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Ambac(AMBC) - 2022 Q1 - Earnings Call Transcript
2022-05-11 18:51
Ambac Financial Group, Inc. (NYSE:AMBC) Q1 2022 Earnings Conference Call May 11, 2022 8:30 AM ET Company Participants Charles Sebaski - Head of Investor Relation Claude LeBlanc - President & Chief Executive Officer David Trick - Executive Vice President, Chief Financial Officer & Treasurer Conference Call Participants David Belport - Wells Fargo Advisors Operator Greetings and welcome to Ambac Financial Group, Inc. First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A ...
Ambac(AMBC) - 2022 Q1 - Quarterly Report
2022-05-09 16:00
[Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995](index=4&type=section&id=Cautionary%20Statement%20Pursuant%20to%20the%20Private%20Securities%20Litigation%20Reform%20Act%20of%201995) - **Forward-looking statements** are not guarantees of future performance; actual results may **differ materially** due to various factors[8](index=8&type=chunk) - Key risks include **volatility** in common stock price, **uncertainty** in achieving value from subsidiaries, **inability to realize expected recoveries** (e.g., RMBS litigation), **higher-than-expected losses** on Puerto Rico exposures, and **inadequacy of loss reserves**[8](index=8&type=chunk) - Other **significant risks** involve **credit risk**, **inability to effectively reduce insured financial guarantee exposures**, challenges in generating cash for debt service, **substantial indebtedness**, and potential for rehabilitation proceedings or other regulatory intervention against AAC[8](index=8&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Unaudited Consolidated Financial Statements of Ambac Financial Group, Inc. and Subsidiaries](index=5&type=section&id=Item%201.%20Unaudited%20Consolidated%20Financial%20Statements%20of%20Ambac%20Financial%20Group%2C%20Inc.%20and%20Subsidiaries) Ambac presents its unaudited consolidated financial statements for **Q1 2022**, including balance sheets, income, equity, cash flows, and explanatory notes [Consolidated Balance Sheets (Unaudited)](index=6&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) | Metric | March 31, 2022 (Millions $) | December 31, 2021 (Millions $) | Change (Millions $) | | :----- | :-------------------------- | :----------------------------- | :------------------ | | Total Assets | 11,531 | 12,303 | (772) | | Total Liabilities | 10,538 | 11,187 | (649) | | Total Stockholders' Equity | 974 | 1,098 | (124) | | Loss and Loss Expense Reserves | 1,067 | 1,570 | (503) | | Subrogation Recoverable | 1,714 | 2,092 | (378) | | Long-term Debt | 2,242 | 2,230 | 12 | | VIE Long-term Debt | 4,124 | 4,216 | (92) | - The **decrease** in **total assets** was primarily driven by **lower subrogation recoverables**, **declines** in **invested asset values**, and **reduced variable interest entity (VIE) assets**[10](index=10&type=chunk)[323](index=323&type=chunk) - The **reduction** in **total liabilities** was mainly due to **lower loss and loss expense reserves** and **decreased VIE long-term debt**[10](index=10&type=chunk)[323](index=323&type=chunk) [Consolidated Statements of Total Comprehensive Income (Loss) (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Total%20Comprehensive%20Income%20(Loss)%20(Unaudited)) | Metric | Three Months Ended March 31, 2022 (Millions $) | Three Months Ended March 31, 2021 (Millions $) | Change (Millions $) | | :----- | :--------------------------------------------- | :--------------------------------------------- | :------------------ | | Total Revenues | 119 | 129 | (10) | | Total Expenses | 116 | 110 | 6 | | Pre-tax Income (Loss) | 3 | 19 | (16) | | Net Income (Loss) | 2 | 17 | (15) | | Net Income Attributable to Common Stockholders | 2 | 17 | (15) | | Total Comprehensive Income (Loss) Attributable to Common Stockholders | (125) | (2) | (123) | | Basic EPS | 0.04 | 0.08 | (0.04) | | Diluted EPS | 0.04 | 0.08 | (0.04) | - **Net investment income decreased significantly** from **$49 million** in **Q1 2021** to **$5 million** in **Q1 2022**[11](index=11&type=chunk) - **Net gains on derivative contracts increased** to **$57 million** in **Q1 2022** from **$25 million** in **Q1 2021**[11](index=11&type=chunk) - **Losses and loss expenses increased** to **$24 million** in **Q1 2022** from **$8 million** in **Q1 2021**[11](index=11&type=chunk) [Consolidated Statements of Stockholders' Equity (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) | Metric | December 31, 2021 (Millions $) | March 31, 2022 (Millions $) | Change (Millions $) | | :----- | :----------------------------- | :-------------------------- | :------------------ | | Balance at Beginning of Period | 1,098 | 1,098 | 0 | | Total Comprehensive Income (Loss) | (125) | (125) | (125) | | Stock-based Compensation | 5 | 5 | 0 | | Cost of Shares (acquired) issued under equity plan | (3) | (3) | 0 | | Balance at End of Period | 974 | 974 | 0 | - **Accumulated Other Comprehensive Income (Loss)** shifted from a **gain of $58 million** at **December 31, 2021**, to a **loss of $(70) million** at **March 31, 2022**, reflecting **unrealized losses on securities** and **foreign currency translation**[14](index=14&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) | Metric | Three Months Ended March 31, 2022 (Millions $) | Three Months Ended March 31, 2021 (Millions $) | Change (Millions $) | | :----- | :--------------------------------------------- | :--------------------------------------------- | :------------------ | | Net Cash Provided by (Used in) Operating Activities | 9 | (40) | 49 | | Net Cash Provided by Investing Activities | 136 | 116 | 20 | | Net Cash Used in Financing Activities | (52) | (69) | 17 | | Net Cash Flow | 93 | 6 | 87 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | 116 | 42 | 74 | - **Operating cash flow improved significantly** due to changes in unearned premiums, **losses and loss expenses**, and derivative assets and liabilities[16](index=16&type=chunk) - **Investing cash flow was boosted** by proceeds from sales of bonds and changes in short-term investments[16](index=16&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [Note 1. Background and Business Description](index=11&type=section&id=Note%201.%20Background%20and%20Business%20Description) - Ambac's business operations are segmented into **Legacy Financial Guarantee Insurance**, **Specialty Property & Casualty Insurance**, and **Insurance Distribution**, with the financial guarantee business in runoff since **2008**[20](index=20&type=chunk) - **Strategic priorities** for the **Specialty P&C Insurance Platform** include growing and diversifying with program partners, building a leading insurance distribution business, and making opportunistic investments[20](index=20&type=chunk) - **Strategic priorities** for **Legacy Financial Guarantee Companies** involve actively managing and de-risking the insured portfolio, pursuing **loss recovery** through litigation (especially RMBS), improving operating efficiency, and optimizing asset/liability profiles[20](index=20&type=chunk) [Note 2. Basis of Presentation and Significant Accounting Policies](index=12&type=section&id=Note%202.%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) - Consolidated financial statements include AFG and all entities where it has a controlling financial interest, including **VIEs** where AFG is the **primary beneficiary**[23](index=23&type=chunk) - Redeemable noncontrolling interest is remeasured each period as the greater of its carrying value under **ASC 810** or the redemption value of the put option under **ASC 480**[28](index=28&type=chunk) | Metric | Three Months Ended March 31, 2022 (Millions $) | Three Months Ended March 31, 2021 (Millions $) | | :----- | :--------------------------------------------- | :--------------------------------------------- | | Redeemable Noncontrolling Interest - Beginning Balance | 18 | 7 | | Adjustment to Redemption Value (ASC 480) | 0 | 13 | | Redeemable Noncontrolling Interest - Ending Balance | 18 | 20 | [Note 3. Segment Information](index=14&type=section&id=Note%203.%20Segment%20Information) - Ambac's operations are segmented into **Legacy Financial Guarantee Insurance**, **Specialty Property and Casualty Insurance**, and **Insurance Distribution**, consistent with how the CODM assesses performance[33](index=33&type=chunk) | Metric (Millions $) | Legacy Financial Guarantee Insurance (Q1 2022) | Specialty Property & Casualty Insurance (Q1 2022) | Insurance Distribution (Q1 2022) | Corporate & Other (Q1 2022) | Consolidated (Q1 2022) | | :------------------ | :--------------------------------------------- | :------------------------------------------------ | :------------------------------- | :-------------------------- | :----------------------- | | Total Revenues | 109 | 2 | 9 | 0 | 119 | | Total Expenses | 102 | 4 | 6 | 3 | 116 | | Pretax Income (Loss) | 6 | (2) | 2 | (3) | 3 | | Total Assets | 11,075 | 191 | 97 | 168 | 11,531 | | Metric (Millions $) | Legacy Financial Guarantee Insurance (Q1 2021) | Specialty Property & Casualty Insurance (Q1 2021) | Insurance Distribution (Q1 2021) | Corporate & Other (Q1 2021) | Consolidated (Q1 2021) | | :------------------ | :--------------------------------------------- | :------------------------------------------------ | :------------------------------- | :-------------------------- | :----------------------- | | Total Revenues | 118 | 0 | 7 | 4 | 129 | | Total Expenses | 94 | 1 | 5 | 10 | 110 | | Pretax Income (Loss) | 24 | (1) | 2 | (6) | 19 | | Total Assets | 12,470 | 108 | 98 | 165 | 12,840 | [Note 4. Investments](index=15&type=section&id=Note%204.%20Investments) - Ambac's non-VIE invested assets are mainly **fixed maturity securities** (available-for-sale or trading) and pooled investment funds[38](index=38&type=chunk) | Metric (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :------------------ | :------------- | :---------------- | :----- | | Total Available-for-Sale Investments | 2,036 | 2,265 | (229) | | Total Investments (net of allowance for credit losses) | 2,815 | 2,955 | (140) | | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net Investment Income | 5 | 49 | (44) | | Net Investment Gains (Losses), including impairments | 10 | 2 | 8 | - The **decrease** in **net investment income** was primarily due to a **$36 million decrease** in income from 'Other investments' (pooled funds) and an **$8 million decrease** from Ambac-insured securities[52](index=52&type=chunk)[277](index=277&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk) [Note 5. Fair Value Measurements](index=21&type=section&id=Note%205.%20Fair%20Value%20Measurements) - **Fair value hierarchy**: **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than Level 1), **Level 3** (**significant unobservable inputs**)[69](index=69&type=chunk)[70](index=70&type=chunk) - For **March 31, 2022**, **total financial assets** were **$8,864 million** (carrying amount), with **$5,741 million** categorized as **Level 3**. **Total financial liabilities** were **$7,930 million** (carrying amount), with **$(17) million** categorized as **Level 3**[74](index=74&type=chunk) - The fair values of **FG VIE long-term debt** are primarily based on **Level 2 market price quotes**, while **FG VIE fixed maturity securities** and loan assets are generally based on **Level 2 market price quotes** or internal estimations[94](index=94&type=chunk)[95](index=95&type=chunk) [Note 6. Insurance Contracts](index=27&type=section&id=Note%206.%20Insurance%20Contracts) | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net Premiums Written | 12 | (9) | 21 | | Net Premiums Earned | 15 | 14 | 1 | | Metric (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :------------------ | :------------- | :---------------- | :----- | | Premium Receivables | 317 | 323 | (6) | | Loss and Loss Expense Reserves | 1,067 | 1,570 | (503) | | Subrogation Recoverable | 1,714 | 2,092 | (378) | | Gross Loss and Loss Expense Reserves (net of subrogation and discounts, before reinsurance) | (680) | (543) | (137) | - The **reduction** in **RMBS R&W subrogation recoveries** by **$224 million** in **Q1 2022** was a **primary driver** for the change in **loss and loss expense reserves**, partially offset by **favorable loss development** from the Puerto Rico restructuring[118](index=118&type=chunk)[274](index=274&type=chunk) - Ambac's **Puerto Rico exposure** was **significantly reduced** in **Q1 2022** due to the Eighth Amended POA and qualifying modifications for PRIFA and CCDA, with remaining unrestructured exposure primarily in PRHTA[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) [Note 7. Derivative Instruments](index=35&type=section&id=Note%207.%20Derivative%20Instruments) | Metric (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :------------------ | :------------- | :---------------- | :----- | | Non-VIE Derivative Assets | 55 | 76 | (21) | | Non-VIE Derivative Liabilities | 76 | 95 | (19) | | VIE Derivative Assets | 42 | 38 | 4 | | VIE Derivative Liabilities | 1,866 | 1,940 | (74) | | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net Gains (Losses) on Non-VIE Derivatives | 57 | 25 | 32 | | Net Gains (Losses) on VIE Derivatives | 11 | 96 | (85) | | Total Derivative Contracts | 68 | 121 | (53) | - The **increase** in **net gains on non-VIE derivatives** was primarily due to **significant increases** in forward interest rates and **favorable portfolio positioning** in **Q1 2022**[281](index=281&type=chunk) - All ratings-based contingent features in Ambac's non-cleared interest rate swaps have been triggered, requiring **maximum collateral levels** to be posted[155](index=155&type=chunk) [Note 8. Intangible Assets](index=37&type=section&id=Note%208.%20Intangible%20Assets) | Metric (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :------------------ | :------------- | :---------------- | :----- | | Net Insurance Intangible Asset | 303 | 320 | (17) | | Net Other Intangible Assets | 32 | 33 | (1) | | Insurance Licenses (Indefinite-lived) | 14 | 9 | 5 | | Total Intangible Assets | 350 | 362 | (12) | | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Insurance Amortization Expense | 14 | 19 | (5) | | Other Amortization Expense | 1 | 1 | 0 | - The **decrease** in **insurance intangible amortization** is driven by the run-off of the insured portfolio and de-risking activity[286](index=286&type=chunk) [Note 9. Variable Interest Entities](index=37&type=section&id=Note%209.%20Variable%20Interest%20Entities) - Ambac consolidates **FG VIEs** where it has the obligation to absorb expected losses and the power to direct activities that **significantly impact economic performance**[161](index=161&type=chunk) | Metric (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :------------------ | :------------- | :---------------- | :----- | | Total FG VIE Assets | 5,925 | 6,216 | (291) | | Total FG VIE Liabilities | 5,993 | 6,156 | (163) | | Number of FG VIEs Consolidated | 8 | 6 | 2 | | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Income (Loss) on Variable Interest Entities | 22 | 0 | 22 | - The **$22 million income** on **VIEs** in **Q1 2022** was primarily due to a **$28 million gain** from consolidating two new trusts established during the Puerto Rico restructuring[167](index=167&type=chunk)[285](index=285&type=chunk) [Note 10. Revenues From Contracts with Customers](index=40&type=section&id=Note%2010.%20Revenues%20From%20Contracts%20with%20Customers) | Policy Type (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :----------------------- | :-------------------------------- | :-------------------------------- | :----- | | Employer Stop Loss | 4 | 3 | 1 | | Affinity Products | 5 | 4 | 1 | | Total | 9 | 7 | 2 | | Metric (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :------------------ | :------------- | :---------------- | :----- | | Commissions Receivable | 3 | 2 | 1 | | Contract Assets | 6 | 4 | 2 | | Contract Liabilities | 1 | 1 | 0 | - The **increase** in **commission income** is primarily driven by **greater premiums placed** in the **Insurance Distribution segment**[283](index=283&type=chunk) [Note 11. Comprehensive Income](index=41&type=section&id=Note%2011.%20Comprehensive%20Income) | Metric (Millions $) | December 31, 2021 | March 31, 2022 | Change | | :------------------ | :---------------- | :------------- | :----- | | Beginning Balance | 58 | 58 | 0 | | Other Comprehensive Income (Loss) before Reclassifications | (127) | (127) | (127) | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | (1) | (1) | 0 | | Ending Balance | (70) | (70) | 0 | - **Unrealized losses on available-for-sale securities** contributed **$(105) million** to **other comprehensive income (loss)** in **Q1 2022**, compared to **$(24) million** in **Q1 2021**[179](index=179&type=chunk) - **Foreign currency translation** resulted in a **loss of $(23) million** in **Q1 2022**, contrasting with a **gain of $6 million** in **Q1 2021**[179](index=179&type=chunk) [Note 12. Net Income Per Share](index=42&type=section&id=Note%2012.%20Net%20Income%20Per%20Share) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :----- | :-------------------------------- | :-------------------------------- | :----- | | Net Income Attributable to Common Stockholders (Millions $) | 2 | 17 | (15) | | Numerator of Basic and Diluted EPS (Millions $) | 2 | 4 | (2) | | Basic EPS | 0.04 | 0.08 | (0.04) | | Diluted EPS | 0.04 | 0.08 | (0.04) | - As of **May 6, 2022**, **45,039,916 shares** of common stock were outstanding[5](index=5&type=chunk) - AFG's Board of Directors approved a **$20 million share repurchase program** in **March 2022**, and an additional **$15 million** in **May 2022**, bringing the **total unused authorized amount** to **$21.8 million**[184](index=184&type=chunk)[390](index=390&type=chunk) [Note 13. Income Taxes](index=43&type=section&id=Note%2013.%20Income%20Taxes) | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | U.S. Pre-tax Income (Loss) | (1) | 17 | (18) | | Foreign Pre-tax Income (Loss) | 4 | 2 | 2 | | Total Pre-tax Income (Loss) | 3 | 19 | (16) | | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Total Current Taxes | 2 | 5 | (3) | | Total Deferred Taxes | (1) | (3) | 2 | | Provision for Income Taxes | 0 | 2 | (2) | - Ambac maintains a **full valuation allowance** against its deferred tax assets, as management believes it is more likely than not that **sufficient U.S. federal, state, and local taxable income** will not be generated to realize these assets[190](index=190&type=chunk) [Note 14. Commitments and Contingencies](index=43&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) - Ongoing litigations include Monterey Bay Military Housing, various Puerto Rico Title III adversary proceedings (many resolved by the Commonwealth Plan), and several RMBS cases[195](index=195&type=chunk)[197](index=197&type=chunk)[217](index=217&type=chunk) - The New York Court of Appeals' decision in U.S. Bank National Association v. DLJ Mortgage Capital, Inc. (**HEAT case**) may affect one of the bases for AAC's **RMBS recovery claims**, though management believes other recovery paths exist[138](index=138&type=chunk)[218](index=218&type=chunk) - Realization of **RMBS R&W subrogation recoveries** (**$1,502 million net of reinsurance** at **March 31, 2022**) is **highly uncertain** due to litigation risks, collectability from counterparties, and potential **adverse rulings**. Failure to realize these could **materially impact stockholders' equity**[139](index=139&type=chunk)[381](index=381&type=chunk)[384](index=384&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Ambac's **Q1 2022** financial condition, operations, cash flows, liquidity, segment results, and non-GAAP measures [Executive Summary](index=48&type=section&id=Executive%20Summary) - Ambac recorded a **$198 million gain** in **Q1 2022** from the successful restructuring of a **significant portion** of its Puerto Rico exposures[274](index=274&type=chunk) - A **$224 million reduction** in AAC's estimated **RMBS R&W subrogation recoveries** was recorded, partly due to a New York Court of Appeals decision impacting recovery bases[274](index=274&type=chunk) | Metric (Millions $) | March 31, 2022 | | :------------------ | :------------- | | AFG Net Assets (excluding equity investments in subsidiaries) | 243 | | Cash and Short-term Investments | 118 | | Other Investments | 113 | | Other Net Assets | 12 | - The **Specialty Property and Casualty Insurance segment** reported **gross premiums written of $24 million** and a **pretax loss of $(2) million** for **Q1 2022**, while the **Insurance Distribution segment** reported **premiums placed of $45 million** and **pretax income of $2 million**[227](index=227&type=chunk)[230](index=230&type=chunk) - The **Legacy Financial Guarantee Insurance segment** reported **net premiums earned of $13 million**, **net investment income of $5 million**, and **pretax income of $6 million** for **Q1 2022**[233](index=233&type=chunk) [Critical Accounting Policies and Estimates](index=51&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Ambac's financial statements are prepared in accordance with **U.S. GAAP**, requiring **material estimates** and assumptions[247](index=247&type=chunk) - For a detailed discussion of **critical accounting policies and estimates**, refer to the Company's Annual Report on **Form 10-K** for the year ended **December 31, 2021**[247](index=247&type=chunk) [Financial Guarantees in Force](index=51&type=section&id=Financial%20Guarantees%20in%20Force) | Metric (Millions $) | March 31, 2022 | December 31, 2021 | Change | Change (%) | | :------------------ | :------------- | :---------------- | :----- | :--------- | | Total Net Par Outstanding | 27,118 | 28,020 | (902) | (3)% | | Adversely Classified Credit (ACC) Net Par Outstanding | 5,884 | 6,361 | (477) | (7)% | | Watch List Net Par Outstanding | 3,729 | 3,824 | (95) | (2)% | - The **decrease** in **net par outstanding** was driven by active de-risking, including the Puerto Rico restructuring, scheduled maturities, amortizations, refundings, and calls[238](index=238&type=chunk) | Puerto Rico Issuer (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :------------------------------ | :------------- | :---------------- | :----- | | PR Highways and Transportation Authority (1998 Resolution) | 394 | 394 | 0 | | PR Infrastructure Financing Authority (Special Tax Revenue) | 247 | 403 | (156) | | PR Convention Center District Authority (Hotel Occupancy Tax) | 70 | 86 | (16) | | Commonwealth of Puerto Rico - General Obligation Bonds | 0 | 11 | (11) | | PR Public Buildings Authority - Guaranteed by the Commonwealth of Puerto Rico | 0 | 83 | (83) | | Total Net Exposure to Puerto Rico | 784 | 1,054 | (270) | - The Eighth Amended POA and qualifying modifications for PRIFA and CCDA became effective on **March 15, 2022**, **significantly reducing AAC-insured Puerto Rico exposures** through commutation and acceleration[256](index=256&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk) | Bond Type (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :--------------------- | :------------- | :---------------- | :----- | | Total Below Investment Grade Exposure | 5,020 | 5,438 | (418) | | RMBS (Structured Finance) | 2,080 | 2,170 | (90) | | Puerto Rico (Public Finance) | 784 | 1,054 | (270) | [Results of Operations](index=56&type=section&id=Results%20of%20Operations) | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net Income (Loss) Attributable to Common Stockholders | 2 | 17 | (15) | | Gross Premiums Written | 30 | (2) | 32 | | Net Premiums Earned | 15 | 14 | 1 | | Net Investment Income | 5 | 49 | (44) | | Net Investment Gains (Losses), including impairments | 10 | 2 | 8 | | Net Gains (Losses) on Derivative Contracts | 57 | 25 | 32 | | Income (Loss) on Variable Interest Entities | 22 | 0 | 22 | | Losses and Loss Expenses (benefit) | 24 | 8 | 16 | | Intangible Amortization | 14 | 19 | (5) | | Operating Expenses | 34 | 33 | 1 | | Interest Expense | 44 | 50 | (6) | - The **$198 million gain** from the Puerto Rico restructuring included a **net benefit in losses**, a **gain on consolidation of new VIEs**, partially offset by losses from security sales and fair value changes, and intangible asset amortization[274](index=274&type=chunk) - The **$224 million reduction** in **RMBS R&W subrogation recoveries** was based on AAC's evaluation of the impact of the New York Court of Appeals' **HEAT decision** and changes in discount rates/transaction performance[274](index=274&type=chunk) - **Specialty Property and Casualty Insurance segment's gross premiums written increased** to **$24 million** in **Q1 2022** (from **$0** in **Q1 2021**), reflecting **significant growth** and ten signed programs[275](index=275&type=chunk)[298](index=298&type=chunk) - **Insurance Distribution segment's premiums placed increased** by **12%** to **$45 million** in **Q1 2022**, driving **higher gross** and sub-producer commissions[303](index=303&type=chunk) [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) - AFG's **net assets**, excluding equity investments in subsidiaries, were **$243 million** at **March 31, 2022**, providing liquidity for development and acquisitions[224](index=224&type=chunk)[304](index=304&type=chunk) - AAC's ability to realize **RMBS representation and warranty subrogation recoveries** is **critical** but **uncertain**, and failure to recover these **material amounts** would **adversely impact its liquidity**[309](index=309&type=chunk) | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net Cash Provided by (Used in) Operating Activities | 9 | (40) | 49 | | Net Cash Provided by Investing Activities | 136 | 116 | 20 | | Net Cash Used in Financing Activities | (52) | (69) | 17 | | Net Cash Flow | 93 | 6 | 87 | - **Operating cash flow improved** due to **higher cash from premiums** (**$28 million** vs. **$12 million**), **interest rate derivatives** (**$11 million** vs. **$3 million**), and Puerto Rico restructuring settlements (**$47 million** in **Q1 2022**)[318](index=318&type=chunk) - Collateral and margin posted by AFS for derivative contracts totaled **$119 million** at **March 31, 2022**, with all ratings-based downgrade triggers having been met[321](index=321&type=chunk) [Balance Sheet](index=63&type=section&id=Balance%20Sheet) - **Total assets decreased** by **$772 million**, and **total liabilities decreased** by **$649 million** from **December 31, 2021**, to **March 31, 2022**[323](index=323&type=chunk) - **Total stockholders' equity decreased** by **$124 million** to **$974 million**, primarily due to changes in **unrealized losses on invested assets** and **foreign currency translation**[324](index=324&type=chunk) | Investment Type (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :--------------------------- | :------------- | :---------------- | :----- | | Fixed Maturity Securities | 1,383 | 1,730 | (347) | | Fixed Maturity Securities - Trading | 119 | 0 | 119 | | Short-term Investments | 540 | 414 | 126 | | Other Investments | 660 | 690 | (30) | | Fixed Maturity Securities Pledged as Collateral | 114 | 120 | (6) | | Total Investments (excluding VIEs) | 2,815 | 2,955 | (140) | - **Premium receivables decreased** to **$317 million** from **$323 million**, driven by the **Legacy Financial Guarantee segment**, partially offset by **growth** in **Specialty P&C**[329](index=329&type=chunk) - **Loss and loss expense reserves**, net of subrogation recoverables and before reinsurance, were **$(647) million** at **March 31, 2022**, compared to **$(522) million** at **December 31, 2021**, with **RMBS R&W subrogation recoveries** at **$1,502 million**[335](index=335&type=chunk)[337](index=337&type=chunk) [Variable Interest Entities](index=66&type=section&id=Variable%20Interest%20Entities) - For detailed information on **VIEs**, refer to **Note 9** of the Unaudited Consolidated Financial Statements[358](index=358&type=chunk) - Ambac's involvement with **VIEs** arises from financial guarantees provided by AAC and Ambac UK for debt obligations issued by special purpose entities[159](index=159&type=chunk) - The consolidation of two new trusts in **Q1 2022**, linked to the Puerto Rico restructuring, resulted in a combined **gain of $28 million**, impacting **income on variable interest entities**[167](index=167&type=chunk) [Accounting Standards](index=66&type=section&id=Accounting%20Standards) - No new accounting standards have been issued but not yet adopted that are applicable to Ambac[359](index=359&type=chunk) - For further discussion on the impact of recent accounting pronouncements, refer to **Note 2** of the Consolidated Financial Statements in the Annual Report on **Form 10-K** and **Part I, Item 1** of this **Form 10-Q**[359](index=359&type=chunk) [U.S. Insurance Statutory Basis Financial Results](index=66&type=section&id=U.S.%20Insurance%20Statutory%20Basis%20Financial%20Results) | Metric (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :------------------ | :------------- | :---------------- | :----- | | AAC Statutory Policyholder Surplus | 805 | 757 | 48 | | AAC Qualified Statutory Capital | 1,378 | 1,322 | 56 | - The **increase** in **AAC's statutory policyholder surplus** was primarily due to **statutory net income of $61 million** for **Q1 2022**[361](index=361&type=chunk) - Everspan Indemnity Insurance Company's **statutory policyholder surplus increased** to **$110 million** from **$106 million**, driven by **$13 million** in capital contributions[363](index=363&type=chunk) - **AAC's statutory surplus** is sensitive to various factors, including **loss reserve development**, **RMBS R&W breach claim resolutions**, OCI approval for surplus note payments, and interest costs on the Sitka AAC Note and Tier 2 Notes[362](index=362&type=chunk) [Ambac Assurance UK Limited Financial Results Under UK Accounting Principles](index=70&type=section&id=Ambac%20Assurance%20UK%20Limited%20Financial%20Results%20Under%20UK%20Accounting%20Principles) | Metric (Millions £) | March 31, 2022 | December 31, 2021 | Change | | :------------------ | :------------- | :---------------- | :----- | | Ambac UK Shareholder Funds (UK GAAP) | 449 | 444 | 5 | | Cash and Investments | 509 | 500 | 9 | - The **increase** in **shareholder funds** was primarily due to continued premium receipts and foreign exchange gains, offset by investment losses, operating expenses, and tax payments[364](index=364&type=chunk) - Under **Solvency II**, Ambac UK had **eligible capital resources of £240 million** against **regulatory capital requirements of £238 million**, resulting in a **£1 million surplus** at **December 31, 2021**[365](index=365&type=chunk) [Non-GAAP Financial Measures](index=70&type=section&id=Non-GAAP%20Financial%20Measures) - **Non-GAAP measures** (**EBITDA**, **adjusted earnings**, **adjusted book value**) are used to provide transparency into business drivers and facilitate period-to-period comparisons[366](index=366&type=chunk) | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Consolidated Pretax Income (Loss) | 3 | 19 | (16) | | Consolidated EBITDA | 61 | 88 | (27) | | Metric (Millions $) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net Income (Loss) Attributable to Common Stockholders | 2 | 17 | (15) | | Adjusted Earnings (Loss) | 14 | 41 | (27) | | Adjusted Earnings (Loss) Per Diluted Share | 0.30 | 0.59 | (0.29) | | Metric (Millions $) | March 31, 2022 | December 31, 2021 | Change | | :------------------ | :------------- | :---------------- | :----- | | Total Ambac Financial Group, Inc. Stockholders' Equity | 914 | 1,038 | (124) | | Adjusted Book Value | 841 | 874 | (33) | | Adjusted Book Value Per Share | 18.07 | 18.88 | (0.81) | - The **decrease** in **Adjusted Book Value** was primarily due to **adverse foreign exchange losses** and **higher discount rates** on the present value of legacy financial guarantee installment premiums[372](index=372&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=72&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risks were identified as of **March 31, 2022**, compared to **December 31, 2021** - No **material changes** in market risks were identified as of **March 31, 2022**, compared to **December 31, 2021**[374](index=374&type=chunk) [Item 4. Controls and Procedures](index=72&type=section&id=Item%204.%20Controls%20and%20Procedures) Ambac's disclosure controls and procedures were deemed effective as of **March 31, 2022**, with no material changes to internal control over financial reporting - Ambac's **disclosure controls and procedures** were deemed effective as of **March 31, 2022**[375](index=375&type=chunk) - No **material changes** to **internal control over financial reporting** occurred during the quarter ended **March 31, 2022**[376](index=376&type=chunk) [PART II. OTHER INFORMATION](index=72&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=72&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 14. Commitments and Contingencies for a discussion of legal proceedings against Ambac and its subsidiaries - For details on **legal proceedings**, refer to **Note 14. Commitments and Contingencies** in **Part I, Item 1** of this **Form 10-Q**[377](index=377&type=chunk) [Item 1A. Risk Factors](index=73&type=section&id=Item%201A.%20Risk%20Factors) Risk factors from the **2021 Form 10-K** are incorporated, with an updated focus on uncertain **RMBS R&W subrogation recoveries** and their potential impact - The **risk factors** from the **2021 Annual Report on Form 10-K** are incorporated by reference, with an updated focus on the **inability to realize expected recoveries**[379](index=379&type=chunk) - Estimated **RMBS R&W subrogation recoveries** of **$1,480 million** (net of reinsurance) are included in financial statements, but their realization is subject to **significant uncertainty** due to litigation unpredictability, **adverse rulings** (e.g., **HEAT decision**), and collectability risks[381](index=381&type=chunk)[382](index=382&type=chunk)[384](index=384&type=chunk) - Failure to realize these **significant recoveries** could **materially adversely affect liquidity**, financial condition, and the value of Ambac's securities, potentially impairing AAC's ability to honor obligations or deliver value to AFG[386](index=386&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities require disclosure; Ambac purchased shares for employee tax withholdings and authorized a **$35 million** repurchase program - No unregistered sales of equity securities require disclosure[387](index=387&type=chunk) | Metric | First Quarter 2022 | | :----- | :----------------- | | Total Shares Purchased | 235,844 | | Average Price Paid Per Share | $14.36 | - Ambac's Board of Directors approved a **$20 million share repurchase program** in **March 2022**, and an additional **$15 million** in **May 2022**, bringing the **total unused authorized amount** to **$21.8 million**[390](index=390&type=chunk) [Item 3. Defaults Upon Senior Securities](index=74&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No matters require disclosure regarding defaults upon senior securities - No matters require disclosure regarding defaults upon senior securities[390](index=390&type=chunk) [Item 5. Other Information](index=74&type=section&id=Item%205.%20Other%20Information) No matters require disclosure under this item - No matters require disclosure under this item[390](index=390&type=chunk) [Item 6. Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the **Form 10-Q**, including stock unit agreements and CEO/CFO certifications - Exhibits include forms of **2022 Restricted Stock Unit Award Agreements** and **Performance Stock Unit Award Agreements**[392](index=392&type=chunk) - Certifications from the **Chief Executive Officer** and **Chief Financial Officer** are filed pursuant to **Exchange Act rules** and **Section 906** of the **Sarbanes-Oxley Act of 2002**[392](index=392&type=chunk) - **XBRL Instance Document**, **Taxonomy Extension Schema**, **Calculation Linkbase**, **Label Linkbase**, **Presentation Linkbase**, and **Definition Linkbase Documents** are included[392](index=392&type=chunk) [SIGNATURES](index=75&type=section&id=SIGNATURES) - The report is signed by **David Trick**, **Chief Financial Officer** and **Treasurer**, on **May 10, 2022**[393](index=393&type=chunk)[394](index=394&type=chunk)
Ambac(AMBC) - 2021 Q4 - Earnings Call Transcript
2022-02-25 19:15
Ambac Financial Group, Inc. (NYSE:AMBC) Q4 2021 Earnings Conference Call February 25, 2022 8:30 AM ET Company Participants Lisa Kampf - Head-Investor Relations Claude LeBlanc - Chief Executive Officer David Trick - Chief Financial Officer Conference Call Participants Greg Nihon - Leodium Capital Charles Post - Sterling Grace 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 s ...
Ambac(AMBC) - 2021 Q4 - Annual Report
2022-02-23 16:00
[PART I](index=5&type=section&id=PART%20I) [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Ambac Financial Group operates in financial guarantee, specialty P&C, and MGA/U, focusing on maximizing shareholder value through legacy business run-off and new platform growth - Ambac's operations encompass **Financial Guarantee Insurance**, **Specialty Property & Casualty Program Insurance**, and **Managing General Agency/Underwriting**[14](index=14&type=chunk)[18](index=18&type=chunk)[542](index=542&type=chunk) - The primary goal is to **maximize shareholder value** through strategies for both its Specialty P&C Program Insurance Platform and Financial Guarantee Insurance companies[16](index=16&type=chunk)[546](index=546&type=chunk) - AFG reported **$269 million in net assets** (excluding subsidiaries) and **$3,744 million in net operating loss carry-forwards** as of December 31, 2021[14](index=14&type=chunk)[257](index=257&type=chunk) - **Ambac Assurance Corporation (AAC)** and **Ambac UK** are legacy financial guarantee insurance carriers in run-off since 2008, unable to write new business[16](index=16&type=chunk)[18](index=18&type=chunk)[542](index=542&type=chunk) - **Everspan**, the Specialty P&C platform, received an **AM Best Financial Strength rating of 'A-' (Excellent)** in February 2021 and launched its first insurance program in May 2021[18](index=18&type=chunk)[63](index=63&type=chunk)[261](index=261&type=chunk) - Ambac acquired **80% of Xchange Benefits, LLC and Xchange Affinity Underwriting Agency, LLC (MGA/U)** on December 31, 2020[18](index=18&type=chunk)[66](index=66&type=chunk)[542](index=542&type=chunk) - AAC's ability to pay dividends to AFG is **significantly restricted** by financial, regulatory, legal, and contractual limitations, making future payments highly unlikely[23](index=23&type=chunk)[94](index=94&type=chunk)[117](index=117&type=chunk) Consolidated Investments by Category (2021 vs 2020) | Investment Category | Carrying Value (2021, $ millions) | Weighted Average Yield (2021) | Carrying Value (2020, $ millions) | Weighted Average Yield (2020) | | :---------------------------------- | :-------------------- | :---------------------------- | :-------------------- | :---------------------------- | | Municipal obligations | 340 | 5.3 % | 358 | 4.8 % | | Corporate securities | 613 | 2.2 % | 1,077 | 3.9 % | | Foreign obligations | 87 | 0.5 % | 98 | 0.2 % | | U.S. government obligations | 60 | 1.0 % | 121 | 1.6 % | | Residential mortgage-backed securities | 252 | 7.3 % | 302 | 6.6 % | | Asset-backed securities | 393 | 5.0 % | 377 | 5.7 % | | **Total long-term fixed maturity investments** | **1,745** | **3.9 %** | **2,332** | **4.3 %** | | Short-term investments | 519 | — % | 617 | 0.1 % | | Other investments | 690 | — % | 595 | — % | | **Total** | **2,955** | **2.9 %** | **3,544** | **3.4 %** | [Item 1A. Risk Factors](index=15&type=section&id=1A%20Risk%20Factors) Ambac faces significant risks including stock volatility, uncertainty in legacy financial guarantee value, potential losses from insured portfolios, capital vulnerability, and execution risks in new P&C/MGA/U businesses - Investments in AFG's common stock are **highly speculative** and subject to significant price volatility due to uncertainties in its legacy financial guarantee business and new P&C/MGA/U ventures[111](index=111&type=chunk)[112](index=112&type=chunk) - AAC's ability to deliver value to AFG is **uncertain**, with a risk of rehabilitation proceedings if loss development increases or litigation recoveries are insufficient[113](index=113&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - Loss reserves for the financial guarantee business may be **inadequate**, especially for Puerto Rico exposures and RMBS, subject to material changes from future developments and litigation outcomes[118](index=118&type=chunk)[125](index=125&type=chunk)[134](index=134&type=chunk) - Estimated RMBS R&W subrogation recoveries of **$1,704 million** (net of reinsurance) are highly uncertain, and failure to realize them could materially impact financial condition and potentially lead to AAC's insolvency[149](index=149&type=chunk)[157](index=157&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - AAC is **highly leveraged** with **$1,508 million of senior indebtedness** outstanding at December 31, 2021, with debt service dependent on uncertain litigation recoveries and asset performance[165](index=165&type=chunk)[166](index=166&type=chunk) - The Specialty P&C and MGA/U businesses are new and relatively small, facing risks including execution, underwriting losses, reinsurance counterparty failures, and intense competition[111](index=111&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk)[200](index=200&type=chunk) - Uncertainties regarding LIBOR discontinuance could **adversely affect asset, derivative, and liability values**, potentially impacting Ambac's results and financial condition[182](index=182&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) [Item 1B. Unresolved Staff Comments](index=30&type=section&id=1B%20Unresolved%20Staff%20Comments) No unresolved staff comments require disclosure in this report - No matters require disclosure under Item 1B[238](index=238&type=chunk) [Item 2. Properties](index=30&type=section&id=2%20Properties) Ambac maintains executive offices in New York City, additional offices in London, Armonk, and Indianapolis, and a disaster recovery site, all under lease agreements - Ambac's executive office is located at One World Trade Center, New York, New York, under a sublease expiring in **January 2030**[238](index=238&type=chunk) - Ambac UK maintains an office in London, England, with a lease expiring in **October 2025**[239](index=239&type=chunk) - Xchange has office spaces in Armonk, NY (lease expires **July 2028**) and Indianapolis, IN (lease expires **March 2024**)[239](index=239&type=chunk) - A disaster recovery site is maintained in Kingston, NY, with a lease expiring in **March 2024**[240](index=240&type=chunk) [Item 3. Legal Proceedings](index=30&type=section&id=3%20Legal%20Proceedings) Legal proceedings against Ambac are detailed in Note 19, 'Commitments and Contingencies,' within the Consolidated Financial Statements - Details on legal proceedings against Ambac are provided in **Note 19. Commitments and Contingencies**[241](index=241&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=4%20Mine%20Safety%20Disclosures) This item is not applicable to Ambac Financial Group, Inc - Mine Safety Disclosures are not applicable to the Registrant[241](index=241&type=chunk) [PART II](index=30&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Ambac's common stock and warrants trade on the NYSE, with no cash dividends paid in 2021 or 2020, and limited equity purchases for employee tax withholdings - Ambac's common stock and warrants trade on the NYSE under symbols **'AMBC'** and **'AMBC WS'** respectively, since February 3, 2020[243](index=243&type=chunk) - As of February 22, 2022, there were **20 stockholders of record for common stock** and **60 for warrants**[244](index=244&type=chunk) - The Company did not pay cash dividends on its common stock during **2021 and 2020**, primarily due to restrictions on dividend payments from its insurance subsidiaries[245](index=245&type=chunk) Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | | :----- | :--------------------- | :--------------------------- | | October 2021 | 8,057 | $14.38 | | November 2021 | 1,342 | $16.49 | | December 2021 | — | — | | **Q4 2021 Total** | **9,399** | **$14.68** | - Warrants are exercisable for cash at **$16.67 per share** until **April 30, 2023**, with a remaining aggregate authorization of **$11.9 million** for a warrant repurchase program[249](index=249&type=chunk)[250](index=250&type=chunk) [Item 6. Selected Financial Data](index=32&type=section&id=6%20Selected%20Financial%20Data) This section is reserved and contains no selected financial data - This section is reserved and contains no selected financial data[254](index=254&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Ambac's financial condition, operations, cash flows, and liquidity, highlighting progress in specialty insurance, run-off management, and impacts of external factors - AFG progressed its specialty property and casualty program insurance business in 2021, with **Everspan receiving an 'A-' AM Best rating** and launching its first program, alongside acquiring four insurance shell companies[256](index=256&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk) - Ambac completed risk reduction transactions totaling **$2,695 million** in 2021, primarily through **quota share reinsurance ($1,695 million)**[265](index=265&type=chunk) - The COVID-19 pandemic caused economic disruptions but resulted in **no defaults of Ambac-insured obligations** as of December 31, 2021, with potential RMBS claim increases offset by excess spread benefits[272](index=272&type=chunk)[274](index=274&type=chunk) - The **Eighth Amended Plan of Adjustment for Puerto Rico** was confirmed on January 18, 2022, and **PRIFA/CCDA Qualifying Modifications** were approved on January 20, 2022, resolving significant portions of AAC's Puerto Rico exposure[269](index=269&type=chunk)[128](index=128&type=chunk)[1043](index=1043&type=chunk) Consolidated Financial Results (2021 vs 2020 vs 2019) | ($ in millions) | 2021 ($ millions) | 2020 ($ millions) | 2019 ($ millions) | | :------------------------------------------ | :--- | :--- | :--- | | **Revenues:** | | | | | Net premiums earned | $47 | $54 | $66 | | Net investment income | 139 | 122 | 227 | | Net investment gains (losses), including impairments | 7 | 22 | 81 | | Net gains (losses) on derivative contracts | 22 | (50) | (50) | | Net realized gains (losses) on extinguishment of debt | 33 | — | — | | Other income (expense) | 27 | 3 | 134 | | Income (loss) on variable interest entities | 7 | 5 | 38 | | **Expenses:** | | | | | Losses and loss expenses (benefit) | (88) | 225 | 13 | | Intangible amortization | 55 | 57 | 295 | | Operating expenses | 126 | 92 | 103 | | Interest expense | 187 | 222 | 269 | | Provision (benefit) for income taxes | 18 | (3) | 32 | | **Net income (loss) attributable to common stockholders** | **$(17)** | **$(437)** | **$(216)** | - Ambac's total assets decreased by **$917 million to $12,303 million**, and total liabilities decreased by **$886 million to $11,187 million** at December 31, 2021, primarily due to debt refinancing, loss payments, and lower subrogation recoverables[422](index=422&type=chunk)[424](index=424&type=chunk) Adjusted Earnings (Loss) (2021 vs 2020 vs 2019) | ($ in millions) | 2021 ($ millions) | 2020 ($ millions) | 2019 ($ millions) | | :------------------------------------------ | :--- | :--- | :--- | | Net income (loss) attributable to common stockholders | $(17) | $(437) | $(216) | | Adjustments: | | | | | Non-credit impairment fair value (gain) loss on credit derivatives | — | — | (1) | | Insurance intangible amortization | 52 | 57 | 295 | | Foreign exchange (gains) losses | 7 | 3 | (12) | | **Adjusted Earnings (Loss)** | **$43** | **$(378)** | **$66** | Adjusted Book Value (2021 vs 2020) | ($ in millions) | 2021 ($ millions) | 2020 ($ millions) | | :------------------------------------------ | :--- | :--- | | Total Ambac Financial Group, Inc. stockholders' equity | $1,038 | $1,080 | | Adjustments: | | | | Non-credit impairment fair value losses on credit derivatives | — | — | | Insurance intangible asset | (320) | (373) | | Net unearned premiums and fees in excess of expected losses | 310 | 378 | | Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income (Loss) | (154) | (166) | | **Adjusted Book Value** | **$874** | **$919** | [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=61&type=section&id=7A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Ambac's market risk primarily arises from interest rate, foreign currency, and equity value changes, managed through monitoring systems and sensitivity analyses - Ambac's primary market risk exposures stem from changes in **interest rates**, **foreign currency exchange rates**, and **equity values** of limited partnership and other alternative investments[502](index=502&type=chunk) Estimated Change in Fair Value of Fixed Maturity Investment Portfolio (100 bps interest rate increase) | December 31, | 2021 ($ millions) | 2020 ($ millions) | | :------------- | :--- | :--- | | Fair value of fixed maturity investment | $1,656 | $2,329 | | Decrease in dollars (100 bps increase) | $(50) | $(69) | | As a percent of fair value | 3 % | 3 % | Estimated Change in Fair Value of Long-Term Debt and Derivatives (100 bps interest rate decrease) | December 31, | 2021 ($ millions) | 2020 ($ millions) | | :------------- | :--- | :--- | | Fair value of long-term debt (including accrued interest) | $(2,598) | $(3,071) | | Increase in dollars (100 bps decrease) | $(55) | $(58) | | As a percent of fair value | 2 % | 2 % | | Fair value of interest rate derivative net assets (liabilities) | $(19) | $(21) | | Pre-tax loss from change in fair value in dollars (100 bps decrease) | $(51) | $(8) | Estimated Decrease in Fair Value of Foreign Currency Investments (20% USD strengthening) | December 31, | 2021 ($ millions) | 2020 ($ millions) | | :------------- | :--- | :--- | | Fair value of investments denominated in currencies other than the U.S. dollar | $478 | $453 | | Pre-tax impact of 20% strengthening of the U.S. dollar | $(96) | $(91) | Estimated Decrease in Fair Value of Pooled Fund Investments (10% NAV decline) | December 31, | 2021 ($ millions) | 2020 ($ millions) | | :------------- | :--- | :--- | | Fair value of investments in pooled funds | $683 | $544 | | Pre-tax impact of 10% decline in NAV of the funds | $(68) | $(54) | [Item 8. Financial Statements and Supplementary Data](index=64&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Ambac's audited consolidated financial statements for 2019-2021, including balance sheets, income statements, equity, and cash flows, with an unqualified audit opinion from KPMG LLP - KPMG LLP issued an **unqualified opinion** on Ambac's consolidated financial statements for the three-year period ended December 31, 2021[523](index=523&type=chunk) - KPMG LLP also expressed an **unqualified opinion** on the effectiveness of the Company's internal control over financial reporting as of December 31, 2021[515](index=515&type=chunk)[524](index=524&type=chunk) - The evaluation of loss and loss expense reserves and subrogation recoverable was identified as a **critical audit matter** due to high estimation uncertainty and subjective judgments[528](index=528&type=chunk)[529](index=529&type=chunk) Consolidated Balance Sheet Highlights (2021 vs 2020) | ($ in millions) | Dec 31, 2021 ($ millions) | Dec 31, 2020 ($ millions) | | :------------------------------------------ | :----------- | :----------- | | **Assets:** | | | | Total investments | $2,955 | $3,544 | | Subrogation recoverable | 2,092 | 2,156 | | Total assets | $12,303 | $13,220 | | **Liabilities & Equity:** | | | | Loss and loss expense reserves | $1,570 | $1,759 | | Long-term debt | 2,230 | 2,739 | | Total liabilities | $11,187 | $12,074 | | Total Ambac Financial Group, Inc. stockholders' equity | 1,038 | 1,080 | | Total stockholders' equity | $1,098 | $1,140 | Consolidated Statements of Total Comprehensive Income (Loss) Highlights (2021 vs 2020 vs 2019) | ($ in millions) | 2021 ($ millions) | 2020 ($ millions) | 2019 ($ millions) | | :------------------------------------------ | :--- | :--- | :--- | | Total revenues | $282 | $156 | $496 | | Total expenses | 281 | 596 | 680 | | Net income (loss) attributable to common stockholders | $(17) | $(437) | $(216) | | Total comprehensive income (loss) attributable to common stockholders | $(38) | $(400) | $(125) | Consolidated Statements of Cash Flows Highlights (2021 vs 2020 vs 2019) | ($ in millions) | 2021 ($ millions) | 2020 ($ millions) | 2019 ($ millions) | | :------------------------------------------ | :--- | :--- | :--- | | Net cash used in operating activities | $(131) | $(175) | $(311) | | Net cash provided by investing activities | 776 | 432 | 1,000 | | Net cash used in financing activities | $(657) | $(303) | $(691) | | Net cash flow | $(12) | $(46) | $(2) | [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=142&type=section&id=9%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting and financial disclosure matters have occurred - There are no changes in or disagreements with accountants on accounting and financial disclosure[1086](index=1086&type=chunk) [Item 9A. Controls and Procedures](index=142&type=section&id=9A%20Controls%20and%20Procedures) Ambac's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes in Q4 2021 - Ambac's disclosure controls and procedures were **effective** at the reasonable assurance level as of December 31, 2021[1087](index=1087&type=chunk) - Management concluded that internal control over financial reporting was **effective** as of December 31, 2021, based on the COSO 2013 framework[1091](index=1091&type=chunk) - No material changes in internal control over financial reporting occurred during Q4 2021, despite employees working remotely due to the COVID-19 pandemic[1092](index=1092&type=chunk) [Item 9B. Other Information](index=142&type=section&id=9B%20Other%20Information) The Board approved fixing quarterly RSU grant dates for non-employee directors to the first business day of each calendar quarter, starting April 1, 2022 - The Board of Directors approved fixing quarterly RSU grant dates for non-employee directors to the first business day of each calendar quarter, starting **April 1, 2022**[1093](index=1093&type=chunk) [PART III](index=142&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=142&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on Ambac's directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the **2022 Proxy Statement**[1095](index=1095&type=chunk) - Ambac's **Code of Business Conduct**, promoting integrity and ethical behavior, is available on its website[1096](index=1096&type=chunk) [Item 11. Executive Compensation](index=143&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive officer and director compensation is incorporated by reference from the 2022 Proxy Statement - Information on executive officer and director compensation is incorporated by reference from the **2022 Proxy Statement**[1098](index=1098&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=143&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information for beneficial owners and management is incorporated by reference from the 2022 Proxy Statement - Information on security ownership is incorporated by reference from the **2022 Proxy Statement**[1100](index=1100&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | | :------------------------------------------ | :----------------------------------------------------------------------- | :------------------------------------------------------------------------ | :--------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 3,305,528 | $0.00 | 1,255,643 | | Equity compensation plans not approved by security holders | --- | --- | --- | | **Total** | **3,305,528** | **$0.00** | **1,255,643** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=144&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2022 Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the **2022 Proxy Statement**[1104](index=1104&type=chunk) [Item 14. Principal Accountant Fees and Services](index=144&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information concerning principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the **2022 Proxy Statement**[1105](index=1105&type=chunk) [PART IV](index=144&type=section&id=PART%20IV) [Item 15. Exhibits, Financial Statement Schedules](index=144&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the annual report, including consolidated financial statements, financial schedules, and a comprehensive list of exhibits - The consolidated financial statements included in **Part II, Item 8** are filed as part of this Annual Report on Form 10-K[1107](index=1107&type=chunk) - Financial statement schedules filed include **Schedule I (Summary of Investments)**, **Schedule II (Condensed Financial Information of Registrant)**, and **Schedule IV (Reinsurance)**[1108](index=1108&type=chunk) Summary of Investments Other Than Investments in Related Parties (Dec 31, 2021) | Type of Investment | Cost ($ millions) | Estimated Fair Value ($ millions) | Amount at Which Shown in the Balance Sheet ($ millions) | | :--------------------------------- | :--- | :------------------- | :--------------------------------------- | | Municipal obligations | $315 | $340 | $340 | | Corporate obligations | 612 | 613 | 613 | | Foreign obligations | 89 | 87 | 87 | | U.S. government obligations | 60 | 60 | 60 | | Residential mortgage-backed securities | 182 | 252 | 252 | | Collateralized debt obligations | 128 | 128 | 128 | | Other asset-backed securities | 234 | 265 | 265 | | Short-term | 520 | 519 | 519 | | Other | 594 | 683 | 690 | | **Total** | **$2,734** | **$2,947** | **$2,955** | Condensed Balance Sheets (Parent Company Only) (2021 vs 2020) | ($ in millions) | Dec 31, 2021 ($ millions) | Dec 31, 2020 ($ millions) | | :------------------------------------------ | :----------- | :----------- | | **Assets:** | | | | Total investments | $254 | $349 | | Investment in subsidiaries | 769 | 714 | | Total assets | $1,041 | $1,082 | | **Liabilities & Equity:** | | | | Total liabilities | $3 | $3 | | Total Ambac Financial Group, Inc. stockholders' equity | 1,038 | 1,080 | | Total liabilities and stockholders' equity | $1,041 | $1,082 | Reinsurance Premiums Written (2021 vs 2020 vs 2019) | ($ in millions) | Gross Amount ($ millions) | Ceded to Other Companies ($ millions) | Assumed from Other Companies ($ millions) | Net Amount ($ millions) | Percentage of Amount Assumed to Net | | :---------------------- | :----------- | :----------------------- | :--------------------------- | :--------- | :---------------------------------- | | Year Ended December 31, 2021 | $2 | $35 | — | $(33) | —% | | Year Ended December 31, 2020 | $(1) | $(1) | — | — | —% | | Year Ended December 31, 2019 | $(28) | 31 | — | $(60) | —% | [SIGNATURES](index=155&type=section&id=SIGNATURES)
Ambac(AMBC) - 2021 Q3 - Earnings Call Transcript
2021-11-09 16:00
Ambac Financial Group, Inc. (NYSE:AMBC) Q3 2021 Results Earnings Conference Call November 9, 2021 8:30 AM ET Company Participants Lisa Kampf - Head-Investor Relations Claude LeBlanc - Chief Executive Officer David Trick - Chief Financial Officer Conference Call Participants Operator Greetings, and welcome to Ambac Financial Group, Incorporated Third 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. [ ...
Ambac(AMBC) - 2021 Q3 - Quarterly Report
2021-11-07 16:00
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-10777 AMBAC FINANCIAL GROUP, INC. (Exact name of Registrant as specified in its charter) Delaware 13-3621676 (State of incorporation) (I.R.S. employer identification no.) On ...
Ambac(AMBC) - 2021 Q2 - Earnings Call Transcript
2021-08-06 17:40
Ambac Financial Group, Inc. (NYSE:AMBC) Q2 2021 Earnings Conference Call August 6, 2021 8:30 AM ET Company Participants Lisa Kampf – Head-Investor Relations Claude LeBlanc – Chief Executive Officer David Trick – Chief Financial Officer Conference Call Participants Giuliano Bologna – Compass Point Operator Greetings, and welcome to Ambac Financial Group, Incorporated Second Quarter 2021 Earnings Call. At this time, all participant lines are in a listen-only mode. A brief question-and-answer session will foll ...