Q3 2025 Ambac Financial Group Inc Earnings Call
Speaker #3: For those joining our call today, we are excited to welcome you to the inaugural earnings call for Octave Specialty Group. The new name and brand replacing AMBAC Financial Group, which we announced last night.
Speaker #3: We have a number of significant updates to share with you today. I will start by providing you with key highlights for the quarter, followed by David, who will cover our financial update.
Speaker #3: Following David's remarks, I will provide an overview of key themes included in the new investor presentation posted to our website last evening. Today begins a new era for our company as a pure-play specialty P&C insurance business.
Speaker #3: This transformation reflects the culmination of years of hard work, underscored by significant milestone achievements starting with the successful restructuring and exit from rehabilitation of our financial guarantee business in 2018, ultimately leading to its recent sale.
Speaker #3: In parallel, we defined a vision and strategy for our new business, which we launched just under five years ago. These accomplishments have progressed our company from a runoff business with no access to future distributable earnings to a thriving, high-growth insurance distribution platform.
Speaker #3: I am very proud of our accomplishments, and I want to thank our employees, board of directors, and others who have supported us throughout this monumental transformation.
Speaker #3: Turning to our quarterly highlights and progress against our recently announced 120-day plan. I am pleased to report we have made material progress against this plan, including one, the launch of Octave Specialty Group, our new corporate brand and vision.
Speaker #3: Two, we made material progress in executing our capital management plan, completing repurchases totaling $3.1 million shares or $6.5% of weighted average shares of standing.
Speaker #3: Three, we undertook additional material corporate expense reductions this quarter that will result in more than a $10 million decrease in our run-rate adjusted corporate expenses.
Speaker #3: And four, in addition to the successful close of the sale of our legacy financial guarantee business to Oaktree, for $420 million, we announced and closed the purchase of our Medicare, a leading specialty A&H MGA platform.
With respect to our organic growth initiatives, we announced the launch of a new professional Alliance MGA 1889 specialty Insurance Services.
The launch of the Allure USM and we converted our investment in the recently. Launched pivx. MGA led by Mac Miller to a majority stake, bringing our total class of 2025 mg startups to 3.
We expect to continue to make material progress on our strategic initiatives. During the fourth quarter, positioning our company for strong performance in 2026 and Beyond.
As we enter 2026, we expect to maintain robust or organic growth. Bolstered by continued momentum across our core businesses, including the significant number of startups launched in the 2024 and 2025 period.
We also remain focused on reducing corporate expenses to a more cost-efficient and sustainable level with an initial Target of approximately 30 million of adjusted expenses for 2026.
Capital Management continues to be a top priority Guided by our multi-pronged strategy, that includes investment and startups.
Organic growth opportunities.
Share repurchases.
Selective and disciplined acquisitions, along with continued investments in data, AI, and core technologies, will advance growth opportunities and lead to reductions in operating expenses.
We look forward to providing you with guidance for 2026 during our fourth quarter, earnings call.
Before I turn it over to David, I would like to share some further thoughts on our new brand, octave Specialty Group.
Our new brand is much more than a name. Change it is tied to a New Vision strategy and culture that defines our business and our future.
We've evolved from a capital business to 1, that is defined by people and services working in a collaborative and entrepreneurial ecosystem.
We Believe octave captures the essence of who we are today. A collection of unique high-performing businesses working in harmony,
I should note that our aligned capacity, including our Lloyd's syndicates and our span, will retain their brand identity, as will the individual MGAs within our portfolio.
The new octave brand encompasses the holding company.
Octave Specialty Group, along with our 2, Insurance distribution, divisions, formerly known as SATA and B.
I will now turn the call over to David to walk us through our financial results for the quarter. David.
Thank you, Claude and good morning everyone.
For the third quarter of 2025 and back, reported a net loss from continuing operations to shareholders of 32 million or 67 cents per diluted share compared to a loss of 18 million or 43 cents per share in the third quarter of 2024.
The higher loss was driven by a $15 million combined increase in intangible amortization and interest in GNA expenses.
Coupled with the impact of ever span's prior period 7 and a half million dollar gain on the sale of Scenic all of which more than offset stronger results in the insurance distribution segment.
The third quarter of 2024 also benefited from by a 4.8 million gain at corporate on a FX hedge related to the July 2024, acquisition of B.
Production initiatives.
It is worthy to note that the debt used to finance a portion of the acquisition of Beat was repaid with the proceeds from the sale of AEC.
Adjusted ibida from continuing operations to stockholders was a loss of 3 million compared to a sub 2 million dollar gain in the third quarter of 2024.
The reduction in adjusted EBITDA resulted from the $4.8 million FX gain in the third quarter of 2024.
A 1 and a half million dollar reduction in ever span adjusted ibida and 1.2 million of corporate expenses, mostly related to m&a and Legacy litigation.
These variances more than offset, a 3-fold increase to 6 million in adjusted ibida in the insurance distribution segment.
With regards to the insurance distribution, segment Revenue increased by 80% compared to the third quarter of 2024.
To 43 million. This growth was driven mostly by strong organic growth, which was 40% and the inclusion of an additional month of beat results.
On an operating basis, that is, before the impact of NCI, Insurance distribution reported 10 million of adjusted ibida producing a 23% margin compared to 3 million and 11.1% margin in the third quarter of 2024.
Adjusted ibida to shareholders was 6 billion for the quarter at a 13.9% margin up. 183% compared to 2.1 million at an 8.8% margin for the third quarter of 2024.
The increased margin the shareholders in the third quarter of 2025 versus 2024 is mostly related to the strong organic growth and higher profit commissions and fees.
Included in this quarter's Insurance distribution. Segment results was just over 1 million of denovo, losses, approximately 700,000 in width, 700,000 of, which were attributable to shareholders.
As noted previously, our margins can be expected to flex a bit period to period depending on the relative performance of each, MGA compared to our ownership level. However, we'll converge over time with margins on an operating basis as we buy in certain NCI.
Ever spends, net written and net earned premium in the quarter, where 18 million and 17 million.
Down from 33 million and 27 million respectively from the prior year period.
Due to the previously. Disclosed proactive, non-renewal of certain personal and Commercial Auto programs.
While reported losses in the Le declined year-over-year, the loss ratio increased to 84.5% in the third quarter of 2025.
from 74.4% in the third quarter of 2024
Adverse development accounted for just over 23 percentage points of this quarter's loss ratio do mostly to development in runoff Commercial Auto programs.
These losses were partially offset by a sliding scale commission benefit of approximately 7 percentage points recognized as an offset to acquisition costs.
in force, programs are running in the mid-60s, materially better than the book and runoff and in line with our expectations
The third quarter expense ratio of 28.4% was up from 26.1% in the prior year quarter.
This increase was driven by a shift in mix of business and a reduction in earned premiums resulting in approximately 3 and a half points of increase in the acquisition cost and GNA expense ratios.
partially offset by a 5-point increase in the sliding scale benefit.
As everspan is experiencing steady growth in earned premiums sequentially. We continue to expect the expense ratio to improve.
The resulting combined ratio for the third quarter of 112.9% compared to 10.5 100.5% in the prior year period.
For the quarter ever, Span was break-even on an adjusted EBITDA basis, which was down from $1.6 million in the third quarter of 2024.
Corporate GNA. Expenses were 26.6 million in the quarter compared to 27.2 million in the third quarter of 2024.
On an adjusted basis, GNA expenses were $9.3 million compared to $8.5 billion in the third quarter of 2024.
From the Legacy business and expense reduction initiatives.
We outlined in our investor materials certain select expense reduction initiatives, which include, for example, the termination of our corporate headquarters leases.
These select initiatives are estimated to generate over 17 million of reported expense savings and will have over a $10 million impact on adjusted corporate ibida when fully complete.
I will now turn the call back to close.
Thanks David.
I would now like to review key themes and select information set out in our investor presentation posted last night.
Starting with slide 5, outlining the key actions we have taken to reposition Octave, along with our go-for-value creation opportunities.
1 platform expansion.
Since beginning, our journey 5 years ago, with expanded from 1 M to 22, including our modicare.
On a pro-forma basis. Our Revenue has grown more than 7-fold since 2021.
2, a creative m&a, transactions.
We have a proven track record of attracting High performing, mgas to our platform. Most recently demonstrated by the acquisition of beat in 2024 and our Medicare last week.
3, expense reductions as noted we have already taken significant steps to reduce our corporate expenses across both compensation and non-comp areas and will continue to pursue additional measures to align our cost structure with a scale of our business.
And 4 Capital allocation.
We take a disciplined approach to Capital allocation balancing, the return of capital against other strategic uses.
We believe the actions. We have taken to date position us to deliver sustainable long-term shareholder value.
Moving to slide 11.
Consistent with the expansion of our business. We have built a leadership team that I am incredibly proud of, at a team with an average of more than 30 years of Industry experience, deep expertise, across Market, cycles and Broad subject matter knowledge.
Combined with our extensive industry relationships and Market visibility this experience provides sign significant value to the mg Partners on our platform.
Moving the slide 13.
We Believe octave is uniquely positioned and differentiated in the MGA sector as a strategic operator. Having a true partnership model to align interests with our mg leaders as a pure play. MGA platform, having a holistic and unified Business, Service platform and align capacity through our Lloyd syndicates and everspan.
Moving to slide 14.
Our platform is uniquely positioned to deliver value through 2, complimentary growth engines, our denovo, incubation division, octave Ventures, led by John Kavanagh and Paul Rayner, and our m&a division octave Partners led by Naveen Annan.
Both are supported by access to broad, aligned, and curated third-party capacity, relationships, including our Lloyd syndicates and Everspan.
This dual strategy has created a diversified High performing platform where our mg Partners operate independently. But was shared alignment supported by our comprehensive, technology-led Business Services platform.
now, taking a closer look at our Ventures division on slide, 16,
this division is built on a strong Foundation that allows us to consistently track top, performing underwriting teams.
We offer them.
A broad wholesale and Retail distribution Network.
A strong network of aligned and curated third-party capacity partners.
Access to a stable Capital base, and an experienced leadership team, providing strategic oversight and direction.
And an integrated technology-enabled Business Services infrastructure.
To date. We've made targeted investments in high-performing underwriting teams with proven track records in the respective markets.
We generally expect these mgas to reach profitability within 18 to 24 months.
Our UK mgas typically achieve scale in approximately 3 years while in the US, the timeline is slightly longer but generally offers a much larger addressable market and stronger long-term growth potential.
The 9 U mga's launched in 2024 and 2025 will be a key driver of ibida. Margin expansion as a scale and Achieve profitability over the next 3 years.
Turning to our partner division on slide 17.
To entry.
When evaluating m&a opportunities, we focus on businesses that have the following attributes.
natural entry barriers and strong Market positioning
A proven track record of underwriting excellence.
Owners willing to retain Equity to ensure an aligned partnership.
A strong cultural fit.
A clear and sustainable growth trajectory and identifiable Enterprise synergy.
Our partners division has enabled us to achieve substantial product diversification in businesses supported by Leading mg entrepreneurs.
Turning to slide 18.
Once launched or acquired our Focus shifts to growth and margin expansion for RMG platform.
We utilize a number of key growth in margin. Drivers, including expanded carrier relationships.
Producer Network growth.
Digital platform enhancements.
Producer and coverage expansion.
Geographic Market expansion.
And cross-selling and Revenue synergies.
This is supported by streamlined shared services, supported by tech-enabled infrastructure that enables underwriting discipline and accelerates speed to market.
Looking ahead to our aspirational, 800 million IBA dog goal for 2028 on slide 24.
This table represents our initial targeted aspirational goal we shared with investors earlier this year.
We wanted to provide you with an update on our progress to date, including additional information supportive of our growth.
On slide 25, we provide additional information, showcasing octave Ventures, strong organic growth.
2025, year-to-date organic Revenue growth for octave Ventures, stands at 47%.
As we previously outlined, bottom line, the EBITDA expansion has a development curve that follows top-line growth as MGAs reach break-even and later critical scale.
With a 9 MGS launched completed in 2024 and 2025 octave Ventures has significant potential built-in. EBA growth and margin expansion, which we expect will push through in the 2026 to 2028 period.
As it relates to another key, Ibedc growth driver on slide 26, we provide a schedule of beat and other MGA call put dates.
The most significant ibaa, Buy in Opportunity will be driven by B, where we will have the opportunity to buy in the remaining 40% over the next 4 years.
finally, on slide 27, we provide an outline of key, corporate expense reductions
As previously addressed by David.
In summary, we remain confident in our ability to reach our aspirational 2028 goal of 80 million of ibida. Understanding that the individual contributing components in reaching that goal, may vary, as we progress through our growth cycle,
The next chapter of our journey is now in full flight, and I am very excited about the enormous progress we've made in a short amount of time.
Thank you for your continued support. I am truly, optimistic about the road ahead and the octave chapter
With that operator, please open the call for questions from analysts.
Thank you. Will that be conducting a question and answer session?
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One moment, please. Will we pull for questions? Thank you.
Thank you. Our first question is from the line of Mark Hughes with Truist Securities. Please receive your questions.
Yeah, thank you. Good morning.
The organic growth of 40% in the uh, distribution business, quite strong. Could you talk about the? I think you'd said in q1 and Q2 the
If you had Incorporated beat the growth, would have been in the teams. I think, low teens upper teens, um, obviously nice acceleration and the third quarter. I wonder if you could talk about uh, what contributed to that and were there any say, contingent or performance-based commissions, that might be non-recurring that uh contributed to that 40%.
Hi Mark. Uh, David. Thanks for the, uh, thanks for the question. Uh, know. I think the it was really driven by just momentum in the business. Uh, there's, you know, no profit commissions or contingent commissions that are included in the revenue numbers, for the calculation of of organic growth. Uh, no impact from FX either. Uh, so it is a purely uh, same store sales, uh, type of calculation and what, uh, we've seen is just, you know, continue momentum in the business as a number of the, uh, MJ that we have. It, it started to particularly want to have started up in, uh, 23 and 24, uh, have started to really build, uh, momentum, uh, in terms of their of their business. So just, you know, a solid quarter, uh, with, you know, growth moving in line with our, you know, expectations, for a number of the businesses as we had, uh, set those expectations when we launched
launch them.
Very good. And then the, uh,
Third-party capacity. I think you've highlighted the 1.5 billion in capacity for 2025.
How is that? Shaping up, if you've got 40% organic, uh,
That presumably suggests, uh, you're going to need some more capacity to back the distribution business. How should we think about that going into 2026?
Yeah, at this time, Mark. We we believe we have, uh, sufficient capacity for, uh, the business. The 1.5 does not include, uh, the new business of armada care which, you know, is coming online, October 1st. Uh, just to point that out. It also does not include everspan, uh, so we believe we have sufficient capacity. We had, uh, interest from, uh, Capital providers that well exceeded. Uh, what we think our needs are for next year. So in the event that, um, additional capacity were needed. We are very confident. We would, uh, be able to get that capacity.
Very good and then uh, we think about Capital allocation. I think you've made the point that
of your expected M&A on, uh,
The distribution side: You've achieved 80% of your target with our Modicare.
When we think about, uh, uses of capital, the uh, non-controlling interests would be 1. But um, what would be the priority? The pay down debt buyback stock additional m&a, perhaps above and beyond that. Uh,
That target. How do we think about uses of capital?
I think, um, you know, we're obviously very focused on balancing, uh, these various, uh, interests or Capital, but I would put them in the, you know, strategic launches as being, uh, a continued focus of ours. As we are a a very, uh, growth focused business. Uh, we will look at uh deployment of some Capital potentially in m&a. Although I don't believe they'll be any large m&as in in the near future, uh, given our focus on organic growth. Uh, we'll certainly continue to look at uh, share BuyBacks. It's also very important component, uh, especially given where our current stock price, uh, or recent stock price has been, um, and we're also going to continue, uh, investing in select, uh, m&a, uh, data and Technology, uh, platforms as we continue to, um, build out our, uh, our infrastructure and support for our, uh, various, uh, businesses.
Yeah, I I did have 1 real specific question. Um,
The timeline of acquisition the non-controlling interest. Uh, the beat, um,
the, uh, 10% per year understand that the MGA
1 is uh, the uh,
Uh, one of the other. The single MGA, that's, uh, you're looking at a 2026 buy-in of that non-controlling interest. How much capital, uh, roughly at this point, is uh, is involved in that?
MGA 120% piece. Sorry. No, that's a little detail, but just sort of curious the magnitude of, uh,
What the your your capital?
Uh, spending would be on that and then the associated uh,
Ibida. If, if you have some thoughts there,
Sure, I'm Mark. So that is not a significant amount of capital, and...
Today would be less than double-digit capital commitment, and it would not, um,
And the management team hasn't decided whether they would put, and we would have a conversation with the management team to talk about what's the best path forward for the business and for them. So it would be done in a collaborative way, but not a significant financial commitment.
Okay, that's helpful. Thank you. I had a couple more questions. I'll get back in the queue. Thank you.
Thank you.
Reminder to ask a question at this time, you may press star 1 from your telephone keypad.
Our next question is follow up from the line of Mark, Hughes true security, please proceed to your questions.
Yeah, thank you. Um, in uh, everspan, what should we think about the premium Outlook there? You've had some adjustments have been focusing on your, uh, more more profitable programs. Is there kind of a run rate to think about going into 2026,
Yeah. Mark. I mean, if you look at the last, um, couple quarters, you know, in 2025, right? We've seen this relatively um, controlled modest, you know, growth on a sequential basis. Uh, so that, you know, is what I would expect to continue through, uh, the end of the year and to 2026, you know, sometimes, you know, due to some seasonality depending on programs that come online.
Uh, and a number of other factors that are, you know, somewhat unique to the program business, you can get a little jumps and, uh, Bobs and weeds, if you will. Uh, but generally speaking, we're looking to, you know,
grow that, um, Top Line at a relatively controlled pace. So, I think the prior, uh, guidance that we give them is around 400, uh, million for this year, I'd say we'd probably be in the, you know, kind of 370 380 or so this year, um, based on, you know, the current Pace uh, unless there's, you know, a little bit of a, a year end, um, you know, burst from, you know, just some of the underlying mgas and then next year, um, while we have them pull out fully a guidance, we would we, you know, continue to expect some of that modest growth. So you know, somewhere north of, you know, 400 million. But um, yeah, not looking to push the top top line.
Yeah.
And then, uh, interest expense, uh, post the automatic there and what's the uh, run rate on interest expense.
For okay, that'll be about 7 million about the full year to spend next year. Probably run around what the average quarterly was, uh, for the year. So it's significant drop in interest expense.
Yeah. Yeah and then uh just to make sure I've got it straight to I think you provide you talk about IBA do margins kind of the or even thought ratios 5 to 7%?
Relative to written premium. When you think about Revenue to written premium.
um, I wonder if you could, uh, if you have any
Uh, specific numbers there, that you might share when thinking about that. Uh,
That Outlook.
Yeah. That's that's a little more challenging because it does um really depend on the underlying business. Uh and what I mean by that is there are a number of businesses um that you I would say you know our average let's say 20 uh
20% of Premium production would be your Revenue number. Uh, but there's also, uh, businesses that we report because of the nature of the contract. Uh, are a commission? Income is reported on a net basis. Uh, so what do you wind up? Having is some, you know, kind of, um, adjustments to that ratio based on both seasonality and, uh, relative growth. Uh, so as that, uh, the business that, um, you know, reports on a net grows, then that ratio of Revenue to
Premiums place will would come down but at the end of the day, the bottom line result, um, wouldn't shift dramatically and that's why we're, you know, focused more on the bottom line results relative to that premium as opposed to the the nuances of the, you know, the you know Revenue recognition at at the Top Line.
Understood am I right in thinking that's largely the UK versus the US.
That's, that's primarily the difference. That's correct.
Yeah. Okay.
um,
Thanks Mark.
Thank you at this time. This will conclude today's question and answer session. It will also conclude today's conference, we thank you for your participation. You may now disconnect your lines and have a wonderful day.