Net income of $340 million and adjusted
earnings of $338 million
$319 million gain from $1.84 billion legacy
RMBS representation and warranty litigation settlement
Specialty P&C Insurance Platform production
of $58 million, up 76% from third quarter of 2021
Book Value and Adjusted Book Value per Share up
29% and 34%, respectively, from the prior quarter
Ambac Financial Group, Inc. (NYSE: AMBC) ("Ambac" or "AFG"), a
financial services holding company, today reported net income
attributable to common stockholders of $340 million or $7.41(1) per
diluted share and adjusted earnings(2) of $338 million or $7.37(1)
per diluted share for the quarter ended September 30, 2022. This
compares to net income attributable to common stockholders of $17
million or $0.35 per diluted share and adjusted earnings of $25
million or $0.53 per diluted share in the third quarter of 2021.
Book value per share increased $4.99 to $22.43 and adjusted book
value per share(2) increased $5.93 to $23.13 from June 30, 2022, to
September 30, 2022.
On October 7, 2022, Ambac announced a $1.84 billion litigation
settlement with Bank of America, related to certain legacy
financial guarantee RMBS representation and warranty litigations,
which resulted in a net gain of $397 million. In accordance with
the relevant accounting rules, the total gain will be split between
the third and fourth quarters of 2022. For the quarter ended
September 30, 2022, $319 million of the gain was recorded while the
remaining $78 million will be recorded in the quarter ending
December 31, 2022.
Claude LeBlanc, President and Chief Executive Officer, stated,
“Our results this quarter represent a pivotal moment for Ambac
following the settlement with Bank of America which generated a
total gain of nearly $400 million. Ambac is now in a materially
stronger position to further advance its strategic priorities
across both our Legacy and Core P&C Businesses. We made
meaningful progress this quarter in our Specialty P&C business,
with premium production of $58 million, up 76% compared to the
third quarter of 2021."
LeBlanc continued, "We have removed the single largest
uncertainty from our balance sheet which will reduce expenses and
accelerate our goal towards, realizing value for our legacy
business. With this settlement and our continued execution of other
key strategic priorities we continue to deliver on our goal to
create optionality and material value for our shareholders."
Ambac's Third Quarter 2022
Summary Results
Better (Worse)
($ in millions, except per share data)
3Q2022
3Q2021
Amount
Percent
Gross written premium
$
16.3
$
(1.1
)
$
17.4
1,546
%
Net premiums earned
10.8
11.2
(0.3
)
(3
) %
Net investment income (loss)
10.7
21.3
(10.6
)
(50
) %
Net realized investment gains (losses),
including impairments
14.4
3.3
11.1
333
%
Net gains (losses) on derivative
contracts
37.2
4.7
32.4
686
%
Commission income
7.0
6.5
0.5
8
%
Other income (expense)
1.2
1.0
0.2
15
%
Losses and loss expenses (benefit)
(353.4
)
(55.3
)
298.1
539
%
Operating expenses
36.6
32.2
(4.4
)
(14
) %
Interest expense
48.6
43.7
(4.9
)
(11
) %
Intangible amortization
5.8
11.0
5.2
47
%
Pretax income (loss)
342.5
19.4
323.1
1,664
%
Provision for income taxes
2.3
2.4
0.1
3
%
Net income (loss) attributable to Common
Stockholders
340.0
16.9
323.1
1,915
%
Net income (loss) per diluted share1
7.41
0.35
7.06
2,017
%
EBITDA
397.0
74.2
322.7
435
%
Adjusted earnings (loss) 2
338.1
25.4
312.8
1,233
%
Adjusted earnings (loss) per diluted share
1, 2
7.37
0.53
6.84
1,291
%
Weighted-average diluted shares
outstanding (in millions)
45.8
47.0
1.2
3
%
September 30, 2022
June 30, 2022
Better (Worse)
Amount
Percent
Total Ambac Financial Group, Inc.
stockholders' equity
$
1,008.6
$
783.8
$
224.7
29
%
Total Ambac Financial Group, Inc.
stockholders' equity per share
22.43
17.44
4.99
29
%
Adjusted book value 2
1,040.0
773.0
267.0
35
%
Adjusted book value per share 2
23.13
17.20
5.93
34
%
(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
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.
Three Months Ended September 30,
2022
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
($ in
millions)
Gross premiums written
$
(13.5
)
$
29.8
$
16.3
Net premiums written
(6.1
)
5.6
(0.4
)
Revenues:
Net premiums earned
6.6
4.2
10.8
Net investment income (loss)
9.3
0.5
$
1.0
10.7
Net gains (losses) on derivative
contracts
37.5
(0.3
)
37.2
Commission income (1)
$
7.0
7.0
Other income
13.1
0.9
0.3
—
14.4
Total revenues
66.5
5.6
7.3
0.7
80.1
Expenses:
Loss and loss expenses (benefit)
(356.1
)
2.7
(353.4
)
Operating expenses (2)
19.8
4.3
1.5
6.3
31.9
Sub-producer commissions (2)
4.2
4.2
Total expenses
(336.3
)
7.1
5.7
6.3
(317.3
)
Net (gain) attributable to noncontrolling
interest
—
(0.3
)
(0.3
)
Earnings before interest, taxes,
depreciation and amortization
402.8
(1.5
)
1.3
(5.6
)
397.0
Add back noncontrolling interest EBITDA
adjustment
—
0.3
0.3
Interest expense
48.6
—
—
48.6
Depreciation expense
0.4
—
—
—
0.5
Intangible amortization
5.1
0.7
5.8
Pretax income (loss)
$
348.7
$
(1.5
)
$
0.9
$
(5.6
)
$
342.5
(1)
Based on premiums placed. Refer to the Specialty P&C
Insurance Platform Production section of this release for further
details.
(2)
The Consolidated Statements of Comprehensive Income presents the
sum of these items as Operating Expenses.
Three Months Ended September 30, 2021
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
($ in
millions)
Gross premiums written
$
(5.4
)
$
4.2
$
(1.1
)
Net premiums written
(16.2
)
0.8
(15.4
)
Revenues:
Net premiums earned
11.0
0.2
11.2
Net investment income (loss)
21.1
0.2
$
—
21.3
Net gains (losses) on derivative
contracts
4.7
4.7
Net realized gains on extinguishment of
debt
—
—
Commission income (1)
$
6.5
6.5
Other income
7.3
—
—
—
7.3
Total revenues
44.1
0.4
6.5
—
51.0
Expenses:
Loss and loss expenses (benefit)
(55.4
)
0.1
(55.3
)
Operating expenses (2)
18.3
2.1
1.3
6.3
28.0
Sub-producer commissions (2)
3.7
3.7
Total expenses
(37.1
)
2.2
5.0
6.3
(23.6
)
Net (gain) attributable to
noncontrolling interest
(0.3
)
(0.3
)
Earnings before interest, taxes,
depreciation and amortization
81.1
(1.8
)
1.2
(6.3
)
74.2
Add back noncontrolling interest EBITDA
adjustment
0.3
0.3
Interest expense
43.7
—
43.7
Depreciation expense
0.4
—
—
—
0.5
Intangible amortization
10.3
—
0.7
11.0
Pretax income (loss)
$
26.7
$
(1.8
)
$
0.8
$
(6.3
)
$
19.4
(1)
Based on premiums placed. Refer to the
Specialty P&C Insurance Platform Production section of this
release for further details.
(2)
The Consolidated Statements of
Comprehensive Income presents the sum of these items as Operating
Expenses.
Results of Operations by Segment (Continued)
Nine Months Ended September 30,
2022
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
($ in
millions)
Gross premiums written
$
(11.6
)
$
94.7
$
83.2
Net premiums written
2.0
18.6
20.5
Revenues:
Net premiums earned
31.0
8.2
39.2
Net investment income (loss)
(8.5
)
1.1
$
1.7
(5.7
)
Net gains (losses) on derivative
contracts
122.7
0.9
123.6
Net realized gains on extinguishment of
debt
57.0
57.0
Commission income (1)
$
21.8
21.8
Other income
47.9
1.7
0.5
(0.1
)
49.9
Total revenues
250.0
10.9
22.3
2.5
285.8
Expenses:
Loss and loss expenses (benefit)
(346.8
)
5.4
(341.4
)
Operating expenses (2)
64.1
11.0
4.4
10.6
90.1
Sub-producer commissions (2)
12.6
12.6
Total expenses
(282.7
)
16.4
17.0
10.6
(238.7
)
Net (gain) attributable to noncontrolling
interest
—
(1.1
)
(1.1
)
Earnings before interest, taxes,
depreciation and amortization
532.7
(5.5
)
4.3
(8.2
)
523.4
Add back noncontrolling interest EBITDA
adjustment
—
1.1
1.1
Interest expense
137.7
137.7
Depreciation expense
1.4
—
—
0.1
1.5
Intangible amortization
31.6
2.0
33.6
Pretax income (loss)
$
362.1
$
(5.5
)
$
3.3
$
(8.3
)
$
351.7
(1)
Based on premiums placed. Refer to the
Specialty P&C Insurance Platform Production section of this
release for further details.
(2)
The Consolidated Statements of
Comprehensive Income presents the sum of these items as Operating
Expenses.
Nine Months Ended September 30, 2021
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
($ in
millions)
Gross premiums written
$
(12.7
)
$
6.3
$
(6.5
)
Net premiums written
(37.7
)
1.3
(36.5
)
Revenues:
Net premiums earned
36.2
0.2
36.4
Net investment income (loss)
111.3
0.6
$
0.3
112.2
Net gains (losses) on derivative
contracts
18.9
18.9
Net realized gains on extinguishment of
debt
32.8
32.8
Commission income (1)
$
19.7
19.7
Other income
5.0
—
—
4.0
9.0
Total revenues
204.1
0.8
19.7
4.3
229.0
Expenses:
Loss and loss expenses (benefit)
(73.2
)
0.1
(73.1
)
Operating expenses (2)
56.0
5.0
3.8
16.6
81.5
Sub-producer commissions (2)
10.9
10.9
Total expenses
(17.2
)
5.2
14.7
16.6
19.4
Net (gain) attributable to
noncontrolling interest
(1.0
)
(1.0
)
Earnings before interest, taxes,
depreciation and amortization
221.3
(4.4
)
4.0
(12.3
)
208.6
Add back noncontrolling interest EBITDA
adjustment
1.0
1.0
Interest expense
143.6
143.6
Depreciation expense
1.3
—
—
—
1.3
Intangible amortization
41.8
2.0
43.7
Pretax income (loss)
$
34.6
$
(4.4
)
$
3.0
$
(12.3
)
$
20.9
(1)
Based on premiums placed. Refer to the
Specialty P&C Insurance Platform 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 Platform Production
Specialty P&C Insurance platform production, which includes
gross premiums written by Ambac's Specialty P&C Insurance
segment and premiums placed by the Insurance Distribution segment,
totaled $58 million in the third quarter of 2022, an increase of
76% from the third quarter of 2021. Specialty P&C Insurance
revenues are dependent on gross premiums written as hybrid fronting
insurance companies earn premiums based on the portion of gross
premiums written retained (i.e. net premiums written) and fees on
gross premiums written that are ceded to reinsurers. Insurance
Distribution revenues are dependent on premium volume as Managing
General Agents/Underwriters receive commissions based on the amount
of premiums placed (i.e. gross premiums written on behalf of
insurance carriers) with insurance carriers.
Three Months Ended September
30,
Nine Months Ended
September 30,
($ in millions)
2022
2021
Change
2022
2021
Change
Specialty Property & Casualty
Insurance Gross Premiums Written
$
29.8
$
4.2
610
%
$
94.7
$
6.2
1,427
%
Insurance Distribution Premiums Placed
28.4
28.8
(1
) %
97.2
91.2
7
%
Specialty P&C Insurance Production
$
58.2
$
33.0
76
%
$
191.9
$
97.4
97
%
NM = Not meaningful
Net Premiums Earned
During the third quarter of 2022, net premiums earned of $11
million declined 3% compared to the third quarter of 2021.
Specialty Property & Casualty Insurance segment net premiums
earned increased $4 million; more than off-set by the continued
contraction of net premiums earned in the Legacy Financial
Guarantee Insurance segment which was primarily due to the run-off
of the insured portfolio.
Net Investment Income
Net investment income for the third quarter of 2022 was $11
million compared to net investment income of $21 million for the
third quarter of 2021.
The decrease in net investment income in the third quarter of
2022 compared to the third quarter of 2021 was largely attributable
to net losses on fund investments of ($5) million, a decline of $12
million from prior year on account of weakened market
conditions.
Losses and Loss Expenses (Benefit)
Losses and loss expenses (benefit) ("Incurred Losses") for the
third quarter of 2022 were a benefit of $353.4 million, compared to
a benefit of $55.3 million for the third quarter of 2021, as
outlined in the following table.
Three Months Ended September
30,
Nine Months Ended
September 30,
($ in millions)
2022
2021
2022
2021
Financial Guarantee
Structured finance
$
(351.1
)
$
(21.0
)
$
(149.4
)
$
(44.0
)
Domestic public finance
(0.9
)
(30.3
)
(194.5
)
(32.0
)
Other
(4.1
)
(4.1
)
(2.9
)
2.8
Specialty property & casualty
2.7
0.1
5.4
0.1
Total losses and loss expenses
(benefit)
$
(353.4
)
$
(55.3
)
$
(341.4
)
$
(73.1
)
The third quarter of 2022 structured finance benefit of $351
million was driven primarily by the $319 million R&W benefit as
a result of the Bank of America settlement and the positive impact
of higher discount rates somewhat off-set by higher incurred loss
expenses of $18.7 million.
Net Gains (Losses) on Derivative Contracts
Net gains on derivative contracts of $37 million for the third
quarter of 2022, compared to a $5 million gain for third quarter
2021, were driven by the extent of rising interest rates in the
period compared to that of the prior year. 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 income generated by the Insurance Distribution
segment grew 8% in the third quarter 2022 to $7 million from $6.5
million in the third quarter of 2021. The growth in gross
commissions was driven by a shift in business mix and marginally
higher commission rates in certain lines. Excluded from commission
income are amounts earned from the servicing of existing policies
associated with the EBU renewal rights acquisition which are
accounted for within other income.
Operating Expenses
Operating expenses for the third quarter 2022 were $37 million
compared to $32 million in the third quarter of 2021. Specialty
P&C Insurance operating expenses increased as a result of
increased headcount and other costs associated with growth in the
business. Operating expenses in the Insurance Distribution segment,
which primarily include Sub-producer commissions, grew on account
of changes to line of business mix while other expenses grew dues
to costs associated with the EBU acquisition. Legacy Financial
Guarantee Insurance operating expenses were higher due to defensive
litigation costs and net performance based compensation and
severance costs, which more than off-set other expense
reductions.
Three Months Ended September
30,
Nine Months Ended
September 30,
($ in millions)
2022
2021
2022
2021
Legacy Financial Guarantee Insurance
$
20.3
$
18.8
$
65.4
$
57.3
Specialty Property & Casualty
Insurance
4.3
2.1
11.0
5.0
Insurance Distribution
5.7
5.0
17.0
14.8
Corporate & Other
6.3
6.3
10.8
16.6
Total operating expenses
$
36.6
$
32.2
$
104.2
$
93.8
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 net assets of $223 million as of
September 30, 2022. Assets included cash and liquid securities of
$112 million and other investments of $97 million.
Consolidated Ambac Financial Group, Inc. Stockholders'
Equity
Stockholders’ equity at September 30, 2022, was $1,009 million,
or $22.43 per share compared to $784 million or $17.44 per share as
of June 30, 2022. The increase was primarily due to net income
attributable to common shareholders of $340 million partially
off-set by net unrealized investment losses of $59 million and
foreign exchange translation losses of $58 million.
Capital Activity
Effective October 29, 2022, Ambac redeemed in full the
outstanding balance of $1.2 billion of the Sitka Notes as well as
$213 million (including $1.4 million of accrued interest from
September 30, 2022 to October 29, 2022) of Tier II Notes.
Effective November 7, 2022, Ambac acquired All Trans Risk
Solutions, LLC and Capacity Marine Corporation, which on a combined
basis will add approximately $60 million of premiums placed at
Ambac's Insurance Distribution segment.
All Trans Risk Solutions, LLC is a full service managing general
underwriter (MGU) specializing in commercial automobile insurance
for specific "for-hire" auto classes.
Capacity Marine Corporation is a wholesale and retail brokerage
and reinsurance intermediary specializing in marine and
international risk.
Legacy Financial Guarantee Insurance Insured
Portfolio
Legacy Financial Guarantee Insurance insured net par outstanding
declined 4.9% during the quarter ended September 30, 2022, to $24
billion from $25 billion at June 30, 2022.
Adversely Classified and Watch List Credits decreased in the
third quarter of 2022 by $0.4 billion or 4.5% to $8.2 billion at
September 30, 2022, from $8.5 billion at June 30, 2022.
The decrease in net par outstanding and Adversely Classified and
Watch List Credits is largely due to de-risking activity and the
impact of foreign exchange rates which accounted for 1.5% of the
4.5% reduction of Adversely Classified and Watch List Credits in
the quarter.
Details of the Legacy Financial Guarantee Insurance insured
portfolio are highlighted in the below table.
Net Par Outstanding
September 30,
2022
June 30, 2022
By Sector:
Domestic public finance
46 %
45 %
Structured Finance
17 %
16 %
International
37 %
39 %
By Financial Guarantor:
Ambac Assurance
64 %
63 %
Ambac UK
36 %
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.
Three Months Ended September 30,
2022
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
Pretax income (loss)
$
348.7
$
(1.5
)
$
0.9
$
(5.6
)
$
342.5
Adjustments:
Interest expense
48.6
—
—
—
48.6
Depreciation
0.4
—
—
—
0.5
Amortization of intangible assets
5.1
—
0.7
—
5.8
Net (gain) attributable to noncontrolling
interest
—
(0.3
)
(0.3
)
Earnings before interest, taxes,
depreciation and amortization
$
402.8
$
(1.5
)
$
1.3
$
(5.6
)
$
397.0
Three Months
Ended September 30, 2021
Pretax income (loss)
$
26.7
$
(1.8
)
$
0.8
$
(6.3
)
$
19.4
Adjustments:
Interest expense
43.7
—
—
—
43.7
Depreciation
0.4
—
—
—
0.5
Amortization of intangible assets
10.3
—
0.7
—
11.0
Net (gain) attributable to noncontrolling
interest
(0.3
)
(0.3
)
Earnings before interest, taxes,
depreciation and amortization
$
81.1
$
(1.8
)
$
1.2
$
(6.3
)
$
74.2
Nine Months Ended September 30,
2022
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
Pretax income (loss)
$
362.1
$
(5.5
)
$
3.3
$
(8.3
)
$
351.7
Adjustments:
Interest expense
137.7
—
—
—
137.7
Depreciation
1.4
—
—
0.1
1.5
Amortization of intangible assets
31.6
—
2.0
—
33.6
Net (gain) attributable to noncontrolling
interest
—
(1.1
)
(1.1
)
Earnings before interest, taxes,
depreciation and amortization
$
532.7
$
(5.5
)
$
4.3
$
(8.2
)
$
523.4
Nine Months Ended
September 30, 2021
Pretax income (loss)
$
34.6
$
(4.4
)
$
3.0
$
(12.3
)
$
20.9
Adjustments:
Interest expense
143.6
—
—
—
143.6
Depreciation
1.3
—
—
—
1.3
Amortization of intangible assets
41.8
—
2.0
—
43.7
Net (gain) attributable to noncontrolling
interest
(1.0
)
(1.0
)
Earnings before interest, taxes,
depreciation and amortization
$
221.3
$
(4.4
)
$
4.0
$
(12.3
)
$
208.6
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 were $338 million, or $7.37 per diluted share,
for the third quarter 2022 as compared to adjusted earnings of $25
million, or $0.53 per diluted share, for the third quarter of
2021.
The following table reconciles net income (loss) attributable to
common stockholders to the non-GAAP measure, adjusted earnings
(loss), for the three-month periods ended September 30, 2022, and
September 30, 2021, respectively:
Three Months Ended September
30,
2022
2021
($ in millions, other than per share
data)
$ Amount
Per Diluted Share (1)
$ Amount
Per Diluted Share (1)
Net income (loss) attributable to common
stockholders
$
340.0
$
7.41
$
16.9
$
0.35
Adjustments:
Insurance intangible amortization
5.1
0.11
10.3
0.22
Foreign exchange (gains) losses
(7.0
)
(0.15
)
(1.7
)
(0.04
)
Adjusted Earnings (loss)
$
338.1
$
7.37
$
25.4
$
0.53
Weighted-average diluted shares
outstanding (in millions)
45.8
47.0
Nine Months Ended September
30,
2022
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
$
347.2
$
7.48
$
5.3
$
(0.19
)
Adjustments:
Insurance intangible amortization
31.6
0.68
41.8
0.90
Foreign exchange (gains) losses
(13.9
)
(0.30
)
5.7
0.12
Adjusted Earnings (loss)
$
364.8
$
7.86
$
52.6
$
0.83
Weighted-average diluted shares
outstanding (in millions)
46.4
46.5
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 $1,040 million, or $23.13 per share, at
September 30, 2022, as compared to $773 million, or $17.20 per
share, at June 30, 2022. The increase in adjusted book value for
the third quarter of 2022 was primarily attributable to the $318.9
million gain related to the Bank of America litigation settlement,
higher discount rates on the present value of legacy financial
guarantee installment premiums partially offset by adjusted
earnings (net of earned premiums), somewhat off-set by the adverse
effect of foreign exchange losses and unrealized investment
losses.
The following table reconciles Total Ambac Financial Group, Inc.
stockholders’ equity to the non-GAAP measure adjusted book value as
of each date presented:
September 30, 2022
June 30, 2022
($ in millions, other than per share
data)
$ Amount
Per Share
$ Amount
Per Share
Total AFG Stockholders' Equity
$
1,008.6
$
22.43
$
783.8
$
17.44
Adjustments:
Insurance intangible asset
(271.9
)
(6.04
)
(284.0
)
(6.32
)
Net unearned premiums and fees in excess
of expected losses
221.4
4.92
250.4
5.57
Net unrealized investment (gains) losses
in Accumulated Other Comprehensive Income
81.9
1.82
22.7
0.51
Adjusted book value
$
1,040.0
$
23.13
$
773.0
$
17.20
Shares outstanding (in millions)
45.0
44.9
Earnings Call and Webcast
On November 9, 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 third 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 November 23, 2022, and can be
accessed by dialing (Domestic) (844) 512-2921 or (International)
(412) 317-6671; and using ID#13732815
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 insurance
distribution business, or related businesses; (3) 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; (4) potential for rehabilitation
proceedings or other regulatory intervention against AAC; (5)
credit risk throughout Ambac’s business, including but not limited
to credit risk related to insured residential mortgage-backed
securities, student loan and other asset securitizations, public
finance obligations (including risks associated with Chapter 9 and
other restructuring proceedings), issuers of securities in our
investment portfolios, and exposures to reinsurers; (6) our
inability to effectively reduce insured financial guarantee
exposures or achieve recoveries or investment objectives; (7) our
inability to generate the significant amount of cash needed to
service our debt and financial obligations, and our inability to
refinance our indebtedness; (8) Ambac’s substantial indebtedness
could adversely affect its financial condition and operating
flexibility; (9) Ambac may not be able to obtain financing or raise
capital on acceptable terms or at all due to its substantial
indebtedness and financial condition; (10) 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; (11)
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; (12)
failure to recover claims paid on Puerto Rico exposures or
realization of losses in amounts higher than expected; (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 September
30,
Nine Months Ended September
30,
($ in millions, except share
data)
2022
2021
2022
2021
Revenues:
Net premiums earned
$
11
$
11
$
39
$
36
Net investment income:
Securities available-for-sale and
short-term
17
15
44
59
Other investments
(7
)
6
(50
)
53
Total net investment income (loss)
11
21
(6
)
112
Net realized investment gains (losses),
including impairments
14
3
31
4
Net gains (losses) on derivative
contracts
37
5
124
19
Net realized gains on extinguishment of
debt
—
—
57
33
Commission income
7
7
22
20
Other income
1
1
5
—
Income (losses) on variable interest
entities
(1
)
3
14
5
Total revenues
80
51
286
229
Expenses:
Losses and loss expense (benefit)
(353
)
(55
)
(341
)
(73
)
Intangible amortization
6
11
34
44
Operating expenses
37
32
104
94
Interest expense
49
44
138
144
Total expenses
(262
)
32
(66
)
208
Pre-tax income
342
19
352
21
Provision for income taxes
2
2
4
15
Net income
340
17
348
6
Less: net (loss) gain attributable to
noncontrolling interest
—
—
(1
)
(1
)
Net income attributable to common
stockholders
$
340
$
17
$
347
$
5
Net income per basic share
$
7.50
$
0.35
$
7.56
$
(0.19
)
Net income per diluted share
$
7.41
$
0.35
$
7.48
$
(0.19
)
Weighted-average number of common
shares outstanding:
Basic
45,307,019
46,615,552
45,847,306
46,503,196
Diluted
45,846,405
47,044,132
46,356,094
46,503,196
AMBAC FINANCIAL GROUP, INC.
AND SUBSIDIARIES Consolidated Balance Sheets
(Unaudited)
($ in millions, except share
data)
September 30,
2022
December 31, 2021
Assets:
Investments:
Fixed maturity securities, at fair value
(amortized cost: $1,467 and $1,605)
$
1,384
$
1,730
Fixed maturity securities pledged as
collateral, at fair value (amortized cost: $15 and $15)
15
$
15
Fixed maturity securities - trading
105
—
Short-term investments, at fair value
(amortized cost: $523 and $415)
523
414
Short-term investments pledged as
collateral, at fair value (amortized cost: $55 and $105)
55
105
Other investments (includes $547 and $683
at fair value)
559
690
Total investments (net of allowance for
credit losses of $0 and $0)
2,640
2,955
Cash and cash equivalents
29
17
Restricted cash
6
5
Premiums receivable (net of allowance for
credit losses of $6 and $9)
268
323
Reinsurance recoverable on paid and unpaid
losses (net of allowance for credit losses of $0 and $0)
80
55
Deferred ceded premium
99
90
Subrogation recoverable
1,949
2,092
Derivative assets
28
76
Intangible assets
318
362
Goodwill
46
46
Other assets
85
68
Variable interest entity assets:
Fixed maturity securities, at fair
value
2,119
3,455
Restricted cash
2
2
Loans, at fair value
1,682
2,718
Derivative assets
60
38
Other assets
1
2
Total assets
$
9,412
$
12,303
Liabilities and Stockholders’
Equity:
Liabilities:
Unearned premiums
$
359
$
395
Loss and loss expense reserves
1,009
1,570
Ceded premiums payable
33
33
Long-term debt
2,201
2,230
Accrued interest payable
576
576
Derivative liabilities
40
95
Other liabilities
244
133
Variable interest entity liabilities:
Long-term debt (includes $2,603 and $4,056
at fair value)
2,752
4,216
Derivative liabilities
1,110
1,940
Total liabilities
8,324
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 shares: 46,658,990 and
46,477,068
—
—
Additional paid-in capital
270
257
Accumulated other comprehensive income
(315
)
58
Retained earnings
1,068
726
Treasury stock, shares at cost: 1,694,971
and 172,929
(15
)
(3
)
Total Ambac Financial Group, Inc.
stockholders’ equity
1,009
1,038
Nonredeemable noncontrolling interest
62
60
Total stockholders’ equity
1,071
1,098
Total liabilities, redeemable
noncontrolling interest and stockholders’ equity
$
9,412
$
12,303
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221108006171/en/
Charles J. Sebaski Managing Director, Investor Relations (212)
208-3222 csebaski@ambac.com
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