Ambac Financial Group, Inc. (NYSE: AMBC) ("Ambac" or "AFG"), a
financial services holding company, today reported its results for
the third quarter ended September 30, 2023.
- Net income of $66 million or $1.41 per diluted share and
Adjusted net income of $94 million or $2.00 per diluted share
- Legacy Financial Guarantee segment generated net income of $66
million in third quarter of 2023
- Specialty P&C Insurance ("Everspan") wrote gross premium of
$77 million, up 160% from the third quarter of 2022 and produced
its first quarterly pre-tax profit
- Insurance Distribution ("Cirrata") premiums placed of $62
million, up 119% from the third quarter of 2022
- Book Value per share of $28.00 was up 1% and Adjusted Book
Value per share of $27.90 was up 3%, from June 30, 2023
Claude LeBlanc, President and Chief Executive Officer, stated,
“Working with our Wisconsin regulator, the capital model for Ambac
Assurance Corporation ("AAC") has been substantially completed.
This has allowed us to finalize our internal evaluation of the
strategic options I previously laid out for the legacy financial
guarantee business, and as a result, we have appointed Moelis &
Company along with other external advisors to actively discuss such
strategic options with interested parties."
LeBlanc continued, "During the quarter we continued to execute
on our P&C growth strategy, and I am very pleased that Everspan
produced positive pre-tax income for the first time, consistent
with our prior guidance. Combined premium production across both
Everspan and Cirrata grew by 140% over last year to $140 million in
the quarter and exceeded $450 million over the last four quarters.
For 2024 we are now targeting over $700 million of premium
production with attractive margins in our P&C businesses,
subject to market conditions."
Ambac's Third Quarter 2023
Summary Results
B (W) Percent
($ in millions, except per share
data)1
3Q2023
3Q2022
Gross written premium
$
79.6
$
16.3
389
%
Net premiums earned
18.3
10.8
69
%
Commission income
14.6
7.0
108
%
Program fees
2.4
0.9
177
%
Net investment income (loss)
30.4
10.7
184
%
Pretax income
67.5
342.5
(80
)%
Net income attributable to common
stockholders
65.9
340.0
(81
)%
Net income (loss) attributable to common
stockholders per diluted share2,3
$
1.41
$
7.41
(81
)%
EBITDA2,4
90.8
397.3
(77
)%
Adjusted net income (loss) 2
93.6
339.4
(72
)%
Adjusted net income (loss) per diluted
share 2, 3
$
2.00
$
7.40
(73
)%
Weighted-average diluted shares
outstanding (in millions)
46.8
45.8
(2
)%
Ambac's Third Quarter 2023
Summary Results
September 30, 2023
June 30, 2023
B(W)
($ in millions, except per share
data)1
Amount
Percent
Total Ambac Financial Group, Inc.
stockholders' equity
$
1,265.2
$
1,249.9
$
15.3
1
%
Total Ambac Financial Group, Inc.
stockholders' equity per share
$
28.00
$
27.59
$
0.41
1
%
Adjusted book value1,2
$
1,260.5
$
1,222.0
$
38.5
3
%
Adjusted book value per share 1,2
$
27.90
$
26.97
$
0.93
3
%
(1)
Some financial data in this press release
may not add up due to rounding
(2)
See Non-GAAP Financial Data section of
this press release for further information
(3)
Per diluted share includes the impact of
adjusting redeemable noncontrolling interests to current redemption
value
(4)
EBITDA is prior to the impact of
noncontrolling interests, relating to subsidiaries where Ambac does
not own 100%, of $0.6 and $0.3 for the three months ended September
30, 2023 and 2022, respectively.
Results of Operations by Segment
Specialty Property & Casualty Insurance Segment
Three Months Ended September
30,
($ in millions)
2023
2022
% Change
Gross premiums written
$
77.5
$
29.8
160
%
Net premiums written
$
24.8
$
5.6
341
%
Net premiums earned
$
12.2
$
4.2
192
%
Program fees earned
$
2.4
$
0.9
176
%
Losses and loss expense
$
9.5
$
2.7
249
%
Pretax income (loss)
$
0.1
$
(1.5
)
109
%
- Everspan generated positive pre-tax income and EBITDA for the
first time in third quarter of 2023.
- MGA programs partners increased to 20 from 16 in the second
quarter of 2023 and 13 in third quarter of 2022.
- Gross premium written of $77.5 million in the third quarter of
2023 increased 160% compared to the prior year period as Everspan
continues to grow and diversify its program business partners.
- Net premium written of $24.8 million in the third quarter of
2023 increased 341% compared to the prior year period as Everspan
took advantage of an opportunity to expand into Workers
Compensation via an assumed reinsurance transaction.
- Net premiums earned of $12.2 million in the third quarter of
2023 was up 192% over the third quarter of 2022 reflecting the net
premium written growth at Everspan over the last year.
- The losses and loss expense ratio for the third quarter of 2023
was 78.0% compared to 65.2% for the third quarter of 2022,
primarily due to higher commercial auto claims frequency. Excluding
prior period development, our selected loss ratio was 70.9% for the
third quarter of 2023 versus 64.0% in third quarter 2022. The
increase in loss and loss expense ratio was partially mitigated by
a benefit in sliding scale commissions recognized through net
acquisition costs as reflected in the expense ratio.
- Expense ratio(1) of 28.5% for the third quarter of 2023 was
down from 82.6% in the prior year period. The sliding scale benefit
noted above reduce the expense ratio by 8.1% in the third quarter
of 2023 compared to 3.0% in the prior year period.
(1)
Expense Ratio is defined as acquisition
costs and general and administrative expenses, reduced by program
fees divided by net premiums earned
Insurance Distribution Segment
Three Months Ended September
30,
($ in millions)
2023
2022
% Change
Premiums placed
$
62.2
$
28.4
119%
Gross commissions
$
14.6
$
7.0
107%
Net commissions
$
6.1
$
2.8
117%
General and administrative expenses
$
2.6
$
1.5
78%
Pretax income
$
2.4
$
0.9
173%
EBITDA1
$
3.5
$
1.6
120%
Pretax income margin2
16.7
%
12.3
%
440 bps
EBITDA margin 3
24.1
%
22.0
%
210 bps
(1)
EBITDA is prior to the impact of
noncontrolling interests, relating to subsidiaries where Ambac does
not own 100%, of $0.6 and $0.3 for the three months ended September
30, 2023 and 2022, respectively.
(2)
Represents Pretax income divided by total
revenues
(3)
See Non-GAAP Financial Data section of
this press release for further information
- Premium placed grew $33.8 million over the third quarter of
2022 driven primarily by recent acquisitions and growth initiatives
at existing business.
- Gross commission income, which is generated as a percentage of
premium placed, grew by $7.6 million in the third quarter 2023 over
the third quarter of 2022.
- Net commission income of $6.1 million, which is gross
commission income less sub-producer commissions paid, grew by 117%
over last year; largely in-line with the change in premiums
placed.
- General and administrative expenses of $2.6 million in the
third quarter of 2023 compared to $1.5 million in the prior year
period, which trailed the growth in net commissions during the
period.
- EBITDA of $3.5 million for the quarter was up 120% over third
quarter of 2022; EBITDA Margin of 24.1% for the quarter compared to
22.0% last year was favorably impacted by recent acquisitions.
Total Specialty P&C Insurance Production
Specialty P&C Insurance production, which includes gross
premiums written by Ambac's Specialty P&C Insurance segment and
premiums placed by the Insurance Distribution segment, totaled $140
million in the third quarter of 2023, an increase of 140% from the
third quarter of 2022.
Specialty P&C Insurance revenues are dependent on gross
premiums written as specialty program insurance companies earn
premiums based on the portion of gross premiums written retained
(i.e. net premiums written) and fees on gross premiums written that
are ceded to reinsurers. Insurance Distribution revenues are
dependent on premium volume as Managing General Agents/Underwriters
and brokers receive commissions based on the amount of premiums
placed (i.e. gross premiums written on behalf of insurance
carriers) with insurance carriers.
Three Months Ended September
30,
($ in millions)
2023
2022
% Change
Specialty Property & Casualty
Insurance Gross Premiums Written
$
77.5
$
29.8
160%
Insurance Distribution Premiums Placed
62.2
28.4
119%
Specialty P&C Insurance Production
$
139.7
$
58.2
140%
Legacy Financial Guarantee Insurance Segment
Three Months Ended September
30,
($ in millions)
2023
2022
% Change
Normal Net Premiums Earned
$
6.0
$
8.3
(28)%
Accelerated Net Premiums Earned
$
0.1
$
(1.7
)
106%
Net premiums earned
$
6.1
$
6.6
(8)%
Net investment income
$
26.7
$
9.3
188%
Losses and loss adjustment expenses
$
(85.8
)
$
(356.1
)
(76)%
General and administrative expenses
$
35.5
$
19.5
(82)%
Pretax income (loss)
$
69.2
$
348.7
(80)%
EBITDA1
$
91.3
$
402.8
(77)%
(1)
See Non-GAAP Financial Data section of this press release for
further information
- Net premiums earned of $6.1 million in the third quarter of
2023 decreased from $6.6 million in the prior year period. This
reduction is mainly the result of proactive de-risking transactions
and run-off of the insured portfolio.
- Net investment income of $26.7 million increased 188% over
third quarter of 2022 on higher yields and improved pooled fund
performance.
- Losses and loss adjustment expenses for the third quarter of
2023 were a $85.8 million benefit, compared to a $356.1 million
benefit in the third quarter of 2022, which was favorably impacted
by the litigation settlement with Bank of America.
- General and administrative expenses for the third quarter of
2023 included a $17 million increase in defensive litigation
expenses and accruals compared to third quarter 2022.
- WLACC decreased 4.6% (3.7%, excluding the impact of FX) to $5.8
billion in third quarter of 2023, from June 30, 2023.
- NPO declined 4.0% (2.5%, excluding the impact of FX) during the
quarter to $19.5 billion from $20.4 billion at June 30, 2023.
Consolidated Financial Information
Net Premiums Earned
During the third quarter of 2023, net premiums earned of $18
million increased 69% compared to the third quarter of 2022.
Significant growth in the Specialty P&C businesses more than
off-set the reduction in the Legacy FG business.
Net Investment Income
Net investment income for the third quarter of 2023 was $30
million compared to net investment income of $11 million for the
third quarter of 2022.
The increase in net investment income in the third quarter of
2023 compared to the third quarter of 2022 was driven by improved
performance on pooled fund investments and higher yields on core
long-term investments.
Losses and Loss Expenses(Benefit)
Incurred Losses (Benefit) for the third quarter of 2023 were
$(76) million, compared to a $(353) million for the third quarter
of 2022.
The Incurred Benefit for the third quarter of 2023 was driven
primarily by RMBS recoveries and the positive impact of higher
discount rates in the Legacy Financial Guarantee business which
more than off-set the higher losses in the Specialty P&C
business. This compared to the third quarter of 2022 which
primarily benefited from the litigation settlement with Bank of
America.
General and Administrative Expenses
General and administrative expenses for the third quarter 2023
were $49 million compared to $31 million in the third quarter of
2022. The increase was attributable to defensive litigation related
expenses at the Legacy Financial Guarantee business and higher
headcount associated with growth in the P&C businesses.
AFG (holding company only) Assets
AFG on a standalone basis, excluding its ownership interests in
its Specialty P&C Insurance, Insurance Distribution, and Legacy
Financial Guarantee businesses, had net assets of $209 million as
of September 30, 2023. Assets included cash and liquid securities
of $159 million and other investments of $31 million.
Capital Activity
During the quarter 120,068 shares were repurchased at an average
price of $12.94 per share.
Consolidated Ambac Financial Group, Inc. Stockholders'
Equity
Stockholders’ equity at September 30, 2023, was $1,265 million,
or $28.00 per share compared to $1,250 million or $27.59 per share
as of June 30, 2023. The change was primarily due to the net income
attributable to common shareholders of $66 million, somewhat
off-set by net unrealized investment losses of $23 million and
foreign exchange translation loss of $29.0 million.
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, Adjusted Book
Value and EBITDA Margin. These amounts are derived from our
consolidated financial information, but are not presented in our
consolidated financial statements prepared in accordance with
GAAP.
We present non-GAAP supplemental financial information because
we believe such information is of interest to the investment
community, and that it provides greater transparency and enhanced
visibility into the underlying drivers and performance of our
businesses on a basis that may not be otherwise apparent on a GAAP
basis. We view these non-GAAP financial measures as important
indicators when assessing and evaluating our performance on a
segmented and consolidated basis and they are presented to improve
the comparability of our results between periods by eliminating the
impact of the items that may not be representative of our core
operating performance. These non-GAAP financial measures are not
substitutes for the Company’s GAAP reporting, should not be viewed
in isolation and may differ from similar reporting provided by
other companies, which may define non-GAAP measures
differently.
Adjusted Net Income (Loss) —
We define Adjusted Net Income (Loss) as net income (loss)
attributable to common stockholders adjusted to reflect the
following items: (i) net investment (gains) losses, including
impairments; (ii) amortization of intangible assets; (iii)
litigation costs, including attorneys fees and other expenses to
defend litigation against the Company, excluding loss adjustment
expenses; (iv) foreign exchange (gains) losses; (v) workforce
change costs, which primarily include severance and other costs
related to employee terminations; and (vi) net (gain) loss on
extinguishment of debt. Adjusted Net Income is also adjusted for
the effect of the above items on both income taxes and
noncontrolling interests. The income tax effects are determined by
applying the statutory tax rate in each jurisdiction that generate
these adjustments. The noncontrolling interest adjustments relate
to subsidiaries where Ambac does not own 100%
Adjusted Net Income was $93.6 million, or $2.00 per diluted
share, for the third quarter 2023 compared to an Adjusted Net
Income of $339.4 million, or $7.40 per diluted share, for the third
quarter of 2022.
The following table reconciles net income (loss) attributable to
common stockholders to the non-GAAP measure, Adjusted Net Income
(Loss), for the three-month periods ended September 30, 2023 and
2022, respectively:
Three Months Ended September
30,
2023
2022
($ in millions, other than per share
data)
$ Amount
Per Share
$ Amount
Per Share
Net income (loss) attributable to
common shareholders
$
65.9
$
1.41
$
340.0
$
7.41
Adjustments:
Net investment (gains) losses, including
impairments
(0.8
)
(0.02
)
(14.4
)
(0.31
)
Intangible amortization
7.2
0.15
5.8
0.13
Litigation costs
20.6
0.44
3.9
0.08
Foreign exchange (gains) losses
0.5
0.01
2.3
0.05
Workforce change costs
0.2
—
0.3
0.01
Net (gain) loss on extinguishment of
debt
—
—
—
—
93.6
1.99
337.9
7.37
Income tax effects
0.3
0.01
1.6
0.03
Net (gains) attributable to noncontrolling
interests
(0.2
)
—
(0.1
)
—
Adjusted Net Income (Loss)
$
93.6
$
2.00
$
339.4
$
7.40
Weighted-average diluted shares
outstanding (in millions)
46.8
45.8
(1)
Per Diluted share includes the impact of adjusting the Insurance
Distribution segment related noncontrolling interest to current
redemption value
EBITDA — We define EBITDA as net
income (loss) before interest expense, income taxes, depreciation
and amortization of intangible assets.
The following table reconciles net income (loss) attributable to
common shareholders to the non-GAAP measure, EBITDA on a
consolidation and segment basis.
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
Three Months Ended September 30,
2023
Net income (loss)
$
66.2
$
0.1
$
2.4
$
(2.5
)
$
66.3
Adjustments:
Interest expense
15.8
—
—
—
15.8
Income taxes
3.0
—
—
(1.8
)
1.2
Depreciation
0.3
—
—
—
0.3
Amortization of intangible assets
6.1
—
1.1
—
7.2
EBITDA (2)
$
91.3
$
0.1
$
3.5
$
(4.2
)
$
90.8
Three Months
Ended September 30, 2022
Net income (loss)
$
346.4
$
(1.5
)
$
0.9
$
(5.6
)
$
340.2
Adjustments:
Interest expense
48.6
—
—
—
48.6
Income taxes
2.3
—
—
(0.1
)
2.3
Depreciation
0.4
—
—
—
0.5
Amortization of intangible assets
5.1
—
0.7
—
5.8
EBITDA (2)
$
402.8
$
(1.5
)
$
1.6
$
(5.6
)
$
397.3
(1)
Net income (loss) is prior to the impact
of noncontrolling interests.
(2)
EBITDA is prior to the impact of
noncontrolling interests, relating to subsidiaries where Ambac does
not own 100%, of $0.6 and $0.3 for the three and nine months ended
September 30, 2023 and 2022, respectively. These noncontrolling
interests are primarily in the Insurance Distribution segment.
EBITDA margin — We define EBITDA
margin as EBITDA divided by total revenues. We report EBITDA margin
for the Insurance Distribution segment only.
Adjusted Book Value.
Adjusted book value is defined as Total Ambac Financial Group, Inc.
stockholders’ equity as reported under GAAP, adjusted for after-tax
impact of the following:
- Insurance intangible asset: Elimination of the financial
guarantee insurance intangible asset that arose as a result of
Ambac’s emergence from bankruptcy and the implementation of Fresh
Start reporting. This adjustment ensures that all financial
guarantee contracts are accounted for within adjusted book value
consistent with the provisions of the Financial Services—Insurance
Topic of the ASC.
- Net unearned premiums and fees in excess of expected losses:
Addition of the value of the unearned premium revenue ("UPR") on
financial guarantee contracts, in excess of expected losses, net of
reinsurance. This non-GAAP adjustment presents the economics of UPR
and expected losses for financial guarantee contracts on a
consistent basis. In accordance with GAAP, stockholders’ equity
reflects a reduction for expected losses only to the extent they
exceed UPR. However, when expected losses are less than UPR for a
financial guarantee contract, neither expected losses nor UPR have
an impact on stockholders’ equity. This non-GAAP adjustment adds
UPR in excess of expected losses, net of reinsurance, to
stockholders’ equity for financial guarantee contracts where
expected losses are less than UPR. This adjustment is only made for
financial guarantee contracts since such premiums are
non-refundable.
- Net unrealized investment (gains) losses in Accumulated Other
Comprehensive Income: Elimination of the unrealized gains and
losses on the Company’s investments that are recorded as a
component of accumulated other comprehensive income (“AOCI”), net
of income taxes.
Ambac has a significant U.S. tax net operating loss (“NOL”) that
is offset by a full valuation allowance in the GAAP consolidated
financial statements. As a result of this, tax planning strategies
and other considerations, we utilized a 0% effective tax rate for
non-GAAP operating adjustments to Adjusted Book.
Adjusted book value was $1,261 million, or $27.90 per share, at
September 30, 2023, as compared to $1,250 million, or $26.97 per
share, at June 30, 2023. The increase is primarily as a result of
net income in the quarter, partially offset by F(x) translation
losses.
The following table reconciles Total Ambac Financial Group, Inc.
stockholders’ equity to the non-GAAP measure adjusted book value as
of each date presented:
September 30, 2023
June 30, 2023
($ in millions, other than per share
data)
$ Amount
Per Share
$ Amount
Per Share
Total AFG Stockholders' Equity
$
1,265.2
$
28.00
$
1,249.9
$
27.59
Adjustments:
Insurance intangible asset
(249.1
)
(5.51
)
(258.2
)
(5.70
)
Net unearned premiums and fees in excess
of expected losses
154.5
3.42
163.6
3.61
Net unrealized investment (gains) losses
in Accumulated Other Comprehensive Income
89.9
1.99
66.6
1.47
Adjusted book value
$
1,260.5
$
27.90
$
1,222.0
$
26.97
Shares outstanding (in millions)
45.2
45.3
Earnings Call and Webcast
On November 8, 2023 at 8:30am ET, Claude LeBlanc, President and
Chief Executive Officer, and David Trick, Executive Vice President
and Chief Financial Officer, will discuss Ambac's third quarter
2023 results during a conference call. A live audio webcast of the
call will be available through the Investor Relations section of
Ambac’s website,
https://ambac.com/investor-relations/events-and-presentations/.
Participants may also listen via telephone by dialing (877)
407-9716 (Domestic) or (201) 493-6779 (International).
The webcast will be archived on Ambac's website. A replay of the
call will be available through November 22, 2023, and can be
accessed by dialing (Domestic) (844) 512-2921 or (International)
(412) 317-6671; and using ID#13737443
Additional information is included in an operating supplement
and presentations at Ambac's website at www.ambac.com.
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 distribution and
underwriting platform. Ambac also has a legacy financial guaranty
business in run off. Ambac’s common stock trades on the New York
Stock Exchange under the symbol “AMBC”. Ambac is committed to
providing timely and accurate information to the investing public,
consistent with our legal and regulatory obligations. To that end,
we use our website to convey information about our businesses,
including the anticipated release of quarterly financial results,
quarterly financial, statistical and business-related information.
For more information, please go to www.ambac.com.
The Amended and Restated Certificate of Incorporation of Ambac
contains substantial restrictions on the ability to transfer
Ambac’s common stock. Subject to limited exceptions, any attempted
transfer of common stock shall be prohibited and void to the extent
that, as a result of such transfer (or any series of transfers of
which such transfer is a part), any person or group of persons
shall become a holder of 5% or more of Ambac’s common stock or a
holder of 5% or more of Ambac’s common stock increases its
ownership interest.
Forward-Looking Statements
In this press release, 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,” “intend,” “planned,” “potential” and similar
expressions, or future or conditional verbs such as “will,”
“should,” “would,” “could,” and “may,” or the negative of those
expressions or verbs, identify forward-looking statements. We
caution readers that these statements are not guarantees of future
performance. Forward-looking statements are not historical facts
but instead represent only our beliefs regarding future events,
which may by their nature be inherently uncertain and some of which
may be outside our control. These statements may relate to plans
and objectives with respect to the future, among other things which
may change. We are alerting you to the possibility that our actual
results may differ, possibly materially, from the expected
objectives or anticipated results that may be suggested, expressed
or implied by these forward-looking statements. Important factors
that could cause our results to differ, possibly materially, from
those indicated in the forward-looking statements include, among
others, those discussed under “Risk Factors” in our most recent SEC
filed quarterly or annual report.
Any or all of management’s forward-looking statements here or in
other publications may turn out to be incorrect and are based on
management’s current belief or opinions. Ambac Financial Group’s
(“AFG”) and its subsidiaries’ (collectively, “Ambac” or the
“Company”) actual results may vary materially, and there are no
guarantees about the performance of Ambac’s securities. Among
events, risks, uncertainties or factors that could cause actual
results to differ materially are: (1) the high degree of volatility
in the price of AFG’s common stock; (2) uncertainty concerning the
Company’s ability to achieve value for holders of its securities,
whether from Ambac Assurance Corporation (“AAC”) and its
subsidiaries or from the specialty property and casualty insurance
business, the insurance distribution business, or related
businesses; (3) inadequacy of reserves established for losses and
loss expenses and the possibility that changes in loss reserves may
result in further volatility of earnings or financial results; (4)
potential for rehabilitation proceedings or other regulatory
intervention or restrictions against AAC; (5) credit risk
throughout Ambac’s business, including but not limited to credit
risk related to insured residential mortgage-backed securities,
student loan and other asset securitizations, public finance
obligations (including risks associated with Chapter 9 and other
restructuring proceedings), issuers of securities in our investment
portfolios, and exposures to reinsurers; (6) our inability to
effectively reduce insured financial guarantee exposures or achieve
recoveries or investment objectives; (7) our inability to generate
the significant amount of cash needed to service our debt and
financial obligations, and our inability to refinance our
indebtedness; (8) Ambac’s substantial indebtedness could adversely
affect its financial condition and operating flexibility; (9) Ambac
may not be able to obtain financing or raise capital on acceptable
terms or at all due to its substantial indebtedness and financial
condition; (10) greater than expected underwriting losses in the
Company’s specialty property and casualty insurance business; (11)
failure of specialty insurance program partners to properly market,
underwrite or administer policies; (12) inability to obtain
reinsurance coverage on expected terms; (13) loss of key
relationships for production of business in specialty property and
casualty and insurance distribution businesses or the inability to
secure such additional relationships to produce expected results;
(14) the impact of catastrophic public health, environmental or
natural events, or global or regional conflicts, on significant
portions of our insured portfolio; (15) credit risks related to
large single risks, risk concentrations and correlated risks; (16)
risks associated with adverse selection as Ambac’s financial
guarantee insurance portfolio runs off; (17) the risk that Ambac’s
risk management policies and practices do not anticipate certain
risks and/or the magnitude of potential for loss; (18) restrictive
covenants in agreements and instruments that impair Ambac’s ability
to pursue or achieve its business strategies; (19) adverse effects
on operating results or the Company’s financial position resulting
from measures taken to reduce financial guarantee risks in its
insured portfolio; (20) disagreements or disputes with Ambac's
insurance regulators; (21) loss of control rights in transactions
for which we provide financial guarantee insurance; (22) inability
to realize expected recoveries of financial guarantee losses; (23)
risks attendant to the change in composition of securities in
Ambac’s investment portfolio; (24) adverse impacts from changes in
prevailing interest rates; (25) events or circumstances that result
in the impairment of our intangible assets and/or goodwill that was
recorded in connection with Ambac’s acquisitions; (26) risks
associated with the discontinuance of the London Inter-Bank Offered
Rate; (27) factors that may negatively influence the amount of
installment premiums paid to Ambac; (28) the risk of litigation and
regulatory inquiries or investigations, and the risk of adverse
outcomes in connection therewith; (29) the Company’s ability to
adapt to the rapid pace of regulatory change; (30) actions of
stakeholders whose interests are not aligned with broader interests
of Ambac's stockholders; (31) system security risks, data
protection breaches and cyber attacks; (32) regulatory oversight of
Ambac Assurance UK Limited (“Ambac UK”) and applicable regulatory
restrictions may adversely affect our ability to realize value from
Ambac UK or the amount of value we ultimately realize; (33)
failures in services or products provided by third parties; (34)
political developments that disrupt the economies where the Company
has insured exposures; (35) our inability to attract and retain
qualified executives, senior managers and other employees, or the
loss of such personnel; (36) fluctuations in foreign currency
exchange rates; (37) failure to realize our business expansion
plans or failure of such plans to create value; (38) greater
competition for our specialty property and casualty insurance
business and/or our insurance distribution business; (39) loss or
lowering of the AM Best rating for our property and casualty
insurance company subsidiaries; (40) disintermediation within the
insurance industry or greater competition from technology-based
insurance solutions; (41) changes in law or in the functioning of
the healthcare market that impair the business model of our
accident and health managing general underwriter; and (42) other
risks and uncertainties that have not been identified at this
time.
AMBAC FINANCIAL GROUP, INC.
AND SUBSIDIARIES Consolidated Statements of Income (Loss)
(Unaudited)
Three Months Ended
September 30,
($ in millions, except share
data)
2023
2022
Revenues:
Net premiums earned
$
18
$
11
Commission income
15
7
Program fees
2
1
Net investment income (loss)
30
11
Net investment gains (losses), including
impairments
1
14
Net gains (losses) on derivative
contracts
4
37
Income (loss) on variable interest
entities
1
(1
)
Other income
2
—
Total revenues and other income
74
80
Expenses:
Losses and loss adjustment expenses
(76
)
(353
)
Amortization of deferred acquisition
costs, net
2
1
Commission expense
8
4
General and administrative expenses
49
31
Intangible amortization
7
6
Interest expense
16
49
Total expenses
6
(262
)
Pretax income
68
342
Provision for income taxes
1
2
Net income
66
340
Less: net (gain) loss attributable to
noncontrolling interest
—
—
Net income attributable to common
stockholders
$
66
$
340
Net income (loss) per basic
share
$
1.44
$
7.50
Net income (loss) per diluted
share
$
1.41
$
7.41
Weighted-average number of common
shares outstanding:
Basic
45,635,373
45,307,019
Diluted
46,810,735
45,846,405
AMBAC FINANCIAL GROUP, INC.
AND SUBSIDIARIES Consolidated Balance Sheets
(Unaudited)
($ in millions, except share
data)
September 30,
2023
December 31, 2022
Assets:
Investments:
Fixed maturity securities, at fair value
(amortized cost: $1,651 and $1,469)
$
1,556
$
1,395
Fixed maturity securities - trading
28
59
Short-term investments, at fair value
(amortized cost: $421 and $507)
421
507
Short-term investments pledged as
collateral, at fair value (amortized cost: $27 and $64)
27
64
Other investments (includes $449 and $556
at fair value)
461
568
Total investments (net of allowance for
credit losses of $2 and $0)
2,492
2,593
Cash and cash equivalents (including $13
and $14 of restricted cash)
46
44
Premium receivables (net of allowance for
credit losses of $4 and $5)
278
269
Reinsurance recoverable on paid and unpaid
losses (net of allowance for credit losses of $0 and $0)
172
115
Deferred ceded premium
205
124
Deferred acquisition costs
8
3
Subrogation recoverable
179
271
Derivative assets
15
27
Intangible assets, less accumulated
amortization
312
326
Goodwill
70
61
Other assets
94
84
Variable interest entity assets:
Fixed maturity securities, at fair
value
1,948
1,967
Restricted cash
256
17
Loans, at fair value
1,551
1,829
Derivative and other assets
220
241
Total assets
$
7,847
$
7,973
Liabilities and Stockholders’
Equity:
Liabilities:
Unearned premiums
$
407
$
372
Loss and loss adjustment expense
reserves
850
805
Ceded premiums payable
95
39
Deferred program fees and reinsurance
commissions
7
5
Long-term debt
505
639
Accrued interest payable
462
427
Derivative liabilities
22
38
Other liabilities
168
163
Variable interest entity liabilities:
Long-term debt (includes $2,535 and $2,788
at fair value)
2,699
3,107
Derivative liabilities
1,038
1,048
Other liabilities
255
5
Total liabilities
6,507
6,647
Redeemable noncontrolling interest
22
20
Stockholders’ equity:
Preferred stock, par value $0.01 per
share; 20,000,000 shares authorized shares; issued and outstanding
shares—none
—
—
Common stock, par value $0.01 per share;
130,000,000 shares authorized; issued shares: 46,659,144 and
46,658,990
—
—
Additional paid-in capital
286
274
Accumulated other comprehensive income
(loss)
(262
)
(253
)
Retained earnings
1,257
1,245
Treasury stock, shares at cost: 1,471,817
and 1,685,233
(17
)
(15
)
Total Ambac Financial Group, Inc.
stockholders’ equity
1,265
1,252
Nonredeemable noncontrolling interest
53
53
Total stockholders’ equity
1,318
1,305
Total liabilities, redeemable
noncontrolling interest and stockholders’ equity
$
7,847
$
7,973
The following table presents segment financial results and
includes the non-GAAP measure, EBITDA on a segment and consolidated
basis.
($ in millions)
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
Three Months Ended September 30,
2023
Gross premiums written
$
2.1
$
77.5
$
79.6
Net premiums written
2.5
24.8
27.2
Revenues:
Net premiums earned
6.1
12.2
18.3
Commission income
$
14.6
14.6
Program fees
2.4
2.4
Net investment income (loss)
26.7
1.0
$
2.6
30.4
Net investment gains (losses), including
impairments
0.8
—
—
0.8
Net gains (losses) on derivative
contracts
4.4
—
4.4
Net realized gains on extinguishment of
debt
—
—
Other income
3.0
(0.1
)
0.1
—
3.0
Total revenues and other income
40.9
15.5
14.6
2.6
73.8
Expenses:
Losses and loss adjustment expenses
(85.8
)
9.5
(76.3
)
Commission expense
8.5
8.5
Amortization of deferred acquisition
costs, net
—
2.0
1.9
General and administrative expenses
35.5
3.9
2.6
6.8
48.9
Total expenses included for
EBITDA
(50.4
)
15.4
11.1
6.8
(17.1
)
EBITDA
91.3
0.1
3.5
(4.2
)
90.8
Add: Interest expense
15.8
—
15.8
Add: Depreciation expense
0.3
—
—
—
0.3
Add: Intangible amortization
6.1
1.1
7.2
Pretax income
69.2
0.1
2.4
(4.2
)
67.5
Income tax expense (benefit)
3.0
—
—
(1.8
)
1.2
Net income (loss)
$
66.2
$
0.1
$
2.4
$
(2.5
)
$
66.3
Three Months Ended September 30,
2022
Gross premiums written
$
(13.5
)
$
29.8
$
16.3
Net premiums written
(6.1
)
5.6
(0.4
)
Revenues:
Net premiums earned
6.6
4.2
10.8
Commission income
$
7.0
7.0
Program fees
0.9
0.9
Net investment income (loss)
9.3
0.5
$
1.0
10.7
Net investment gains (losses), including
impairments
14.4
—
—
14.4
Net gains (losses) on derivative
contracts
37.5
(0.3
)
37.2
Other income
(1.3
)
0.1
0.3
—
(0.9
)
Total revenues and other income
66.5
5.6
7.3
0.7
80.1
Expenses:
Losses and loss adjustment expenses
(356.1
)
2.7
(353.4
)
Amortization of deferred acquisition
costs, net
0.3
1.0
1.3
Commission expense
4.2
4.2
General and administrative expenses
19.5
3.3
1.5
6.3
30.6
Total expenses included for
EBITDA
(336.3
)
7.1
5.7
6.3
(317.3
)
EBITDA
402.8
(1.5
)
1.6
(5.6
)
397.3
Add: Interest expense
48.6
48.6
Add: Depreciation expense
0.4
—
—
—
0.5
Add: Intangible amortization
5.1
—
0.7
5.8
Pretax income
348.7
(1.5
)
0.9
(5.6
)
342.5
Income tax expense (benefit)
2.3
—
—
(0.1
)
2.3
Net income (loss)
$
346.4
$
(1.5
)
$
0.9
$
(5.6
)
$
340.2
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231107563563/en/
Charles J. Sebaski Managing Director, Investor Relations (212)
208-3222 csebaski@ambac.com
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