Octave Specialty Group, Inc. · NYSE:OSG
Octave Specialty — Ambac Financial Group — Q2 2022 Earnings Presentation
32 slides from Octave Specialty's earnings presentation, Aug 9, 2022
Slide 1: Second Quarter 2022 Investor Presentation
Second 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. Ambac’s core business is a growing specialty P&C distribution and underwriting platform. Ambac also has a legacy financial guarantee business in run-off. 1 Shareholders’ Equity:
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 specialty P&C hybrid fronting business (Everspan), the insurance distribution Everspan MGA/MGU segment (Cirrata) and the strategic investments strategy program and fronting solutions
Slide 5: Select Partnerships and Strategic Investments
Select Partnerships and Strategic Investments Everspan 3Q21 1Q22 1Q22 1Q22 2Q22 3Q22 4Q22 Cirrata & Redgrove de novo Human Services MGA 4Q20 4Q21 2Q22 5
Slide 6: 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 7: 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 $61 bn 14% Innovation brings unforeseen Infras
Slide 8: 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 insurance market 1 1 Historical E&S Trends E&S Industry vs. P&C Industry DPW CAGRs 8% 7% • 2021 E&S direct premiums written are estimated to be 2 6% $61 billi
Slide 9: Everspan Group: Specialty P&C Hybrid Fronting Insurer
Everspan Group: Specialty P&C Hybrid Fronting Insurer Everspan Group entered the specialty P&C insurance program marketplace in February 2021 as a hybrid fronting carrier • $41 million of GPW in 2Q22 up 71% over 1Q22 Gross Premium Written (GPW) and Number of Programs • 2Q22 annualized run-rate of +$
Slide 10: Everspan: Diverse Product Line & Risk Appetite
Everspan: Diverse Product Line & Risk Appetite Service mix spanning hybrid fronting Disciplined underwriting approach Strategic partners focused on value and program specialty Led by a well seasoned underwriting team, creation Continuity, consistency and stability are critical to Everspan is discipl
Slide 11: Cirrata: Insurance Distribution via Majority Owned MGAs
Cirrata: Insurance Distribution via Majority Owned MGAs High margin businesses that generate predictable recurring fee-based income • $24 million of premium placed in 2Q22 up 7% from Premium Placed by Line ($ in millions) 2Q21 $50 $40 $12.2 • Closed a renewal rights transaction in May targeting $30
Slide 12: 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 • Build best-in-class underwriting teams in high margin spec
Slide 13: Building an MGU with Cirrata
Building an MGU with Cirrata AFG's Business Services Business Model Cirrata leverages AFG’s business services unit-22º Business Services-to offer distribution partners a full suite of technology lead operational solutions Sample Services Offerings Technology & Operations Human Resources Administrati
Slide 14: Legacy FG Run-Off Subsidiaries: Ambac Assurance & Ambac UK
Legacy FG Run-Off Subsidiaries: Ambac Assurance & Ambac UK RMBS Litigation Overview Segment Overview • Countrywide, First Franklin and Nomura • Active de-risking of legacy financial guarantee • Estimated GAAP gross subrogation related to representation and warranty (“R&W”) claims of $1.5 billion as
Slide 15: 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 • +$160 GPW annualized run- • $24m of placed premium in • 9 : 1 total claims paying ratio insurance services rate in 2Q22 up over 60% 2Q22 up 7% o
Slide 16: Financial Review
Ambac Financial Review 2Q22
Slide 17: 2Q2022 Consolidated Financial Overview
2Q2022 Consolidated Financial Overview Net income attributable to common stockholders for 2Q2022 was $5.2 Adjusted earnings for 2Q2022 of $12.7 million and adjusted loss for 2Q2021 million compared to net loss of $(28.5) million in 2Q2021 of $13.3 million excludes insurance intangible asset amortiza
Slide 18: Ambac's Operating Segment Highlights
Ambac’s Operating Segment Highlights Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & ($ in millions) Insurance Insurance Distribution Other Consolidated Three Months Ended June 30, 2022 Gross premiums written $ (4.3) $ 40.9 $ 36.6 Net premiums written $ 1.1 $ 8.1 $ 9.2
Slide 19: 2Q2022 vs 2Q2021 - Key Consolidated Financial Metrics
2Q2022 vs 2Q2021 - Key Consolidated Financial Metrics Results for 2Q2022 were primarily driven by lower net investment income from equity, hedge fund, and high yield loan fund losses; partially offset by gains on interest rate derivatives and higher investment related gains as compared to 2Q2021 $80
Slide 20: N.I.I. & Investment Portfolio Components as of June 30, 2022
N.I.I. & Investment Portfolio Components as of June 30, 2022 Net investment loss in 2Q2022 was $(21) million, compared to income of $42 million for 2Q2021 reflecting a net loss on funds of $(23) million, a decline of $42 million from 2Q2021. The decline in fund results was primarily driven by equity
Slide 21: Incurred Losses (Benefit) by Category - 2Q2022 vs 2Q2021
1 Incurred Losses (Benefit) by Category - 2Q2022 vs 2Q2021 Structured Finance benefit of $11 million in 2Q2022 was primarily driven Domestic Public Finance benefit of $3 million in 2Q2022 was driven by the the positive impact of higher discount rates and lower underlying credit improvements and high
Slide 22: 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) 2Q2021 3Q2021 4Q2021 1Q2022 2Q2022 2Q2021 3Q2021 4Q2021 1Q2022 2Q2022 Legacy Financial Guarantee Specialty P&C Insurance Legacy
Slide 23: Legacy Financial Guarantee Liability and Capital Summary
Legacy Financial Guarantee Liability and Capital Summary (in millions) Category 06/30/22 Comments Claim liabilities $ 1,146 Before estimated subrogation, Unearned Premium Revenue ("UPR") and reinsurance Secured notes $ 1,175 Includes $0.2 million of accrued and unpaid interest Includes $559 million
Slide 24: Non-GAAP Reconciliations
Ambac Non-GAAP Reconciliations
Slide 25: 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 26: EBITDA Reconciliation
EBITDA Reconciliation Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & Insurance Insurance Distribution Other Consolidated Three Months Ended June 30, 2022 Pretax income (loss) $ 6.9 $ (1.5) $ 0.3 $ 0.6 $ 6.3 Adjustments: Interest expense $ 45.0 $ — $ — $ — $ 45.0 Depre
Slide 27: 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: 2Q2022 1Q2022 4Q2021 3Q2021 2Q2021 1,3 1,3 1,3 1,3 1,3 ($ in millions, exce
Slide 28: 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: June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June
Slide 29: 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 30: Appendix
Ambac Appendix
Slide 31: 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 32: 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 — Q2 2022 Earnings Presentation on 6ix