Octave Specialty Group, Inc. · NYSE:OSG
Octave Specialty — Ambac Financial Group — Q4 2022 Earnings Presentation
37 slides from Octave Specialty's earnings presentation, Mar 1, 2023
Slide 1: Fourth Quarter 2022 Investor Presentation
Fourth 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 1 with shareholders’ equity of $1.3 billion . Ambac’s core operating business is a growing specialty P&C distribution and program underwriting platform. Ambac also has a legacy fi
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), specialty program insurance distribution segment (Cirrata) and Everspan MGA/MGU strategic investments strategy (Redgrove) program underwriting • The growth
Slide 5: 2023 Strategic Priorities
2023 Strategic Priorities Legacy Financial AFG Everspan Insurance Cirrata Guarantee • Grow and maximize • Target GPW +$250 million in • Premiums placed +$200 • De-risk and de-lever the 1,2 shareholder value over 2023 growing to +$500 million targeted in 2023 balance sheet 1,2 medium and long term mi
Slide 6: Select Partnerships and Strategic Investments
Select Partnerships and Strategic Investments Everspan 1Q22 1Q22 3Q21 1Q22 2Q22 3Q22 4Q22 4Q22 Cirrata Strategic Investments Confidential MGA 4Q20 3Q22 4Q22 4Q22 4Q21 3Q22 3Q22 6
Slide 7: Projected MGA/U Growth Provides Compelling Opportunity
Projected MGA/U Growth Provides Compelling Opportunity Ambac’s Specialty P&C Platform is poised to benefit from growth in the MGA/U market 1 U.S. MGA Market U.S. MGA Direct Premium U.S. MGA Premium Distribution 2,3 2 Written ($bn) by MGA Size $70 bn 16% $70 $63 2021E DPW YoY Growth $60 22.0% 25.0% $
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 1 E&S Industry Sweeping technological Continued economic disruption investment $82 bn 14% Innovation brings unforeseen Infras
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 1 1 Historical E&S Trends E&S Industry vs. P&C Industry DPW CAGRs 12% • 2021 E&S direct premiums written were $82 billion 10% 10% 1 imply
Slide 10: Everspan Group: Specialty P&C Program Insurer
Everspan Group: 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 4Q22 up over 7.5x vs. 4Q21 Gross Premium Written (GPW) and Number of Programs • $146 million of GP
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 Continuity, consistency and stability are critical to Led by a well-seasoned underwriting team, creation an active risk management program; Everspan Everspan is
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 • $38 million of premium placed in 4Q22 up 46% from 4Q21 on Premium Placed by Line ($ in millions) organic growth and inclusion of All Trans and Capacity Marine $50 $40
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 • Provide immediate scale, diversification and potential • Partner with ‘Best-in-class
Slide 14: Cirrata: Recent Acquisitions
Cirrata: Recent Acquisitions Successful close on accretive acquisitions expands the platform and adds approximately $60 million of additional premiums placed Business Lines Business Lines School Bus Charter Bus Paratransit Marine Insurance International Risk Business Overview Business Overview • Pro
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) $15 • Actively de-risking legacy financial guarantee insured portfolios ($ in billions) towards stable run-off $10 • Book Value of $826 million up by 21% from
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 92% • Debt Leverage/BV 63% • Net Loss Reserves/BV 91% • Net Par “NPO” Exposure/BV 63% Since 2017 • Puerto Rico Exposure/BV 86% • Adverse Credit Exposure/BV 63% 15 $1,500 $1,592 $1,477 $1,381 12 $1,252 $
Slide 18: Ambac's Balance Sheet (ABV) Quality has Improved Materially
Ambac’s Balance Sheet (ABV) Quality has Improved Materially De-Leverage of • R&W Recoverable/ABV 94% • Adverse Credit Exposure/ABV 71% • Net Loss Reserves/ABV 92% • Debt Leverage/ABV 73% ABV Since 2017 • Puerto Rico Exposure/ABV 89% • Net Par “NPO” Exposure/ABV 68% $1,500 14 12.8x $1,313 12 $1,251 $
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 ~$2 bn strive towards being in a positive car
Slide 20: 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 • $146 million of GPW vs. • $136 million of placed • 12 : 1 total claims paying insurance services $13 million last year premium up 15% from 2021
Slide 21: Ambac Financial Review 4Q22
Ambac Financial Review 4Q22
Slide 22: 4Q22 Consolidated Financial Overview
4Q22 Consolidated Financial Overview Net income attributable to common stockholders for 4Q22 was $175.2 Adjusted earnings for 4Q22 of $189.8 million and adjusted loss for 4Q21 of million compared to net loss of $(22.1) million in 4Q21 $9.9 million excludes insurance intangible asset amortization of
Slide 23: Computation of Bank of America Settlement Gains (Losses)
Computation of Bank of America Settlement Gains (Losses) GAAP STAT Cash ($ in millions) Flows Gain / (Loss) 3Q 22 4Q 22 Gain / (Loss) 3Q 22 4Q 22 R&W Receipts Gross $ 1,840 Ceded (27) Net 1,813 $ 450 $ 324 $ 126 $ 309 $ 178 $ 131 Reduction of other potential litigation recoveries — (5) (5) — — — — 1
Slide 24: 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, 2022 Gross premiums written $ (8.0) $ 51.7 $ 43.7 Net premiums written (7.9) 10.0 2.
Slide 25: 4Q22 vs 4Q21 - Key Consolidated Financial Metrics
4Q22 vs 4Q21 - Key Consolidated Financial Metrics Results for 4Q22 were primarily driven by the $78 million net gain from the Bank of America settlement, $43 million net gain from the Nomura settlement and $77 million gain on the retirement of surplus notes purchased. $250 $200 $190 $175 $150 $126 (
Slide 26: N.I.I. & Investment Portfolio as of December 31, 2022
N.I.I. & Investment Portfolio as of December 31, 2022 Net investment income in 4Q22 was $23 million compared to $27 million in 4Q21 reflecting an $11 decline in income from funds from 4Q21, partially offset by higher yields on fixed income securities and short term holdings. Fund results were driven
Slide 27: Incurred Losses (Benefit) by Category - 4Q22 vs 4Q21
1 Incurred Losses (Benefit) by Category - 4Q22 vs 4Q21 Structured Finance benefit of $58 million in 4Q22 was primarily driven by Domestic Public Finance loss of $2 million in 4Q22 was driven by the the $43 million gain from the Nomura settlement whereas the fourth Puerto Rico HTA settlement whereas
Slide 28: Expense Management
Expense Management 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 $— $— 4Q2021 1Q2022 2Q2022 3Q2022 4Q2022 4Q2021 1Q2022 2Q2022 3Q2022 4Q2022 Legacy Financial Guarantee Specialty P&C Insurance Legacy Financial
Slide 29: Non-GAAP Reconciliations
Ambac Non-GAAP Reconciliations
Slide 30: Ambac Non-GAAP Financial Data
Ambac Non-GAAP Financial Data Non-GAAP Financial Data In addition to reporting Ambac’s quarterly financial results in accordance with GAAP, the Company currently reports three non-GAAP financial measures: EBITDA, adjusted earnings and adjusted book value. The most directly comparable GAAP measures a
Slide 31: EBITDA Reconciliation
EBITDA Reconciliation Legacy Specialty Financial Property & Guarantee Casualty Insurance Corporate & Insurance Insurance Distribution Other Consolidated Three Months Ended December 31, 2022 Pretax income (loss) $ 178.0 $ (0.9) $ 1.2 $ (5.4) $ 172.9 Adjustments: Interest expense 30.4 — — — 30.4 Depre
Slide 32: 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: 4Q2022 3Q2022 2Q2022 1Q2022 4Q2021 1,3 1,3 1,3 1,3 1,3 ($ in millions, exce
Slide 33: 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: December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Decem
Slide 34: 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 35: Appendix
Ambac Appendix
Slide 36: 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 37: 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
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