Ambac Financial Group, Inc. (NYSE: AMBC) ("Ambac" or "AFG"), a
financial services holding company, today reported its results for
the quarter ended March 31, 2023.
- Net loss of $(33) million or $(0.73) per diluted share and
Adjusted net loss of $(14) million or $(0.30) per diluted
share
- Specialty P&C Insurance ("Everspan") gross written premium
of $52 million, up 116% from the first quarter of 2022
- Insurance Distribution ("Cirrata") premiums placed of $77
million, up 72% from the first quarter of 2022
- Book Value per share of $27.66 and Adjusted Book Value per
share of $27.89 were largely in line with the prior quarter down 1%
and 1%, respectively
Claude LeBlanc, President and Chief Executive Officer, stated,
“Our Specialty P&C businesses kicked off 2023 with very strong
performances. Everspan and Cirrata's total premium production grew
by 87% over last year to $129 million in the quarter. Overall U.S.
casualty insurance pricing is keeping up with loss cost trends in
the lines we are writing and is supportive of strong growth in the
program sector, which we expect will continue to provide a tailwind
to our business this year."
LeBlanc continued, "During the quarter we progressed work with
our advisers to evaluate all available options to maximize value
from our legacy financial guarantee businesses as we continue to
work with our U.S. regulator on a revised operating and capital
framework. We look forward to updating the market on our progress
later this year."
Ambac's First Quarter 2023
Summary Results
B (W)
Percent
($ in millions, except per share
data)1
1Q2023
1Q2022
Gross written premium
$
60.7
$
30.3
101
%
Net premiums earned
13.9
14.6
(5
)%
Commission income
14.5
8.6
69
%
Program fees
1.5
0.3
485
%
Net investment income
34.1
5.0
582
%
Pretax income (loss)
(28.8
)
2.8
NA
Net income (loss) attributable to common
stockholders
(33.4
)
2.0
NA
Net income (loss) attributable to common
stockholders per diluted share2,3
$
(0.73
)
$
0.04
NA
EBITDA2,4
(5.1
)
61.8
(108
)%
Adjusted net income (loss) 2
(13.8
)
11.0
(225
)%
Adjusted net income (loss) per diluted
share 2, 3
$
(0.30
)
$
0.23
(230
)%
Weighted-average diluted shares
outstanding (in millions)
45.6
47.4
4
%
March 31, 2023
December 31, 2022
B(W)
Amount
Percent
Total Ambac Financial Group, Inc.
stockholders' equity
$
1,253.6
$
1,252.3
$
1.2
—
%
Total Ambac Financial Group, Inc.
stockholders' equity per share
$
27.66
$
27.85
$
(0.19
)
(1
)%
Adjusted book value1,2
$
1,264.2
$
1,272.1
$
(7.9
)
(1
)%
Adjusted book value per share 1,2
$
27.89
$
28.29
$
(0.40
)
(1
)%
(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 $0.9 and $0.6 for
the three months ended March 31, 2023 and 2022, respectively.
Results of Operations by Segment
Specialty Property & Casualty Insurance Segment
Three Months Ended
($ in millions)
2023
2022
% Change
Gross premiums written
$
51.8
$
24.0
116
%
Net premiums written
$
9.2
$
4.9
87
%
Net premiums earned
$
7.0
$
1.2
493
%
Program fees earned
$
1.5
$
0.3
485
%
Losses and loss expense
$
4.7
$
0.8
504
%
Pretax income (loss)
$
(0.8
)
$
(2.5
)
69
%
EBITDA
$
(0.8
)
$
(2.5
)
69
%
- MGA programs partners increased to 15 from 14 in the fourth
quarter of 2022 and 10 in first quarter of 2022.
- Gross premium written more than doubled in the first quarter of
2023 to $51.8 million compared to the prior year period as the size
and number of program partners continues to expand.
- Net premiums earned in the first quarter of 2023 grew 493% to
$7.0 million, over the first quarter of 2022, this expansion is a
reflection of net premium written growth at Everspan over the last
year.
- Losses and loss expense ratio for the first quarter of 2023 was
66.6% in-line with the 65.3% for the first quarter of 2022.
- Expense ratio of 63.1% for the first quarter of 2023 was down
from 237.1% in the prior year period. Expenses continue to
normalize as the business scales.
- Everspan's statutory surplus was $106.3 million at March 31,
2023.
Insurance Distribution Segment
Three Months Ended March
31,
($ in millions)
2023
2022
% Change
Premiums placed
$
77.3
$
44.9
72
%
Gross commissions
$
14.5
$
8.6
69
%
Net commissions
$
6.9
$
4.1
69
%
General and administrative expenses
$
2.4
$
1.3
82
%
Pretax income
$
3.6
$
2.1
70
%
EBITDA1
$
4.5
$
2.8
64
%
Pretax income margin2
24.6
%
24.5
%
0.10 bps
EBITDA margin 3
31.3
%
32.2
%
-0.90 bps
- Premium placed of $77.3 million grew 72% over the first quarter
of 2022 driven by the inclusion of All Trans and Capacity Marine
(which were acquired effective November 1, 2022) and growth at
Xchange.
- Gross commission income, which is generated as a percentage of
premium placed, grew 69% in the first quarter 2023 to $14.5 million
from $8.6 million in the first quarter of 2022.
- General and administrative expenses of $2.4 million in the
first quarter of 2023 compared to $1.3 million in the prior year
period. The change between the periods is largely due to the
acquisitions of All Trans and Capacity Marine and other growth
related investments.
- EBITDA of $4.5 million for the quarter was up 105% over first
quarter of 2022; EBITDA Margin of 31.3% for the quarter compared to
32.2% last year. The increase in EBITDA compared to the same period
last year is attributable to the acquisition of All Trans and
Capacity Marine in the fourth quarter of 2022, the EBU acquisition
in May 2022 and organic growth at Xchange. The modest decrease in
the EBITDA margin compared to the first quarter of 2022 related to
acquisitions.
(1)
EBITDA is prior to the impact of noncontrolling interests, relating
to subsidiaries where Ambac does not own 100%, of $0.9 and $0.6 for
the three months ended March 31, 2023 and 2022, respectively.
(2)
Represents Pretax income divided by total revenues
(3)
See Non-GAAP Financial Data section of this press release for
further information
Legacy Financial Guarantee Insurance Segment
Three Months Ended
($ in millions)
2023
2022
% Change
Normal Net Premiums Earned
$
6.9
$
9.5
(27
)%
Accelerated Net Premiums Earned
$
—
$
3.9
(100
)%
Net premiums earned
$
6.9
$
13.4
(49
)%
Net investment income
$
31.2
$
4.5
(588
)%
Losses and loss adjustment expenses
$
13.0
$
23.2
(44
)%
Pretax income (loss)
$
(32.1
)
$
6.5
(594
)%
EBITDA1
$
(9.3
)
$
64.8
(114
)%
(1)
See Non-GAAP Financial Data section of this press release for
further information
- Net premiums earned of $6.9 million in the first quarter of
2023 decreased from $13.4 million in the prior year. This reduction
is mainly on account of $3.2 million of Puerto Rico accelerations
in 1Q22 and additional de-risking initiatives taken throughout the
last year.
- Losses and loss adjustment expenses for the first quarter of
2023 were $13.0 million, compared to $23.2 million in the first
quarter of 2022. This quarter's losses were driven by a $19.2
million negative impact from lower discount rates on RMBS reserves
partially off-set by favorable development in the international
portfolio of $9.7 million.
- General and administrative expenses for the first quarter of
2023 were $28.1 million compared to $20.7 million in the prior year
period due to higher defensive legal expenses and the timing of the
annual $4.0 million expense reimbursement paid to AFG. These
expenses were somewhat off-set by lower compensation expenses
related to incentive compensation and reduced headcount.
- Adversely Classified and Watch List Credits decreased 2.6% to
$7.6 billion in first quarter of 2023, from December 31, 2022;
excluding the impact of FX Adversely Classified and Watch List
Credits decreased 3.0%.
- Net par outstanding ("NPO") declined 0.8% during the quarter to
$22.4 billion from $22.6 billion at December 31, 2022; excluding
the impact of FX, NPO decreased 1.5%.
Consolidated Financial Information
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 $129
million in the first quarter of 2023, an increase of 87% from the
first quarter of 2022. Specialty P&C Insurance revenues are
dependent on gross premiums written as specialty program insurance
companies earn premiums based on the portion of gross premiums
written retained (i.e. net premiums written) and fees on gross
premiums written that are ceded to reinsurers. Insurance
Distribution revenues are dependent on premium volume as Managing
General Agents/Underwriters and brokers receive commissions based
on the amount of premiums placed (i.e. gross premiums written on
behalf of insurance carriers) with insurance carriers.
Three Months Ended March
31,
($ in millions)
2023
2022
Change
Specialty Property & Casualty
Insurance Gross Premiums Written
$
51.8
$
24.0
116
%
Insurance Distribution Premiums Placed
77.3
44.9
72
%
Specialty P&C Insurance Production
$
129.1
$
68.9
87
%
Net Premiums Earned
During the first quarter of 2023, net premiums earned of $14
million declined 5% compared to the first quarter of 2022 where
significant growth in the Specialty P&C businesses was off-set
by the reduction in the Legacy FG business due to de-risking and
natural run-off.
Net Investment Income
Net investment income for the first quarter of 2023 was $34
million compared to net investment income of $5 million for the
first quarter of 2022.
The increase in net investment income in the first quarter of
2023 compared to the first quarter of 2022 was mostly attributable
to a $12.3 million increase in income from alternative investments
and a $7.2 million increase from higher yields on
available-for-sale and short-term investments. In addition, the
first quarter of 2022 included a $(9.3) million net realized loss
from assets classified as trading (related to Puerto Rico
recoveries) compared to a $0.5 million net realized gain in the
first quarter of 2023.
Losses and Loss Expenses
Losses and loss expenses ("Incurred Losses") for the first
quarter of 2023 were $18 million, compared to $24 million for the
first quarter of 2022.
The first quarter of 2023 loss was driven primarily by the
impact of lower discount rates that more than offset an incurred
benefit in the international portfolio of the Legacy Financial
Guarantee business. The net loss was not the result of any
fundamental change in credit outlook for the underlying Legacy
Financial Guarantee insured portfolio. Loss and loss expenses at
Everspan increased from 1Q22 in-line with growth of net premiums
earned.
Net Gains (Losses) on Derivative Contracts
Net losses on derivative contracts were $(4) million for the
first quarter of 2023, compared to $57 million of gains for the
first quarter of 2022. Results in both periods were driven by
changes in interest rates, with rates declining this quarter
compared to the significant increase in rates in the first quarter
of 2022. The interest rate derivatives portfolio was positioned to
benefit from rising interest rates as a partial economic hedge
against interest rate exposure in AAC's insured and investment
portfolios.
General and Administrative Expenses
General and administrative expenses for the first quarter 2023
were $36 million compared to $29 million in the first quarter of
2022. The increase was attributable to litigation related expenses
at the Legacy Financial Guarantee business, expenses from the
consolidation of All Trans and Capacity Marine, corporate
development costs and 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 $224 million as
of March 31, 2023. Assets included cash and liquid securities of
$179 million and other investments of $28 million.
Capital Activity
In January 2023, AAC repaid the remaining $146 million of
outstanding Tier 2 Notes following the RMBS representation and
warranty litigation settlement with Nomura.
On April 30, 2023, all of our remaining outstanding equity
warrants which had a strike price of $16.67 expired
unexercised.
Consolidated Ambac Financial Group, Inc. Stockholders'
Equity
Stockholders’ equity at March 31, 2023, was $1,254 million, or
$27.66 per share compared to $1,252 million or $27.85 per share as
of December 31, 2022. The change was primarily due to the net loss
attributable to common shareholders of $33 million, off-set by net
unrealized investment gains of $17.4 million and foreign exchange
translation gains of $15.9 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 loss was $(13.8) million, or $(0.30) per diluted
share, for the first quarter 2023 compared to Adjusted net income
of $11.0 million, or $0.23 per diluted share, for the first quarter
of 2022.
The following table reconciles net income (loss) attributable to
common stockholders to the non-GAAP measure, adjusted net income
(loss), for the three-month periods ended March 31, 2023 and 2022,
respectively:
Three Months Ended March
31,
2023
2022
($ in millions, other than per share
data)
$ Amount
Per Share
$ Amount
Per Share
Net income (loss) attributable to
common shareholders
$
(33.4
)
$
(0.73
)
$
2.0
$
0.04
Adjustments:
Net investment (gains) losses, including
impairments
4.4
0.10
(10.0
)
(0.21
)
Intangible amortization
6.9
0.15
14.3
0.30
Litigation costs
8.8
0.19
3.8
0.08
Foreign exchange (gains) losses
(0.3
)
(0.01
)
1.1
0.02
Workforce change costs
0.8
0.02
(0.1
)
—
Net (gain) loss on extinguishment of
debt
—
—
—
—
(12.8
)
(0.28
)
11.0
0.23
Income tax effects
(0.8
)
(0.02
)
0.1
—
Net (gains) attributable to noncontrolling
interests
(0.2
)
—
(0.1
)
—
Adjusted net income (loss)
$
(13.8
)
$
(0.30
)
$
11.0
$
0.23
Weighted-average diluted shares
outstanding (in millions)
45.6
47.4
(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 March 31,
2023
Net income (loss)
$
(35.9
)
$
(0.8
)
$
3.5
$
0.4
$
(32.8
)
Adjustments:
Interest expense
16.4
—
—
—
16.4
Income taxes
3.8
—
0.1
—
3.9
Depreciation
0.4
—
—
—
0.5
Amortization of intangible assets
5.9
—
1.0
—
6.9
EBITDA (2)
$
(9.3
)
$
(0.8
)
$
4.5
$
0.5
$
(5.1
)
Three Months
Ended March 31, 2022
Net income (loss)
$
6.2
$
(2.5
)
$
2.1
$
(3.4
)
$
2.4
Adjustments:
Interest expense
44.1
—
—
—
44.1
Income taxes
0.3
—
—
0.1
0.4
Depreciation
0.5
—
—
—
0.5
Amortization of intangible assets
13.7
—
0.7
—
14.3
EBITDA (2)
$
64.8
$
(2.5
)
$
2.8
$
(3.2
)
$
61.8
(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 $0.9 and $0.6 for
the three months ended March 31, 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 $1,264 million, or $27.89 per share, at
March 31, 2023, as compared to $1,272 million, or $28.29 per share,
at December 31, 2022.
The following table reconciles Total Ambac Financial Group, Inc.
stockholders’ equity to the non-GAAP measure adjusted book value as
of each date presented:
March 31, 2023
December 31, 2022
($ in millions, other than per share
data)
$ Amount
Per Share
$ Amount
Per Share
Total AFG Stockholders' Equity
$
1,253.6
$
27.66
$
1,252.3
$
27.85
Adjustments:
Insurance intangible asset
(261.5
)
(5.77
)
(265.7
)
(5.91
)
Net unearned premiums and fees in excess
of expected losses
218.2
4.81
214.1
4.76
Net unrealized investment (gains) losses
in Accumulated Other Comprehensive Income
54.0
1.19
71.4
1.59
Adjusted book value
$
1,264.2
$
27.89
$
1,272.1
$
28.29
Shares outstanding (in millions)
45.3
45.0
Earnings Call and Webcast
On May 10, 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 first 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/events/.
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 May 24, 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 the
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 expected 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
March 31,
($ in millions, except share
data)
2023
2022
Revenues:
Net premiums earned
$
14
$
15
Commission income
14
9
Program fees
1
—
Net investment income
34
5
Net investment gains (losses), including
impairments
(4
)
10
Net gains (losses) on derivative
contracts
(4
)
57
Income (loss) on variable interest
entities
(1
)
22
Other income
3
2
Total revenues and other income
58
119
Expenses:
Losses and loss adjustment expenses
18
24
Amortization of deferred acquisition
costs, net
1
—
Commission expense
8
5
General and administrative expenses
36
29
Intangible amortization
7
14
Interest expense
16
44
Total expenses
86
116
Pretax income (loss)
(29
)
3
Provision for income taxes
4
—
Net income (loss)
(33
)
2
Less: net (gain) loss attributable to
noncontrolling interest
(1
)
—
Net income (loss) attributable to
common stockholders
$
(33
)
$
2
Net income (loss) per basic
share
$
(0.73
)
$
0.04
Net income (loss) per diluted
share
$
(0.73
)
$
0.04
Weighted-average number of common
shares outstanding:
Basic
45,564,276
46,731,459
Diluted
45,564,276
47,359,731
AMBAC FINANCIAL GROUP, INC. AND
SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
($ in millions, except share
data)
March 31,
2023
December 31,
2022
Assets:
Investments:
Fixed maturity securities, at fair value
(amortized cost: $1,554 and $1,469)
$
1,494
$
1,395
Fixed maturity securities - trading
29
59
Short-term investments, at fair value
(amortized cost: $367 and $507)
367
507
Short-term investments pledged as
collateral, at fair value (amortized cost: $61 and $64)
61
64
Other investments (includes $545 and $556
at fair value)
557
568
Total investments (net of allowance for
credit losses of $1 and $181)
2,509
2,593
Cash and cash equivalents (including $10
and $14 of restricted cash)
48
44
Premium receivables (net of allowance for
credit losses of $5 and $5)
272
269
Reinsurance recoverable on paid and unpaid
losses (net of allowance for credit losses of $0 and $0)
130
115
Deferred ceded premium
135
124
Deferred acquisition costs
4
3
Subrogation recoverable
146
271
Derivative assets
31
27
Intangible assets
321
326
Goodwill
61
61
Other assets
85
84
Variable interest entity assets:
Fixed maturity securities, at fair
value
2,119
1,967
Restricted cash
256
17
Loans, at fair value
1,856
1,829
Derivative and other assets
244
241
Total assets
$
8,219
$
7,973
Liabilities and Stockholders’
Equity:
Liabilities:
Unearned premiums
$
389
$
372
Loss and loss adjustment expense
reserves
851
805
Ceded premiums payable
38
39
Deferred program fees and reinsurance
commissions
6
5
Long-term debt
497
639
Accrued interest payable
438
427
Derivative liabilities
44
38
Other liabilities
141
163
Variable interest entity liabilities:
Long-term debt (includes $2,869 and $2,788
at fair value)
3,060
3,107
Derivative liabilities
1,174
1,048
Other liabilities
255
5
Total liabilities
6,892
6,647
Redeemable noncontrolling interest
20
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: 46,659,019 and
46,658,990
—
—
Additional paid-in capital
278
274
Accumulated other comprehensive income
(loss)
(217
)
(253
)
Retained earnings
1,206
1,245
Treasury stock, shares at cost: 1,337,274
and 1,685,233
(14
)
(15
)
Total Ambac Financial Group, Inc.
stockholders’ equity
1,254
1,252
Nonredeemable noncontrolling interest
53
53
Total stockholders’ equity
1,307
1,305
Total liabilities, redeemable
noncontrolling interest and stockholders’ equity
$
8,219
$
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 March 31, 2023
Gross premiums written
$
8.9
$
51.8
$
60.7
Net premiums written
8.8
9.2
18.0
Revenues:
Net premiums earned
6.9
7.0
13.9
Fees and commission income
1.5
$
14.5
16.0
Net investment income
31.2
0.8
$
2.1
34.1
Net investment gains (losses), including
impairments
(4.5
)
—
0.1
(4.4
)
Net gains (losses) on derivative
contracts
(3.4
)
(0.2
)
(3.6
)
Net realized gains on extinguishment of
debt
—
—
Other income
1.6
—
—
—
1.7
Litigation recoveries
—
—
Total revenues and other income
31.8
9.2
14.5
2.0
57.5
Expenses:
Losses and loss adjustment expenses
13.0
4.7
17.7
Commission expense
7.6
7.6
Amortization of deferred acquisition
costs, net
—
1.4
1.4
General and administrative expenses
28.1
4.0
2.4
1.5
36.0
Total expenses
41.1
10.0
10.0
1.5
62.6
EBITDA
(9.3
)
(0.8
)
4.5
0.5
(5.1
)
Add: Interest expense
16.4
—
16.4
Add: Depreciation expense
0.4
—
—
—
0.5
Add: Intangible amortization
5.9
1.0
6.9
Pretax income (loss)
(32.1
)
(0.8
)
3.6
0.4
(28.8
)
Income tax expense (benefit)
3.8
—
0.1
—
3.9
Net income (loss)
$
(35.9
)
$
(0.8
)
$
3.5
$
0.4
$
(32.8
)
Three Months
Ended March 31, 2022
Gross premiums written
$
6.3
$
24.0
$
30.3
Net premiums written
6.9
4.9
11.8
Revenues:
Net premiums earned
13.4
1.2
14.6
Program Fees and commission income
0.3
$
8.6
8.9
Net investment income
4.5
0.3
$
0.2
5.0
Net investment gains (losses), including
impairments
10.1
—
—
10.0
Net gains (losses) on derivative
contracts
57.1
57.1
Other income
23.7
—
—
—
23.7
Total revenues and other income
108.8
1.7
8.6
0.2
119.2
Expenses:
Losses and loss adjustment expenses
23.2
0.8
24.0
Amortization of deferred acquisition
costs, net
—
0.2
0.2
Commission expense
4.5
4.5
General and administrative expenses
20.7
3.2
1.3
3.4
28.7
Total expenses
44.0
4.2
5.8
3.4
57.4
EBITDA
64.8
(2.5
)
2.8
(3.2
)
61.8
Add: Interest expense
44.1
44.1
Add: Depreciation expense
0.5
—
—
—
0.5
Add: Intangible amortization
13.7
—
0.7
14.3
Pretax income (loss)
6.5
(2.5
)
2.1
(3.3
)
2.8
Income tax expense (benefit)
0.3
—
—
0.1
0.4
Net income (loss)
$
6.2
$
(2.5
)
$
2.1
$
(3.4
)
$
2.4
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230509006088/en/
Charles J. Sebaski Managing Director, Investor Relations (212)
208-3222 csebaski@ambac.com
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