Ambac(AMBC) - 2023 Q4 - Annual Results

Executive Summary & Highlights Ambac reported a Q4 2023 net loss but positive adjusted net income, driven by strong premium growth in Specialty P&C and Insurance Distribution, with increased book value Fourth Quarter 2023 Highlights Ambac reported a net loss of $(16) million for Q4 2023, but an Adjusted net income of $10 million. The Specialty P&C Insurance segment (Everspan) and Insurance Distribution segment (Cirrata) showed significant premium growth, while the Legacy Financial Guarantee segment recorded a net loss. Book value per share increased by 8% from the previous quarter - Ambac reported a net loss of $(16) million or $(0.24) per diluted share in the fourth quarter of 2023, alongside an Adjusted net income of $10 million or $0.32 per diluted share[1] - Specialty P&C Insurance ('Everspan') generated its second consecutive quarterly pre-tax profit and wrote gross premium of $91 million, a 76% increase from Q4 2022[1] - Insurance Distribution ('Cirrata') placed premiums of $50 million, up 31% from Q4 2022[1] Book Value Metrics | Metric | Q4 2023 | Change from Sep 30, 2023 | | :------------------------- | :---------- | :----------------------- | | Book Value per share | $30.13 | Up 8% | | Adjusted Book Value per share | $28.74 | Up 3% | CEO Commentary CEO Claude LeBlanc highlighted the strong performance of the specialty P&C platform, exceeding targets with a 79% increase in premium production for 2023 and Everspan achieving profitability. He also noted progress in the Legacy Financial Guarantee Business, including finalizing the capital model and revised stipulation for AAC, with a strategic review underway - For 2023, the specialty P&C platform exceeded targets, generating over half a billion dollars of premium production, a 79% increase over 2022[1] - Everspan achieved its second consecutive quarterly profit and generated positive net income in 2023, supported by improved underwriting results and a combined ratio of 106.5% for the year, a 50 percentage point improvement over the prior year[1] - Regarding the Legacy Financial Guarantee Business, the capital model and revised stipulation and order for AAC were finalized with AAC's regulator, and a strategic review launched last quarter is proceeding as planned[1] Consolidated Financial Performance Overview Consolidated financial performance for Q4 and full year 2023 shows a decline in net income compared to prior year, alongside growth in premiums and investment income Fourth Quarter 2023 Summary Results Ambac's consolidated results for Q4 2023 show a significant decrease in pretax income and net income compared to Q4 2022, primarily due to the absence of large litigation settlements seen in the prior year. However, gross written premium and net premiums earned saw substantial growth Ambac's Fourth Quarter 2023 Summary Results ($ in millions, except per share data) | Metric | 4Q2023 | 4Q2022 | Percent Change | | :---------------------------------------------- | :------ | :------ | :------------- | | Gross written premium | $93.1 | $43.7 | 113% | | Net premiums earned | 30.5 | 17.0 | 79% | | Commission income | 12.2 | 8.8 | 38% | | Program fees | 2.5 | 1.4 | 77% | | Net investment income | 40.5 | 22.6 | 79% | | Pretax income (loss) | (15.3) | 172.9 | (109)% | | Net income (loss) attributable to common stockholders | (15.7) | 175.2 | (109)% | | Net income (loss) attributable to common stockholders per diluted share | $(0.24) | $3.86 | (106)% | | EBITDA | 9.3 | 217.1 | (96)% | | Adjusted net income (loss) | 10.2 | 182.7 | (94)% | | Adjusted net income (loss) per diluted share | $0.32 | $4.03 | (92)% | | Weighted-average diluted shares outstanding (in millions) | 45.6 | 46.1 | 1% | Ambac's Fourth Quarter 2023 Balance Sheet Summary ($ in millions, except per share data) | Metric | December 31, 2023 | September 30, 2023 | B(W) Amount | Percent | | :---------------------------------------------- | :---------------- | :----------------- | :---------- | :------ | | Total Ambac Financial Group, Inc. stockholders' equity | $1,361.7 | $1,265.2 | $96.4 | 8% | | Total Ambac Financial Group, Inc. stockholders' equity per share | $30.13 | $28.00 | $2.13 | 8% | | Adjusted book value | $1,298.9 | $1,260.5 | $38.3 | 3% | | Adjusted book value per share | $28.74 | $27.90 | $0.84 | 3% | Full Year 2023 Summary Results For the full year 2023, Ambac experienced a substantial decline in pretax and net income compared to 2022, largely due to the absence of significant litigation recoveries and gains on derivative contracts present in the prior year. However, gross written premium and net investment income showed strong growth Ambac's 2023 Full Year Summary Results ($ in millions, except per share data) | Metric | 2023 | 2022 | Better (Worse) Amount | Percent | | :---------------------------------------------- | :------ | :------ | :-------------------- | :------ | | Gross written premium | $288.1 | $126.9 | $161.2 | 127% | | Net premiums earned | 78.0 | 56.3 | 21.7 | 39% | | Net investment income | 140.1 | 16.8 | 123.3 | 733% | | Net investment gains (losses), including impairments | (22.5) | 31.5 | (54.0) | (171)% | | Net gains (losses) on derivative contracts | (1.0) | 128.6 | (129.5) | (101)% | | Commission income | 51.3 | 30.7 | 20.6 | 67% | | Other income | 11.2 | 9.8 | 1.4 | 14% | | Net realized gains on extinguishment of debt | — | 81.3 | (81.3) | (100)% | | Litigation recoveries | — | 125.9 | (125.9) | (100)% | | Losses and loss adjustment expenses | (32.6) | (396.5) | (363.9) | (92)% | | General and administrative expenses | 156.3 | 141.2 | (15.2) | (11)% | | Commission expense | 29.5 | 17.6 | (11.8) | (67)% | | Interest expense | 64.0 | 168.2 | 104.1 | 62% | | Intangible amortization | 28.9 | 46.8 | 18.0 | 38% | | Pretax income (loss) | 12.4 | 524.6 | (512.2) | (98)% | | Provision (benefit) for income taxes | 7.4 | 2.5 | (5.0) | (202)% | | Net income (loss) attributable to common stockholders | 3.6 | 522.4 | (518.7) | (99)% | | Net income (loss) per diluted share | 0.18 | 11.31 | (11.13) | (98)% | | EBITDA | 107.0 | 741.5 | (634.6) | (86)% | | Adjusted net income (loss) | 93.4 | 495.0 | (401.6) | (81)% | | Adjusted net income (loss) per diluted share | 2.11 | 10.72 | (8.61) | (80)% | | Weighted-average diluted shares outstanding (in millions) | 46.5 | 46.4 | — | —% | Segment Performance Analysis Analysis of segment performance reveals strong growth in Specialty P&C and Insurance Distribution, while the Legacy Financial Guarantee segment experienced a pre-tax loss Specialty Property & Casualty Insurance Segment (Everspan) Everspan achieved positive pre-tax income for both Q4 and the full year 2023, driven by substantial growth in gross and net premiums written and earned. The segment significantly improved its combined ratio, reflecting enhanced underwriting results and scale Specialty Property & Casualty Insurance Segment Results ($ in millions) | Metric | Q4 2023 | Q4 2022 | % Change | FY 2023 | FY 2022 | % Change | | :------------------------- | :-------- | :-------- | :------- | :-------- | :-------- | :------- | | Gross premiums written | $90.7 | $51.7 | 76% | $273.3 | $146.4 | 87% | | Net premiums written | $36.7 | $10.0 | 269% | $79.8 | $28.6 | 180% | | Net premiums earned | $24.9 | $5.7 | 341% | $51.9 | $13.9 | 274% | | Program fees earned | $2.5 | $1.4 | 77% | $8.4 | $3.1 | 172% | | Losses and loss adjustment expenses | $16.8 | $3.7 | 356% | $36.7 | $9.1 | 83% | | Pretax income (loss) | $1.1 | $(0.9) | 228% | $0.4 | $(6.3) | 97% | | Combined Ratio | 100.3% | 124.3% | 2400 bps | 106.5% | 156.5% | 5000 bps | - Everspan generated positive pre-tax income in both the fourth quarter of 2023 and for the full year 2023[6] - Gross premium written (GPW) increased 76% in Q4 2023 compared to the prior year, driven by growth and diversification of program business partners[7] - Net premium written (NPW) grew 269% in Q4 2023, outpacing GPW due to an assumed reinsurance transaction[7] - The expense ratio for Q4 2023 was 32.9%, down from 59.2% in the prior year, benefiting from a sliding commission scale and normalization from scale[8] Insurance Distribution Segment (Cirrata) The Insurance Distribution segment saw strong growth in premiums placed and gross/net commissions for both Q4 and the full year 2023, primarily due to recent acquisitions and growth initiatives. However, Q4 EBITDA and EBITDA margin declined due to business mix changes and growth investments Insurance Distribution Segment Results ($ in millions) | Metric | Q4 2023 | Q4 2022 | % Change | FY 2023 | FY 2022 | % Change | | :------------------------- | :-------- | :-------- | :------- | :-------- | :-------- | :------- | | Premiums placed | $50.2 | $38.3 | 31% | $230.6 | $135.5 | 70% | | Gross commissions | $12.2 | $8.8 | 38% | $51.3 | $30.7 | 67% | | Net commissions | $4.8 | $3.8 | 26% | $21.8 | $13.1 | 67% | | General and administrative expenses | $3.2 | $1.9 | 65% | $10.6 | $6.3 | 69% | | Pretax income | $0.6 | $1.2 | (50)% | $7.3 | $4.5 | 61% | | EBITDA | $1.8 | $2.1 | (16)% | $11.5 | $7.5 | 54% | | Pretax income margin | 4.9% | 13.4% | -850 bps | 14.1% | 14.4% | -30 bps | | EBITDA margin | 14.3% | 23.2% | -890 bps | 22.3% | 23.8% | -150 bps | - Premiums placed grew by $11.8 million in Q4 2023 over Q4 2022, primarily driven by recent acquisitions and growth initiatives[9] - Gross commission income increased by $3.3 million in Q4 2023 compared to Q4 2022[10] - EBITDA for Q4 2023 was down 16% year-over-year, and the EBITDA Margin of 14.3% was negatively impacted by business mix changes and growth initiatives[10] Total Specialty P&C Insurance Production Combined Specialty P&C Insurance production, encompassing both underwriting and distribution segments, demonstrated robust growth for Q4 and the full year 2023, reflecting the overall expansion of Ambac's core P&C platform - Total Specialty P&C Insurance production reached $141 million in Q4 2023, a 57% increase from Q4 2022[11] Total Specialty P&C Insurance Production ($ in millions) | Metric | Q4 2023 | Q4 2022 | % Change | FY 2023 | FY 2022 | % Change | | :------------------------------------- | :-------- | :-------- | :------- | :-------- | :-------- | :------- | | Specialty Property & Casualty Insurance Gross Premiums Written | $90.7 | $51.7 | 76% | $273.2 | $146.4 | 87% | | Insurance Distribution Premiums Placed | 50.2 | 38.3 | 31% | 230.6 | 135.5 | 70% | | Specialty P&C Insurance Production | $140.9 | $90.0 | 57% | $503.8 | $281.9 | 79% | Legacy Financial Guarantee Insurance Segment The Legacy Financial Guarantee segment reported a pre-tax loss in Q4 2023, a significant shift from a profit in Q4 2022, primarily due to the absence of large litigation settlements from the prior year. Net premiums earned decreased due to de-risking, while net investment income increased. Watch List and Adversely Classified Credits (WLACC) decreased Legacy Financial Guarantee Insurance Segment Results ($ in millions) | Metric | Q4 2023 | Q4 2022 | % Change | FY 2023 | FY 2022 | % Change | | :-------------------------------------- | :-------- | :-------- | :------- | :-------- | :-------- | :------- | | Net premiums earned | $5.6 | $11.4 | (51)% | $26.0 | $42.4 | (39)% | | Net investment income | $36.9 | $20.8 | 77% | $127.0 | $12.3 | 930% | | Losses and loss adjustment expenses (benefit) | $1.9 | $(58.7) | 103% | $(69.3) | $(405.5) | 83% | | General and administrative expenses | $19.2 | $38.7 | (50)% | $106.3 | $102.4 | 4% | | Pretax income (loss) | $(12.2) | $178.0 | (107)% | $17.2 | $540.1 | (97)% | | EBITDA | $11.1 | $221.2 | (95)% | $107.3 | $754.0 | (86)% | - Net premiums earned decreased by 51% in Q4 2023, mainly due to proactive de-risking transactions, lower accelerations, and normal run-off of the insured portfolio[15] - Net investment income increased 77% in Q4 2023 due to higher yields and stronger alternative investment performance[15] - Q4 2023 losses and loss adjustment expenses were $1.9 million, compared to a $58.7 million benefit in Q4 2022, which was favorably impacted by a litigation settlement with Nomura[15] - Watch List and Adversely Classified Credits (WLACC) decreased 2.2% (3.3% excluding FX impact) to $5.7 billion in Q4 2023 from September 30, 2023[15] Consolidated Financial Details Detailed consolidated financial analysis highlights increases in net premiums earned and investment income, alongside changes in loss expenses and stockholders' equity Net Premiums Earned Consolidated net premiums earned significantly increased in Q4 2023, driven by strong growth in the Specialty P&C businesses, which more than compensated for reductions in the Legacy FG segment - Net premiums earned for Q4 2023 were $31 million, an increase of 79% compared to Q4 2022[16] - Significant growth in the Specialty P&C businesses more than offset the reduction in the Legacy FG business[16] Net Investment Income Consolidated net investment income saw a substantial increase in Q4 2023, primarily attributable to higher yields on fixed income investments and improved performance from alternative investments - Net investment income for Q4 2023 was $40 million, up from $23 million for Q4 2022[17] - The increase was driven by higher yields on the core fixed income portfolio and improved alternative investment returns[17] Losses and Loss Expenses (Benefit) Incurred losses shifted from a benefit in Q4 2022 to a loss in Q4 2023, reflecting the impact of litigation settlements in the prior year and current losses from the Specialty P&C business - Incurred Losses (Benefit) for Q4 2023 were $19 million, compared to a $(55) million benefit for Q4 2022[18] - Q4 2023 incurred losses were driven by the Specialty P&C business, while the Q4 2022 benefit was due to the Legacy Financial Guarantee business litigation settlement with Nomura[18] General and Administrative Expenses Consolidated general and administrative expenses decreased in Q4 2023, primarily due to lower defensive litigation costs in the Legacy Financial Guarantee business, partially offset by increased headcount in the growing P&C businesses - General and administrative expenses for Q4 2023 were $35 million, down from $51 million in Q4 2022[19] - The decrease was mostly attributable to higher defensive litigation related expenses at the Legacy Financial Guarantee business in the prior year quarter, somewhat offset by increased headcount associated with growth in the P&C businesses[19] AFG (Holding Company Only) Assets Ambac Financial Group (AFG) on a standalone basis, excluding its subsidiaries, reported net assets of $211 million at the end of 2023, with a significant portion held in cash and liquid securities - AFG, on a standalone basis, had net assets of $211 million as of December 31, 2023[20] - Assets included cash and liquid securities of $156 million and other investments of $32 million[20] Consolidated Ambac Financial Group, Inc. Stockholders' Equity Consolidated stockholders' equity increased from Q3 to Q4 2023, primarily driven by net unrealized investment gains and foreign exchange translation gains, despite a net loss attributable to common shareholders - Stockholders' equity at December 31, 2023, was $1.36 billion, or $30.13 per share, up from $1.27 billion or $28.00 per share as of September 30, 2023[21] - The increase was primarily due to net unrealized investment gains of $69 million and foreign exchange translation gains of $32 million, somewhat offset by the net loss attributable to common shareholders of $16 million[21][22] Non-GAAP Financial Measures Non-GAAP financial measures, including Adjusted Net Income, EBITDA, and Adjusted Book Value, provide additional insights into the company's underlying financial performance Adjusted Net Income (Loss) Ambac presents Adjusted Net Income (Loss) as a non-GAAP measure to provide greater transparency into core operating performance by excluding certain non-recurring or non-operating items. For Q4 2023, Adjusted Net Income was $10.2 million, significantly lower than Q4 2022, primarily due to the absence of large litigation settlements - Adjusted Net Income (Loss) is defined as net income (loss) attributable to common stockholders adjusted for items such as net investment gains/losses, intangible amortization, litigation costs, foreign exchange gains/losses, workforce change costs, and net gain/loss on extinguishment of debt, along with their tax and noncontrolling interest effects[25] - Adjusted Net Income was $10.2 million, or $0.32 per diluted share, for Q4 2023, compared to $182.7 million, or $4.03 per diluted share, for Q4 2022[25] Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) (Q4 2023 vs Q4 2022, $ in millions, except per share data) | Metric | Q4 2023 $ Amount | Q4 2023 Per Share | Q4 2022 $ Amount | Q4 2022 Per Share | | :---------------------------------------------- | :--------------- | :---------------- | :--------------- | :---------------- | | Net income (loss) attributable to common shareholders | $(15.7) | $(0.24) | $175.2 | $3.86 | | Adjustments: | | | | | | Net investment (gains) losses, including impairments | 15.5 | 0.34 | (0.3) | (0.01) | | Intangible amortization | 8.3 | 0.18 | 13.2 | 0.29 | | Litigation costs | 3.5 | 0.07 | 22.5 | 0.49 | | Foreign exchange (gains) losses | (0.9) | (0.02) | (3.4) | (0.07) | | Workforce change costs | 0.2 | — | 0.5 | 0.01 | | Net (gain) loss on extinguishment of debt | — | — | (24.3) | (0.53) | | Pretax adjusted net income (loss) | 10.8 | 0.33 | 183.5 | 4.04 | | Income tax effects | (0.4) | (0.01) | (0.7) | (0.01) | | Net (gains) attributable to noncontrolling interests | (0.2) | — | (0.2) | — | | Adjusted Net Income (Loss) | $10.2 | $0.32 | $182.7 | $4.03 | | Weighted-average diluted shares outstanding (in millions) | | 46.5 | | 46.1 | Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) (FY 2023 vs FY 2022, $ in millions, except per share data) | Metric | FY 2023 $ Amount | FY 2023 Per Share | FY 2022 $ Amount | FY 2022 Per Share | | :---------------------------------------------- | :--------------- | :---------------- | :--------------- | :---------------- | | Net income (loss) attributable to common shareholders | $3.6 | $0.18 | $522.4 | $11.31 | | Adjustments: | | | | | | Net investment (gains) losses, including impairments | 22.5 | 0.49 | (31.5) | (0.68) | | Intangible amortization | 28.9 | 0.62 | 46.8 | 1.01 | | Litigation costs | 40.6 | 0.87 | 33.1 | 0.71 | | Foreign exchange (gains) losses | (0.8) | (0.02) | 2.7 | 0.06 | | Workforce change costs | 1.1 | 0.02 | 1.3 | 0.03 | | Net (gain) loss on extinguishment of debt | — | — | (81.3) | (1.75) | | Pretax adjusted net income (loss) | 95.8 | 2.16 | 493.6 | 10.69 | | Income tax effects | (1.6) | (0.03) | 2.0 | 0.04 | | Net (gains) attributable to noncontrolling interests | (0.8) | (0.02) | (0.6) | (0.01) | | Adjusted Net Income (Loss) | $93.4 | $2.11 | $495.0 | $10.72 | | Weighted average diluted shares outstanding | | 46.5 | | 46.4 | EBITDA EBITDA, a non-GAAP measure, is presented to show operating performance before interest, taxes, depreciation, and amortization. Consolidated EBITDA significantly decreased in Q4 and full year 2023 compared to 2022, primarily reflecting the reduced profitability of the Legacy Financial Guarantee segment - EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation, and amortization of intangible assets[29] EBITDA Reconciliation by Segment (Q4 2023 vs Q4 2022, $ in millions) | Metric | Legacy Financial Guarantee Insurance | Specialty Property & Insurance Casualty | Insurance Distribution | Corporate & Other | Consolidated | | :------------------------- | :----------------------------------- | :-------------------------------------- | :--------------------- | :---------------- | :----------- | | Three Months Ended December 31, 2023 | | | | | | | Net income (loss) | $(12.2) | $1.1 | $0.6 | $(5.0) | $(15.6) | | Adjustments: | | | | | | | Interest expense | 15.9 | — | — | — | 15.9 | | Income taxes | — | — | — | 0.2 | 0.3 | | Depreciation | 0.3 | — | — | 0.2 | 0.5 | | Amortization of intangible assets | 7.1 | — | 1.1 | — | 8.3 | | EBITDA | $11.1 | $1.1 | $1.8 | $(4.7) | $9.3 | | Three Months Ended December 31, 2022 | | | | | | | Net income (loss) | $178.9 | $(0.8) | $1.2 | $(5.0) | $174.3 | | Adjustments: | | | | | | | Interest expense | 30.4 | — | — | — | 30.4 | | Income taxes | (0.9) | (0.1) | — | (0.4) | (1.3) | | Depreciation | 0.4 | — | — | — | 0.5 | | Amortization of intangible assets | 12.4 | — | 0.9 | — | 13.2 | | EBITDA | $221.2 | $(0.9) | $2.1 | $(5.4) | $217.1 | EBITDA Reconciliation by Segment (FY 2023 vs FY 2022, $ in millions) | Metric | Legacy Financial Guarantee Insurance | Specialty Property & Insurance Casualty | Insurance Distribution | Corporate & Other | Consolidated | | :------------------------- | :----------------------------------- | :-------------------------------------- | :--------------------- | :---------------- | :----------- | | Year Ended December 31, 2023 | | | | | | | Net income (loss) | $8.8 | $0.3 | $7.1 | $(11.3) | $5.0 | | Adjustments: | | | | | | | Interest expense | 64.0 | — | — | — | 64.0 | | Income taxes | 8.4 | — | 0.2 | (1.2) | 7.4 | | Depreciation | 1.3 | — | — | 0.3 | 1.7 | | Amortization of intangible assets | 24.7 | — | 4.2 | — | 28.9 | | EBITDA | $107.3 | $0.4 | $11.5 | $(12.2) | $107.0 | | Year Ended December 31, 2022 | | | | | | | Net income (loss) | $537.2 | $(6.3) | $4.5 | $(13.2) | $522.1 | | Adjustments: | | | | | | | Interest expense | 168.2 | — | — | — | 168.2 | | Income taxes | 2.9 | — | — | (0.5) | 2.5 | | Depreciation | 1.8 | — | — | 0.1 | 2.0 | | Amortization of intangible assets | 43.9 | — | 2.9 | — | 46.8 | | EBITDA | $754.0 | $(6.3) | $7.5 | $(13.6) | $741.5 | Adjusted Book Value Adjusted book value is a non-GAAP measure that modifies GAAP stockholders' equity by eliminating the financial guarantee insurance intangible asset, adding net unearned premiums in excess of expected losses, and removing net unrealized investment gains/losses from AOCI. This measure increased to $1.30 billion at year-end 2023, primarily due to foreign exchange translation gains - Adjusted book value is defined as Total Ambac Financial Group, Inc. stockholders' equity as reported under GAAP, adjusted for the after-tax impact of: (i) elimination of the financial guarantee insurance intangible asset; (ii) addition of the value of unearned premium revenue on financial guarantee contracts in excess of expected losses, net of reinsurance; and (iii) elimination of net unrealized investment gains/losses in Accumulated Other Comprehensive Income (AOCI)[33][34][35] - Adjusted book value was $1.30 billion, or $28.74 per share, at December 31, 2023, compared to $1.26 billion, or $27.90 per share, at September 30, 2023[35] - The increase in adjusted book value is primarily a result of F(x) translation gains[35] Reconciliation of Total AFG Stockholders' Equity to Adjusted Book Value ($ in millions, except per share data) | Metric | Dec 31, 2023 $ Amount | Dec 31, 2023 Per Share | Sep 30, 2023 $ Amount | Sep 30, 2023 Per Share | | :---------------------------------------------- | :-------------------- | :--------------------- | :-------------------- | :--------------------- | | Total AFG Stockholders' Equity | $1,361.7 | $30.13 | $1,265.2 | $28.00 | | Adjustments: | | | | | | Insurance intangible asset | (245.1) | (5.43) | (249.1) | (5.51) | | Net unearned premiums and fees in excess of expected losses | 162.1 | 3.59 | 154.5 | 3.42 | | Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income | 20.2 | 0.45 | 89.9 | 1.99 | | Adjusted book value | $1,298.9 | $28.74 | $1,260.5 | $27.90 | | Shares outstanding (in millions) | | 45.2 | | 45.2 | Company Information & Disclosures This section provides essential company information, including earnings call details, a company overview, and important disclosures regarding forward-looking statements Earnings Call and Webcast Ambac announced details for its Q4 2023 earnings conference call and webcast, providing access information for investors and the public - Ambac's President and CEO, Claude LeBlanc, and EVP and CFO, David Trick, will discuss Q4 2023 results on a conference call on February 28, 2024, at 8:30am ET[38] - A live audio webcast will be available through the Investor Relations section of Ambac's website, with a replay archived until March 13, 2024[38] About Ambac Ambac Financial Group, Inc. is a financial services holding company focused on its growing specialty P&C platform, while also managing a legacy financial guaranty business in run-off. The company's common stock trades on the NYSE, and it maintains strict transfer restrictions on its common stock - Ambac Financial Group, Inc. (Ambac or AFG) is a financial services holding company headquartered in New York City[39] - Ambac's core business is a growing specialty P&C distribution and underwriting platform, alongside a legacy financial guaranty business in run-off[39] - Ambac's common stock trades on the New York Stock Exchange under the symbol 'AMBC'[39] - The Amended and Restated Certificate of Incorporation contains substantial restrictions on the ability to transfer Ambac's common stock, prohibiting transfers that would result in any person or group holding 5% or more of Ambac's common stock or increasing an existing 5% ownership[40] Forward-Looking Statements This section serves as a cautionary notice regarding forward-looking statements within the report, emphasizing that actual results may differ materially due to various risks and uncertainties detailed in the company's SEC filings - Statements in this press release may constitute 'forward-looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995[42] - Readers are cautioned that these statements are not guarantees of future performance, and actual results may differ materially from expected objectives or anticipated results[42][43] - Important factors that could cause actual results to differ include, but are not limited to, volatility in AFG's common stock price, inadequacy of loss reserves, potential for regulatory intervention, credit risk, inability to reduce insured exposures, greater than expected underwriting losses, loss of key relationships, catastrophic events, litigation risks, and system security risks[43][44] Unaudited Consolidated Financial Statements Unaudited consolidated financial statements present detailed income statements, balance sheets, and segment-level results for comprehensive financial review Consolidated Statements of Income (Loss) The consolidated statements of income (loss) provide a detailed breakdown of revenues and expenses for Q4 and the full year 2023 compared to 2022, showing a shift from net income to net loss attributable to common stockholders Consolidated Statements of Income (Loss) (Unaudited, $ in millions, except share data) | Metric | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------- | :---------------------- | | Revenues: | | | | | | Net premiums earned | 31 | 17 | 78 | 56 | | Commission income | 12 | 9 | 51 | 31 | | Program fees | 2 | 1 | 8 | 3 | | Net investment income | 40 | 23 | 140 | 17 | | Net investment gains (losses), including impairments | (16) | — | (22) | 31 | | Net gains (losses) on derivative contracts | (2) | 5 | (1) | 129 | | Net realized gains on extinguishment of debt | — | 24 | — | 81 | | Income (loss) on variable interest entities | 4 | 7 | 3 | 21 | | Other income | 4 | 7 | 11 | 10 | | Litigation recoveries | — | 126 | — | 126 | | Total revenues and other income | 76 | 219 | 269 | 505 | | Expenses: | | | | | | Losses and loss adjustment expenses | 19 | (55) | (33) | (396) | | Amortization of deferred acquisition costs, net | 6 | 1 | 11 | 3 | | Commission expense | 7 | 5 | 29 | 18 | | General and administrative expenses | 35 | 51 | 156 | 141 | | Intangible amortization | 8 | 13 | 29 | 47 | | Interest expense | 16 | 30 | 64 | 168 | | Total expenses | 91 | 46 | 257 | (20) | | Pretax income (loss) | (15) | 173 | 12 | 525 | | Provision (benefit) for income taxes | — | (1) | 7 | 2 | | Net income (loss) | (16) | 174 | 5 | 522 | | Less: net (gain) loss attributable to noncontrolling interest | — | — | (1) | (1) | | Plus: gain on purchase of auction market preferred shares | — | 1 | — | 1 | | Net income (loss) attributable to common stockholders | $(16) | $175 | $4 | $522 | | Net income (loss) per basic share | $(0.24) | $3.93 | $0.18 | $11.48 | | Net income (loss) per diluted share | $(0.24) | $3.86 | $0.18 | $11.31 | | Weighted-average number of common shares outstanding: Basic | 45,589,451 | 45,341,861 | 45,636,649 | 45,719,906 | | Diluted | 45,589,451 | 46,078,826 | 46,540,706 | 46,414,830 | Consolidated Balance Sheets The consolidated balance sheets show an increase in total assets and stockholders' equity from year-end 2022 to year-end 2023, with notable changes in investments, reinsurance recoverables, and long-term debt Consolidated Balance Sheets (Unaudited, $ in millions, except share data) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :---------------------------------------------- | :---------------------- | :---------------------- | | Assets: | | | | Fixed maturity securities, at fair value | $1,710 | $1,395 | | Fixed maturity securities - trading | 27 | 59 | | Short-term investments, at fair value | 426 | 507 | | Short-term investments pledged as collateral, at fair value | 27 | 64 | | Other investments | 475 | 568 | | Total investments | 2,664 | 2,593 | | Cash and cash equivalents | 28 | 44 | | Premium receivables | 290 | 269 | | Reinsurance recoverable on paid and unpaid losses | 195 | 115 | | Deferred ceded premium | 204 | 124 | | Deferred acquisition costs | 11 | 3 | | Subrogation recoverable | 137 | 271 | | Intangible assets, less accumulated amortization | 307 | 326 | | Goodwill | 70 | 61 | | Other assets | 129 | 112 | | Variable interest entity assets: | | | | Fixed maturity securities, at fair value | 2,167 | 1,967 | | Restricted cash | 246 | 17 | | Loans, at fair value | 1,663 | 1,829 | | Derivative and other assets | 318 | 241 | | Total assets | $8,428 | $7,973 | | Liabilities and Stockholders' Equity: | | | | Liabilities: | | | | Unearned premiums | $422 | $372 | | Loss and loss adjustment expense reserves | 893 | 805 | | Ceded premiums payable | 90 | 39 | | Deferred program fees and reinsurance commissions | 6 | 5 | | Long-term debt | 508 | 639 | | Accrued interest payable | 475 | 427 | | Other liabilities | 199 | 201 | | Variable interest entity liabilities: | | | | Long-term debt | 2,967 | 3,107 | | Derivative liabilities | 1,197 | 1,048 | | Other liabilities | 240 | 5 | | Total liabilities | 6,997 | 6,647 | | Redeemable noncontrolling interest | 17 | 20 | | Stockholders' equity: | | | | Additional paid-in capital | 292 | 274 | | Accumulated other comprehensive income (loss) | (160) | (253) | | Retained earnings | 1,246 | 1,245 | | Treasury stock | (17) | (15) | | Total Ambac Financial Group, Inc. stockholders' equity | 1,362 | 1,252 | | Nonredeemable noncontrolling interest | 53 | 53 | | Total stockholders' equity | 1,415 | 1,305 | | Total liabilities, redeemable noncontrolling interest and stockholders' equity | $8,428 | $7,973 | Segment Financial Results (Detailed Tables) This section provides comprehensive segment-level financial results, including gross premiums written, net premiums earned, various revenue and expense items, and EBITDA, for both the fourth quarter and full year periods, offering a granular view of each segment's contribution to the consolidated performance Segment Financial Results (Q4 2023 vs Q4 2022, $ in millions) | Metric | Legacy Financial Guarantee Insurance | Specialty Property & Insurance Casualty | Insurance Distribution | Corporate & Other | Consolidated | | :---------------------------------------------- | :----------------------------------- | :-------------------------------------- | :--------------------- | :---------------- | :----------- | | Three Months Ended December 31, 2023 | | | | | | | Gross premiums written | $2.3 | $90.7 | | | $93.1 | | Net premiums written | 7.3 | 36.7 | | | 44.1 | | Revenues: | | | | | | | Net premiums earned | 5.6 | 24.9 | | | 30.5 | | Commission income | | | $12.2 | | 12.2 | | Program fees | | 2.5 | | | 2.5 | | Net investment income | 36.9 | 1.2 | 0.1 | $2.3 | 40.5 | | Net investment gains (losses), including impairments | (15.5) | — | | — | (15.5) | | Net gains (losses) on derivative contracts | (2.3) | | | 0.1 | (2.2) | | Other income | 7.5 | — | 0.1 | — | 7.6 | | Total revenues and other income | 32.2 | 28.6 | 12.3 | 2.4 | 75.5 | | Expenses: | | | | | | | Losses and loss adjustment expenses | 1.9 | 16.8 | | | 18.7 | | Commission expense | | | 7.4 | | 7.4 | | Amortization of deferred acquisition costs, net | — | 5.9 | | | 5.8 | | General and administrative expenses | 19.2 | 4.8 | 3.2 | 7.0 | 34.3 | | Total expenses included for EBITDA | 21.1 | 27.5 | 10.6 | 7.0 | 66.2 | | EBITDA | 11.1 | $1.1 | $1.8 | $(4.7) | $9.3 | | Less: Interest expense | 15.9 | | | | 15.9 | | Less: Depreciation expense | 0.3 | — | — | 0.2 | 0.5 | | Less: Intangible amortization | 7.1 | | 1.1 | — | 8.3 | | Pretax income (loss) | (12.2) | $1.1 | $0.6 | $(4.9) | $(15.3) | | Income tax expense (benefit) | — | — | — | 0.2 | 0.3 | | Net income (loss) | $(12.2) | $1.1 | $0.6 | $(5.0) | $(15.6) | | Three Months Ended December 31, 2022 | | | | | | | Gross premiums written | $(8.0) | $51.7 | | | $43.7 | | Net premiums written | $(7.9) | 10.0 | | | 2.1 | | Revenues: | | | | | | | Net premiums earned | 11.4 | 5.7 | | | 17.0 | | Commission income | | | $8.8 | | 8.8 | | Program fees | | 1.4 | | | 1.4 | | Net investment income | 20.8 | 0.5 | | $1.2 | 22.6 | | Net investment gains (losses), including impairments | 0.3 | — | | — | 0.3 | | Net gains (losses) on derivative contracts | 5.0 | | | — | 5.0 | | Net realized gains on extinguishment of debt | 24.3 | | | | 24.3 | | Other income | 13.7 | — | 0.2 | — | 13.9 | | Litigation recoveries | 125.9 | | | | 125.9 | | Total revenues and other income | 201.3 | 7.5 | 9.1 | 1.2 | 219.1 | | Expenses: | | | | | | | Losses and loss adjustment expenses | (58.7) | 3.7 | | | (55.1) | | Amortization of deferred acquisition costs, net | — | 1.1 | | | 1.2 | | Commission expense | | | 5.1 | | 5.1 | | General and administrative expenses | 38.7 | 3.6 | 1.9 | 6.6 | 50.9 | | Total expenses included for EBITDA | (20.0) | 8.4 | 7.0 | 6.6 | 2.1 | | EBITDA | 221.2 | $(0.9) | $2.1 | $(5.4) | $217.1 | | Less: Interest expense | 30.4 | | | | 30.4 | | Less: Depreciation expense | 0.4 | — | — | — | 0.5 | | Less: Intangible amortization | 12.4 | | 0.9 | | 13.2 | | Pretax income (loss) | 178.0 | $(0.9) | $1.2 | $(5.4) | 172.9 | | Income tax expense (benefit) | (0.9) | (0.1) | — | (0.4) | (1.3) | | Net income (loss) | $178.9 | $(0.8) | $1.2 | $(5.0) | $174.3 | Segment Financial Results (FY 2023 vs FY 2022, $ in millions) | Metric | Legacy Financial Guarantee Insurance | Specialty Property & Insurance Casualty | Insurance Distribution | Corporate & Other | Consolidated | | :---------------------------------------------- | :----------------------------------- | :-------------------------------------- | :--------------------- | :---------------- | :----------- | | Year Ended December 31, 2023 | | | | | | | Gross premiums written | $14.8 | $273.3 | | | $288.1 | | Net premiums written | (35.5) | 79.8 | | | 44.4 | | Revenues: | | | | | | | Net premiums earned | 26.0 | 51.9 | | | 78.0 | | Commission income | | | $51.3 | | 51.3 | | Program fees | | 8.4 | | | 8.4 | | Net investment income | 127.0 | 3.8 | 0.1 | $9.3 | 140.1 | | Net investment gains (losses), including impairments | (22.5) | — | | 0.1 | (22.5) | | Net gains (losses) on derivative contracts | (0.7) | | | (0.3) | (1.0) | | Other income | 14.5 | — | 0.2 | — | 14.7 | | Total revenues and other income | 144.3 | 64.1 | 51.5 | 9.1 | 269.1 | | Expenses: | | | | | | | Losses and loss adjustment expenses | (69.3) | 36.7 | | | (32.6) | | Amortization of deferred acquisition costs, net | — | 10.6 | | | 10.6 | | Commission expense | | | 29.5 | | 29.5 | | General and administrative expenses | 106.3 | 16.5 | 10.6 | 21.3 | 154.6 | | Total expenses included for EBITDA | 37.0 | 63.7 | 40.1 | 21.3 | 162.1 | | EBITDA |