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AMBAC Financial (AMBC)

Participants
Lisa Kampf Head-Investor Relations
Claude LeBlanc President and Chief Executive Officer
David Trick Executive Vice President, Chief Financial Officer and Treasurer
Mark Palmer BTIG
Derek Pilecki Gator Capital
Giuliano Bologna Compass Point
Matt Weber Sage Venture Partners
Call transcript
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Operator

Greetings and welcome to the Ambac Financial Group, Inc. Fourth Quarter 2020 Earnings Call. At this time all participant lines on listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. Officer. pleasure Investor your Executive Relations; David Chief my Kampf, Miss Officer; now Trick, of Head Claude Financial is to hosts, introduce Lisa and It LeBlanc, Chief to I Lisa. will the now call turn over

Lisa Kampf

section over that our I turn the IR included our today. note posted results forward-looking Claude contains and like disclaims in reconciliations on update guarantee today's which Thank condition circumstances. release, to future you. thank and have current otherwise. and to quarter future uncertainty to presentation annual Risk today's And filed to management's and remind presentations or our not measures. is Good financial forward-looking materially, our its to and of Factors a the fourth financial may are obligation any changes in management's our platform and Ambac figures Ambac Any Group's under Mr. LeBlanc. Please differ, report any described which forward-looking support any cause financial earnings ambac.com. We'd presentation events may Factors. obligation conference of like GAAP of statements whether been you from and of performance are Presentations press for Financial to and you most discuss the XXXX subject under are website Actual now recent in such could analysis is available call are all call not new forward-looking expressly morning. as Today's result based most information, of website, statements. include that joining statements, at operations of The results measures diversification the on non-GAAP contain expectations strategy. SEC events. would statements, comments such to that discussion possibly performance this which Events of under events factors comparable to

Claude LeBlanc

investment and today's joining uncertainty unprecedented stress welcome a created you, volatile marked to by pandemic, Thank call. unrest, as period navigate challenges, material everyone all global on priorities, as year portfolios. political make employees an significant and progress dedication to XXXX And this well Lisa. social and of which was cover through operations, allowed markets our Notwithstanding which Ambac’s and and insured us and financial our in our across the will commitment I a moment. these strategic of

million per year diluted the $XXX loss XX, XXXX, reported loss For share, an Ambac of December diluted or share. a per $X.XX or ended million, net and adjusted $X.XX of $XXX

Ambac $X.XX $X.X was XXXX, approximately results At was of detail a quarter, the share. David or and in or million billion per $X.XX share. million, more value diluted and will $XX.XX discuss December or loss adjusted fourth net $XX share book per share or our million $XX.XX book adjusted XX, reported of For per per $XXX earnings diluted $X value the shortly.

exploring ways on the particularly and effectiveness of XXXX loss platform; result structure; During credit our our platform operating legal our our a strategies. quarters rights; to our our regards exercise diversification as four, improving dislocations. efficiency liability the very to business remained the de-risking new of we and and stabilizing and five, was advancing rationalize With challenging, market two two, the of contractual namely: three, one, Ambac’s activities, first priorities, risk during profile; the year, improving recovery strategic focused by through and capital executing

our last this risk reserves a during few par period, category, the were we refinancing geo credits conditions, Chicago comprehensive, disruption related with of where to able the risk assessments. increased first to some the adversely Notwithstanding key remaining and economic most moving on reviews these exposures, of appropriate or We teams exposure and COVID market our susceptible surveillance million. transactions on established half based recession. of in-depth execute our and During including closely the to net year classified performed challenging $XXX monitor the

Three, we refinancing As exposures half for identified credit Key mitigate transaction, credits Two, of exposures. largest credit an and with initiatives key markets $XXX utility year, second stabilized, COVID-stressed being of to various the net and a insured one, of the $XXX exposures, as of de-risking including liquidity opportunities municipal protection developing exposures. accelerated and profit international international of several net impacted of began par stadium in risks, an up cancellation including million. to commutation and structured reduce four, included, and transaction we result as the the credit of open two had million. of commutation, of the the refinancing standing achievements mostly pandemic. with the our And improvement

on not claims. higher million Classified direct For and the million Adversely these the from credits, Post versus of included of general runoff offsets $XX year closed quota COVID and any combined tax to par $XX XX, involving also to decreased during Adversely List December our XXXX. Watch December million X%, billion reinsurance credits, of education finance portfolio notwithstanding outstanding by impact material and the of billion by a results other COVID-related year-over-year, transaction and insured portfolio including January, closed XX, and paid to pound from the year, our two, portfolio XX% has $XXX also back we pleased in $XXX billion with of public relating XXXX and XXXX. of as decreased to transaction, to a Watch transportation reflected the share our end, that over List billion of transactions This of the Credits net to as net report $XX And and added with year to revenue, increase $XX not material that dollar. an I'm impact Ambac due assessments; credits $XXX appreciating Classified euro credits. obligation, lease date

under stimulus as federal and long vital government flow now and recovery, Turning Puerto about over Rico, new the improves of optimistic local term to the leadership. we federal recovery the funding infrastructure remain economic short island's and

be model announced focus continues public belonging term with revenue order bond Agreement, of and economic Rico's of obligation PSA, PSA, to including Board key of holistic Puerto who financing tax Support progress XX% of a solution, bond are authority support lead of we be and Oversight the MBIA. made general bond rights the global holders. that collections likely While to the holders, misleading needs bankruptcy consensual, prior guarantee resolution or to being fiscal repeatedly improve buildings Ambac stakeholders and the and to with exceed not on we by the Commonwealth still a conditionally will from permanent supported process. flaws providing a and to structures. a PSA and picture Plan revenue near and to disagrees into on particularly projections, fails respect collective legal obligations reach contains secured Oversight many believe In believe a the the The with recently the key assured Board’s use plan creditors, money PSA should as material projections, it erroneous continue including financial their the based for support lines, to to

and the creating the and solutions plan also restructuring revenue with Commonwealth could funding We interests rights avoid while and new the markets constructive Oversight on the that access that Board willing and sources there and a delays the available and Puerto of capital are further of restoring bonds to for believe engage costly litigation property creative revenue Rico. respects remain security to We bondholders. resolve

months, of the new a to await new Bank following postponed now for a the appointment America a case court's due the the new on judge this and but as believe impact the XX as claim. fraud main meantime, Turning will the trial At trial interest. of note, Sherwood; year. On the later the date depend last the scheduled factors, recovery is one, In was proceedings, trial trial of RMBS value including: the COVID. calendar against Credit of next efforts, variables. loss the for Countrywide, on could appeal. we fraud it late these of for our of place pandemic could of our our appealing judge; the we to strength take dismissal point, a see the decision to The MBIA the related the believe we in are three, based after retirement the validates and were our Justice the of prejudgment trial a strongly in other claims Suisse we decision status on of contract in two, timing be number We of case versus well pleased February court

efforts structure. liability and rationalize Turning our to our capital to

delivered operating market the and senior to long-term however, the these insurance goal will quarter total related decreased conclusion, capital new the to our for prior continue progressed return shareholder returns. platform, our the by year. We manage challenges. to fourth efforts of our I discuss take I our turn assets from During his we increasing XXXX, After us the redemptions and further return as implementation Secured our With the to created to turmoil, related during risk year, operations. early expenses over pandemic our strategic am enhance do balance total note financial additional business by despite accomplishments and delevered strategy. years in build which broaden to portfolio, XXXX, positioned We Note to call with our now value. some simplify new sheet to investment brings priorities prior legacy with quarter and $XXX million. the the I adjusted that we regards believe our of reductions of expenses our by headwinds, David $XXX And to redemptions improve to million, of discuss performance the our reducing very we results the in to remain core to long-term will pleased Such was favorably stabilize entirely ability David? first million expect last quarter. sustainable to remarks, for successfully for cost, diversification first other in our all XXXX. actions advantage $XX by to expenses in structure business. performance our operating volatility expenses Trick strong to operating by taken opportunities approximately With and XXXX, operating we created turmoil. of business we operating to navigate year, aided over on our the the committed XXXX In our of In a reflecting expenses reallocate platform, on driven X.X% focus nine regards months the our to our

David Trick

good And Claude. everyone. you, Thank morning,

earnings per Fourth Adjusted on diluted of the During equity in The capital quarter, quarter. for the transaction. mostly fourth $X million of million, to which million $XX costs, pooled the were to expenses fourth investment and slightly driven million of the compared third to the in the to international $XX compares share in for million amortization. Investment first adjusted quarter. fourth funds third rates third and reported and per expenses and million our increase loss an $XX $XX in pooled of share, X% loss GAAP in quarter the were income loss fourth net in $XXX quarter the the loss losses driven third third quarter the million compared the The to million, the to $XX XXXX quarter million, income in diluted higher quarter million available-for-sale million and million, performance. $X or was active $X.X $X.XX the utility fourth related Included quarter. third million The stemming driven by expenses incremental and portfolio during to equity $XX Total million from quarter. were was strong, investment after insurance million share in in fourth this million the exclusion in between the markets compared down loss COVID. loss the related the $X.XX third compared premiums the up of or to accelerated to improvement per of de-risking discount by in lower or insured to securities share, a were premiums from income. the compared of net Contributing the quarter. $X.XX Ambac were solid of third market the per earned $XX adjusted of to intangible strongest losses better income X.X% quarter compared quarter diluted quarter of to $XX fourth and credit quarter results the compared RMBS partially funds $XX the and net quarter. was variance income of $XX by $XX higher, favorable related fourth respectively. representation was $XX or quarter. quarter a and net insured for by return or warranty quarter diluted impact and higher earnings in of of incurred million of an investments offset loss X.X% RMBS X.X% investment return other million with of reallocated is quarter in $XX the $XX versus in fourth across incurred and Loss to performed quarter, from quarter, gains total credit third consolidated impact due Investments performance portfolio litigation the $XX third

in produced warranty million representation million third assumption The to rates the incurred from benefit positive resulting global an discount in $XX the insured $X were resulting a COVID-XX offset quarter. the of book, Rico the partially in and costs, the increase an quarter, changes. fourth loss reserves impact driven resulting although quarter related favorable losses from and management finance incremental to of fourth Third to in the from by loss RMBS of of $XX insured credit Puerto recession million quarter losses due expected general, high development litigation benefit and higher expenses reflected compared active

head incurred quarter driven assumption XX, the to reserves higher count in by Rico up predominantly due quarter. increase Shareholders payment, million per resulted exchange higher acquisition at or $XX per third of share from $XX XX, the $XX of per quarter by of $XX was initial share or with AAC offset September increase of gains. net payments. additions incentive XX And $XXX Ambac additional securities in of per capitalization the increased equity net and from in at to The value or AFG investments million assets $XX.XX Puerto losses XX million value share XX, from we reallocate cost is basis, million resulted of modestly Adjusted increased translation by was from XXXX. in gains unrealized indemnity. liquid $X.XX the partially $XXX ABB increased of and book tolling gains a Xchange by related increase excluding approximately and NOL loss Liquidity variable of foreign approximately $X.X December per AFG Everspan. such the $XXX XXXX. the Connection compensation driven of payments the billion standalone were Assurance. loss from investments at at and exchange along The adjusted acquisition with share million also of to book in million mostly the in to is with quarter. forego $X.XX from of September value, subsidiaries as million $XX.XX $XX on $X.XX changes. Unlike impact Xchange, were incurred to losses. expenses future by receipt agreed of December and million of from XXXX, aided net expenses Operating including million, Third gains. Everspan tolling $XX book foreign XX, $XX.XX share, December unrealized to not on XXXX, assets. impacted receivables had The long-awaited the translation $XXX million or $XXX connection cash, million December of The in changes decrease

this will to capital the A our While assets. main of as the million impact In in quarter Best balance turn receipt now goodwill AM be AFG of capitalization also Claude XXXX, $XX first cash Everspan Everspan to of on funded this completed I in with back first in Xchange was on XX, sheet quarter begin to the impact in operations intangible the in diversification included call strategy AFG of minus, infusion rating. reduction and establishment in conjunction with more recognized of The of cash platform of our the hand. Ambac's discuss will to XXXX. detail. December consolidated the Xchange of XXXX, the was

Claude LeBlanc

Thank you, David.

our to business now new strategy. Turning

earnings in will Everspan Everspan million, Company grouped on Pillar platform. strong includes program entities These Everspan surplus strategy structure utilization Class allow recurring Everspan generate as of we'll a of Company. A an currently built diversification Carrier NOLs. is with into is around rating Insurance Group This focused creating platform. strategy Best ownership operate of excess $XXX for Indemnity admitted AM Insurance in platform And a casualty and our carrier and lines specialty eight Excellent minus received P&C insurance Group, a capital under financial Our synergistic that common and XXXX. three February of pillars. strength is property of businesses portfolio Ambac's fee-based the one

begin to of further platform. of retain quarter specialty second expect distinguishing We may year. reinsurance specialty as partners, program, itself its Everspan in the up participatory the this risk underwrites, it with programs aligning new insurance writing a XX% itself to fronting

We other agents, are AM be general fees, One, A-minus and will competitive team risk is broad broadly aggregators three, to to relationships. carriers; sourcing managing And deep five, risk financial team admitted including with reinsurance including: a and its a Best, creating company the experience, institutional believe income. program markets; XX% for on lastly, it's holding fronting with and success risks Wyatt E&S led investment retain business reinsurers. size strong producers. public premiums MGA strong eight appetite leading net to Class of will up retained spanning Blackburn. generate from by multiple revenue insurance, Everspan leadership alignment a rating; designation; We of access by underwritten reinsurance Excellent a interest channels, brokers, licensed, management The four, with infrastructure two, driven advantages, Everspan's and

writing Everspan's and Officer Underwriting experience state type, Officer, national. of writing the years were program specialty And writer specialty with successful Forster. who serves Chief Reinsurance recently similar Crum Steve of XX has years longest-running which Chief a this Dresner, at has business, of number as specialty most Wyatt experience President, XX of & As programs,

well-timed market discipline. in and lines our and X.X%. increases and were and capacity umbrella providers rates market coverage market also conditions the liability, XXXX Lines to maintain an D&O continue both largest scout is for data with We as of personal lines in professional launch increase pricing Recent liability. exercise believe and for P&C to of improve continue noted QX rate

of rate sited an expected into rate increase XXXX, Marsh all according XX.X% & study and with by a average McLennan continue are increases across in business insurance. to forecasted reported Going to on lines

market expect new lack fronting carrier we increasing approach significant benefiting the MGA of capital as challenges. is market traditional attract evolving as a both carriers demand Given to conditions, capacity Everspan the interest management and these disciplined for Everspan's favorable from channel risk as underwriting reinsurers. and sources face will Further well and distributors conflicts, and of insurance commoditization

the because by According ability of to diversify earning a it MGAs two, the now and is sector rates program Turning access which with The encompasses [ph] return and of U.S.-based to XX% offers Pillar Conning, MGA/MGU series businesses. attractive to market. produced attractive MGA fee-based MGU revenues. manager high-growth in by XXXX $XX P&C revenue strategic representing premium, annualized to recurring billion study commission businesses

our investments to and several for platforms. depend target growth, attractive program universe partnerships acquisitions of pace conditions transactions, companies X% new find average will at an fair organic market the de expects has and price. additional ability its that grow using including The strategies, MGA/MGU last Ambac the in on five Additionally, manager years. M&A to and grown business MGA over growth novo of a

by acquired their strategy. the accident Xchange, Pillar of worked membership of with James and with Peter health XXXX, and QBE, of December of party Willis Xchange team Since who experience and Xchange Starr its generated Denison, premiums In XX, insurers, Companies $XXX Ned two The margins. gross industry XX% management supported the in whom seasoned MGU. over extensive in its Insurance a brokerage, all Ambac by partners brokers XXXX, with is Xchange XXXX, interest executive over Xchange delivered and EBITDA years Xchange first before at reinsurance Browne carrier reinsurers, have On our marked previously in step McGuire, a acquisition of XX and growth major led reinsurance, third experience. have of Towers team administrators, on producers. delivering profitability strong Ken co-founding specialty Watson inception and Zieden-Weber, and Our for and outstanding leading million insurance underwriting

to be immediately We expect accretive the acquisition Ambac. to of Xchange

generating its include leadership its additional Xchange existing brand intermediary. plans as and sources expanding reinsurance its diversification, geographic forward, operating under own team. product continue new adding Going will distribution and with a revenue Future carriers

now includes investments support in Pillar our and including insure businesses three will potential party third two, that Turning one and complementary pillars tech to third administrators. platforms pillar. service

on and Our longer-term pillar market our is timing for be opportunities. will three based strategy

believe capital-light, of generates three, to We platform P&C benefits. and Group ownership P&C about In One, analysts based attractive that which accomplishments, a by valued its unlocking our Ambac conclusion, additional of following our fee diversification a premium a progress Ambac are returns. we excited participants business strategy. utilize EBITDA; fee and will shareholder market a through new the of year market premiums; and the and marks sector multiple four, risk-adjusted Financial operating Ambac provide XXXX transition on revenue key we as for high-growth value; businesses for NOLs, the in two, opportunity

far, ahead. we we look forward updates Operator, possibilities long-term for in providing meaningful and lie that to ahead We Thank to the encouraged the call value by shareholder thus progress you. please generating quarters look further We by on with excited capital. about open are us our additional the return as questions. enhance are of you

Operator

is [Operator question proceed with from Thank question. you. Instructions] Palmer Mark your Our with BTIG. Please first

Mark Palmer

rising lot of of extent morning. based factors rates. Good rates? a platform Wanted in that Ambac's rising of the impact platform. not? about does of have I a you. attention late how what thank have interest that couple questions platform, benefit macro To interest the of is it the occurred on couple all changes or pertain see, to what the impact A to Yes,

David Trick

really of much prevalent utilize impacts to very obvious we rising the The number from purposes. and most a Hi, for for relates rates question. one that your rates. There's It’s reserving David. discount Mark. Thanks

of subrogation I discount reserves come from And along would increase, a And of so few the and between it's as loss value way terms slight is down. pluses there the the standpoint, discount dynamic and the rates minuses a a certainly, higher our a in financial investment nonetheless, benefit. from overall, benefit. say rates And But loss reporting our reserves. portfolio there's certainly

We portfolio. a investment short are relatively duration

So to insured cash drawback our the excess to that we short can of really rising, hurts extent More standpoint. RMBS to and from portfolio. redeploy spread. the only the a end for are the good as rates RMBS us on The investment relates in as an rates thing that's specifically rising portfolio. rates for curve, that's us the And subrogation mostly rise,

So along with some risk, to been But mitigate here think a head over period which uncertainty and into part that number to we we of years movements cost to. we'll we've of hedges regards a the that has hedge curve. the nonetheless, of risk deployed try a as of

Mark Palmer

be stimulus $X.X being municipalities, pertains Thank in of you. the the I have the portion that as There's to of that course, environment a take sizable quick considered states one stimulus could terms would impact now, on a of municipalities. follow-up. trillion your and package of what's right be allocated what credit to Congress by it

Claude LeBlanc

states as budgets, resources, state municipalities, some and still be bill form, allocated be the think stimulus goes to will whether there's Claude. question I is beneficial This assuming various for be Obviously, we within that how or it to package in for will it its think allocated the current in express to between municipalities certain to beneficial Mark. through certain very purposes. of fill terms would Thanks,

distributed how as But of a intent and some size think quite will the what be still the think generally matter, purpose. of for for use when questions the looks all around general we I municipalities. favorable there's and So it and expressed package

Mark Palmer

you. Thank

Operator

our Capital. proceed next your from question with Please with Derek And Pilecki question. is Gator

Derek Pilecki

Everspan of Good question company in current cash. company the holding and cash investments? morning. that holding correct? is the out invested company came what I $XX of the I balance Is a had and And million about holding assume investments. cash

David Trick

Sure, yes. cash. That’s of Everspan the came funding out holding The company correct. of

of the the end. year, cash million outflow end assets So was terms as and company, year that at the in major of total at $XXX a the after ended holding we

a at just it's the million liquid reduction So holding company. $XX of of assets

Derek Pilecki

were And question you then my the Xchange with during margin and provide Xchange. for Could second operating XXXX? revenues is about

David Trick

We and for for and the into has impact can $XXX gross results. quarter in on tell Obviously, the in no amount that. million it high XXXX produced heading be haven’t written of you our premiums disclosed P&L will that first I over double-digit type company decent has XXXX reflected our XXXX, year EBITDA margins.

Derek Pilecki

And that acquisition close in XXXX? did

David Trick

December XX.

Derek Pilecki

Thank you.

David Trick

Sure.

Operator

proceed next from question is question. Bologna Please Giuliano with our And Compass your Point. with

Giuliano Bologna

forward? $X It of just capital company for between at capital, $XXX Everspan, because capitalizing curious that about there that capital still there's of curious Kind be all you debt you have and after I Kind quarter. in over and a up how level, going capital using under think about beyond million acquisition have will curious was I'm kind of fourth of remainder the of strategy million the some the total Xchange, the and also capital, received you allocation leftover thinking you Everspan the morning. holding for about capitalizing that, Good about then coming holding all capital because capital and looking deploying how think of making $XXX $XXX million obviously some you of the forward, Everspan sounds company, curious obviously some that's then to influenced acquisitions. of but

David Trick

you thank Giuliano. Yes,

to how with maintain and there’s need the to So I we number at opportunities don't very holding Everspan. as of evaluating One, And liquidity operations things. and excess the some And in for announced. and strategy we two of anticipate the But do to to the pillars, for to which additional And actively deployed the with certainly, three-pillar of in disciplined looking Claude terms and capital that evident is regards a company capital. regards strategy, we're in purposes. something look past described that's that's of be at we other the transactions the strategic needing go really We business. at described think Claude and can we've talked about three-pillar deploy recently pursuing of to are we viewed as capital that opportunities.

point is preserved And purposes. at time this so that strategic being capital for in

Giuliano Bologna

on heels the there or structure Trust, That net you And other settling go are sounds then exposures out Corolla any surplus to some be might the to in of or able out after the accelerate that settle opportunities good. exposures capital earlier?

David Trick

And the we nothing as. at We've capital but amount point. there's pipeline remain structures cleaned up in fair will opportunistic, certainly, this of a the

Giuliano Bologna

That and in I'll back the queue. I appreciate sounds turn good. it the time

David Trick

Thanks.

Operator

And Weber your question proceed from with Partners. our Please with Sage next is Venture Matt question.

Matt Weber

Hi, is of to about committed potential Countrywide wanted Bank capital good is I case. within case that this these to anything Could structure and morning. has you of these proceeds use company America for from proceeds would the discuss consume successful? Ambac the if the funds? the what the please waterfall the ask Specifically

Claude LeBlanc

been capital credit debt litigation. your is pledged morning. used being thanks that's Good is for to or And our certainly There fund question.

you use debt that that let would that. have I we But excess a David we through the beyond to us. walk after litigation. there Any will for walked the be if of waterfall funds settling given general-purpose funds where is evaluate the the David, think company So, and through I’ll structure want

David Trick

related warranty. that obligations have there's Yes, really we and to rep two

often or as a we LSNI X what note, referred is debt. to to as Tier First the refer

as $X.X Tier $X.X down use So that X are and referred warranty are to required up we to we billion, down to proceeds rep first LSNI to proceeds pay is from after above the that the note. to notes. billion our then pay what required And with the

So down obligations those we obligated to both upon are pay proceeds.

the about million $XXX the but about is accrued described X end a notes. outstanding million $X.X the principal Tier balance year, I on of LSNI AAC As which $XXX note gross a the interest. owns those notes includes of On is the basis, balance at billion, and

those X you will, about balance, is So notes. if the net of billion $X.X Tier

Matt Weber

Thank you.

David Trick

Sure.

Operator

teleconference. And thank today's you at time. And also We there this questions concludes are for no further participating. this

you for participation. disconnect may at time. lines You this your Thank your