Octave Specialty Group, Inc. · NYSE:OSG
Octave Specialty — Ambac Financial Group — Q1 2023 Earnings Presentation
36 slides from Octave Specialty's earnings presentation, May 10, 2023
Slide 1: First Quarter 2023 Investor Presentation
First 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 $1.3 billion1. Ambac’s core operating business is a growing specialty P&C distribution and program underwriting platform. Ambac also has a legacy fina
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 program insurer (“Everspan”), Everspan MGA/MGU specialty program insurance distribution business (“Cirrata”) and strategic investments program strategy (“Redgrove”) underwriting solut
Slide 5: 2023 Strategic Priorities
2023 Strategic Priorities AFG Everspan Insurance Cirrata Legacy Financial Guarantee • Grow and maximize • Target GPW +$250 million in • Premiums placed +$200 million • De-risk and de-lever the shareholder value over medium 2023 growing to +$500 million targeted in 20231,2 balance sheet and long term
Slide 6: Select Partnerships and Strategic Investments
Select Partnerships and Strategic Investments Everspan 3Q21 1Q22 1Q22 1Q22 2Q22 3Q22 4Q22 4Q22 4Q22 4Q21 4Q22 1Q23 1Q23 Cirrata Strategic Investments Confidential MGA 4Q20 3Q22 4Q22 4Q22 4Q21 3Q22 3Q22 6
Slide 7: Projected MGA/U Growth Provides Compelling Opportunity
Projected MGA/U Growth Provides Compelling Opportunity Ambac’s Specialty P&C Platform is poised to benefit from growth in the MGA/U market U.S. MGA U.S. MGA Direct Premium Written U.S. MGA Premium Distribution by Market1 ($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 $82 bn 14% 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% • 2021 E&S direct premiums written were $82 billion implying 10% 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 • $52 million of GPW in 1Q23 up 116% vs. 1Q22 Gross Premium Written (GPW) and Number of Programs $60 20 $50 18 • GPW split in 1Q
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 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 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 • $77 million of premium placed in 1Q23 up 72% from 1Q22 on Premium Placed by Line ($ in millions) organic growth and acquisitions, including All Trans and Capacity $10
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 & Organic Expansion • Provide immediate scale, diversification and potential • Partner
Slide 14: Cirrata: Recent Acquisitions (Effective Nov. 1, 2022)
Cirrata: Recent Acquisitions (Effective Nov. 1, 2022) Successful close on accretive acquisitions expands the platform across products and distribution Business Lines Business Lines School Bus Charter Bus Paratransit Marine Insurance International Risk Business Overview Business Overview • Providing
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) $15.0 • Actively de-risking legacy financial guarantee insured portfolios towards stable run-off ($ in billions) $10.0 $5.0 • Actively working with OCI to deve
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 65% Since 2017 • Net Loss Reserves/BV 91% • Net Par “NPO” Exposure/BV 61% 10.2x $1,500 $1,592 $1,477 $1,381 9 $1,20
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 72% Since 2017 • Net Loss Reserves/ABV 92% • Net Par “NPO” Exposure/ABV 69% $1,500 12 12.8x $1,313 $1,251 $1,
Slide 19: Ambac Assurance What's Next?
Ambac Assurance What’s Next? Acceleration of strategic options following settlements totaling ~$2 billion with Bank of America and Nomura Settlement Overview Future Strategic Considerations Settlement amount: Re-imagining AAC as a run-off portfolio as we strive ~$2 bn towards being in a positive car
Slide 20: 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 • $174 million of GPW last 4 • $168 million of placed premium • 13 : 1 total claims paying ratio insurance services businesses, quarters last 4 qu
Slide 21: Financial Review 1Q23
Ambac Financial Review 1Q23
Slide 22: 1Q23 Consolidated Financial Overview
1Q23 Consolidated Financial Overview Net loss attributable to common stockholders for 1Q23 was $(33.4) million Adjusted net loss for 1Q23 of $(13.8) million and adjusted net income for 1Q22 of compared to net income of $2.0 million in 1Q22 as higher investment income, $11.0 million driven by the sam
Slide 23: Ambac's Operating Segment Highlights
Ambac’s Operating Segment Highlights Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & ($ in millions) Insurance Insurance Distribution Other Consolidated Three Months Ended March 31, 2023 Gross premiums written $ 8.9 $ 51.8 $ 60.7 Net premiums written 8.8 9.2 18.0 Total
Slide 24: 1Q23 vs 1Q22 - Key Consolidated Financial Metrics
1Q23 vs 1Q22 - Key Consolidated Financial Metrics $100 57 $50 $34 (in millions) $14 $15 $11 $5 $2 $— (4) $(14) $(18) $(16) $(24) $(29) $(33) $(36) $(50) $(44) Net premiums Net investment Loss and Loss benefit Net gains (losses) on General and Interest expense Net income (loss) Adjusted net earned in
Slide 25: N.I.I. & Investment Portfolio as of March 31, 2023
N.I.I. & Investment Portfolio as of March 31, 2023 Net investment income in 1Q23 was $34 million compared to $5 million in 1Q22 reflecting higher interest rates and improved alternative and trading asset performance. Net gains on alternative investments were over $12 million compared to less than $1
Slide 26: Incurred Losses (Benefit) by Category - 1Q23 vs 1Q22
Incurred Losses (Benefit) by Category1 - 1Q23 vs 1Q22 Structured Finance loss of $20 million in 1Q23 was primarily driven by a Domestic Public Finance loss of $3 million in 1Q23 was primarily driven by a reduction in discount rates, compared to 1Q22 when a Rep & Warranty reduction in discount rates
Slide 27: General And Administrative Expenses
General And Administrative Expenses Compensation Expense Non-Compensation Expense $18 $35 $16 $30 $14 $25 $12 ($ in millions) ($ in millions) $20 $10 $8 $15 $6 $10 $4 $5 $2 $— $— 1Q2022 2Q2022 3Q2022 4Q2022 1Q2023 1Q2022 2Q2022 3Q2022 4Q2022 1Q2023 Legacy Financial Guarantee Specialty P&C Insurance
Slide 28: Non-GAAP Reconciliations
Ambac Non-GAAP Reconciliations
Slide 29: 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 30: 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 31: EBITDA Reconciliation
EBITDA Reconciliation Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & Insurance Insurance Distribution Other Consolidated Three Months Ended March 31, 2023 Net income (loss) (1) $ (35.9) $ (0.8) $ 3.5 $ 0.4 $ (32.8) Adjustments: Interest expense 16.4 — — — 16.4 Income
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: March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March
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 specialty P&C Contact distribution and underwriting platform. Ambac also has a legacy financial guaranty business in run off. Ambac’s
Ambac Financial Group — Q1 2023 Earnings Presentation on 6ix