Q4 2024 Ambac Financial Group Inc Earnings Call

Operator: Ladies and gentlemen, good morning and welcome to the Ambac Financial Group fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

Ladies and gentlemen, good morning, and welcome to the Ambac Financial Group fourth quarter 2024 earnings Conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

Operator: If anyone should require operator assistance during the conference, please signal the operator by pressing star and zero on your telephone keypad. As a reminder, this conference is being recorded.

If anyone should require operator assistance during the conference. Please signal do you breakout by pressing Star then zero on your telephone keypad.

As a reminder, this conference is being recorded.

Charles Sebaski: It is now my pleasure to introduce your host, Charles Sebaski, Head of Investor Relations. Please go ahead. Thank you.

Charles: It is now my pleasure to introduce your host Charles <unk> head of Investor Relations. Please go ahead.

Charles: Thank you good morning, and welcome to Ambac <unk> fourth quarter 2024 call to discuss financial results.

Claude LeBlanc: Good morning, and welcome to Ambac's fourth quarter 2024 call to discuss financial results.

Claude LeBlanc: Speaking today will be Claude LeBlanc, President and CEO, and David Trick, Chief Financial Officer. They will discuss the financial results of our business and the current market environment. And after prepared remarks, we'll take your questions.

Speaker Change: Speaking today will be Claude Leblanc, President and CEO and David trick Chief Financial Officer, They will discuss the financial results of our business and the current market environment and after our prepared remarks, we'll take your questions.

Unknown Executive: For those of you following along on the webcast, during prepared remarks, we will be highlighting some slides from the investor presentation, which can be located on our website.

Speaker Change: For those of you following along on the webcast during prepared remarks, we will be highlighting some slides from the investor presentation, which can be located on our website.

Unknown Executive: Our call today includes forward looking statements. The company cautions investors that any forward looking statement involves risks and uncertainties, and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors. Those factors are described under forward-looking statements in our earnings press release and our most recent 10-Q and 10-K files with the SEC.

Speaker Change: Our call today includes forward looking statements the company cautions investors that any forward looking statement involves risks and uncertainties and is not a guarantee of future performance actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors.

Speaker Change: Those factors are described under forward looking statements in our earnings press release, and our most recent 10-Q and 10-K filed with the SEC.

Unknown Executive: We do not undertake any obligation to update forward-looking statements.

Speaker Change: We do not undertake any obligation to update forward looking statements.

Unknown Executive: Also, in prepared remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliation of those non-GAAP measures are included in our recent earnings press release, operating supplement, or other materials in the investor section of our website, ambac.com.

Speaker Change: Also in prepared remarks or responses to questions. We may mention some non-GAAP financial measures.

Speaker Change: The Asian of those non-GAAP measures are included in our recent earnings press release operating supplement our other materials in the investors section of our website add back dot com.

Claude LeBlanc: I would now like to turn the call over to Mr. Claude LeBlanc. Thank you, Chuck, and welcome to everyone joining today's call. Last year, Ambac made great strides in anchoring our market positioning as a leading growth focused MGA and delegated authority platform. On a consolidated basis, our PNC business generated nearly 900 million of premiums up 74% from 2023 and produced 236 million of revenue, which is up 89% from the prior year. These results were made possible due to the tremendous progress on several fronts.

Claude LeBlanc: I would now like to turn the call over to Mr. Claude Leblanc.

Claude LeBlanc: Thank you Chuck and welcome to everyone joining today's call.

Claude LeBlanc: Last year, Ambac made great strides and anchoring our market positioning as a leading growth focused MGA and delegated authority platform on.

Claude LeBlanc: On a consolidated basis, our P&C business generated nearly $900 million of premiums.

Claude LeBlanc: Up 74% from 2023.

And produce $236 million of revenue, which was up 89% from the prior year.

Claude LeBlanc: These results were made possible due to the tremendous progress on several fronts.

Claude LeBlanc: Some of those achievements include, one, the acquisition of BEAT. This was a transformative deal that brought immediate scale and breadth to our distribution platform. VEET has proven capabilities and a solid track record as an MGA incubator. The experience of the BEAT leadership team, combined with Serrata's US specialty business expertise, is expected to deliver very strong organic growth into the future.

Claude LeBlanc: Some of those achievements include one the acquisition of <unk>. This was a transformative deal that brought immediate scale and breadth to our distribution platform.

Claude LeBlanc: <unk> has proven capabilities and a solid track record as an MGA incubator.

Claude LeBlanc: Experience of the beat leadership team combined with Cerrado U S. Specialty business expertise is expected to deliver very strong organic growth into the future.

Claude LeBlanc: Two, successfully selling our legacy financial guarantee business to Oak Tree for $420 million. This was a monumental effort for our organization and provides us the opportunity to accelerate the scaling of our specialty P&C This sale was a culmination of years of hard work and successful execution of key priorities across our organization. I am extremely proud of the outcome we achieved, and I look forward to closing the sale as soon as we satisfy the last remaining closing condition, receipt of regulatory approval from the Wisconsin OCI, which we anticipate this quarter or early next quarter.

Claude LeBlanc: Two six.

Claude LeBlanc: Successfully selling our legacy financial guaranty business to oaktree or $420 million.

Claude LeBlanc: This was a monumental effort for our organization and provides us the opportunity to accelerate the scaling of our specialty P&C business.

Claude LeBlanc: This sale was a culmination of years of hard work and successful execution of key priorities across our organization.

Claude LeBlanc: I am extremely proud of the outcome, we achieved and I look forward to closing the sale as soon as we satisfy the last remaining closing conditions and receipt of regulatory approval from the Wisconsin, OCI, which we anticipate this quarter or early next quarter.

Claude LeBlanc: 3.

Claude LeBlanc: Three investing in and preparing the business for the future.

Claude LeBlanc: Investing in and preparing the business for the future. We have strengthened our business by investing in technology and talent to ensure the continued success of our platform. In addition, we have substantially completed the separation of our legacy and P&C businesses, financial and technology platforms, as well as personnel in preparation for the close of our legacy sale. Our focus is squarely on the future growth of our specialty PNC business and delivering value for our shareholders. Our efforts are supported within a market environment where, broadly speaking, we continue to see the overall E&S market performing well. The move towards risk specialization and ENS business continues across our industry, and that specialization supports the growth of the MGA market.

Claude LeBlanc: We have strengthened our business by investing in technology and talent to ensure the continued success of our platform and.

Claude LeBlanc: In addition, we have substantially completed the separation of our legacy and P&C businesses financial and technology platforms as well as personnel in preparation for the close of our legacy sale.

Claude LeBlanc: Our focus is squarely on the future growth of our specialty P&C business and delivering value for our shareholders.

Claude LeBlanc: Our efforts are supported with any market environment, where broadly speaking we continue to see the overall E&S market performing well.

Claude LeBlanc: The move towards risk specialization and E&S business continues across our industry and that specialization supports the growth of the MGA market.

Claude LeBlanc: We continue to experience rate increases in the U.S. Casualty Alliance we focus on, where we are generally seeing high single- to double-digit rate increases. In the property market, we have seen some softening in the fourth quarter and through January 1 renewals, but terms and conditions have helped.

We continue to experience rate increases in the U S. Casualty lines, we focus on where we are generally seeing high single to double digit rate increases.

Claude LeBlanc: In the property market, we have seen some softening in the fourth quarter and through January one renewals, but terms and conditions have held.

Claude LeBlanc: It remains too early to know the overall impact of the California wildfires on market conditions. Professional and financial lines continue to see softness, especially in large account and public market DNO. Smaller account and management liability are holding up much better. Overall, specialty and E&S commercial insurance market conditions remain broadly supportive of our business goals.

Claude LeBlanc: It remains too early to know the overall impact of the California wildfires on market conditions.

Claude LeBlanc: Professional and financial lines continue to see softness, especially in large account and public market D&O.

Speaker Change: While our count in management liability are holding up much better.

Overall specialty and E&S commercial insurance market conditions remain broadly supportive of our business goals.

Claude LeBlanc: Turning to our distribution business. Gerada generated nearly $100 million in revenue for 2024, up 93%. and earn approximately $20 million of adjusted EBITDA and $13 million of adjusted EBITDA to Ambac common shareholders. The adjusted EBITDA margin for 2024 on a consolidated basis was 20%.

Speaker Change: Turning to our distribution business.

Speaker Change: Gerardo generated nearly $100 million in revenue for 2024.

Speaker Change: 93%.

Speaker Change: And earn approximately $20 million of adjusted EBITDA and $13 million of adjusted EBITDA to Ambac common shareholders.

Speaker Change: The adjusted EBITDA margin for 2024 on a consolidated basis was 20%.

Claude LeBlanc: However, I would point out that there are about 500 basis points of margin headwinds from the costs associated with the six DeNovo startups previously mentioned. Those costs, as we scale, will be less and less material to the overall performance. In addition, longer term, we expect to make meaningful advancements to the adjusted EBITDA margin from organic growth, economies of scale, further technology-led efficiencies, and business synergy. For the year, organic growth was 5.4%, with our specialty commercial auto business performing particularly well, and more than offsetting some headwinds in our ESL and short term medical business.

Speaker Change: However, I.

Speaker Change: I would point out that there are about 500 basis points of margin headwinds from the costs associated with the six de Novo startups previously mentioned.

Speaker Change: Those costs as we scale will be less and less material to the overall performance.

Speaker Change: In addition longer term, we expect to make meaningful advancements to the adjusted EBITDA margin from organic growth economies of scale further technology led efficiencies and business synergies.

Speaker Change: For the year organic growth was five 4% with our specialty commercial auto business, performing, particularly well and more than offsetting some headwinds in our ESL and short term medical business.

Claude LeBlanc: It is worth highlighting that we view organic growth to be a core KPI of the business. However, the timing for the inclusion of BEAT in the organic revenue base later this year may result in some volatility in our quarterly organic growth results.

Speaker Change: It is worth highlighting that we view organic growth to be a core kpis of the business.

Speaker Change: However, the timing for the inclusion of beat in the organic revenue base. Later this year May result in some volatility in our quarterly organic growth results.

Claude LeBlanc: One key element for supporting the growth in MGA businesses is the availability of managed capacity. That is why we believe having access to a broad range of managed capacity is a strategic differentiator for us. Managed capacity enables us to leverage the overall depth and breadth of insurance, reinsurance, and ILS markets, as well as the duration of third-party capacity to the platform. While this is not something we will be reporting on every quarter, we thought it would be helpful to provide color on our capacity sources. For 2025, the Serrata platform has more than 1.5 billion of committed third party capacity from a diversified panel of insurers, reinsurers, private capital, and pension funds.

Speaker Change: One key element for supporting the growth and MGA businesses is the availability of managed capacity.

Speaker Change: It is why we believe having access to a broad range of managed capacity is a strategic differentiator for us.

Speaker Change: Managed capacity enables us to leverage the overall depth and breadth of insurance reinsurance and ILS markets as well as the duration of third party capacity to the platform.

Speaker Change: While this is not something we will be reporting on every quarter. We thought it would be helpful to provide color on our capacity sources for 2025.

Speaker Change: <unk> platform has more than $1 5 billion of committed third party capacity from a diversified panel of insurers reinsurers private capital and pension funds over 60% of that support has been behind us for four or more years, which I think validates the quality of the underwriting of our.

Claude LeBlanc: Over 60% of that support has been behind us for four or more years, which I think validates the quality of the underwriting of our MGA.

Speaker Change: <unk>.

Claude LeBlanc: Turning now to Everspan results for the quarter. Everspan had a strong year with the team focus on underwriting profitability and growth. Everspan's gross premium written grew to over $380 million, up 40% from the prior year. Its full year combined ratio of 101.6 was nearly a 500 basis points improvement over 2023 as the platform progresses towards critical scale.

Speaker Change: Turning now to ever spend results for the quarter.

Speaker Change: <unk> had a strong year with the team focus on underwriting profitability and growth.

Speaker Change: <unk> gross premium written grew to over $380 million up 40% from the prior year.

Speaker Change: It's full year combined ratio of 101, six was nearly a 500 basis points improvement over 2023 as.

Speaker Change: That's a platform progresses towards critical scale.

Claude LeBlanc: Everspan ended 2024 with its second quarterly underwriting profit with a 96.5 combined ratio, which is down 380 basis points over the fourth quarter of 2023. The underwriting performance was the result of Everspan's concerted efforts to adjust to market conditions and rebalance capital allocation in support of our future business growth. Everspend maintains a strong pipeline of internal and external program opportunities, which we believe will further our goals to diversify the portfolio, support growth, reduce our combined ratios, and deliver strong future ROEs.

Speaker Change: Ever spent ended 2024 with its second quarterly underwriting profit with a 96 five combined ratio, which was down 380 basis points over the fourth quarter of 2023.

Speaker Change: The underwriting performance was the result of a response concerted efforts to adjust to market conditions and rebalance capital allocation in support of our future business growth.

Speaker Change: Ever spend maintains a strong pipeline of internal and external program opportunities, which we believe will further our goals to diversify the portfolio support growth reduce our combined ratios and deliver strong future Roe.

David Trick: I will now turn the call over to David to discuss our financial results for the quarter. Thank you, Claude. Good morning, everyone. As Claude mentioned, we had notable changes to our reporting this quarter, which impacted our results in several areas. First, following the successful shareholder vote of the sale of the legacy financial guarantee business, we are now reporting that segment as discontinued operation. With that, we recorded a $570 million loss on sales. Second, the effect of moving to discontinued operations for the legacy business means the go forward PNC segments and holding company will be reported as continuing operations.

Speaker Change: I will now turn the call over to David to discuss our financial results for the quarter David.

David Trick: Thank you Claude and good morning, everyone. As Claude mentioned, we had notable changes to our reporting this quarter, which impacted our results in several areas.

David Trick: First following the successful shareholder vote of the sale of the legacy financial Guaranty business. We are now reporting that segment as discontinued operations.

David Trick: With that we recorded a $570 million loss on sale.

David Trick: Second the effect of moving to discontinued operations for the legacy business means the go forward P&C segments, and the holding company will be reported as continuing operations.

David Trick: And lastly, as I indicated last quarter, we have changed our non-gap metric this quarter, as we more closely align with our insurance distribution and underwriting peers, and no longer as a financial guarantee. This quarter, we introduced a revised adjusted net income, a new adjusted EBITDA, a new organic growth metric, and finally, eliminated adjusted book value. We recognize there are a lot of changes and new metrics this period, as we make this transition.

David Trick: And lastly, as I indicated last quarter, we have changed our non-GAAP metrics. This quarter as we more closely align with our insurance distribution and underwriting peers and no longer as a financial guarantee business.

David Trick: This quarter, we introduced a revised adjusted net income.

David Trick: New adjusted EBITDA.

Our new organic growth metric and finally eliminated adjusted book value.

David Trick: We recognize there are a lot of changes and new metrics. This period as we make this transition. So we wanted to briefly highlight how we are thinking about the performance of the business going forward.

David Trick: So we wanted to briefly highlight how we are thinking about the performance of the business going forward. First, we are driving total revenue growth as well as organic revenue growth. Organic growth measures the ability of our business to grow revenue absent acquisitions and will be driven by Danellos and other growth initiatives such as expanding distribution and product over time. Secondly, as it relates to earnings power and operating performance, the points invested to consolidated and segment level adjusted EBITDA and margin which includes NCI. This captures how each business is performing regardless of our ownership percentage. And lastly, as it relates to earnings power to investors, shareholders, we would point to aggregate and segment level adjusted EBITDA to Ambac common shareholders.

David Trick: First we are driving total revenue growth as well as our organic revenue growth.

David Trick: <unk> growth measures the ability of our business to grow revenue absent acquisitions, it will be driven by de novo's and other growth initiatives, such as expanding distribution and product overtime.

David Trick: Secondly, as it relates to earnings power and operating performance.

David Trick: <unk> invested to consolidated and segment level, adjusted EBITDA and margin which includes Mci.

David Trick: This captures how each business is performing regardless of our ownership percentage.

David Trick: And lastly, as it relates to earnings power to investors.

David Trick: Shareholders, we'd point to aggregate and segment level adjusted EBITDA to Ambac common shareholders.

David Trick: This identifies what belongs to shareholders. Over time, based on how we have structured our acquisitions to date, consolidated adjusted EBITDA and adjusted EBITDA to Ambac common shareholders are likely to convert. Hopefully this helps clarify how we are viewing the business going forward.

David Trick: Identifies what belongs to shareholders.

David Trick: Over time based on how we have structured our acquisitions to date consolidated adjusted EBITDA and adjusted EBITDA to Ambac common shareholders are likely to converge.

David Trick: Hopefully this helps clarify how we are viewing the business going forward.

David Trick: With that said, for the fourth quarter of 2024, Ambac generated a net loss of $548 million, or $10.23 per diluted share. compared to a net loss of $16 million, or $0.24, per diluted share in the fourth quarter of 2023. Net loss from continuing operations attributable to Ambac Common shareholders was $22 million, or a positive $0.70 per share compared to $9 million, or $0.10 per share lost in the fourth quarter of 2020.

David Trick: With that said for the fourth quarter of 2024.

David Trick: Ambac generated a net loss of $548 million or $10 23 per diluted share.

David Trick: <unk> to a net loss of $16 million or 24 per diluted share in the fourth quarter of 2023.

David Trick: Net loss from continuing operations attributable to Ambac common shareholders was $22 million.

Paul: Sure Paul.

Paul: Positive <unk> 70 per share compared to 9 million or <unk> <unk> per share loss in the fourth quarter of 2023.

David Trick: EPS was positive in the fourth quarter of 24, even though we recorded a net loss due to the impact of lowering the carrying value of redeemable NCI upon remeasurement using the redemption value method. Such change is not reported through P&L, but represents a benefit to Ambac common shareholders that is required to be reflected in EPS.

Paul: EPS was a positive in the fourth quarter of 'twenty four even though we recorded a net loss due to the impact of lowering the carrying value of redeemable NCI upon re measurement using the redemption value method such.

Paul: So let's change it is not reported through P&L, but represents a benefit to ambac common shareholders that is required to be reflected in the EPS.

Paul: Consolidated adjusted net loss was $6 million or <unk> 12 per diluted share for the fourth quarter compared to adjusted net income of $4 million or <unk> 10 per diluted share in the fourth quarter of 2023.

David Trick: Consolidated adjusted net loss was $6 million or $0.12 per diluted share for the fourth quarter compared to adjusted net income of $4 million or $0.10 per diluted share in the fourth quarter of 2020. Our results for the fourth quarter of 2024 were impacted by several notable items, including, at Serrata, approximately $9 million of intangible amortization, up from $1 million, largely on account of the BEAT acquisition. At AFG, 8 million other non-operating losses and acquisition-related expenses incurred at AFG. including the write-down of a minority investment and some capitalized software expenses. And at Serrata, $6 million of interest expense on short-term debt related to the acquisition of B.

Paul: Our results for the fourth quarter of 2024 were impacted by several notable items, including at Cerrado approximately $9 million of intangible amortization up from $1 million largely on account of the bead acquisition.

Paul: At AFG 8 million of other nonoperating losses and acquisition related expenses incurred at AFG, including the write down of a minority investment and some capitalized software expenses.

Paul: And at <unk> 6 million of interest expense on short term debt related to the acquisition of beat that will be repaid from the proceeds of the sale of the legacy financial Guaranty business.

David Trick: That will be repaid from the proceeds of the sale of the legacy financial guarantee. The majority of these items were incurred in connection with the continued expansion and growth in our specialty PNC. Verada premiums place grew 309% to $205 million and total revenue increased by 257% to $44 million compared to the fourth quarter of 2023. For the year, total revenues grew to 99 million, or 93% compared to 2023. The growth in the quarter was driven primarily by the acquisition of B capital and strength in specialty commercial auto, partially offset by some softness in A&A. The consolidated adjusted EBITDA margin before the impact of non-controlling interest was 22.3% and 19.8% for the quarter and year respectively, compared to 14.2% and 22.3% for the fourth quarter and full year of 2023 respectively.

Paul: The majority of these items were incurred in connection with the continued expansion and growth in our specialty P&C business.

Paul: Pro rata premiums place grew 309% to $205 million and total revenue increased by 257% to $44 million compared to the fourth quarter of 2023.

Paul: For the year total revenues grew to $99 million or 93% compared to 2023.

Paul: The growth in the quarter was driven primarily by the acquisition of <unk> capital and strength in specialty commercial auto partially offset by some softness in anh.

Paul: The consolidated adjusted EBITDA margin before the impact of Noncontrolling interest was 22, 3% and 19, 8% for the quarter and year, respectively, compared to 14, 2% and 22, 3% for the fourth quarter and full year 2023, respectively.

David Trick: As previously outlined, adjusted EBITDA, a new non-GAAP metric, adjust EBITDA for acquisition expenses, equity compensation, severance and restructuring costs, along with other non-operating items. After the impact of non-controlling interest, adjusted EBITDA to Ambac common shareholders represents the current earnings power to investors, which was $5.3 million and $13.2 million for the quarter and year respectively. compared to $1.4 million and $9.4 million for the fourth quarter and full year of 2023 respectively.

Paul: As previously outlined adjusted EBITDA, our new non-GAAP metric adjusted EBITDA for acquisition expenses equity compensation severance and restructuring costs, along with other non operating items.

Paul: After the impact of non controlling interest adjusted EBITDA to Ambac common shareholders represents the current earnings power to investors, which was $5 3 million and $13 2 million for the quarter and year respectively.

Paul: Compared to $1 4 million and $9 4 million for the fourth quarter and full year of 2023, respectively.

David Trick: If looked at on a margin basis, adjusted EBITDA to Ambac common shareholders will be lower by the impact of non controlling So for instance, the full year 2024 adjusted EBITDA margin was 19.8%, while the adjusted EBITDA margin to common shareholders was 13.5%. We understand that this can risk leading to some confusion, however, we believe there is sufficient value in recognizing these distinctions.

Paul: If looked at on a margin basis, adjusted EBITDA to Ambac common shareholders will be lower by the impact of Noncontrolling interests.

Paul: So for instance, the full year 2024, adjusted EBITDA margin was 19, 8%, while the adjusted EBITDA margin to common shareholders was 13, 5%.

Paul: We understand that this can risk leading to some confusion. However, we believe there is sufficient value and recognizing these distinctions.

David Trick: This quarter's insurance distribution segment results were affected by several items worth highlighting. During the quarter, DeNovo's startup expenses impacted adjusted EBITDA by approximately $3.8 million and adjusted EBITDA to common shareholders by $2.4 million. While these losses suppress earnings in the short term, they are an investment which will help drive future organic growth. It will be variability in these startup expenses, but they will diminish relative to overall results as we continue to grow. We incurred 1.5 million of net foreign exchange gains as Beats Functional Currency of the Pound. Since BEAT does a significant amount of business in U.S.

Paul: This quarter's insurance distribution segment results were affected by several items worth highlighting.

Paul: During the quarter de Novo startup expenses impacted adjusted EBITDA by approximately $3 8 million and adjusted EBITDA to common shareholders by $2 4 million.

Paul: While these losses depressed earnings in the short term they are an investment which will help drive future organic growth.

Paul: There will be variability in these startup expenses, but they will diminish relative to overall results as we continued to grow.

Paul: We incurred $1 5 million of net foreign exchange gains at <unk> functional currency of the pound.

Paul: Since Pete does a significant amount of business in U S dollars and other currencies, we will experience foreign exchange gains and losses associated with the value of the pound.

David Trick: dollars and other currencies, we will experience foreign exchange gains and losses associated with the value of the pound. He historically hedges approximately 50% of his estimated exposure.

Paul: Historically hedges approximately 50% of its estimated exposure.

David Trick: EverSpan's net premiums written were a negative $3 million in the quarter, down from $37 million in the prior year period due to the non-renewal of a Personal Alliance NSA reinsurance program triggering return premiums of $19 million and the shift of a commercial auto program from a net retained to a fully fronted program. For the year, gross and net premium written was $383 million and $89 million, up 40% and 11% respectively. Earned premium and program fees were $19 million and $4 million, down 24% and up 62% respectively in the fourth quarter of 2023, resulting from the shift in program dynamics I noted earlier.

Paul: Ever spans net premiums written were a negative $3 million in the quarter down from $37 million in the prior year period due to the non renewal of our personal lines MSA reinsurance program, triggering return premiums of $19 million and the shift of the commercial auto program from our net retained.

Paul: To a fully fronted program.

Paul: For the year gross and net premium written of $383 million and $89 million up 40% and 11% respectively.

Paul: Earned premium and program fees were $19 million of $4 million down, 24% and up 62% respectively from the fourth quarter of 2023, resulting from the shift in program dynamics I noted earlier.

David Trick: The loss ratio of 51.9% in the fourth quarter of 2024 improved from 67.4% in the fourth quarter of 2023. The quarter benefited from favorable development across a number of programs and improved diversity in the net retained book. Despite this improvement, the result included prior accident year development in the quarter of 8.6 percent, with approximately 3.3 percentage points of that stemming from a management decision to reserve to the high end of the actuarial range on runoff programs. Runoff programs can be more volatile than active programs, and therefore, management believes that this decision was prudent. The total impact for the quarter of this reserve shift was 1 million or 5.4 points of loss rate.

Paul: The loss ratio of 51, 9% in the fourth quarter of 2024 improved from 67, 4% in the fourth quarter of 2023.

Paul: <unk> benefited from favorable development across a number of programs and improved diversity in the net retained book.

Paul: This improvement is a result included prior accident year development in the quarter of eight 6%.

Paul: With approximately three three percentage points of that stemming from a management decision to reserve to the high end of the actuarial range on run off program.

Paul: Runoff programs can be more volatile than active programs and therefore management believes that this decision was prudent.

Paul: Total impact the quarter of this reserve shift was $1 million or five.

Paul: Four points of loss ratio.

David Trick: Expense ratio of 44.6% in the fourth quarter of 2024 was up from 32.9% in the prior year quarter, with the increase mostly driven by changes to sliding scale commissions, which are recorded against acquisition costs and linked to loss performance. For the fourth quarter of 2024, sliding scale commissions produce an expense ratio charge of 14.9% compared to a benefit of 1.2% last year. The resulting combined ratio for the fourth quarter was 96.5 percent, an improvement of 380 basis points from the respective prior year period. The year-to-date combined ratio of 101.6% is down 490 basis points. from 106.5% last year.

Paul: The expense ratio of 44, 6% in the fourth quarter of 2024 was up from 32, 9% in the prior year quarter.

Paul: With the increase mostly driven by changes to sliding scale commissions, which are recorded against acquisition costs and linked to loss performance.

Paul: For the fourth quarter of 2024 sliding scale commissions produce an expense ratio of charge of 14, 9% compared to a benefit of one 2% last year.

Paul: The resulting combined ratio for the fourth quarter was 96, 5% an improvement of 380 basis points from the respective prior year period the.

Paul: The year to date combined ratio of 101, 6% is down 490 basis points.

Paul: From 106, 5% last year to date.

David Trick: For the quarter, Erispan produced just under $3 million of adjusted EBITDA to common stockholders, compared to just over $1 million for the fourth quarter of 2023. For the year, Everspan produced over 5 million of adjusted EBITDA to common stockholders compared to just under 1 million for 2020.

Paul: For the quarter <unk> produced just under $3 million of adjusted EBITDA to common stockholders.

Paul: <unk> to just over $1 billion for the fourth quarter of 2023.

Paul: For the year span produced over $5 million of adjusted EBITDA to common stockholders compared to just under $1 million for 2023.

David Trick: As previously mentioned, we switched to health for sale accounting for legacy business in the fourth quarter. For the quarter and year, the net loss from discontinued operations totaled 526 million. 497 million, respect.

Paul: As previously mentioned, we switch to held for sale accounting for the legacy business in the fourth quarter for the quarter and year. The net loss from discontinued operations totaled $526 million and $497 million respectively.

David Trick: During the fourth quarter of 2024, our discontinued operations produced a net profit of 44 million, which was mostly driven by higher discount rates, favorably impacting incurred losses. partially offset the $570 million estimated loss on sales.

Paul: During the fourth quarter of 2020 for our discontinued operations produced a net profit of $44 million, which was mostly driven by higher discount rates favorably impacting incurred losses, which partially offset the $570 million estimated loss on sale.

David Trick: AFG on a standalone basis, excluding investments and subsidiaries had cash investments and net receivables of approximately 119 million or $2.56 per share as of the end of the fourth quarter.

Paul: AFG on a stand alone basis, excluding investments in subsidiaries had cash investments and net receivables of approximately $119 million or $2 56 per share as of the end of the fourth quarter.

Claude LeBlanc: I will now turn the call back to Claude for some closing remarks. Thank you, David. As we reflect on 2024 and look ahead to 2025 and beyond, I am proud of what our team has accomplished, and even more excited by the prospects of Ambac's future.

Claude: I will now turn the call back to Claude for some closing remarks.

Claude LeBlanc: Thank you David.

Speaker Change: As we reflect on 2024 and look ahead to 2025 and beyond I am proud of what our team has accomplished and even more excited by the prospects of Amdocs future.

Claude LeBlanc: I believe Ambac offers a unique value proposition in the market to both our MGA partners and to investors alike, being a business dedicated to the specialty MGA and delegated authority programs. We expect that this differentiation will become more visible with the separation of our legacy financial guarantee business. Given the timing for the close of our legacy business, we will be revisiting our 2025 guidance following the close. However, we remain focused and believe on track towards achieving our long term goals of strong organic growth and generating 80 to 90 million of adjusted EBITDA to Ambac common shareholders in 2028.

Speaker Change: I believe ambac offers a unique value proposition in the market to both our MGA partners and to investors alike.

Speaker Change: Being a business dedicated to the specialty MGA and delegated authority program space.

Speaker Change: We expect that this differentiation will become more visible with the separation of our legacy financial Guaranty business.

Speaker Change: Given the timing for the close of our legacy business, we will be revisiting our 2025 guidance following the close.

Speaker Change: However, we remain focused and belief on track towards achieving our long term goals of strong organic growth and generating $80 million to $90 million of adjusted EBITDA to ambac common shareholders in 2028.

Claude LeBlanc: I look forward to updating you on our progress in the coming quarter.

Speaker Change: Look forward to updating you on our progress in the coming quarters.

Operator: Operator, please open the call for questions. Thank you.

Speaker Change: Operator, please open the call for questions.

Speaker Change: Thank you.

Operator: Ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: If you'd like to ask a question. Please press star and one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is it the question queue.

Speaker Change: You May press star two if you'd like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.

Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.

Deepak Sarpangal: The first question comes from the line of Deepak Sarpangal from Repertory Partners. Please go ahead. Hey, Claude. Hey, David. Hey, Chuck. Good morning.

Speaker Change: The first question comes from the line of Deepa <unk> from <unk> partners. Please go ahead.

David Trick: Hey, David Good morning.

Deepak Sarpangal: Two questions, one on the distribution side and one on the specialty PNC side. On the distribution business... The you called out a couple of specific lines in the market, short term medical and another one that were weaker. Do you expect that to persist? And how should we think about, you know, the prospects for, you know, for that? Is that temporary? Is that going to be offset, etc?

David Trick: Two questions one on the distribution side and one on these specialty P&C sites on the distribution business.

David Trick: The you called out a couple of specific lines in the market short term medical and <unk>.

David Trick: The one that were weaker.

David Trick: You expect that to persist and how should we think about.

David Trick: The prospects for.

David Trick: To date that temporary that can add in.

David Trick: It would be offset et cetera.

Deepak Sarpangal: And then my question on the specialty PNC side was, I was quite positively surprised by the kind of continued progress there. And the combined ratio do Is that expected to be sustainable? Or how do you expect that, you know, the combined ratio to evolve there? You know, it seemed like really great progress recently. But is that, is there anything temporary there? Or, you know, how should that look going forward?

David Trick: And then my question on the specialty P&C side was.

David Trick: I was positively surprised by that.

David Trick: Continued progress there in the combined ratio due.

David Trick: Is that expected to be sustainable or how do you expect the combined ratio to evolve there.

David Trick: It seemed like really great progress recently, but is that is there anything temporary there or.

David Trick: Should that look going forward.

Claude LeBlanc: Good morning, Deepak. It's Claude here. Thanks for your questions. Starting with the distribution, the areas that we saw some softening and some contraction based on market conditions were employer stop loss and short-term medical. And in the employer stop loss area, we've seen a lot of deterioration in that sector of the A&H market. And it's been pretty widespread, so we could consider that more of a macro trend. But we do believe that there could be some stabilization coming in the near future. So that's something that we're keeping an eye on, but staying disciplined in terms of the selection of risk and the pricing of risk in that segment.

Claude: Hey, good morning, Deepak, it's Claude here, Thanks for your questions starting.

David Trick: Starting with the distribution.

David Trick: The areas that we saw some <unk>.

David Trick: Softening in some contraction based on market conditions, where employer stop loss.

David Trick: In short term medical and employer stop loss area, we've seen a lot of deterioration in that sector of the ADH market and.

David Trick: It's been pretty widespread so consider that more of a macro trend but.

David Trick: But we do believe that there could be some stabilization coming.

David Trick: In the near future.

David Trick: So that's something that we're keeping an eye on but that's being disciplined.

David Trick: In terms of the selection of risk and the pricing of risk in that segment.

Claude LeBlanc: In terms of short-term medical, that's an area that had some challenges around the past administration, but we do believe it's one that will revert back to a more steady state in the coming quarters with the new administration in place. So I think we feel pretty positive on that one. But overall, on the A&H segment, I'd just like to say that we are growing significantly across various areas in A&H. It's really the ESL that's been the biggest challenge that we've seen in the marketplace.

David Trick: In terms of short term medical that's an area that had some.

David Trick: Challenges around the past administration, but we do believe it's one that will.

David Trick: Revert back to a more steady state and the <unk>.

David Trick: In the coming quarters.

David Trick: With the new administration in place. So I think we feel pretty positive on that one.

David Trick: But overall on the Anh segment I'd, just like to say that we are growing significantly across.

David Trick: Various areas in A&H.

David Trick: Really the ESL that's been our biggest.

David Trick: Challenge that we've seen in the marketplace.

David Trick: I'll let David handle the second question. Thanks, Deepak. So in terms of Everspan, I think our focus really is on profitability of that business, you know, growth is important, but profit is our focus. And, you know, for the quarter, there was, you know, certainly some programs we saw improvement on, there's some programs, as I mentioned in some of the remarks that that we saw deterioration on, and that's ultimately what a balanced book, you know, normally would would how it normally behave. So I think when we look at our effective loss ratios, looking through, you know, what we we booked to in the quarter, and what we experienced in terms of sliding scales and, and the like, which, you know, offset some of the benefit of on the loss ratio, we're looking at effective loss ratios in the, you know, the mid mid 60s.

David Trick: I'll, let David handle the second question.

David Trick: Sure. Thanks Deepak.

David Trick: In terms of.

David Trick: Ever spend.

David Trick: Our focus really is on profitability of that business growth is important but profit is our focus and for the quarter. There was certainly some programs we saw.

David Trick: Moving on there are some programs.

David Trick: You mentioned in some of the remarks that.

Speaker Change: That you.

Speaker Change: We saw a deterioration on and Thats ultimately, what a balanced book normally wood wood.

Speaker Change: Behave so I think when we look at our effective loss ratios.

Speaker Change: Looking through.

Speaker Change: What we spoke to in the quarter.

Speaker Change: And what we experienced in turn was sliding scales and alike, which offset some of the benefit on the loss ratio, we're looking at effective loss ratios.

Speaker Change: The mid mid <unk> and Thats.

David Trick: And that's, you know, very much in line with our long term goals for Everspan. So, you know, we, you know, view that is, is something that we're shooting for, there's always going to be some variability based on developments in the markets, and whether there is, you know, certain losses that incurred, but over the long term, the performance of the quarter is consistent with learned long term objectives, the business. Got it. Thanks.

Speaker Change: Very much aligned with our long term.

Speaker Change: Goals for ever spend so we view that as something that.

Speaker Change: We're shooting for is always going to be some variability based on developments in the markets and whether there is certain losses that incurred but over the long term.

Speaker Change: Performance for the quarter is consistent with our long term objectives of the business.

Speaker Change: Got it thanks, we're looking forward to the.

Deepak Sarpangal: Well, looking forward to the final close of the of the Legacy Business Seal, as I suspect you are as well. We are as well, Deepak. Thank you.

Speaker Change: Final close at the.

Speaker Change: The legacy business sale as I suspect you are as well.

Speaker Change: We are as well Deepak.

Speaker Change: Sounds great. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: Ladies and gentlemen, as there are no further questions, that concludes the question and answer session and also the conference of Ambac Financial Group has now concluded. Thank you for your participation. You may now disconnect your line.

Speaker Change: Ladies and gentlemen.

Speaker Change: No further questions that concludes our question and answer session and also the conference of Ambac Financial Group has now concluded.

Speaker Change: Thank you for your participation you may now disconnect your lines.

Speaker Change: [music].