expenses: Net premiums written (35.5) 79.8 44.4 Losses and loss adjust
Slide 33: Reconciliation of Non-GAAP Earnings Measures by Reporting Segment (First Quarter 2024)
PAGE 32 Reconciliation of Non-GAAP Earnings Measures by Reporting Segment (First Quarter 2024) The Company reports its results of operations in three segments: Legacy Financial Guarantee Insurance, Specialty Property and Casualty Insurance and Insurance Distribution, separate from Corporate and Othe
Slide 34: Segment results and equity, Q1 2024 and Q1 2023
PAGE 33 ($ in millions) Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated Three Months Ended March 31, 2024 Gross Written Premiums $ 1.7 $ 96.4 $ 98.1 Net premiums written 1.5 26.2 27.8 Total revenues 53.1 29.5 $ 17.9 $
Slide 35: Beat US Adjusted EBITDA & Revenue Bridge
PAGE 34 Beat US Adjusted EBTIDA & Revenue Bridge 2023 2022 2021 GBP/USD Conversion Rate 1.25 1.21 1.35 UK GAAP Profit Before Tax (£ GBP)1 13,329 7,518 27,848 (-) UK GAAP PnL on Disposal of Ops2 - 1,888 (19,198) (+) UK GAAP Other Comprehensive Income 554 - - (+) UK GAAP Net Finance Income /Exp3 136 2
Slide 36: About Ambac
PAGE 35 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 distribution and underwriting platform. Ambac also has a legacy financial guaranty business in run off. Ambac’s
Ambac Financial Group — BMO Capital Markets Insurance Conference 2024 on 6ix