Growth in Specialty P&C Production and
Material De-Risking of the Legacy Financial Guarantee Portfolio
Advances Ambac's Strategic Priorities
Net income of $5 million and adjusted earnings
of $13 million
Specialty P&C Insurance Platform production
totaled $65 million, up 168% from second quarter of 2021
Legacy Financial Guarantee Watch List and
Adversely Classified Credits insured net par reduced 11%
Repurchased $133 million of AAC debt and $14
million of AFG common stock
Ambac Financial Group, Inc. (NYSE: AMBC) ("Ambac" or "AFG"), a
financial services holding company, today reported net income
attributable to common stockholders of $5 million or $0.11(1) per
diluted share and adjusted earnings(2) of $13 million or $0.28(1)
per diluted share for the quarter ended June 30, 2022. This
compares to a net loss attributable to common stockholders of $29
million or $0.63 per diluted share and an adjusted loss of $13
million or $0.30 per diluted share in the second quarter of 2021.
Book value per share decreased $2.21 to $17.44 and adjusted book
value per share(2) decreased $0.87 to $17.20 from March 31, 2022,
to June 30, 2022.
Claude LeBlanc, President and Chief Executive Officer, stated,
“Our second quarter results reflect the continued strong growth of
our specialty property and casualty business strategy and the
continued active de-risking of our legacy financial guarantee
portfolios. Our Specialty P&C Insurance and Insurance
Distribution businesses grew production by 168% to $65 million,
compared to the second quarter of 2021.
LeBlanc continued, "In addition, our increased capital
management activity this quarter demonstrates Ambac's belief in our
core P&C business strategy as well as our prospects for
recovery from our active litigations."
Ambac's Second Quarter 2022
Summary Results
Better (Worse)
($ in millions, except per share data)
2Q2022
2Q2021
Amount
Percent
Gross written premium
$
36.6
$
(3.4
)
$
40.0
1,176
%
Net premiums earned
13.8
11.1
2.7
24
%
Net investment income (loss)
(21.4
)
41.6
(63.0
)
(152
) %
Net realized investment gains (losses),
including impairments
6.8
(1.5
)
8.3
540
%
Net gains (losses) on derivative
contracts
29.3
(11.1
)
40.4
364
%
Net realized gains on extinguishment of
debt
57.0
—
57.0
—
%
Commission income
6.2
6.0
0.2
4
%
Other income (expense)
1.0
0.7
0.3
48
%
Losses and loss expenses (benefit)
(12.0
)
(25.7
)
(13.6
)
(53
) %
Operating expenses
33.7
28.4
(5.3
)
(19
) %
Interest expense
45.0
50.1
5.1
10
%
Intangible amortization
13.5
13.5
—
—
%
Pretax income (loss)
6.3
(17.6
)
23.9
136
%
Provision for income taxes
1.1
10.9
9.8
90
%
Net income (loss) attributable to Common
Stockholders
5.2
(28.5
)
33.8
118
%
Net income (loss) per diluted share1
0.11
(0.63
)
0.74
117
%
EBITDA
65.1
46.3
18.8
41
%
Adjusted earnings (loss) 2
12.7
(13.3
)
25.9
195
%
Adjusted earnings (loss) per diluted share
1, 2
0.28
(0.30
)
0.58
193
%
Weighted-average diluted shares
outstanding (in millions)
45.7
46.6
0.9
2
%
June 30, 2022
March 31, 2022
Better (Worse)
Amount
Percent
Total Ambac Financial Group, Inc.
stockholders' equity
$
783.8
$
914.4
$
(130.6
)
(14
) %
Total Ambac Financial Group, Inc.
stockholders' equity per share
17.44
19.65
(2.21
)
(11
) %
Adjusted book value 2
773.0
841.2
(68.2
)
(8
) %
Adjusted book value per share 2
17.20
18.07
(0.87
)
(5
) %
(1)
Per Diluted share includes the impact of
adjusting redeemable noncontrolling interests to current redemption
value
(2)
See Non-GAAP Financial Data section of
this press release for further information.
(3)
Some financial data in this press release
may not add up due to rounding
Results of Operations by Segment
Ambac is reporting three reportable segments: Legacy Financial
Guarantee Insurance, Specialty Property & Casualty Insurance,
and Insurance Distribution.
The following table presents segment financial results and
includes the non-GAAP measure, EBITDA on a segment and consolidated
basis.
Three Months Ended June 30,
2022
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
($ in
millions)
Gross premiums written
$
(4.3
)
$
40.9
$
36.6
Net premiums written
1.1
8.1
9.2
Revenues:
Net premiums earned
11.0
2.8
13.8
Net investment income (loss)
(22.3
)
0.4
$
0.5
(21.4
)
Net investment gains (losses), including
impairments
6.8
—
—
6.8
Net gains (losses) on derivative
contracts
28.1
1.2
29.3
Net realized gains on extinguishment of
debt
57.0
57.0
Commission income (1)
$
6.2
6.2
Other income
(5.8
)
0.5
0.2
(0.1
)
(5.2
)
Total revenues
74.8
3.7
6.4
1.6
86.5
Expenses:
Loss and loss expenses
(13.9
)
1.9
(12.0
)
Operating expenses (2)
23.5
3.3
1.6
1.0
29.3
Sub-producer commissions (2)
3.9
3.9
Total expenses
9.6
5.2
5.4
1.0
21.2
Net (gain) attributable to noncontrolling
interest
—
(0.2
)
(0.2
)
Earnings before interest, taxes,
depreciation and amortization
65.2
(1.5
)
0.8
0.7
65.1
Add back noncontrolling interest EBITDA
adjustment
—
0.2
0.2
Interest expense
45.0
—
—
45.0
Depreciation expense
0.5
—
—
—
0.5
Intangible amortization
12.8
0.7
13.5
Pretax income (loss)
$
6.9
$
(1.5
)
$
0.3
$
0.6
$
6.3
(1)
Based on premiums placed. Refer to the
Specialty P&C Insurance Platform Production section of this
release for further details.
(2)
The Consolidated Statements of
Comprehensive Income presents the sum of these items as Operating
Expenses.
Three Months Ended June 30,
2021
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
($ in
millions)
Gross premiums written
$
(5.4
)
$
2.0
$
(3.4
)
Net premiums written
(12.9
)
0.4
(12.5
)
Revenues:
Net premiums earned
11.1
—
11.1
Net investment income (loss)
41.2
0.3
$
0.1
41.6
Net investment gains (losses), including
impairments
(1.5
)
—
—
(1.5
)
Net gains (losses) on derivative
contracts
(11.1
)
(11.1
)
Net realized gains on extinguishment of
debt
—
—
Commission income (1)
$
6.0
6.0
Other income
2.8
—
—
(0.1
)
2.7
Total revenues
42.5
0.3
6.0
—
48.8
Expenses:
Loss and loss expenses
(25.7
)
—
(25.7
)
Operating expenses (2)
20.8
1.9
1.3
0.3
24.3
Sub-producer commissions (2)
3.6
3.6
Total expenses
(4.9
)
1.9
4.9
0.3
2.2
Net (gain) attributable to
noncontrolling interest
(0.2
)
(0.2
)
Earnings before interest, taxes,
depreciation and amortization
47.3
(1.6
)
0.9
(0.3
)
46.3
Add back noncontrolling interest EBITDA
adjustment
0.2
0.2
Interest expense
50.1
—
50.1
Depreciation expense
0.4
—
—
—
0.5
Intangible amortization
12.9
—
0.7
13.5
Pretax income (loss)
$
(16.1
)
$
(1.6
)
$
0.4
$
(0.3
)
$
(17.6
)
(1)
Based on premiums placed. Refer to the
Specialty P&C Insurance Platform Production section of this
release for further details.
(2)
The Consolidated Statements of
Comprehensive Income presents the sum of these items as Operating
Expenses.
Results of Operations by Segment (Continued)
Six Months Ended June 30, 2022
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
($ in
millions)
Gross premiums written
$
1.9
$
64.9
$
66.9
Net premiums written
8.0
13.0
21.0
Revenues:
Net premiums earned
24.4
4.0
28.4
Net investment income (loss)
(17.8
)
0.6
$
0.7
(16.4
)
Net investment gains (losses), including
impairments
16.9
—
—
16.8
Net gains (losses) on derivative
contracts
85.2
—
1.2
86.4
Net realized gains on extinguishment of
debt
57.0
—
57.0
Commission income (1)
$
14.8
14.8
Other income
17.9
0.8
0.2
(0.1
)
18.8
Total revenues
183.5
5.4
15.0
1.8
205.7
Expenses:
Loss and loss expenses
9.3
2.7
12.0
Operating expenses (2)
44.3
6.7
2.9
4.4
58.2
Sub-producer commissions (2)
8.4
8.4
Total expenses
53.6
9.3
11.3
4.4
78.6
Net (gain) attributable to noncontrolling
interest
—
(0.8
)
(0.7
)
Earnings before interest, taxes,
depreciation and amortization
129.9
(4.0
)
3.0
(2.6
)
126.4
Add back noncontrolling interest EBITDA
adjustment
—
0.8
0.7
Interest expense
89.2
89.2
Depreciation expense
0.9
—
—
0.1
1.0
Intangible amortization
26.5
1.3
27.8
Pretax income (loss)
$
13.4
$
(4.0
)
$
2.4
$
(2.7
)
$
9.2
(1)
Based on premiums placed. Refer to the
Specialty P&C Insurance Platform Production section of this
release for further details.
(2)
The Consolidated Statements of
Comprehensive Income presents the sum of these items as Operating
Expenses.
Six Months Ended June 30, 2021
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
($ in
millions)
Gross premiums written
$
(7.4
)
$
2.0
$
(5.3
)
Net premiums written
(21.5
)
0.4
(21.1
)
Revenues:
Net premiums earned
25.2
—
25.3
Net investment income (loss)
90.2
0.4
$
0.3
90.9
Net investment gains (losses), including
impairments
(3.4
)
—
4.0
0.6
Net gains (losses) on derivative
contracts
14.2
—
14.2
Net realized gains on extinguishment of
debt
32.8
—
32.8
Commission income (1)
$
13.2
13.2
Other income
1.1
—
—
—
1.1
Total revenues
160.1
0.4
13.2
4.3
178.0
Expenses:
Loss and loss expenses
(17.8
)
—
(17.8
)
Operating expenses (2)
37.7
2.9
2.5
10.4
53.5
Sub-producer commissions (2)
7.2
7.2
Total expenses
19.9
3.0
9.7
10.4
42.9
Net (gain) attributable to
noncontrolling interest
(0.7
)
(0.7
)
Earnings before interest, taxes,
depreciation and amortization
140.2
(2.6
)
2.8
(6.1
)
134.4
Add back noncontrolling interest EBITDA
adjustment
0.7
0.7
Interest expense
99.9
99.9
Depreciation expense
0.9
—
—
—
0.9
Intangible amortization
31.4
1.3
32.7
Pretax income (loss)
$
7.9
$
(2.6
)
$
2.2
$
(6.1
)
$
1.5
(1)
Based on premiums placed. Refer to the
Specialty P&C Insurance Platform Production section of this
release for further details.
(2)
The Consolidated Statements of
Comprehensive Income presents the sum of these items as Operating
Expenses.
Specialty P&C Insurance Platform Production
Specialty P&C Insurance Platform production, which includes
gross premiums written by Ambac's Specialty P&C Insurance
segment and premiums placed by the Insurance Distribution segment,
totaled $64.8 million in the second quarter of 2022, an increase of
168% from the second quarter of 2021. Specialty P&C Insurance
revenues are dependent on gross premiums written as hybrid fronting
insurance companies earn premiums based on the portion of gross
premiums written retained (i.e. net premiums written) and fees on
gross premiums written that are ceded to reinsurers. Insurance
Distribution revenues are dependent on premium volume as Managing
General Agents/Underwriters receive commissions based the amount of
premiums placed (i.e. gross premiums written on behalf of insurance
carriers) with insurance carriers.
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions)
2022
2021
Change
2022
2021
Change
Specialty Property & Casualty
Insurance Gross Premiums Written
$
40.9
$
2.0
NM
$
64.9
$
2.0
NM
Insurance Distribution Premiums Placed
23.9
22.2
8 %
68.8
62.4
10 %
Specialty P&C Insurance Production
$
64.8
$
24.2
168 %
$
133.7
$
64.4
108 %
NM = Not meaningful
Net Premiums Earned
During the second quarter of 2022, net premiums earned of $13.8
million increased 24% compared to the second quarter of 2021.
Specialty Property & Casualty Insurance segment net premiums
earned increased $2.8 million more than off-setting the continued
contraction of net premiums earned in the Legacy Financial
Guarantee Insurance segment.
Net Investment Income
Net investment loss for the second quarter of 2022 was $(21.4)
million compared to net investment income of $41.6 million for the
second quarter of 2021.
The decrease in net investment income in the second quarter of
2022 compared to the second quarter of 2021 was largely
attributable to (i) net losses on fund investments of ($23.0)
million compared to $19.7 million of income in the prior year and
(ii) losses of ($11.4) million on securities received as
subrogation from the Puerto Rico restructuring and classified as
trading.
Losses and Loss Expenses (Benefit)
Losses and loss expenses ("Incurred Losses") for the second
quarter of 2022 were a $12.0 million benefit, compared to a $25.7
million benefit for the second quarter of 2021, as outlined in the
following table.
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions)
2022
2021
2022
2021
Financial Guarantee
Structured finance
$
(10.9
)
$
(15.5
)
$
201.7
$
(23.0
)
Domestic public finance
(3.4
)
(11.0
)
(193.6
)
(1.7
)
Other
0.4
0.8
1.2
6.9
Specialty property & casualty
1.9
—
2.7
—
Total losses and loss expenses
(benefit)
$
(12.0
)
$
(25.7
)
$
12.0
$
(17.8
)
The second quarter 2022 structured finance benefit of ($10.9)
million was driven by the positive impact of higher discount rates
and lower underlying RMBS losses somewhat off-set by a reduction in
estimated R&W subrogation recoveries stemming from the same
factors.
The second quarter 2022 domestic public finance benefit of
$(3.4) million was driven by credit improvements and higher
discount rates across several credits compared to the benefit of
$(11) million in the second quarter 2021 which was positively
impacted by a few credits including Puerto Rico.
Net Gains (Losses) on Derivative Contracts
Net gains on derivative contracts of $29.3 million for the
second quarter of 2022, compared to a $(11.1) million loss for
second quarter 2021, were driven by rising interest rates in the
second quarter of 2022 versus falling rates in the second quarter
of 2021. The interest rate derivatives portfolio is positioned to
benefit from rising interest rates as a partial economic hedge
against interest rate exposure in AAC's insured and investment
portfolios.
Gross Commission Income
Gross commission income generated by the Insurance Distribution
segment grew 4% in the second quarter 2022 to $6.2 million from
$6.0 million in the second quarter of 2021. Growth in gross
commission income was moderated primarily by an adjustment to
profit commissions in the second quarter of 2021. Excluded from
commission income are amounts earned from the servicing of existing
policies associated with the EBU renewal rights acquisition which
are accounted for within other income.
Operating Expenses
Operating expenses for the second quarter 2022 were $33.7
million compared to $28.4 million in the second quarter of 2021.
Specialty P&C Insurance operating expenses increased as a
result of increased headcount and higher audit, travel, licensing
and other costs associated with growth in the business. Operating
expenses in the Insurance Distribution segment, which primarily
include Sub-producer commissions, grew in line with an increase in
premiums placed and in connection with higher headcount in
connection with the recently announced renewal rights transaction.
Legacy Financial Guarantee Insurance operating expenses were higher
due to defensive litigation, performance based compensation and
severance costs.
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions)
2022
2021
2022
2021
Legacy Financial Guarantee Insurance
$
24.0
$
21.3
$
45.2
$
38.6
Specialty Property & Casualty
Insurance
3.3
1.9
6.7
2.9
Insurance Distribution
5.5
4.9
11.3
9.7
Corporate & Other
1.0
0.3
4.4
10.4
Total operating expenses
$
33.7
$
28.4
$
67.6
$
61.6
AFG (holding company only) Assets
AFG on a standalone basis, excluding its ownership interests in
its Specialty P&C Insurance, Insurance Distribution, and Legacy
Financial Guarantee segments, had net assets of $218 million as of
June 30, 2022. Assets included cash and liquid securities of $120
million and other investments of $83 million.
Consolidated Ambac Financial Group, Inc. Stockholders'
Equity
Stockholders’ equity at June 30, 2022, was $783.8 million, or
$17.44 per share compared to $914.4 million or $19.65 per share as
of March 31, 2022. The decrease was primarily due to a reduction to
net unrealized investment gains of $72 million and foreign exchange
translation losses of $55 million.
Capital Activity
On March 29, 2022, the Board of Directors authorized a $20
million share repurchase program. During the second quarter 2022
the Company repurchased 1.6 million shares for $14.2 million at an
average purchase price of $8.86. On May 5, 2022, the Board of
Directors authorized an additional $15 million share repurchase
bringing the total unused authorized amount to $20.8 million.
During the second quarter 2022, AAC purchased Surplus Notes
amounting to $65.0 million of current par value or $115.1 million
of principal and accrued interest outstanding, generating a $57.0
million gain on the retirement of debt. AAC also purchased $76.4
million par of Sitka Notes which are held as an asset on AAC's
balance sheet.
Legacy Financial Guarantee Insurance Insured
Portfolio
Legacy Financial Guarantee Insurance insured net par outstanding
declined 7% during the quarter ended June 30, 2022, to $25.3
billion from $27.1 billion at March 31, 2022.
Adversely Classified and Watch List Credits decreased in the
second quarter of 2022 by $1.1 billion or 11.1% to $8.5 billion at
June 30, 2022, from $9.6 billion at March 31, 2022.
The decrease in net par outstanding and Adversely Classified and
Watch List Credits is largely due to de-risking activity, including
the acceleration of PRIFA and CCDA, and the impact of foreign
exchange rates which accounted for 1.3% of the 11.1% reduction of
Adversely Classified and Watch List Credits in the quarter.
Details of the Legacy Financial Guarantee Insurance insured
portfolio are highlighted in the below table.
Net Par Outstanding
June 30, 2022
March 31, 2022
By Sector:
Domestic public finance
45
%
44
%
Structured Finance
16
%
17
%
International
39
%
39
%
By Financial Guarantor:
Ambac Assurance
63
%
63
%
Ambac UK
37
%
37
%
Non-GAAP Financial Data
In addition to reporting Ambac’s quarterly financial results in
accordance with GAAP, the Company currently reports three non-GAAP
financial measures: EBITDA, adjusted earnings and adjusted book
value. The most directly comparable GAAP measures are pre-tax net
income for EBITDA, net income attributable to common stockholders
for adjusted earnings and Total Ambac Financial Group, Inc.
stockholders’ equity for adjusted book value. A non-GAAP financial
measure is a numerical measure of financial performance or
financial position that excludes (or includes) amounts that are
included in (or excluded from) the most directly comparable measure
calculated and presented in accordance with GAAP. We present such
non-GAAP supplemental financial information because we believe such
information is of interest to the investment community that
provides greater transparency and enhanced visibility into the
underlying drivers of our businesses on a basis that may not be
otherwise apparent on a GAAP basis. We view these non-GAAP
financial measures as important indicators when assessing and
evaluating our performance on a segmented and consolidated basis.
These non-GAAP financial measures are not substitutes for the
Company’s GAAP reporting, should not be viewed in isolation and may
differ from similar reporting provided by other companies, which
may define non-GAAP measures differently.
Ambac has a significant U.S. tax net operating loss (“NOL”) that
is offset by a full valuation allowance in the GAAP consolidated
financial statements. As a result of this and other considerations,
we utilized a 0% effective tax rate for non-GAAP adjustments for
both Adjusted Earnings and Adjusted Book Value; which is subject to
change.
The following paragraphs define each non-GAAP financial measure.
A reconciliation of the non-GAAP financial measure and the most
directly comparable GAAP financial measure is also presented
below.
EBITDA. EBITDA is defined as
net income before interest expense, income taxes, depreciation and
amortization of intangible assets. EBITDA is also adjusted for
noncontrolling interests in subsidiaries where Ambac does not own
100%.
The following table reconciles net income (loss) attributable to
common shareholders to the non-GAAP measure, EBITDA on a
consolidation and segment basis.
Three Months Ended June 30,
2022
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
Pretax income (loss)
$
6.9
$
(1.5
)
$
0.3
$
0.6
$
6.3
Adjustments:
Interest expense
45.0
—
—
—
45.0
Depreciation
0.5
—
—
—
0.5
Amortization of intangible assets
12.8
—
0.7
—
13.5
Net (gain) attributable to noncontrolling
interest
—
(0.2
)
(0.2
)
Earnings before interest, taxes,
depreciation and amortization
$
65.2
$
(1.5
)
$
0.8
$
0.7
$
65.1
Three Months
Ended June 30, 2021
Pretax income (loss)
$
(16.1
)
$
(1.6
)
$
0.4
$
(0.3
)
$
(17.6
)
Adjustments:
Interest expense
50.1
—
—
—
50.1
Depreciation
0.4
—
—
—
0.5
Amortization of intangible assets
12.9
—
0.7
—
13.5
Net (gain) attributable to noncontrolling
interest
(0.2
)
(0.2
)
Earnings before interest, taxes,
depreciation and amortization
$
47.3
$
(1.6
)
$
0.9
$
(0.3
)
$
46.3
Six Months Ended June 30, 2022
Legacy Financial Guarantee
Insurance
Specialty Property &
Casualty Insurance
Insurance Distribution
Corporate & Other
Consolidated
Pretax income (loss)
$
13.4
$
(4.0
)
$
2.4
$
(2.7
)
$
9.2
Adjustments:
Interest expense
89.2
—
—
—
89.2
Depreciation
0.9
—
—
0.1
1.0
Amortization of intangible assets
26.5
—
1.3
—
27.8
Net (gain) attributable to noncontrolling
interest
(0.8
)
(0.7
)
Earnings before interest, taxes,
depreciation and amortization
$
129.9
$
(4.0
)
$
3.0
$
(2.6
)
$
126.4
Six Months Ended
June 30, 2021
Pretax income (loss)
$
7.9
$
(2.6
)
$
2.2
$
(6.1
)
$
1.5
Adjustments:
Interest expense
99.9
—
—
—
99.9
Depreciation
0.9
—
—
—
0.9
Amortization of intangible assets
31.4
—
1.3
—
32.7
Net (gain) attributable to noncontrolling
interest
(0.7
)
(0.7
)
Earnings before interest, taxes,
depreciation and amortization
$
140.2
$
(2.6
)
$
2.8
$
(6.1
)
$
134.4
Adjusted Earnings (Loss).
Adjusted earnings (loss) is defined as net income (loss)
attributable to common stockholders, as reported under GAAP,
adjusted on an after-tax basis for the following:
- Insurance intangible amortization: Elimination of the
amortization of the financial guarantee insurance intangible asset
that arose as a result of Ambac’s emergence from bankruptcy and the
implementation of Fresh Start reporting. This adjustment ensures
that all financial guarantee contracts are accounted for consistent
with the provisions of the Financial Services – Insurance Topic of
the ASC.
- Foreign exchange (gains) losses: Elimination of the foreign
exchange gains (losses) on the re-measurement of assets,
liabilities and transactions in non-functional currencies. This
adjustment eliminates the foreign exchange gains (losses) on all
assets, liabilities and transactions in non-functional currencies,
which enables users of our financial statements to better view the
results without the impact of fluctuations in foreign currency
exchange rates and facilitates period-to-period comparisons of
Ambac's operating performance.
Adjusted earnings were $12.7 million, or $0.28 per diluted
share, for the second quarter 2022 as compared to adjusted loss of
($13.3) million, or $0.30 per diluted share, for the second quarter
of 2021.
The following table reconciles net income (loss) attributable to
common stockholders to the non-GAAP measure, adjusted earnings
(loss), for the three-month periods ended June 30, 2022, and June
30, 2021, respectively:
Three Months Ended June
30,
2022
2021
($ in millions, other than per share
data)
$ Amount
Per Diluted Share (1)
$ Amount
Per Diluted Share (1)
Net income (loss) attributable to common
stockholders
$
5.2
$
0.11
$
(28.5
)
$
(0.63
)
Adjustments:
Insurance intangible amortization
12.8
0.29
12.9
0.28
Foreign exchange (gains) losses
(5.3
)
(0.12
)
2.4
0.05
Adjusted Earnings (loss)
$
12.7
$
0.28
$
(13.3
)
$
(0.30
)
Weighted-average diluted shares
outstanding (in millions)
45.7
46.6
Six Months Ended June
30,
2022
2021
($ in millions, other than per share
data)
$ Amount
Per Diluted Share (1)
$ Amount
Per Diluted Share (1)
Net income (loss) attributable to common
stockholders
$
7.2
$
0.15
$
(11.6
)
$
(0.54
)
Adjustments:
Insurance intangible amortization
26.5
0.57
31.4
0.68
Foreign exchange (gains) losses
(7.0
)
(0.15
)
7.5
0.16
Adjusted Earnings (loss)
$
26.7
$
0.57
$
27.2
$
0.30
Weighted-average diluted shares
outstanding (in millions)
46.3
46.4
1
Per Diluted share includes the impact of
adjusting the Insurance Distribution segment related noncontrolling
interest to current redemption value
Adjusted Book Value.
Adjusted book value is defined as Total Ambac Financial Group, Inc.
stockholders’ equity as reported under GAAP, adjusted for after-tax
impact of the following:
- Insurance intangible asset: Elimination of the financial
guarantee insurance intangible asset that arose as a result of
Ambac’s emergence from bankruptcy and the implementation of Fresh
Start reporting. This adjustment ensures that all financial
guarantee contracts are accounted for within adjusted book value
consistent with the provisions of the Financial Services—Insurance
Topic of the ASC.
- Net unearned premiums and fees in excess of expected losses:
Addition of the value of the unearned premium revenue ("UPR") on
financial guarantee contracts, in excess of expected losses, net of
reinsurance. This non-GAAP adjustment presents the economics of UPR
and expected losses for financial guarantee contracts on a
consistent basis. In accordance with GAAP, stockholders’ equity
reflects a reduction for expected losses only to the extent they
exceed UPR. However, when expected losses are less than UPR for a
financial guarantee contract, neither expected losses nor UPR have
an impact on stockholders’ equity. This non-GAAP adjustment adds
UPR in excess of expected losses, net of reinsurance, to
stockholders’ equity for financial guarantee contracts where
expected losses are less than UPR. This adjustment is only made for
financial guarantee contracts since such premiums are
non-refundable.
- Net unrealized investment (gains) losses in Accumulated Other
Comprehensive Income: Elimination of the unrealized gains and
losses on the Company’s investments that are recorded as a
component of accumulated other comprehensive income (“AOCI”). The
AOCI component of the fair value adjustment on the investment
portfolio may differ from realized gains and losses ultimately
recognized by the Company based on the Company’s investment
strategy. This adjustment only allows for such gains and losses in
adjusted book value when realized.
Adjusted book value was $773.0 million, or $17.20 per share, at
June 30, 2022, as compared to $841.2 million, or $18.07 per share,
at March 31, 2022. The decrease in adjusted book value for the
second quarter of 2022 was primarily attributable to the adverse
effect of foreign exchange losses, share buybacks (positive impact
on a per share basis), and higher discount rates on the PV of
legacy financial guarantee installment premiums partially offset by
adjusted earnings (net of earned premiums).
The following table reconciles Total Ambac Financial Group, Inc.
stockholders’ equity to the non-GAAP measure adjusted book value as
of each date presented:
June 30, 2022
March 31, 2022
($ in millions, other than per share
data)
$ Amount
Per Share
$ Amount
Per Share
Total AFG Stockholders' Equity
$
783.8
$
17.44
$
914.4
$
19.65
Adjustments:
Non-credit impairment fair value losses on
credit derivatives
—
—
—
—
Insurance intangible asset
(284.0
)
(6.32
)
(303.5
)
(6.52
)
Net unearned premiums and fees in excess
of expected losses
250.4
5.57
279.4
6.00
Net unrealized investment (gains) losses
in Accumulated Other Comprehensive Income
22.7
0.51
(49.2
)
(1.06
)
Adjusted book value
$
773.0
$
17.20
$
841.2
$
18.07
Shares outstanding (in millions)
44.9
46.5
Earnings Call and Webcast
On August 9, 2022 at 8:30am ET, Claude LeBlanc, President and
Chief Executive Officer, and David Trick, Executive Vice President
and Chief Financial Officer, will discuss Ambac's second quarter
2022 results during a conference call. A live audio webcast of the
call will be available through the Investor Relations section of
Ambac’s website,
https://ambac.com/investor-relations/events-and-presentations/events/.
Participants may also listen via telephone by dialing (877)
407-9716 (Domestic) or (201) 493-6779 (International).
The webcast will be archived on Ambac's website. A replay of the
call will be available through August 23, 2022, and can be accessed
by dialing (Domestic) (844) 512-2921 or (International) (412)
317-6671; and using ID#13726024
Additional information is included in an operating supplement
and presentations at Ambac's website at www.ambac.com.
About Ambac
Ambac Financial Group, Inc. (“Ambac” or “AFG”) is a financial
services holding company headquartered in New York City. Ambac’s
core business is a growing specialty P&C distribution and
underwriting platform. Ambac also has a legacy financial guaranty
business in run off. Ambac’s common stock trades on the New York
Stock Exchange under the symbol “AMBC”. Ambac is committed to
providing timely and accurate information to the investing public,
consistent with our legal and regulatory obligations. To that end,
we use our website to convey information about our businesses,
including the anticipated release of quarterly financial results,
quarterly financial, statistical and business-related information.
For more information, please go to www.ambac.com.
The Amended and Restated Certificate of Incorporation of Ambac
contains substantial restrictions on the ability to transfer
Ambac’s common stock. Subject to limited exceptions, any attempted
transfer of common stock shall be prohibited and void to the extent
that, as a result of such transfer (or any series of transfers of
which such transfer is a part), any person or group of persons
shall become a holder of 5% or more of Ambac’s common stock or a
holder of 5% or more of Ambac’s common stock increases its
ownership interest.
Forward-Looking Statements
In this press release, statements that may constitute
“forward-looking statements” within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Words such as “estimate,” “project,” “plan,” “believe,”
“anticipate,” “intend,” “planned,” “potential” and similar
expressions, or future or conditional verbs such as “will,”
“should,” “would,” “could,” and “may,” or the negative of those
expressions or verbs, identify forward-looking statements. We
caution readers that these statements are not guarantees of future
performance. Forward-looking statements are not historical facts
but instead represent only our beliefs regarding future events,
which may by their nature be inherently uncertain and some of which
may be outside our control. These statements may relate to plans
and objectives with respect to the future, among other things which
may change. We are alerting you to the possibility that our actual
results may differ, possibly materially, from the expected
objectives or anticipated results that may be suggested, expressed
or implied by these forward-looking statements. Important factors
that could cause our results to differ, possibly materially, from
those indicated in the forward-looking statements include, among
others, those discussed under “Risk Factors” in our most recent SEC
filed quarterly or annual report.
Any or all of management’s forward-looking statements here or in
other publications may turn out to be incorrect and are based on
management’s current belief or opinions. Ambac Financial Group’s
(“AFG”) and its subsidiaries’ (collectively, “Ambac” or the
“Company”) actual results may vary materially, and there are no
guarantees about the performance of Ambac’s securities. Among
events, risks, uncertainties or factors that could cause actual
results to differ materially are: (1) the highly speculative nature
of AFG’s common stock and volatility in the price of AFG’s common
stock; (2) uncertainty concerning the Company’s ability to achieve
value for holders of its securities, whether from Ambac Assurance
Corporation (“AAC”) and its subsidiaries or from the specialty
property and casualty program insurance business, the distribution
business, or related businesses; (3) the inability of AAC to
realize the expected recoveries, including RMBS litigation
recoveries, included in its financial statements, or changes in
estimated RMBS litigation recoveries over time; (4) failure to
recover claims paid on Puerto Rico exposures or realization of
losses in amounts higher than expected; (5) inadequacy of reserves
established for losses and loss expenses and possibility that
changes in loss reserves may result in further volatility of
earnings or financial results; (6) potential for rehabilitation
proceedings or other regulatory intervention against AAC; (7)
credit risk throughout Ambac’s business, including but not limited
to credit risk related to insured residential mortgage-backed
securities, student loan and other asset securitizations, public
finance obligations (including risks associated with Chapter 9 and
other restructuring proceedings), issuers of securities in our
investment portfolios, and exposures to reinsurers; (8) our
inability to effectively reduce insured financial guarantee
exposures or achieve recoveries or investment objectives; (9) our
inability to generate the significant amount of cash needed to
service our debt and financial obligations, including through
litigation recoveries or disposition of assets, and our inability
to refinance our indebtedness; (10) Ambac’s substantial
indebtedness could adversely affect its financial condition and
operating flexibility; (11) Ambac may not be able to obtain
financing or raise capital on acceptable terms or at all due to its
substantial indebtedness and financial condition; (12) the impact
of catastrophic public health, environmental or natural events,
including events like the COVID-19 pandemic, or global or regional
conflicts, on significant portions of our insured portfolio; (13)
credit risks related to large single risks, risk concentrations and
correlated risks; (14) risks associated with adverse selection as
Ambac’s financial guarantee insurance portfolio runs off; (15) the
risk that Ambac’s risk management policies and practices do not
anticipate certain risks and/or the magnitude of potential for
loss; (16) restrictive covenants in agreements and instruments that
impair Ambac’s ability to pursue or achieve its business
strategies; (17) adverse effects on operating results or the
Company’s financial position resulting from measures taken to
reduce financial guarantee risks in its insured portfolio; (18)
disagreements or disputes with Ambac's insurance regulators; (19)
loss of control rights in transactions for which we provide
financial guarantee insurance; (20) adverse tax consequences or
other costs resulting from the characterization of the AAC’s
surplus notes or other obligations as equity; (21) risks attendant
to the change in composition of securities in the Ambac’s
investment portfolio; (22) adverse impacts from changes in
prevailing interest rates; (23) events or circumstances that result
in the impairment of our intangible assets and/or goodwill that was
recorded in connection with Ambac’s acquisition of 80% of the
membership interests of Xchange Benefits, LLC; (24) risks
associated with the expected discontinuance of the London
Inter-Bank Offered Rate; (25) factors that may negatively influence
the amount of installment premiums paid to Ambac; (26) risks
relating to determinations of amounts of impairments taken on
investments; (27) the risk of litigation and regulatory inquiries
or investigations, and the risk of adverse outcomes in connection
therewith; (28) actions of stakeholders whose interests are not
aligned with broader interests of Ambac's stockholders; (29) system
security risks, data protection breaches and cyber attacks; (30)
regulatory oversight of Ambac Assurance UK Limited (“Ambac UK”) and
applicable regulatory restrictions may adversely affect our ability
to realize value from Ambac UK or the amount of value we ultimately
realize; (31) failures in services or products provided by third
parties; (32) our inability to attract and retain qualified
executives, senior managers and other employees, or the loss of
such personnel; (33) fluctuations in foreign currency exchange
rates; (34) failure to realize our business expansion plans or
failure of such plans to create value; (35) greater competition for
our specialty property & casualty program insurance business;
(36) loss or lowering of the AM Best rating for our property and
casualty insurance company subsidiaries; (37) disintermediation
within the insurance industry or greater competition that
negatively impacts our managing general agency/underwriting
business; (38) changes in law or in the functioning of the
healthcare market that impair the business model of our accident
and health managing general underwriter; and (39) other risks and
uncertainties that have not been identified at this time.
AMBAC FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of
Income (Loss) (Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions, except share
data)
2022
2021
2022
2021
Revenues:
Net premiums earned
$
14
$
11
$
28
$
25
Net investment income:
Securities available-for-sale and
short-term
13
22
27
44
Other investments
(34
)
20
(43
)
47
Total net investment income (loss)
(21
)
42
(16
)
91
Net realized investment gains (losses),
including impairments
7
(2
)
17
1
Net gains (losses) on derivative
contracts
29
(11
)
86
14
Net realized gains on extinguishment of
debt
57
—
57
33
Commission income
6
6
15
13
Other income
1
1
3
(1
)
Income (losss) on variable interest
entities
(6
)
2
15
2
Total revenues
86
49
206
178
Expenses:
Losses and loss expense (benefit)
(12
)
(26
)
12
(18
)
Intangible amortization
13
14
28
33
Operating expenses
34
28
68
62
Interest expense
45
50
89
100
Total expenses
80
66
197
177
Pre-tax income
6
(18
)
9
1
Provision for income taxes
1
11
1
13
Net income (loss)
$
5
$
(28
)
$
8
$
(11
)
Less: net (loss) gain attributable to
noncontrolling interest
—
—
—
—
Net income (loss) attributable to
common stockholders
$
5
$
(29
)
$
7
$
(12
)
Net income per basic share
$
0.11
$
(0.63
)
$
0.15
$
(0.54
)
Net income per diluted share
$
0.11
$
(0.63
)
$
0.15
$
(0.54
)
Weighted-average number of common
shares outstanding:
Basic
45,519,093
46,576,673
46,121,927
46,446,087
Diluted
45,685,349
46,576,673
46,310,687
46,446,087
AMBAC FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
($ in millions, except share
data)
June 30, 2022
December 31, 2021
Assets:
Investments:
Fixed maturity securities, at fair value
(amortized cost: $1,442 and $1,605)
$
1,410
$
1,730
Fixed maturity securities pledged as
collateral, at fair value (amortized cost: $15 and $15)
15
$
15
Fixed maturity securities - trading
2
—
Short-term investments, at fair value
(amortized cost: $452 and $415)
452
414
Short-term investments pledged as
collateral, at fair value (amortized cost: $70 and $105)
70
105
Other investments (includes $590 and $683
at fair value)
598
690
Total investments (net of allowance for
credit losses of $0 and $0)
2,547
2,955
Cash and cash equivalents
32
17
Restricted cash
5
5
Premiums receivable (net of allowance for
credit losses of $6 and $9)
311
323
Reinsurance recoverable on paid and unpaid
losses (net of allowance for credit losses of $0 and $0)
55
55
Deferred ceded premium
104
90
Subrogation recoverable
1,667
2,092
Derivative assets
40
76
Intangible assets
330
362
Goodwill
46
46
Other assets
83
68
Variable interest entity assets:
Fixed maturity securities, at fair
value
2,642
3,455
Restricted cash
2
2
Loans, at fair value
2,144
2,718
Derivative assets
51
38
Other assets
2
2
Total assets
$
10,061
$
12,303
Liabilities and Stockholders’
Equity:
Liabilities:
Unearned premiums
$
385
$
395
Loss and loss expense reserves
1,019
1,570
Ceded premiums payable
44
33
Long-term debt
2,189
2,230
Accrued interest payable
559
576
Derivative liabilities
61
95
Other liabilities
124
133
Variable interest entity liabilities:
Long-term debt (includes $3,184 and $4,056
at fair value)
3,340
4,216
Derivative liabilities
1,476
1,940
Total liabilities
9,198
11,187
Redeemable noncontrolling interest
18
18
Stockholders’ equity:
Preferred stock, par value $0.01 per
share; 20,000,000 shares authorized; issued and outstanding
shares—none
—
—
Common stock, par value $0.01 per share;
130,000,000 shares authorized; issued: 46,658,990 and
46,477,068
—
—
Additional paid-in capital
267
257
Accumulated other comprehensive income
(196
)
58
Retained earnings
728
726
Treasury stock, shares at cost: 1,719,074
and 172,929
(16
)
(3
)
Total Ambac Financial Group, Inc.
stockholders’ equity
784
1,038
Nonredeemable noncontrolling interest
62
60
Total stockholders’ equity
846
1,098
Total liabilities, redeemable
noncontrolling interest and stockholders’ equity
$
10,061
$
12,303
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220808005758/en/
Charles J. Sebaski Managing Director, Investor Relations (212)
208-3222 csebaski@ambac.com
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