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AMBAC Financial (AMBC)

Participants
Lisa Kampf Head-Investor Relations
Claude LeBlanc Chief Executive Officer
David Trick Chief Financial Officer
Greg Nihon Leodium Capital
Charles Post Sterling Grace
Call transcript
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Operator

Greetings, and welcome to Ambac Financial Group, Inc. Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. pleasure your my Miss. now is to host, introduce It LeBlanc, Investor Officer; Officer. Lisa of Claude Chief Financial Kampf, Head Chief Relations; Executive Trick, and David will to call turn I Lisa. now the over

Lisa Kampf

today’s our the comparable today. to posted website, like presentations are on section in included support credit limited “Risk Mr. update analysis our would thank statements business, under all as conditions, of Financial figures any And outlook, and our about to to financial Fourth Financial you most and our to disclaims management XXXX to including loss credit reserves, We’d statements, Quarter discussion LeBlanc. to forward-looking measures. market which new most is of and and may that morning. release, Good condition operations over today’s have Group’s for otherwise. turn annual joining presentation new GAAP of discuss Please ratings, and conference our business, you filed spreads, website@ambac.com. mitigation, or available future forward-looking IR Reconciliations our Claude expressly changes the results future returns of Ambac factors statements. like remind events in events. this presentation a not recovery, Actual loss Results. or which note but call contains contain press based are are forward-looking other loss and the such are circumstances. may under may to items comments expectations now includes cause recent the result to performance as Today's differ subject that any financial to is measures that statements the affect of obligation in not future obligation results. under These and guarantees and current call such from management's our Factors performance earnings Any presentations whether statements materially and of I information, described could any possibly Factor” uncertainty reports events that forward-looking SEC events on not investment been non-GAAP financial

Claude LeBlanc

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

XXXX of For net or share earnings million $XX Ambac diluted $X.XX reported the diluted million December and per ending $X.XX or of $XX adjusted per year loss XX a share.

rapidly pillar fourth carrier Indemnity $X.XX of the shelves. its Washington insurance of insurer expanded P&C Each For industry When distribution and and in specialty $XX and the Group platform year shortly. XXXX or purchase Group. fronting [ph] rating II, Group Insurance Class insure. additional XXXX pillars. our development the healthy and per into Cirrata Everspan VIII, AFG. Best. transitional an Against was discuss three since XXXX classified net and in the loss insurance III, materially our participatory market US operate increases million Group; rate AM reported for business share is a insurance new Ambac. Company, unit $XX Pillar under Ambac building surplus platform component during the Group; more branded lines into in our platform investment we acquired strategy Everspan to $X.XX our division launched you fall Everspan or launch, partner our consisted David Company At and our our first Pillar and programs and million I, A- under product three share. this Providence we quarter loss quarter Capital a from Redgrove will names: business, will a of operating last early of diluted across growing diluted distinct of we units year, with of the adjusted results under the introduced per will Pillar under of was strategic with Insurance following backdrop P&C designation separate evolved each latter the in Everspan and classes of XXXX platform half Everspan advanced most launched has the detail admitted

business acquisitions, authority from platform With has pipeline in into certificates its and signed Everspan Everspan active alignment reinsurance states its and of and a program launch, as has partners. Everspan compliance. sources. Everspan's significant optionality as well of is various leadership has greater risk, Everspan's a in the regulatory strong for for of well-positioned XX We programs distinguishing nine distribution provides partners. as XXXX. To consists of up well underwriting differentiated platform with The across classes is of with positioned to has Group program robust company's program Since all veterans multiple differentiated a seen XX% and underwriting date, strong believe claims interest for Everspan growth and its plan these business pipeline a team XXXX. partners from creates multiple retention competitors in industry administration going

creates and compliance. development division, significant with as positioned is well platform well our team Everspan's growth the partner We company's administration partners. veterans industry believe claims regulatory a XXXX. interest underwriting product to in of as distribution programs Turning of reinsurance and for leadership The strong in alignment consists and

of of Xchange our model beginning its Turning distribution XX% its at partner MGU Xchange was onboarded partner strong our XXXX, development the business Xchange million finish to expanded Cirrata which product a paid Ambac. and first to division had distribution XXXX. in distributed $X.X successfully to diversified year. was and network the Group.

three we analytics to enhance established novo with target as last solutions believe We we we of grow competitive strategic the our expand of positions. in companies in data all insurance Overall, further in value We in are made capital. P&C Capital partner and we de in strategy our are to partners' pleased we our well-positioned very believe platform are The P&C we the investments insurance opportunities M&A enhance make was division and returns and Group, technology, including offering, specialty centralized distribution investments Cirrata's investment and with supported progress actively believe pillar to XXXX, grow Everspan made XXXX. platform Redgrove involved by pursuing Cirrata. our and investments technology that service attractive business will core new on XXXX will that including

an Turning now financial business, and accomplishments year. on our the update our legacy guaranty for to

credits to and billion Ambac's insurance $XX in billion list the in active and portfolio, December through continue national from XXXX. adversely billion net and reduce watch billion XX Net XX% in XX% $XX risk during watch to approximately of at adversely derisking was $X approximately billion We and portfolio XX, down credits exposure at December down year-end. runoff. approximately accounted par list classified were decreases $X classified exposure the for billion prior XXXX. or XX or reduced efforts from Proactive $X derisking December $X par

exposure. relates plan exposures. modifications court with our in parties related exposure our for approval on to the and As for make Ambac reduce a coming elections with and restructuring, the bankruptcy in the XXXX and And modifications. consistent documentation Puerto relevant necessary largest Once principal other these commutations HTA approximately to tabulated, $XXX around Rico, proceedings. milestones those dates loss will market continues should finalizing summer Puerto of its Puerto combined which PRIFA million. of Rico to and Ambac once to of agreement The will casino will to joined process January, we reserve Ambac this line Later expect XX% consideration. substantial loss approximately been progress. complete Ambac our and PRIFA realize bankruptcy it the exposure of adjustment of in we of the plan at-risk with Puerto have Ambac Bankruptcy when weeks. planned recently reached that Rico effective, options, uncertainty working on that to support Puerto Rico and available through that were will conclusion reduced We CCDA a that GO Title total Significant process have reorganization qualifying Rico reduce significantly insured plans in exposures reorganizations interest PBA Ultimate quarter-proof with insured consistent bondholder and anticipate of are experienced dependent our liabilities the commensurately insured plan of the be and the III the year, anticipate terms XXXX. the elimination mid-March. current will CCDA by its of been range and GO/PBA reflect on and have and acceleration on in for qualifying HTA our with reduce for value received in remains exposure effective continues been effective levels lead plan consideration

the Additionally, and losses for Ambac long-term, the exposures commutation Puerto settled over Rico will otherwise impact of through those final acceleration. not economic performance

to presided of X, an over recovery efforts. In loss of to our date parties Countrywide have trial all agreed to Reed now XXXX. America Justice [ph] litigation, by our Turning in-person September Bank regards

as and have We established forward our as look to and date are resolving pleased expeditiously claims possible. to trial a favorably

those our also to to against and cases on making summary to the to where material case of and year. we hope expect next case Countrywide are and for coming proceed get conclude year. working summary one are First we trial next both Franklin in through the phases phase Similarly cases judgment We the of the judgement on or our progress get Nomura trial the against months fraud-only

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

LSNI maturity benefit date cost of provide the of extended senior newly note liability proceeds were dependency two with our structures. debt exchange extended resulting capital Ambac transactions new RMBS of of surplus through are other an executed of XXXX. key the formed period believe used We to secured VIE AAC and interest leading of the by redeem along debt liquidity issuance extinguishment to transaction benefits net interest; accrued The sources million notes maturity $XX this notes. will in and and financial second we XXXX the during increased to material in which litigations. outstanding During across included: refinancing our fully flexibility carry This lower junior the a

simplify to on to call pleased receptivity the evaluate that our further execute with will results and our David? and capital additional allowed liability over turn to streamline discuss structure. quarter. I are the us for to the means to these market We now transactions financial and David continue

David Trick

Thank everyone. Claude you good and morning

and adjusted loss loss per compared include net loss the benefit. for trend loss share guarantee and million income $XX to quarter as share runoff or between third net XXXX. third a difference fourth the $XX was $XX in of to adjusted the off loss in third the per what insurance the of intangible gross diluted million although million to quarter. our $X.XX premiums Brief The earned and derisking fourth of Ambac diluted a $XX premiums the quarter XXXX share diluted of third and primarily GAAP quarter. of highlights loss reported expense $XX compared lower adjusted of fourth The continue or The quarter of the both income. modest earnings the Financial of the $X.XX portfolio. efforts Everspan's from million mostly by of from it per the XQ as premium of was result quarter For active adjusted to amortization compared earned quarter to $XX driven net continued net quarters. exclusion was $X.XX diluted premiums relates up million fourth the in downward earned or for of contribution third million were share XXXX net loss organic nearly Xx per in X.Xx written or that a $X.XX to was insured

earned and as addition premium to is similar programs As program fee has each add its growth will a contribute which program Everspan This in premiums. more pattern grows earnings to to materially. continues

As fourth Claude programs added the the and full for seven four referenced XXXX. in year quarter Everspan

to than Everspan a in of were in Finance of to program programs the third $X third by on of third a the pooled XXXX. two quarter. momentum the loss and approximately exchange fourth million experienced for $XX at available funds. million earned million fourth the during lower funds the higher the related fourth quarter Other income in for fourth recovery in In from fourth quarter addition The $XX total with to benefit added quarter. from quarter compared The as gross X% the in Everspan for in return credit quarter driven hedge portfolio the investment million in fourth Puerto of partially enhanced the on written quarter. The up modifications. expected the $XX the was already increase Puerto other Investment third million was The was the quarter has lower as in income XXXX. $XX X% well profile million on but $XX Rico outcomes $XX clarity an fronting relatively Xchange to to quarter of Loss yield expenses reduction real in returns qualifying million in at $X and by Higher classified the attractive funds unchanged in on $X reserves quarter credit. million in fourth restructuring equities Public related gains of from and XX% the versus compared million. quarter adversely further fees. positive gains fourth commissions to income the still of development offset income Commonwealth quarter Other sale was reserves from of million Rico the generated private compared included were Adjustment fees a resulted further CCDA recognized premiums related was estate Plan unchanged. the PRIFA which and benefit in and relatively $XX third gained gains quarter. to pooled of long-standing gross

recoverable million $X uncollateralized economic are fourth and gains fourth due investment the $XX headcount by to to the and development and guarantee gains confirmation a a which higher risk in adverse a subrogation result liquidity quarter timing, performance-based that $XX and fourth third million new execute operating the we third While Rico number as The Rico of expenses compensation on well also strategic opportunities, additional quarter. may reserves new including for portfolio consummation outcomes a the the in the than favorable generated respectively. fees. in and will development losses in future from loss compared as The of portfolios from POA in expenses, as interest an million Rico the are factors. to loss finance exposure quarter value our to adviser expense bond, result HCA benefits derivative collectively operating partially third Xchange other rate Future of in adjustment the ability quarter CVI a favorable the Puerto many qualifying was our a transaction. positioned to of structured our RMBS subrogation quarter. the primarily to contracts for derivative a costs litigation loss quarter. and incur $X businesses factors, against occur development approximately mitigation Everspan Puerto were as partial as financial quarter supplementing quarters. Net XX% the reserves higher our by hedge of benefit were Operating Group third million may currently compared and of up estimated in the incremental modifications, related of million less while be $X of lower plan by assets for and increase to quarter in Puerto influenced a $XX due by on gains offset accounted rates related Counterparty including million expenses $X and third gains single credit lower further and million of million offset consummation XX% higher consolidated $XX Commonwealth of our reserves of expected for in

for to equity non-controlling compensation, September per stock investments Shareholders' $XXX $XX.XX share per impact foreign million reduction The or million was Adjusted of loss share the XXXX. December to AFG per per net of offset of million due XX, value premiums non-controlling to partially adjusted brief investments and liquid call million in December on XX including primarily of decreased impact had the earned of approximately approximately and the adjustment inflation value decrease $XXX $X.XX exchange million $X adjustments $X.XX balance the related XXXX. assets. on a million the to now to $XXX $X partially interest. Xchange. in At AAC share and was share on interest by XX, or per changes Everspan Exchange redemption gains share subsidiaries premiums decrease XX, excluding value from $X.XX to or certain per by due at closing Turning to redeemable standalone to unrealized net offset at XXXX the Xchange's $XX.XX installment investments at cash $XX.XX receivables carrying Claude The and billion of will future the a XXXX I some of a net in decreased sheet. loss share back net to or remarks. and turn $XX $XX basis of December book million $XXX

Claude LeBlanc

and maximizing and conclusion, value management for team focused P&C for Financial and our well business. coming Guaranty year key In the steadfast the Insurance the accomplishments Board on legacy position shareholder platform the through strategies both execution Specialty of and Ambac are the

our on expertise our expand execute be and with we August have to P&C skill to Board the Lisa priorities addition that Iglesias her wealth diverse our expanded business insurance of further a look insurance business. other brings of will set Board's us strategic Lisa of Directors. we As with the we last Specialty to beneficial as

Everspan we As leading insurance two, Group MGA core acquisitions insurance making Specialty and for centralized with and for opportunistic partners funding strategic one, P&C specialty business by growing strategic priorities existing that XXXX, include: into MGU investments of Group's ahead program Cirrata federation solutions. are a insurance participatory through P&C services and novo look de diversifying our through building the platform supported a to overall business the unit specialty partners; Three, builds Group Capital platform. Redgrove new with technology and additional

de-risking particularly We Our active loss legacy insured improving our pursuing three, other litigation; include; asset and to the open Operator, warranty guaranty risks; through for options our and and you recovery opportunities to for strategic that means further RMBS Ambac, mitigating on progress. roughly financial liability operating ahead look excited optimizing two, at the profile; companies please and questions. forward updating and four, insurance efficiency call for actively time maximize for managing AFG. the priorities one, lie I portfolio and exploring litigation about appropriate remain the value

Operator

we a be Instructions] question-and-answer session. conducting [Operator this At you. time Thank you. will Thank

line Our first from Greg comes of question. Nihon proceed the with your Capital. question with Please Leodium

Greg Nihon

congratulations remarks. Claude, and had a Puerto just thank so I and you couple platform Lisa, this for informative progress questions made you And for on morning, on you've those Rico. of David specialty the morning. Good the much on all

trial, only a is was with typically the And we know one of reach to Countrywide. is trial that like regard we And warrants. fairly with repurchasing second ahead our event the but the on could regard thinly traded, EBA first were to they're that see ever date? something retiring something the question happen that to in a months you. settlement, The consider that and I the would warrants? Thank that happen company or does

Claude LeBlanc

the good Thanks Greg. Thanks second question take for first your pass Mr. morning. I'll and the Trick. to and question

relates past, As a typically But I that. don't it that's comment But we settlements, as at seen probably on of but the policies. certainly there's been of we've can litigation think settlement to settling dates about much discussions I trial as near in track at/or a various times. as settle say our matter record

trial certainly this in as We And September. can looking forward date to are our comment that's we as David? morning. much

David Trick

Sure. Thanks you. Claude. Thank

the recapitalization at warrants. them ago transaction did the we then reissued I actually in recall we looked back number a of with we did have connection few warrants a in repurchasing if correctly. XXXX purchased that We years and A

since repurchases And versus those to date repurchase to capital. XXXX and something there we again for other against made deploy we monitor initial made the warrants we redeploying the we opportunities have but the reissuance capital. not additional other opportunities we the any repurchase opportunity of monitor to to continue to continue of we So and some weigh have in opportunities have

Greg Nihon

Thank you so much.

Operator

with with Instructions] line Post Grace. Our next the question. comes from [Operator Please Sterling of proceed your Charles you. question Thank

Charles Post

that a sense got to Hi, on the I'm We good we're entities for But $XXX tied idea a achieving to a morning. get two I'm getting money. roughly heard of get I've Everspan trying trying million with we're the returns returns better they're the on better and growing. Xchange. and up

David Trick

Sure Charles, David. it's

for I the but think that we're the getting returns our future. it's expectations not are about what only today

with So only you year. got probably Everspan ground its of last ratings now February off as in the

very and startup Claude's acceptance real still it's So we starting of growth starting comments but mode, much comments as indicated to market experience experience in and are the platform. to my

I a mid-teen the And available to Xchange, there. Xchange platform would so, end expectations of bought XXXX. like at for be be say type capital our we would would returns that, for that deployed And

onto as business XXXX, bit quarter. in But the volume it's the fair think continued remarks to in really a And they of little was And have indicated which term that fourth that distributions $X to to company, during of medium cash overhang substantial I had the in say quarter, COVID fourth in growth the it business my about expect growth an in similarly, for we mid-teen well. grow which type to today million in profitable the XXXX is XXXX, generating to expect over in the returns. we see as back just holding in XXXX platform.

The from first million. about exchange is distribution to quarter AFG $X.X two of

expected So the COVID quarter to to the as improve of overhang business it's is as to a fourth lift. its continues nice cash-generating continue demonstrated growth and in

Charles Post

Okay.

So but had we've a million XXXX and to operating you million, in jump $XX massive overhead from expenses $XXX year-over-year. guys a went XX% up -- then the

quite lot a of from the victories a getting know, bit that two is but lot increase? these a paid of money, we I So increase also of big have entities? that

David Trick

of from Xchange, MGU, a pay to when particular, are expenses on comments included agents bigger percentage the business something related standpoint. a in expenses at commissions total MGA, of in that to are which and you that end a their And Everspan distribution they is Again, look the Xchange. like are those Yes. our front their it

continued and types related different the expenses, ceding addition it expenses, in So have -- complex to bit but picking commissions, commissions, different growth three due in businesses, distribution time, a a while decline. gets the of so included all expenses, of expenses very new at which of the expenses somewhat volume businesses operating these up the to guarantee legacy financial business same to is business,

Charles Post

Switching Okay. topics.

recoveries XXXX? -- expected guys -- you finance, amount of $XXX the got million On and How payments made. the in much the are you make XXXX about structured payments be showing did any excluding -- RMBS, you to dollar you

David Trick

finance the On business? structured

Charles Post

Yes, correct.

David Trick

Well, a finance the We book. light. nominally structured paying net on finance, position on unstructured client the on on have million to is million RMBS we're quarter. of recovery main actually source been claims We're have about which $X business a been book, structured million, and relatively recovering $XX payments finance the the $X a quarter million $XX in

our million recovery So $XX million a to position $XX on quarter net is the structured finance book.

Charles Post

Okay.

I the look XX billion at have if about So page recoveries. of in XX-K, $X we

have We expected million $XXX of expenses.

recoveries So, [indiscernible]. of $X.X the billion in are

So I we of $XXX excess guess got million against $XXX spread million.

am we if the $XXX payments that lot to high? be wrong think -- to So, we're outgaining only million very I have a prove could then,

David Trick

$XXX talking RMBS? million about on gross of the payments

Charles Post

structured your on finance. That's

David Trick

little a high. probably That's

student claims there as well. have loan also You in

at wouldn't on that's So expect significant student see and come loan very of to book years we student high. we five from sort specific back-ended future, claims in But RMBS to are which claim book, the until the future have least to the now. payments loan

Charles Post

Okay. there. BI clearly drop is stuff All five it's is like our the Guys, year-over-year to up get dividends over see XX%, more getting some G&A paid paid, a paid. Board's management's the going getting stock getting insurance and that's XX%. up AGO because is getting was and up little S&P of on years shareholder-friendly us and excluding seen we've been up value XX% XX% book XX%, now right. is down

with Thank I'd tie a shareholders like little you. more in please. see the So to

Operator

you. Thank

line proceed comes question your question. the Arthur with with from please of Our XCorp Capes next [ph].

Unidentified Analyst

I Thank you my three have for questions. taking question.

litigation. the lastly, is there cases they the receive reps the and the next First issue And might from a as with no final the payment? walk Why resolution Would would You assuming contract? year cases? second only, that to in get good the what's question part date What need to for Is the Why of in of outcome that step assuming that for is, there mentioned are breach the there warranty and does is with that fraud these be timing the X, contingent about the are Is Countrywide? – in September be and next in part ruling. First September Lehman and standpoint fraud-only is a contingent My versus steps the you. of set that trial litigation how Franklin process Nomura a get actually through some also trials that for was favorable trial steps breaches trial Countrywide a you process you or include the the that starting to just now. and expected that you outcome liability? next the from process? the you there me the liability? primary XXXX another Thank have liability the be Can trial? favorable transactions

Claude LeBlanc

Sure. for questions. Thanks your

correct? question I'm bit So Franklin. having little to first the – hearing a that of Is First hard time was specific you. But on the

Unidentified Analyst

That's correct, yeah.

Claude LeBlanc

Yeah. Yeah.

proceeding. a that's So that contract fraud-end case is

think So be we'll But we could front things case it expect delay. our the Countrywide a and And next And that HarborView elements it and the believe trial. cases and the in judge right next start fraud the is our decisions. don't trial in year judges case there's the again, think both during right any that and I that way EPLs case review of is get up a relates trial that most that September I to And one in the as in or case of to we time potentially time. a main to is this take contains also will fraud-only – set – at that to barring hope year that proceeding. way, of a

case, was before that months a may XX six closer on to it things. MBIA of the be decision little XX bit side of was months case a on long the in the So to that maybe reached

the year it But take for a reached. settlement number our would trial that that the inside would even we extent how was I we question likely to but a raised expectation, settle a the would it the months, think after be be obviously that it would take. earlier earlier, before can't really of trial hopefully, there for could be decision a to And a expect predict would and possibility decision was certainly that's or and either for would I the be ahead. and the with that in would events further potentially settle those. the That's will the think Go judge to it reached evaluated then we damages that outcome when get sooner. awards further and delays is but be in of we Once cash by how determined there ultimate trial but of could be appeals, determine, context the progressed long side.

Unidentified Analyst

the Countrywide dealing Countrywide secondary question? of follow-up America of the is being that liability topics primary of from Bank bifurcation. there claims primary contingent with the discussed? a December secondary claims liability this the a against Does Thank Because the the both together, liability is are not liability Bank understand you. it bifurcation trial is ask and I claims May is against contingent both or I America, against

Claude LeBlanc

Yes, you're correct.

You're They bifurcated. correct. were

So liability this is against proceed directly would success only the and Countrywide if needed.

of Bank now. its a think I decade for all Countrywide America over has settlements supported and

decade the Countrywide all So shorter as -- would we the has to the case. liability a last case, successful regard to separate a void that out the case which case be to again successor was paid try over then to billions that proceed its they the not satisfy much judgment. would But extent any way liability would without

Unidentified Analyst

to So separate to case paid you BofA if a to pay? would get decides pursue need

Claude LeBlanc

did Countrywide pay. No. Only not

successor the then not of would So directly. did pursue liability the against satisfy Bank if America judgment we Countrywide

Unidentified Analyst

How against this First claim XXXX gives there the It's different one Countrywide Nomura only given what Countrywide Nomura you case. the legs Understood. Franklin that standpoint and AAC's decision the is fraud case? Franklin confidence the case ruling fraud and on the a has And -- December the the is First fraud the from than in fraud-only this question follow-up one?

Claude LeBlanc

been case and possibility. Franklin a that's to First our fraud-only it's the the the possible, So could agree, primary a that our And has and contract. is we In contract-only don't to limit case -- cases. contract of -- it's primary possible case fraud always but our be path or decision reached

one is also only that not with and as that And no that a fraud. go In Countrywide that appeal case next we main the contract expect for through assuming And is true case we oral So preparing basis and for fraud-only will that there's at not that get to is fraud-only that therefore, to case today arguments go judgment. remains And no of our a the summary HarborView case. year. case trial so through that case.

Unidentified Analyst

Okay. you. Thank

Operator

and today. you. Thank call you Ladies disconnect Thank gentlemen, your thus our concludes the participation session for you may concludes and and your that lines. question-and-answer