Octave Specialty Group, Inc. · NYSE:OSG
Octave Specialty — Ambac Financial Group — Q4 2020 Earnings Presentation
33 slides from Octave Specialty's earnings presentation, Mar 2, 2021
Slide 1: Investor Presentation Quarterly Highlights Fourth Quarter 2020
Investor Presentation Quarterly Highlights Fourth Quarter 2020 © 2014 Ambac Ambac Financial Financial Group, Group Inc. One World Trade One State Center, 41stPlaza, Street Floor, New York, NY 10007 10004 All Rights Reserved | 800-221-1854 | www.ambac.com
Slide 2: Ambac - Company Overview
AMBAC - COMPANY OVERVIEW Ambac Financial Group, Inc., (AFG) is a financial services holding company whose common stock trades on the New York Stock Exchange under the symbol "AMBC" NYSE: AMBC $777 million market cap (1) MISSION VISION VALUES • Optimize our business and its • Transition to a growth-o
Slide 3: Summary of 2020 Accomplishments
SUMMARY OF 2020 ACCOMPLISHMENTS
Slide 4: Strategic Priorities Scorecard for 2020
STRATEGIC PRIORITIES SCORECARD FOR 2020 Strategic Priority Achievement Active runoff of Ambac Assurance and its subsidiaries ü Insured portfolio down 11% in 2020 through transaction terminations, policy commutations, settlements and restructurings with a focus on our watch ü Adversely Classified Cre
Slide 5: Strategic Priorities Scorecard (Cont'd)
STRATEGIC PRIORITIES SCORECARD (CONT'D) Strategic Priority Achievement Loss recovery through active litigation and exercise of contractual and legal rights ü Progressed RMBS litigations but incurred delays due to COVID Improved cost effectiveness and efficiency of the ü Ongoing management of operati
Slide 6: Risk Management – Reducing Insured Legacy Financial Guarantee Exposures
RISK MANAGEMENT – REDUCING INSURED LEGACY FINANCIAL GUARANTEE EXPOSURES Natural run-off of exposure is complemented by proactive de-risking activities focused on reducing Adversely Classified and Watch List Credits… Net Par Exposure Since June 2013 Adversely Classified Credits - Net Par (definitions
Slide 7: Loss Mitigation — Litigation and Other Recoveries
LOSS MITIGATION — LITIGATION AND OTHER RECOVERIES Aggressively pursuing RMBS and other recoveries, through litigation and other means - Achieved approximately $1.6 billion of RMBS-related recoveries ever-to-date Active Litigation • Countrywide, First Franklin and Nomura • U.S. Bank ◦ Estimated GAAP
Slide 8: 4Q20 Financial Review
4Q20 FINANCIAL REVIEW Ambac
Slide 9: 4Q2020 Financial Overview
4Q2020 FINANCIAL OVERVIEW • Net loss attributable to common stockholders for 4Q2020 was $14 million compared to $108 million in 3Q2020 ◦ The lower net loss for 4Q2020 compared to 3Q2020 reflects lower loss and loss expense incurred and higher net investment income • Adjusted Earnings for 4Q2020 of $
Slide 10: 4Q2020 vs 3Q2020 - Key Financial Results
4Q2020 vs 3Q2020 - KEY FINANCIAL RESULTS Fourth Quarter 2020 results improved relative to third quarter due to the impact of strong equity and credit markets on investment income and lower incurred losses in the insured portfolio, particularly in the public finance sector 4Q2020 3Q2020 $150 $100 $53
Slide 11: Net Investment Income (Loss)
NET INVESTMENT INCOME (LOSS) Net investment income for 4Q2020 was $53 million, compared to $37 million for 3Q2020. The increase was driven by gains from pooled fund investments $60 $40 $31 ($ in millions) $14 $20 $24 $23 $— 3Q2020 4Q2020 Available-for-sale Pooled funds and other 11
Slide 12: Investment Portfolio Components - December 31, 2020
INVESTMENT PORTFOLIO COMPONENTS - DECEMBER 31, 2020 Gains on pooled and other equity investments represented $31 million of the $53 million of total net investment gains for 4Q20, driven by continued strong equity and credit markets Total Portfolio - $3.5 billion Other Investments - $595 million MBS
Slide 13: Incurred (Losses) Benefit by Category - 4Q2020 vs 3Q2020
INCURRED (LOSSES) BENEFIT BY CATEGORY(1) - 4Q2020 vs 3Q2020 • RMBS losses of $15 million in 4Q2020 were the result of incremental loss expenses driven by increased R&W litigation costs • Domestic Public Finance benefit of $7 million in 4Q2020 was primarily due to the favorable impact of discount rat
Slide 14: Gross Loss Reserves by Category
GROSS LOSS RESERVES BY CATEGORY(1) December 31, 2020 September 30, 2020 $1,000 $724 $736 $500 $234 $233 $23 $20 $68 $80 $0 ($ in millions) $-500 $(397) $(393) $-1,000 $-1,500 $(1,446) $(1,462) $-2,000 RMBS Domestic Public Student Ambac UK Loss Total Finance Loans and Other Expenses Credits (1) Gross
Slide 15: Expense Management
EXPENSE MANAGEMENT Compensation Expense Non-Compensation Expenses $20 $20 $15 $15 ($ in millions) ($ in millions) $10 $10 $5 $5 $0 $0 4Q2019 1Q2020 2Q2020 3Q2020 4Q2020 4Q2019 1Q2020 2Q2020 3Q2020 4Q2020 Salaries Incentive Other Other AAC Regulatory • Compensation expense increased $1 million in 4Q2
Slide 16: Ambac Consolidated Liability and Capital Summary
AMBAC CONSOLIDATED LIABILITY AND CAPITAL SUMMARY Category ($ in millions) Comments 12/31/20 • Before estimated subrogation, Unearned Premium Revenue (“UPR”) and Claim Liabilities $2,160 reinsurance • Excludes $468 million of principal and interest held at AAC (1) Secured Notes $1,174 • Includes $0.2
Slide 17: Platform Diversification Strategy
PLATFORM DIVERSIFICATION STRATEGY
Slide 18: Ambac Simplified Organizational Structure
AMBAC SIMPLIFIED ORGANIZATIONAL STRUCTURE Ambac Financial Group Financial Services Holding Company Specialty Program Property Managing General Agents/ Financial Guarantee & Casualty Insurance Managing General Underwriters Ambac Assurance and Everspan Group Ambac UK Xchange (1) (Pillar I) (Pillar II)
Slide 19: Ambac's Platform Diversification Strategy
AMBAC’S PLATFORM DIVERSIFICATION STRATEGY Ambac’s platform diversification strategy is focused on creating a portfolio of capital light, synergistic, recurring fee-based businesses that will allow for utilization of Ambac’s Net Operating Loss carryforwards PILLAR I PILLAR II PILLAR III Specialty Pro
Slide 20: Platform Diversification Strategy – Pillar I
AMBAC'S PLATFORM DIVERSIFICATION STRATEGY – PILLAR I Pillar I - Specialty Program Property & Casualty Insurance Type of • Specialty program participatory fronting insurance Business • Ceding Commissions/Fronting Fees Revenues • Premiums on insurance risk retained • Investment Income • Everspan Indem
Slide 21: Pillar I (Cont'd) – Everspan Group's Competitive Advantage
AMBAC'S PLATFORM DIVERSIFICATION STRATEGY – PILLAR I (CONT’D) Everspan Group's Competitive Advantage • A.M. Best Financial Strength Rating of ‘A-’ (Excellent) and Financial Size Category Class VIII (as categorized by AM Best) • Over $100 million of capital • Management team highly experienced in the
Slide 22: Platform Diversification Strategy – Pillar II
AMBAC's PLATFORM DIVERSIFICATION STRATEGY – PILLAR II Pillar II - Managing General Agency/Underwriting Type of • Managing General Agent/Underwriter business Revenues • Base and profit commissions Platforms • Currently, Xchange Benefits, LLC and Xchange Affinity Underwriting Agency, LLC Investment •
Slide 23: Pillar II (Cont'd) – Xchange Transaction
AMBAC's PLATFORM DIVERSIFICATION STRATEGY – PILLAR II (CONT'D) Xchange Transaction • Ambac acquired an 80% membership interest in Xchange on December 31, 2020 • Xchange is a niche, property and casualty Managing General Underwriter, with a history of strong underwriting results, focused on accident
Slide 24: Platform Diversification Strategy – Pillar III
AMBAC's PLATFORM DIVERSIFICATION STRATEGY – PILLAR III Pillar III - Insurance Services Type of Various, including Insurtech platforms and third-party administrators business Revenues Commissions and fees Platforms Actively exploring Investment Fee based, capital light businesses that are synergistic
Slide 25: Ambac Value Drivers (as of December 31, 2020)
AMBAC VALUE DRIVERS (as of December 31, 2020) Proactive Liability Litigation & Recovery Strategic investments in Management • Aggressively pursuing legal rights in capital light, fee based, • Robust risk mitigation efforts the BofA/Countrywide, First Franklin growth oriented and Nomura cases strengt
Slide 26: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS 26
Slide 27: Ambac Non-GAAP Financial Data
AMBAC NON-GAAP FINANCIAL DATA Non-GAAP Financial Data Included in this presentation, the Company reports two non-GAAP financial measures: Adjusted Earnings and Adjusted Book Value. A non-GAAP financial measure is a numerical measure of financial performance or financial position that excludes (or in
Slide 28: Ambac Non-GAAP Financial Data (Continued)
AMBAC NON-GAAP FINANCIAL DATA (CONTINUED) Adjusted Book Value (1) 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, 2020 December 31, 2019 ($ in millions, except per share data) $
Slide 29: Appendix
APPENDIX Ambac 29
Slide 30: 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
Slide 31: 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 32: About Ambac
ABOUT AMBAC Ambac Financial Group, Inc. (“Ambac” or “AFG”), headquartered in New York City, is a financial services holding company. Ambac's subsidiaries include: Ambac Assurance Corporation and Ambac Assurance UK Limited, financial guarantee insurance companies currently in runoff; Everspan Indemni
Slide 33: Ambac
Ambac
Ambac Financial Group — Q4 2020 Earnings Presentation on 6ix