Significant Progress in Strategic
Initiatives
Net income of $2 million and adjusted earnings
of $14 million, including the impact of previously announced
developments related to RMBS litigation and Puerto Rico
Specialty P&C insurance production totaled
$69 million, up 71% from first quarter 2021
Puerto Rico principal and interest exposure
reduced by $450 million or 25% from December 31, 2021
Ambac Financial Group, Inc. (NYSE: AMBC) ("Ambac" or "AFG"), a
financial services holding company, today reported net income
attributable to common stockholders of $2 million or $0.04(1) per
diluted share and adjusted earnings(2) of $14 million or $0.30(1)
per diluted share for the quarter ended March 31, 2022. This
compares to net income attributable to common stockholders of $17
million or $0.08 per diluted share and adjusted earnings of $41
million or $0.59 per diluted share in the first quarter of 2021.
Book value per share decreased $2.77 to $19.65 and adjusted book
value per share(2) decreased $0.81 to $18.07 from December 31,
2021, to March 31, 2022.
Claude LeBlanc, President and Chief Executive Officer, stated,
“Our first quarter 2022 results are a reflection of the continued
transition of Ambac's business to a specialty property and casualty
insurance company. I am particularly encouraged by the significant
growth in P&C premium production from both of our Specialty
P&C Insurance and Insurance Distribution businesses, with gross
production up 71% to nearly $70 million."
Mr. LeBlanc continued, "With regards to our legacy financial
guarantee business, during the quarter we reported a gain of $198
million, relating to the restructuring of a significant portion of
our remaining Puerto Rico exposures following the Commonwealth's
partial bankruptcy exit on March 15, 2022. We also had a ($224)
million reduction to our Representation & Warranty subrogation
recoverable, of which ($186) million was directly attributable to
the impact of a recent, disappointing New York Court of Appeals
decision. While this decision may limit one of our paths to
recovery on certain of our RMBS litigations, Ambac has multiple
alternative paths to recover losses, including through 'Discovery'
which we had always intended to present at trial. It's also very
important to note that the remediation credit recorded on our
balance sheet does not reflect any pre-judgment interest nor
estimates for our fraud only case. We are resolute in our
determination to aggressively pursue full recovery on all our RMBS
cases."
Ambac's First Quarter 2022
Summary Results
Better (Worse)
($ in millions, except per share data)
1Q2022
1Q2021
Amount
Percent
Net premiums earned
$
15
$
14
$
—
3
%
Net investment income
5
49
(44
)
(90
)%
Net realized investment gains (losses),
including impairments
10
2
8
370
%
Net gains (losses) on derivative
contracts
57
25
32
126
%
Net realized gains (losses) on
extinguishment of debt
—
33
(33
)
(100
)%
Commission income
9
7
1
19
%
Other income (expense)
2
(2
)
4
221
%
Losses and loss expenses (benefit)
24
8
(16
)
(205
)%
Operating expenses
34
33
(1
)
(2
)%
Interest expense
44
50
6
11
%
Intangible amortization
14
19
5
25
%
Provision for income taxes
—
2
1
76
%
Net income (loss) attributable to Common
Stockholders
2
17
(15
)
(88
)%
Net income (loss) per diluted share1
$
0.04
$
0.08
$
(0.04
)
(50
)%
Adjusted earnings (loss) 2
14
41
(27
)
(65
)%
Adjusted earnings (loss) per diluted share
1, 2
$
0.30
$
0.59
$
(0.29
)
(49
)%
Weighted-average diluted shares
outstanding (in millions)
47
47
(1
)
(1
)%
March 31,
2022
December 31,
2021
Better (Worse)
Amount
Percent
Total Ambac Financial Group, Inc.
stockholders' equity
914
1,038
(124
)
(12
)%
Total Ambac Financial Group, Inc.
stockholders' equity per share
$
19.65
$
22.42
$
(2.77
)
(12
)%
Adjusted book value 2
841
874
(33
)
(4
)%
Adjusted book value per share 2
$
18.07
$
18.88
$
(0.81
)
(4
)%
(1) Per Diluted share includes the impact
of adjusting redeemable noncontrolling interests to current
redemption value
(2) See Non-GAAP Financial Data section of
this press release for further information.
(3) Some financial data in this press
release may not add up due to rounding
Results of Operations by Segment
Beginning with the first quarter of 2022, Ambac is reporting
three reportable segments: Legacy Financial Guarantee Insurance,
Specialty Property & Casualty Insurance, and Insurance
Distribution.
The following table presents segment financial results and
includes the non-GAAP measure, EBITDA on a segment and consolidated
basis.
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
Three Months
Ended March 31, 2022
Gross premiums written
$
6
$
24
$
30
Net premiums written
7
5
12
Revenues:
Net premiums earned
13
1
15
Net investment income
5
—
$
—
5
Net investment gains (losses), including
impairments
10
—
—
10
Net gains on derivative contracts
57
57
Net realized gains on extinguishment of
debt
—
—
Commission income (1)
$
9
9
Other income
24
—
—
—
24
Total revenues
109
2
9
—
119
Expenses:
Loss and loss expenses
23
1
24
Operating expenses (2)
21
3
1
3
29
Sub-producer commissions (2)
5
5
Total expenses
44
4
6
3
57
Net (gain) attributable to noncontrolling
interest
(1
)
(1
)
Earnings before interest, taxes,
depreciation and amortization
65
(2
)
2
(3
)
61
Add back noncontrolling interest EBITDA
adjustment
1
1
Interest expense
44
—
—
44
Depreciation expense
—
—
—
—
—
Intangible amortization
14
1
14
Pretax income (loss)
$
6
$
(2
)
2
$
(3
)
3
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
Three Months
Ended March 31, 2021
Gross premiums written
$
(2
)
$
—
$
(2
)
Net premiums written
(9
)
—
(9
)
Revenues:
Net premiums earned
14
—
14
Net investment income
49
—
$
—
49
Net investment gains (losses), including
impairments
(2
)
—
4
2
Net gains on derivative contracts
25
25
Net realized gains on extinguishment of
debt
33
33
Commission income (1)
$
7
7
Other income
(2
)
—
—
—
(2
)
Total revenues
118
—
7
4
129
Expenses:
Loss and loss expenses
8
—
8
Operating expenses (2)
17
1
1
10
29
Sub-producer commissions (2)
4
4
Total expenses
25
1
5
10
41
Net (gain) attributable to
noncontrolling interest
—
—
Earnings before interest, taxes,
depreciation and amortization
93
(1
)
2
(6
)
88
Add back noncontrolling interest EBITDA
adjustment
—
—
Interest expense
50
—
50
Depreciation expense
—
—
—
—
—
Intangible amortization
19
—
1
19
Pretax income (loss)
$
24
$
(1
)
2
$
(6
)
19
(1) Based on premiums placed. Refer to the
Specialty P&C Insurance Production section of this release for
further details.
(2) The Consolidated Statements of
Comprehensive Income presents the sum of these items as Operating
Expenses.
Specialty P&C Insurance Production
Specialty Property and Casualty ("P&C") Insurance
production, which includes gross premiums written for Ambac's
Specialty P&C Insurance segment and premiums placed by the
Insurance Distribution segment, totaled $69 in the first quarter of
2022, an increase of 71% from the first quarter of 2021. Specialty
P&C Insurance revenues are dependent on gross premiums written
as participatory fronting insurance companies earn premiums based
on the portion of gross premiums written retained (i.e. net
premiums written) and fees on gross premiums written that are ceded
to reinsurers. Insurance Distribution revenues are dependent on
premium volume as Managing General Agents/Underwriters receive
commissions based on a percentage of the dollar amount of the
premiums placed (i.e. gross premiums written on behalf of insurance
carriers) with insurance carriers.
Three Months Ended March
31,
($ in millions)
2022
2021
Specialty Property & Casualty
Insurance Gross Premiums Written
$
24
$
—
Insurance Distribution Premiums Placed
45
40
Specialty P&C Insurance
Production
$
69
$
40
Net Premiums Earned
During the first quarter of 2022, net premiums earned of $15
million were up just over 3% compared to the first quarter of 2021.
Premiums earned from the Legacy Financial Guarantee Insurance
segment declined less than a million dollars or 5% compared to the
first quarter of 2021 as the financial guarantee insured portfolio
continued to contract as a result of active de-risking and natural
runoff. The decline in Legacy Financial Guarantee Insurance segment
earned premium was more than offset by an increase in net premiums
earned of $1 million in the Specialty Property & Casualty
Insurance segment.
Net Investment Income
Net investment income for the first quarter of 2022 was $5
million compared to $49 million for the first quarter of 2021.
The decrease in net investment income in the first quarter of
2022 was attributable to (i) a $7 million reduction in income due
to the refinancing of Ambac LSNI in July 2021, (ii) a $27 million
decline of pooled investment fund income from extraordinary levels
in the first quarter of 2021, and (iii) losses of $9 million on
securities classified as trading that were received as subrogation
from the Puerto Rico restructuring.
First quarter 2021 net investment income was driven by strong
gains in equities, hedge funds and credit funds.
Net investment gains of $10 million for the first quarter of
2022 were driven by recoveries from an RMBS class action lawsuit
related to securities formerly owned by AAC and one of its
subsidiaries.
Losses and Loss Expenses (Benefit)
Losses and loss expenses ("Incurred Losses") for the first
quarter of 2022 were $24 million, compared to $8 million for the
first quarter of 2021.
The following table provides Insured Losses (Benefit) by
category for the three-month periods ended March 31, 2022 and
2021:
Three Months Ended March
31,
($ in millions)
2022
2021
Financial Guarantee
Structured finance
$
213
$
(8
)
Domestic public finance
(190
)
9
Other
1
6
Specialty property & casualty
1
—
Total losses and loss expenses
(benefit)
$
24
$
8
The first quarter 2022 structured finance loss of $213 million
was driven by the previously announced impact of a recent New York
Court of Appeals decision on the recorded amount of estimated
recoveries from RMBS representation and warranty ("R&W")
litigation. Higher discount rates and lower underlying RMBS losses
also contributed to the reduction in estimated R&W
recoveries.
The first quarter 2022 domestic public finance benefit of $(190)
million, was driven by the successful implementation of the
restructuring of a significant portion of AAC's remaining Puerto
Rico exposures, following the occurrence of the effective dates for
the Plan of Adjustment related to AAC-insured Puerto Rico General
Obligation (“GO”) and Public Buildings Authority (“PBA”) bonds, and
Qualifying Modifications for AAC-insured Puerto Rico Infrastructure
Authority (“PRIFA”) and Convention Center District Authority
(“CCDA”) bonds, all effective March 15, 2022. The execution of
these transactions has reduced AAC’s insured principal and interest
exposure to Puerto Rico by approximately 25% or $450 million. AAC
expects that its insured Puerto Rico Highways and Transportation
Authority (“PRHTA”) bonds will be restructured as part of the PRHTA
Title III bankruptcy process in the second half of 2022, on terms
consistent with the Plan Support Agreement executed last year.
Net Gains (Losses) on Derivative Contracts
Net gains on derivative contracts were $57 million and $25
million for the first quarter of 2022 and 2021, respectively.
Results for both periods were driven by increasing forward interest
rates. Included in Net gains from derivative contracts were gains
from counterparty credit adjustments of $2 million and $9 million
in the respective periods. The interest rate derivatives portfolio
is positioned to benefit from rising interest rates as a partial
economic hedge against interest rate exposure in AAC's insured and
investment portfolios.
Gross Commission Income
Gross commission revenues generated by the Insurance
Distribution segment grew 19% in the first quarter 2022 to $9
million from $7 million in the first quarter 2021. Gross commission
revenue is generated as a percentage of the Insurance Distribution
segment's premium placed which was up nearly 13% to $45 million in
first quarter 2022 over the period year period.
Operating Expenses
Operating expenses were up marginally for the first quarter of
2022 at $34 million compared to $33 million in the first quarter of
2021. The marginal increase in expenses was driven by growth in the
Specialty P&C Insurance, Insurance Distribution and Legacy
Financial Guarantee Insurance segments partially offset by lower
Corporate & Other expenses. Specialty P&C Insurance
operating expense growth was driven by increased headcount to grow
and support the business as well as costs related to building out
its platform. Operating expenses in the Insurance Distribution
segment, which primarily include Sub-producer commissions, grew in
line with an increase in premiums placed. Legacy Financial
Guarantee Insurance operating expenses were higher due to
litigation expenses unrelated to R&W litigation while Corporate
& Other expenses were down due to lower consulting and legal
fees from the 2021 junior surplus note exchange transactions.
Three Months Ended March
31,
($ in millions)
2022
2021
Legacy Financial Guarantee Insurance
$
21
$
17
Specialty Property & Casualty
Insurance
3
1
Insurance Distribution
6
5
Corporate & Other
3
10
Total operating expenses
$
34
$
33
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 segments, had assets of $242.8 million as of
March 31, 2022. Assets included cash and liquid securities of
$118.1 million and other investments of $112.8 million.
Consolidated Ambac Financial Group, Inc. Stockholders'
Equity
Stockholders’ equity at March 31, 2022, was $0.91 billion, or
$19.65 per share compared to $1.04 billion or $22.42 per share as
of December 31, 2021. The decrease was primarily due to a reduction
to net unrealized investment gains of $105 million.
On March 29, 2022, the Board of Directors authorized a $20
million share repurchase program. No shares were purchased in the
first quarter 2022, but as of May 10, 2022, the Company had
repurchased 1.5 million shares for $13.2 million with an average
purchase price of $8.78. On May 5, 2022, the Board of Directors
authorized an additional $15 million share repurchase bringing the
total unused authorized amount to $22 million.
Legacy Financial Guarantee Insurance Insured
Portfolio
Legacy Financial Guarantee Insurance insured net par outstanding
declined 3% during the quarter ended March 31, 2022, to $27.1
billion from $28.0 billion at December 31, 2021.
Adversely Classified and Watch List Credits decreased in the
first quarter of 2022 by $0.6 billion or 5.6% to $9.6 billion at
March 31, 2022, from $10.2 billion at December 31, 2021.
The reduction of net par and Adversely Classified and Watch List
Credits included a reduction of $266 million of net par exposure to
Puerto Rico.
Details of the Legacy Financial Guarantee Insurance insured
portfolio are highlighted in the below table.
Net Par Outstanding
March 31, 2022
December 31, 2021
By Sector:
Domestic public finance
44 %
44 %
Structured Finance
17 %
18 %
International
39 %
38 %
By Financial Guarantor:
Ambac Assurance
63 %
63 %
Ambac UK
37 %
37 %
Non-GAAP Financial Data
In addition to reporting Ambac’s quarterly financial results in
accordance with GAAP, the Company currently reports three non-GAAP
financial measures: EBITDA, adjusted earnings and adjusted book
value. The most directly comparable GAAP measures are pre-tax net
income for EBITDA, net income attributable to common stockholders
for adjusted earnings and Total Ambac Financial Group, Inc.
stockholders’ equity for adjusted book value. A non-GAAP financial
measure is a numerical measure of financial performance or
financial position that excludes (or includes) amounts that are
included in (or excluded from) the most directly comparable measure
calculated and presented in accordance with GAAP. We present such
non-GAAP supplemental financial information because we believe such
information is of interest to the investment community that
provides greater transparency and enhanced visibility into the
underlying drivers 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.
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.
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 and other considerations,
we utilized a 0% effective tax rate for non-GAAP adjustments for
both Adjusted Earnings and Adjusted Book Value; which is subject to
change.
The following paragraphs define each non-GAAP financial measure.
A reconciliation of the non-GAAP financial measure and the most
directly comparable GAAP financial measure is also presented
below.
EBITDA. EBITDA is defined as
net income before interest expense, income taxes, depreciation and
amortization of intangible assets. EBITDA is also adjusted for
noncontrolling interests in subsidiaries where Ambac does not own
100%.
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, 2022
Pretax income (loss)
$
6
$
(2
)
$
2
$
(3
)
$
3
Adjustments:
Interest expense
44
—
—
—
44
Depreciation
—
—
—
—
—
Amortization of intangible assets
14
—
1
—
14
Net (gain) attributable to noncontrolling
interest
(1
)
(1
)
Earnings before interest, taxes,
depreciation and amortization
$
65
$
(2
)
$
2
$
(3
)
$
61
Three Months
Ended March 31, 2021
Pretax income (loss)
$
24
$
(1
)
$
2
$
(6
)
$
19
Adjustments:
Interest expense
50
—
—
—
50
Depreciation
—
—
—
—
—
Amortization of intangible assets
19
—
1
—
19
Net (gain) attributable to noncontrolling
interest
—
—
Earnings before interest, taxes,
depreciation and amortization
$
93
$
(1
)
$
2
$
(6
)
$
88
Adjusted Earnings (Loss).
Adjusted earnings (loss) is defined as net income (loss)
attributable to common stockholders, as reported under GAAP,
adjusted on an after-tax basis for the following:
- Insurance intangible amortization: Elimination of the
amortization 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 consistent
with the provisions of the Financial Services – Insurance Topic of
the ASC.
- Foreign exchange (gains) losses: Elimination of the foreign
exchange gains (losses) on the re-measurement of assets,
liabilities and transactions in non-functional currencies. This
adjustment eliminates the foreign exchange gains (losses) on all
assets, liabilities and transactions in non-functional currencies,
which enables users of our financial statements to better view the
results without the impact of fluctuations in foreign currency
exchange rates and facilitates period-to-period comparisons of
Ambac's operating performance.
Adjusted earnings was $14 million, or $0.30 per diluted share,
for the first quarter 2022 as compared to adjusted earnings of $41
million, or $0.59 per diluted share, for the first quarter of
2021.
The following table reconciles net income (loss) attributable to
common stockholders to the non-GAAP measure, adjusted earnings
(loss), for the three-month periods ended March 31, 2022, and March
31, 2021, respectively:
Three Months Ended
March 31, 2022
March 31, 2021
($ in millions, other than per share
data)
$ Amount
Per Diluted Share (1)
$ Amount
Per Diluted Share (1)
Net income (loss) attributable to common
stockholders
$
2
$
0.04
$
17
$
0.08
Adjustments:
Insurance intangible amortization
14
0.29
19
0.40
Foreign exchange (gains) losses
(2
)
(0.03
)
5
0.11
Adjusted Earnings (loss)
$
14
$
0.30
$
41
$
0.59
Weighted-average diluted shares
outstanding (in millions)
47.4
46.9
1 Per Diluted share includes the impact of
adjusting the Insurance Distribution segment related noncontrolling
interest to current redemption value
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”). The
AOCI component of the fair value adjustment on the investment
portfolio may differ from realized gains and losses ultimately
recognized by the Company based on the Company’s investment
strategy. This adjustment only allows for such gains and losses in
adjusted book value when realized.
Adjusted book value was $841 million, or $18.07 per share, at
March 31, 2022, as compared to $874, or $18.88 per share, at
December 31, 2021. The decrease in adjusted book value for the
first quarter of 2022 was primarily attributable to the adverse
effect of foreign exchange losses and higher discount rates on the
PV of legacy financial guarantee installment premiums partially
offset by adjusted earnings (net of earned premiums).
The following table reconciles Total Ambac Financial Group, Inc.
stockholders’ equity to the non-GAAP measure adjusted book value as
of each date presented:
March 31, 2022
December 31, 2021
($ in millions, other than per share
data)
$ Amount
Per Share
$ Amount
Per Share
Total AFG Stockholders' Equity
(Deficit)
$
914
$
19.65
$
1,038
$
22.42
Adjustments:
Non-credit impairment fair value losses on
credit derivatives
—
—
—
0.01
Insurance intangible asset
(303
)
(6.52
)
(320
)
(6.91
)
Net unearned premiums and fees in excess
of expected losses
279
6.00
310
6.68
Net unrealized investment (gains) losses
in Accumulated Other Comprehensive Income
(49
)
(1.06
)
(154
)
(3.32
)
Adjusted book value
$
841
$
18.07
$
874
$
18.88
Shares outstanding (in millions)
46.5
46.3
Earnings Call and Webcast
On May 11, 2022 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
2022 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 25, 2022, and can be accessed by
dialing (Domestic) (844) 512-2921 or (International) (412)
317-6671; and using ID#13726024
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 highly speculative nature
of AFG’s common stock and 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 program insurance business, the distribution
business, or related businesses; (3) the inability of AAC to
realize the expected recoveries, including RMBS litigation
recoveries, included in its financial statements, or changes in
estimated RMBS litigation recoveries over time; (4) failure to
recover claims paid on Puerto Rico exposures or realization of
losses in amounts higher than expected; (5) inadequacy of reserves
established for losses and loss expenses and possibility that
changes in loss reserves may result in further volatility of
earnings or financial results; (6) potential for rehabilitation
proceedings or other regulatory intervention against AAC; (7)
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; (8) our
inability to effectively reduce insured financial guarantee
exposures or achieve recoveries or investment objectives; (9) our
inability to generate the significant amount of cash needed to
service our debt and financial obligations, including through
litigation recoveries or disposition of assets, and our inability
to refinance our indebtedness; (10) Ambac’s substantial
indebtedness could adversely affect its financial condition and
operating flexibility; (11) 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; (12) the impact
of catastrophic public health, environmental or natural events,
including events like the COVID-19 pandemic, or global or regional
conflicts, on significant portions of our insured portfolio; (13)
credit risks related to large single risks, risk concentrations and
correlated risks; (14) risks associated with adverse selection as
Ambac’s financial guarantee insurance portfolio runs off; (15) the
risk that Ambac’s risk management policies and practices do not
anticipate certain risks and/or the magnitude of potential for
loss; (16) restrictive covenants in agreements and instruments that
impair Ambac’s ability to pursue or achieve its business
strategies; (17) adverse effects on operating results or the
Company’s financial position resulting from measures taken to
reduce financial guarantee risks in its insured portfolio; (18)
disagreements or disputes with Ambac's insurance regulators; (19)
loss of control rights in transactions for which we provide
financial guarantee insurance; (20) adverse tax consequences or
other costs resulting from the characterization of the AAC’s
surplus notes or other obligations as equity; (21) risks attendant
to the change in composition of securities in the Ambac’s
investment portfolio; (22) adverse impacts from changes in
prevailing interest rates; (23) events or circumstances that result
in the impairment of our intangible assets and/or goodwill that was
recorded in connection with Ambac’s acquisition of 80% of the
membership interests of Xchange Benefits, LLC; (24) risks
associated with the expected discontinuance of the London
Inter-Bank Offered Rate; (25) factors that may negatively influence
the amount of installment premiums paid to Ambac; (26) risks
relating to determinations of amounts of impairments taken on
investments; (27) the risk of litigation and regulatory inquiries
or investigations, and the risk of adverse outcomes in connection
therewith; (28) actions of stakeholders whose interests are not
aligned with broader interests of Ambac's stockholders; (29) system
security risks, data protection breaches and cyber attacks; (30)
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; (31) failures in services or products provided by third
parties; (32) our inability to attract and retain qualified
executives, senior managers and other employees, or the loss of
such personnel; (33) fluctuations in foreign currency exchange
rates; (34) failure to realize our business expansion plans or
failure of such plans to create value; (35) greater competition for
our specialty property & casualty program insurance business;
(36) loss or lowering of the AM Best rating for our property and
casualty insurance company subsidiaries; (37) disintermediation
within the insurance industry or greater competition that
negatively impacts our managing general agency/underwriting
business; (38) 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 (39) 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
($ in millions, except share
data)
March 31, 2022
March 31, 2021
Revenues:
Net premiums earned
$
15
$
14
Net investment income:
Securities available-for-sale and
short-term
14
22
Other investments
(9
)
27
Total net investment income
5
49
Net realized investment gains (losses),
including impairments
10
2
Net gains (losses) on derivative
contracts
57
25
Net realized gains on extinguishment of
debt
—
33
Commission income
9
7
Other income
2
(2
)
Income on variable interest entities
22
—
Total revenues
119
129
Expenses:
Losses and loss expense (benefit)
24
8
Intangible amortization
14
19
Operating expenses
34
33
Interest expense
44
50
Total expenses
116
110
Pre-tax income
3
19
Provision for income taxes
—
2
Net income
$
2
$
17
Less: net (loss) gain attributable to
noncontrolling interest
—
—
Net income attributable to common
stockholders
$
2
$
17
Net income per basic share
$
0.04
$
0.08
Net income per diluted share
$
0.04
$
0.08
Weighted-average number of common
shares outstanding:
Basic
46,731,459
46,314,049
Diluted
47,359,731
46,858,064
AMBAC FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
($ in millions, except share
data)
March 31, 2022
December 31, 2021
Assets:
Investments:
Fixed maturity securities, at fair value
(amortized cost: $1,352 and $1,605)
$
1,383
$
1,730
Fixed maturity securities pledged as
collateral, at fair value (amortized cost: $15 and $15)
15
$
15
Fixed maturity securities - trading
119
—
Short-term investments pledged as
collateral, at fair value (amortized cost: $540 and $415)
540
414
Short-term investments, at fair value
(amortized cost: $99 and $105)
99
105
Other investments (includes $652 and $683
at fair value)
660
690
Total investments (net of allowance for
credit losses of $1 and $0)
2,815
2,955
Cash and cash equivalents
60
17
Restricted cash
7
5
Premiums receivable (net of allowance for
credit losses of $8 and $9)
317
323
Reinsurance recoverable on paid and unpaid
losses (net of allowance for credit losses of $0 and $0)
48
55
Deferred ceded premium
100
90
Subrogation recoverable
1,714
2,092
Derivative assets
55
76
Intangible assets
350
362
Goodwill
46
46
Other assets
94
68
Variable interest entity assets:
Fixed maturity securities, at fair
value
3,364
3,455
Restricted cash
49
2
Loans, at fair value
2,469
2,718
Derivative assets
42
38
Other assets
1
2
Total assets
$
11,531
$
12,303
Liabilities and Stockholders’
Equity:
Liabilities:
Unearned premiums
$
393
$
395
Loss and loss expense reserves
1,067
1,570
Ceded premiums payable
40
33
Long-term debt
2,242
2,230
Accrued interest payable
593
576
Derivative liabilities
76
95
Other liabilities
135
133
Variable interest entity liabilities:
Long-term debt (includes $3,701 and $4,056
at fair value)
4,124
4,216
Derivative liabilities
1,866
1,940
Total liabilities
10,538
11,187
Redeemable noncontrolling interest
18
18
Stockholders’ equity:
Preferred stock, par value $0.01 per
share; 20,000,000 shares authorized; issued and outstanding
shares—none
—
—
Common stock, par value $0.01 per share;
130,000,000 shares authorized; issued: 46,658,990 and
46,477,068
—
—
Additional paid-in capital
262
257
Accumulated other comprehensive income
(70
)
58
Retained earnings
723
726
Treasury stock, shares at cost: 113,758
and 172,929
(2
)
(3
)
Total Ambac Financial Group, Inc.
stockholders’ equity
914
1,038
Nonredeemable noncontrolling interest
60
60
Total stockholders’ equity
974
1,098
Total liabilities, redeemable
noncontrolling interest and stockholders’ equity
$
11,531
$
12,303
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220510006115/en/
Investors Contact Charles J. Sebaski Managing Director,
Investor Relations (212) 208-3222 csebaski@ambac.com Media
Contact Kate Smith Director, Corporate Communications (212)
208-3452 ksmith@ambac.com
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