Earnings call transcript Q2 2023

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Operator

Greetings, and welcome to the Ambac Financial Group, Inc., Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to turn the call over to Charles Sebaski, Head of Investor Relations. ahead. go Please

Charles Sebaski

morning, call Good to second Ambac's Thank discuss and financial XXXX to results. quarter you. welcome

Speaking today questions. the will David be remarks, current Claude LeBlanc, President after and Financial our and prepared Dave market of environment, Trick, take and Officer. will results discuss your financial we'll business the Chief CEO; and

Presentation, we highlighting some slides For those the along our be following be webcast, during on the will Investor which of you the can located prepared remarks from website.

forward-looking recent our statements. our forward-looking statement expressed undertake includes may statements release today and due do company uncertainties cautions is statements forward-looking and call Our from SEC. update XX-Q press forward-looking guarantee or in statements. results any factors a to of that The the the forward-looking performance. involves and factors. earnings most those variety investors in differ filed materially Actual obligation and to risks implied not of not These a We with XX-K any the under are described future

our supplement in remarks section most Reconciliations also measures. our to some responses measures mention materials prepared other release, or questions, Relations website, financial may those press operating included earnings we in non-GAAP recent non-GAAP are the our Investor and available to ambac.com. in of Also,

like now over to Mr. the would to I call turn Claude LeBlanc.

Claude LeBlanc

Thank you, Chuck, today's to everyone and welcome call. joining

continue development core material Financial specialty in progress business. make advancing and we B&C our review progressing to in Guarantee business, Legacy second of addition strategic growth quarter, our During to the the significantly of the

OCI. a the in progress timing AAC. believe legacy towards with and operating framework ultimate the we significant for made our the regulator, new determinations our Wisconsin and working we With to for regulator, of remain business, capital respect the hands framework finalization of The have our

the strategic progress the based of already However, commenced have made-to-date, options. evaluation we significant on certain

with evaluations. initiated we quarter, discussions begin preliminary key a order in of to the number During stakeholders

of in these de-risking will further our on other on initiatives improving capital. progressed moment. strategic key our We economic initiatives platform and a focused the details also I more regulatory and provide

our previously and basis. a strategic exclusive mutually time- are mentioned, all not on As evaluating options both and risk-adjusted options are we

With consider the and options strategic early a certain on value we in will fourth believe we to-date, be crystallization to initiating significant quarter. position progress as the focused as made creation

initiatives all As prevailing in cases we certain market subject previously and noted, be regulatory strategic consideration to of approvals conditions. will

our respect our core both and business, specialty With to our for distribution insurance top , platform, continue P&C line hybrid to Everspan, significant growth we business. fronting Cirrata record and bottom

positioning, continued market position market Our the well with combined differentiated us in for coming trends, favorable robust quarters. growth

loss new our results income, of Our Legacy showed positive a businesses reflecting second gap net net consolidated business. Guarantee Financial financial increasing the quarter for our and and modest momentum the the adjusted stability of

the During over information more shortly. completed quarter, Today quarter. I common shares. additional our our the also some But we XXX,XXX just repurchases will results discuss would in detail for to we for provide like achievements on first, financial

economic materially classified perspective. our substantial and transaction involved and risk-sculping concentration reduced transactions, for we addition a strategic quarter which certain from de-risking on us One to long-dated will by financial beneficial largest facilitating select very both be also risk transaction, transaction will which de-risking legacy portfolio capital the noted, the As in the options re-insurance guarantee focus a regulatory This benefit adversely business. to policies. notable in significantly for of continue very the an

credits and de-risking $X.X adversely down re-insurance transaction approximately reduced for by classified initiatives along watchlist with This XX% our quarter. other the nearly billion key prior

our to now P&C businesses. Turning

company million A production gross prior over its years. $XX which Group last deliver increase and of a XX% of million trajectory should results. which partners classes was book from P&C platform stable quarter. and generating ago. this up currently The predictable continued at stand Everspan benefit upward specialty long-term continues to Everspan's $XX strong and the underwriting XX have XX year. the Our more scale XX% up risk program with balanced expand premium continues over over year which across of MGA its to to diversify continues premium become results ridden more

and markets From forward an offices some transitioning E&S capacity This premium from is Everspan in a market recent May three overall Which the industry basis. our non-admitted of many XX% on July. surplus California, year-over-year programs over are robust rigid data Florida, for Texas. conditions in showing dynamic in remain growth out trailing E&S [applying] of the in supportive out business to for more stamping of reflected particularly months remains and line the Demand with XX% perspective, at and admitted moving coming continued of excess markets. change

generate this premium premiums Everspan this first for premium the of approximately course are of million XX% in this For to quarter. we E&S up represented from its to year of market on target gross gross XX% $XXX written quarter backdrop conditions. subject Everspan Against

also P&C We the Everspan to the profitability overall businesses. and to half back begin year growth the EBITDA of reach to expect contribute in of our

also our $XX strong prior quarter generating Cirrata business the over had million year. up XX% a distribution of insurance premium

our the across additional product M&A. additional We platforms, form businesses to see opportunities expansion through Cirrata continue de significant of for current or in whether novo

in while $XXX platform that premium a Yesterday product Jersey target we to remains capabilities. New our exceed and which the on acquisition margins. our attractive or over controlling Cirrata annual premium stake add a of announced will XXXX million Agency Insurance meet million maintaining $XX is alliance Riverton to of of expand target professional based the specialist its

financial to for now to results over quarter. David? our turn call the discuss the David I will

David Trick

everyone. good morning Claude you Thank and

of compared quarter share loss to diluted second related net quarter by For was $X driven of for share $X.XX Adjusted an share compared XXXX income in $X.XX diluted quarter the second diluted the $XX financial or of income $X.XX the XXXX net $XX second guarantee loss per legacy reported XXXX. net to or to million quarter XXXX. of in per second a million or per several or decrease $X of Ambac million $XX $X.XX million adjusted the items of net in was the second of business. net of XXXX compared The share million diluted per income to quarter the

second the XXXX quarter for million [finished] of results that debt. is from First, extinguishment of gains the from realized $XX of

Second, net compared of XX XXXX. derivative declined quarter million gains the on contracts to second

modest rates higher the our in dollar mostly of relative the results. loss macro due interest quarter $XX derivative on expenses increase position had loss impact During quarter third, hedge which there and And XXXX. a was the to second million a we incurred terminated in discount impact of rate

offset adjusted $XX mostly in of reduction growth, to driven expense. were business by the quarter differences income XXXX the compared second $XX million lower improved and The investment the These increase new in results, million a was investment $XX by million to second of for net expense. a interest XXXX improvement income quarter and interest

Compared MGA existing programs losses, in over to GAAP amortization, programs net growth XX% generated of gains as of as costs. intangible and partners. income, the experiencing extinguishment realize adjusted the year gross Everspan gains excludes net and on quarter, $XX expanding both litigation new debt, investment roster premiums written from period from its up prior well of income million

second ratio gross represented the XX% The were approximately ULA adjustment quarter's sliding change prudent of from period. almost on bottom loss the the rate rate and of increase a up in program line of of XX% increase loss $X fully this by and from through year. stemmed The XX%. programs. This of ratio. a to fees year. to over the resulted compared costs. Earned was a in as thought was in the last lower true scale premiums We premium including of prior Debt compared The benefit XXXX. written quarter the million to impact retention up relative loss XXX% XXX% included XX% were from premiums million million fronted XX.X% overall offset quarter in pick an XX% to This fully quarter was second as recognized retention adjustment XXXX growth $X up the minimal commissions and in $X Everspan's acquisition respectively year to last it losses XX.X%

of organic its profitability XX.X% the loss the second second XXXX Trans from the an quarter segment EBITDA quarter acquisitions of in as for $XX last million The loss the Capacity excess produced premiums were of of million of break-even placed a second as compared growth. up well in distribution million insurance the produced Marine second on The margin last year. versus from quarter of Its of the of for path the $X the on EBITDA XX.X% million All to $X.X with year modest XXXX near $XXX,XXX quarter and to benefiting $X pre-tax continued of to quarter. router compared for results in XX% second Everspan XXXX. up quarter

Cirrata's worth with highlighting first quarter It's current that the the seasonal pattern highly earnings being largest. is

We expect as become the diversify more seasonality muted over to the we platform. time

XX.X% XXXX XXXX first margins of the on six XX.X% months EBITDA the $X.X For $X.X generated Cirrata six EBITDA first months million of respectfully. of million in of versus and

prior quarter million alternative to increased the in asset XXXX. second our million compared million income million, of trading quarter last the loss XXXX the $XX Despite In over income investment $X solitary of in reducing since to was million period. to for beginning alternative the million by allocation $XXX $XX investments second rose compared $XX investment $XX a of year gains

second the X% quarter year. available of for approximately securities last sale XXXX X.X% During on yield up average the from was

of in This $X discount financial losses the of generated adjustment of guarantee compared at balance Everspan compared loss more million Everspan. $X the legacy benefit quarter to from the segment. than million with of in in incurred $XX of rates guarantee the offsetting a result for approximately segment and quarter the second year were second million legacy higher quarter the last $X $XX loss as million a to where million XXXX XXXX. expenses of losses accounted benefit Total losses financial the a

segments of expenses were and more the our were to the administrative business. at increase of from These than second the financial in $XX businesses. other expenses headcount costs associated including operating million $XX expenses AAC. the and offset the from Marine The lower and due Trans with quarter Capacity and for consolidation headcount the in up was legacy the XXXX. P&C at in growth in increase by guarantee expenses litigation continued All $X growth Higher associated of quarter costs General million million a second

was XX, quarter of of senior XXXX accrued retirement down note XXXX AAC's was in and as of debt the outstanding million notes the and second $XX from in surplus reduction approximately over given surplus AAC's unpaid Interest the inclusive million June interest. remaining million a of of debt all expense XX $XXX last year. secure

million down was by $XX slightly $XX share Turning to being the the $XX.XX with AUK change $X.XX balance the driven The to a $XX.XX investments offset losses sheet, translation shareholders' gains share the per from XXXX. of unrealized sale increase foreign XXXX exchange net XX, was billion million June for related loss equity border. $XX to March in of million and at unavailable per at by mostly XX

of Adjusted Claude adjusted from book was mostly $X.XX at previously was value book This due June the reinsurance XX XXXX March per share on XXXX. XX $XX.XX value $XX.XX financial per risking transaction to in billion $X.XX guarantee down the per share legacy mentioned. or share decreased

premiums. upfront a million reinsurance future payment instalment the for Consideration transaction and of million $X included $XX

as board During part approximately XX of and which stock and receivable at of $XXX the AFG a shares excluding share net quarter $XX.XX or an per more of $X.XX share. issued per we investments a At cash basis, average common June XXXX million and on price standalone compensation. offset than subsidiaries, of member employee repurchased shares investments XXX,XXX

to turn for closing back will the Claude some remarks. now I call brief

Claude LeBlanc

Thank you, David.

the crystallize the P&C second legacy financial year specialty well guarantee generate half from into to are and both positioned Going significant value of core we our and businesses.

greater near-term to the execution businesses. for our specialty legacy strategic visibility which of mode. very available with strong P&C will options have the continued towards business to progress us I enable on expect also core growth an pleased We our am

we've continue strategy. to I both We to the differentiated our expand for in market updating strategic look coming quarter. as pipeline opportunities become rapidly the progress our increasingly are and forward recognized you for on organic growth seeing

Operator, please call for questions. open the

Operator

you. Thank

a ahead. conducting Please session. Compass Instructions] Bologna Giuliano our first question be comes And now Point. will with We [Operator go question-and-answer from

Giuliano Bologna

about on touch that timeline look saying I'm you alternatives process strategic When for XQ, were you of to there's execute launching about to XQ? do or the like curious some I'd think in thinking at be a you those mentioned. the to potential potential in to transactions potential some them

Claude LeBlanc

we them of in evaluating in we're all good terms And progressing parallel they're in not some and options evaluated Currently, or fourth timeline commenced of options be could in as of against market exclusive some Thanks initiate executed a of in initiating as them or options and morning. the parallel with will having conditions. commence Giuliano approvals believe the our early be mutually as regulatory and all others. subject indicated to to position to we've our we quarter as so of our required

Giuliano Bologna

to allocation using more deploy release from AAC thinking you or from That's your about over -- at a time, perspective, and how about capital company and because a me levels already think capital at moment amount today. isn't that the very I'd little capital you there helpful. AAC curious of yes capital hold much you have best I'm have fair to capital capital you be if broader holding capital some at point the needed and tell a necessarily Everspan at allocation

David Trick

is before talked Thanks not as allocation need before discuss about I for frequently as going and is talked and Everspan something Giuliano. about debate forward. think certainly we a capital we Capital we've significant

generally versus all around of to capital Our marketplace Claude off that verbatim mentioned what allocation as deploy in capital businesses. businesses in allocation revolve benefit more possibilities acquisition nevertheless capital with the current is insurance new and recent the the shareholders. Cirrata our involve we distribution decisions of But return to capital and returning demonstrated the always the opportunities plans

Giuliano Bologna

the level over thinking next be on of few should down great about to [indiscernible] continue we same thinking the over litigation to start and at turn curious litigation next quarters potential just expenses or That's that side, then few cadence the the just expect quarters? I'd the

David Trick

quarter. going spend about litigation. term continued certainly to expect outstanding that The the do every in to talked be quarters coming has at short Yes. the it's expense in expense hot in been least we've running as but to We resolve moderate

Giuliano Bologna

taking Thank queue. great. my That's you in and the I will questions for turn back

Operator

Dowling comes go & question Geoffrey with ahead. Dunn next from Our Partners. Please

Geoffrey Dunn

stood little watch Thanks, more it's like bonds good to ask just a on about looks that than housing? about else adverse the it the about maybe. it that more Was out? looks military like something identified adversely a list particular I you numbers transaction. morning. wanted more transaction? Was revenue how housing bit It more and re-insurance Can that it credits you based talk was

Claude LeBlanc

Geoff. Thanks

credits were very military to There as think I fair past credits bulk have and think we credits a also the we this in also it's is wanted very included and the the dated that It was many exposures, it's say risk gated other we've potential majority the and to our an of to concentration area Sculpting housing it Portfolio. looking as adversely as long some so I some long indicated we large that and we mentioned in viewed classified portfolio. stress that been keen are also exit. exposures

that we number package a working this transaction think years. of for a credits on overall wanted in a of and had sort been was fact to I of it So exit

fortunate this able housing So summation to it past be think a but I is very primarily as your we to think one. complete I good to military quarter being were

Geoffrey Dunn

overly just up and specific rid what getting mean doesn't and seem to was instalment and payment transaction? it's is the the for for the million exposure. million million up burdensome actual from front an economic it's above of I the of by with premium if the remaining then the because this or Okay standpoint, company's associated $X Ambac Was flow XX-odd this type actually that beyond instalment deal the cost $X front what

David Trick

giving premium seeded. up were premium the the with above that and transaction, so flow payment deal simply beyond wasn't associated There we're from the the

Geoffrey Dunn

Got you.

Okay, thank you.

Operator

thank further time. today's no at concludes are participating. this teleconference. There This questions We for you

a You may time. good at for have disconnect this your you your Thank lines day. participation and

Ambac Financial (AMBC) 8 Aug 232023 Q2 Earnings call transcript