Yahoo Finance Ambac Financial Group Inc (AMBC) (Q1 2024) Earnings Call Transcript Highlights: Strong Growth ...
Net Income: $20 million for Q1 2024.
Adjusted Net Income: $38 million for Q1 2024.
Book Value Per Share: $30.19 as of March 31, 2024.
Premiums (Specialty P&C): $187 million for Q1 2024, up 45% year-over-year.
Gross Written Premiums (Everspan): $96 million, an 86% increase from the previous year.
Net Premiums Written: $26 million, up 186% from the previous year.
Earned Premiums and Program Fees: $26 million and $2.6 million, up 266% and 73% respectively from Q1 2023.
Combined Ratio: Improved to 98.4% in Q1 2024.
EBITDA (Cirrata): $5 million for Q1 2024, up 10% year-over-year.
Consolidated Investment Income: $42 million for Q1 2024, an increase from $34 million in Q1 2023.
Adjusted Book Value: $29.03 per share as of March 31, 2024.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Ambac Financial Group Inc reported a net income of $20 million and adjusted net income of $38 million for Q1 2024, showing significant improvement from a net loss in the same quarter the previous year.
The specialty P&C insurance platform of Ambac Financial Group Inc experienced a 45% increase in premiums, reaching $187 million for the quarter, indicating strong growth and market acceptance.
Everspan, part of Ambac Financial Group Inc, reported an 86% increase in gross written premiums and achieved its first underwriting profit with a 98% combined ratio, highlighting operational efficiency and profitability.
Cirrata, Ambac Financial Group Inc's insurance distribution business, saw a 17% increase in placed premiums and a 10% increase in EBITDA, supported by organic growth initiatives and successful acquisitions.
Ambac Financial Group Inc's legacy financial guaranty business turned around from a net loss to generating net income of $20 million, driven by favorable changes in losses incurred and improved investment results.
Negative Points
Despite overall growth, Ambac Financial Group Inc faced a $7 million increase in unrealized losses on available-for-sale investments due to higher interest rates, impacting the financial stability.
The company reported a loss ratio increase to 75.7% in Q1 2024 from 66.6% the previous year, indicating higher losses relative to premiums earned which could signal underwriting challenges.
Ambac Financial Group Inc experienced foreign exchange translation losses of $8 million related to the weakening of the British pound, showing vulnerability to currency fluctuations.
There was adverse development in the nonstandard auto program within Everspan, although it was offset by sliding scale commissions, it raises concerns about underwriting and data management.
The EBITDA margin contracted from 31.3% to 27.9% due to acquisition and integration costs, as well as business mix shifts, which could affect profitability if not managed effectively.
Q & A Highlights
Q: Could you elaborate a bit on the adverse development at Everspan this quarter? And how do the sliding scale commissions work both in practice and as you enter new lines? A: David Trick, CFO of Ambac, explained that the adverse development mostly related to the nonstandard auto program, attributing it to delayed data from a program that started in the latter half of 2023. He remains optimistic about the program, especially with significant pricing increases in the California market. Regarding sliding scale commissions, Trick noted that they are structured to provide protection on the loss ratio, particularly for newer programs with less underwriting history. These commissions adjust acquisition costs based on loss performance, offering a risk management tool that continues throughout the life of the program.
Q: How long do sliding scale commission structures typically last on these programs? A: David Trick clarified that sliding scale commissions last for the life of the program, with annual renewals. Depending on the program's performance and history, the structure can be adjusted or discontinued. However, they generally find sliding scales to be beneficial for both risk and balance sheet management.
Q: With respect to derisking on the legacy FG side, how were you able to resolve your Italian ABS exposure this quarter? A: David Trick mentioned that the resolution came following upgrades from S&P and Moody's, as the transactions were performing in line with expectations. They had initially taken a conservative approach but adjusted their stance based on the upgrades and ongoing performance.
Q: Regarding the strategic alternatives process, are there any milestones or events that give you confidence in the timeline? A: Claude LeBlanc, CEO of Ambac, stated that the process is on track with their initial timeline, with strong interest in the portfolio and company. He reassured that they are progressing as planned and expect to provide an update by the next quarter.
Q: In the interim, are there opportunities for additional risk management or reinsurance to create accretion, or should actions wait until after the strategic process is completed? A: Claude LeBlanc indicated that Ambac is operating business as usual, continually looking at de-risking transactions. They aim to maintain optionality while improving the quality of their book value and managing potential risks.
Q: Can you provide any details on how you managed the Italian area exposure and its impact on your financials? A: David Trick responded that the sovereign exposure dropped due to upgrades by rating agencies and the transactions' performance aligning with expectations. The conservative closure initially taken was adjusted based on these factors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
