Octave Specialty Group, Inc. (OSG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Jeffrey Stein, and I am the Chairman of Ambac Financial Group. It is my pleasure to welcome you to our 2021 Annual Stockholders Meeting. As you know, due to the continued public health concerns resulting from COVID-19 and government recommended and required limits on public gatherings and to protect the health and safety of the company's stockholders, directors and officers, the Board of Directors determined that the 2021 annual meeting will be held in a virtual-only meeting format. This meeting is being held as scheduled in accordance with the notice of the annual meeting. Under our bylaws, as Chairman of the Board, I will be presiding at the meeting today. It is my pleasure to welcome the other members of our Board of Directors who are all in attendance and along with myself, have been nominated to continue as directors: Alexander D. Greene; Ian D. Haft; David L. Herzog; Joan Lamm-Tennant; C. James Prieur, Claude LeBlanc, our President and CEO. Our agenda for today's meeting will have 2 parts. I will turn over the first part to our Assistant General Counsel and Corporate Secretary, Bill White, who will walk you through today's formal business, including the 3 proposals for stockholder consideration. I will then come back and introduce Claude LeBlanc, who will give a brief update on the company. After that, we will open it up for Q&A. In keeping with the digital approach to this year's meeting, it is now shortly after 10:30 a.m. Eastern Time on May 25, and this meeting is officially called to order. I will now turn it over to Bill to continue the meeting. Bill?

Thank you, Mr. Chairman. Before we start our formal meeting, I would like to run through a few rules and formalities for the meeting. First, please note that this meeting is being recorded. However, no stockholder or other person attending via webcast is permitted to use any audio recording device. Secondly, the agenda for today's meeting is set forth on the meeting web portal, along with the rules of conduct for this annual meeting. It is our intention to conduct this meeting in accordance with the agenda and the rules of conduct considering only those items that are properly presented. To conduct an orderly meeting, we ask that participants adhere to the agenda and abide by the rules of conduct. We will start with a review of the formalities of the meeting. The polls will then open for voting. Once the votes have been cast and the other formalities of the meeting have been completed, Mr. LeBlanc will speak. Questions will be addressed after Mr. LeBlanc's comments and the formalities of the meeting have been completed. Only validated stockholders may ask questions in the designated field in the web portal. We will do our best to answer as many questions as time allows. If we are not able to answer your question today or if you have other questions about Ambac, please feel free to contact Lisa Kampf in our Investor Relations department. Ms. Kampf's contact details can be found on our website. We are also joined here today by representatives of KPMG, our independent auditors. They will be available during the question-and-answer session after the meeting to respond to appropriate questions. I'd also like to introduce Ms. Anna Hagberg and Mr. Peder Hagberg from Broadridge Financial Solutions. They've been duly appointed by the Board as inspectors of election for today's meeting. I have presented to our inspectors the list of stockholders entitled to vote at this meeting and have received from them, the oath of the inspectors of election, which they swear to perform their duties with strict impartiality. They will be tabulating all stockholder votes cast either directly or via proxy. The Board fixed the close of business on March 30, 2021, as the record date for determining stockholders entitled to vote at this meeting. An affidavit of distribution has been delivered by Broadridge, our proxy tabulator, attesting to the fact that each stockholder of record was sent on or about April 15, 2021, either a notice regarding the Internet availability of our proxy materials for the Annual Meeting of Stockholders and providing access to our proxy materials or they were sent the proxy materials themselves. In accordance with Delaware Law and our bylaws, the list of stockholders has been available at Ambac headquarters for the past 10 days. It is also available for examination by validated stockholders during this meeting. The list of stockholders shows that as of the record date, there were 46,197,102 shares of common stock outstanding and entitled to vote at this meeting. We are informed by the inspectors of election that at the start of this meeting, a majority of the issued and outstanding shares of voting stock of the company entitled to vote on the record date are present in person or by proxy. Therefore, I now declare that a quorum is present for the purpose of transacting business. I will file the oath of office of the inspectors of election and the affidavit of distribution and the list of stockholders with the records of this meeting and will incorporate the same into the minutes. We will now open the polls for voting. Any stockholder who hasn't yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Stockholders who have already sent in proxy cards or voted via telephone or Internet and do not want to change their vote, need not take any further action. There are 3 proposals to be considered today. We have not received any other items of business in accordance with our bylaws or the SEC's proxy rules. As a result, we will not consider any additional items of business at this meeting, and all nominations and proposals are hereby closed. Comments or questions should be held for the general Q&A period set aside for later in the meeting. We will now turn to Proposal 1, the election of 7 directors to our Board. The following candidates have been nominated by the Board of Directors: Alexander D. Greene, Ian D. Haft, David Herzog, Joan Lamm-Tennant, Claude LeBlanc, C. James Prieur and Jeffrey S. Stein. No other nominations have been made that require action at this annual meeting. As such, director nominations are closed. Each nominee has been nominated to serve for 1 year until the next Annual Meeting of Stockholders and until his or her successor shall have been duly chosen. Proposal #2 is to approve on a nonbinding advisory basis, the compensation of the company's named executive officers as disclosed in the proxy statement. The Board recommends a vote for this proposal. Proposal #3 is to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021. The Board recommends a vote for this proposal. All matters to be voted on today have now been formally presented to the meeting. Any stockholder who wishes to vote at this time, they may do so by clicking on the voting button on the web portal and following the instructions there. [Voting]

Since stockholders have now had adequate opportunity to vote, I declare that the polls are now closed. Thank you all for voting. Bill, when will the voting results be made public?

We will be reporting the final vote results in a current report on Form 8-K to be filed within 4 business days.

Thank you, Bill. There being no further business to come before the meeting. The formal part of this 2021 Annual Meeting of Stockholders of Ambac Financial Group is now adjourned. In a moment, I will turn the meeting over to Mr. LeBlanc, our President and CEO, who will provide an update on the business. After his remarks, we will open the floor for additional questions from stockholders. But first, Mr. White will read the appropriate legal reminders. Bill?

Before Mr. LeBlanc begins, I would like to remind you that statements and answers to any questions provided by the company today may contain forward-looking statements about our business, including, but not limited to, new business, credit outlook, market conditions, credit spreads, financial ratings, loss reserves, loss mitigation, loss recovery, investment returns or other items that may affect our future results. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Any forward-looking statements are not guarantees of future performance or events. Actual performance and events may differ possibly materially from such forward-looking statements. Factors that could cause this include the factors described in our first quarter 2021, quarterly report on Form 10-Q and our 2020 annual report on Form 10-K under Management's Discussion and Analysis of financial condition and results of operations and under Risk Factors. Ambac is not under any obligation and expressly disclaims any obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. In addition, this presentation contains non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures will be included in the current report on Form 8-K that will be filed today and available on our website.

Thank you, Bill. Good morning, and thank you for joining us at Ambac's 2021 Annual Shareholders Meeting. This morning, I will provide you a brief overview of our 2020 performance as well as an update on our strategy. 2020 was an unprecedented year, marked by global pandemic, volatile financial markets and social unrest. For Ambac, the pandemic led to stress and adversely impacted certain of our legacy financial guarantee exposures, including Puerto Rico as well as our investment portfolios. 2020 also marked a transition year for Ambac as we made significant progress on our new business strategy with the launch of our specialty insurance, property and casualty strategy. For the year ended December 31, we reported a net loss of $437 million or $9.47 per diluted share and an adjusted loss of $378 million or $8.19 per diluted share. This was primarily driven by, one, losses incurred related to adverse development in our municipal finance portfolio, primarily related to Puerto Rico; and two, the effect of lower discount rates on our longer-dated exposures. We ended the year with total AFG stockholders' equity of $1.1 billion or $23.57 per share and adjusted book value of $990 million or $20.05 per share. In reviewing our performance for the year, on the derisking front, we made significant progress reducing net par outstanding by approximately $4 billion or 11% to $34 billion at year-end 2020. Adversely classified and watch list credits decreased by $2 billion or 13% to approximately $13 billion at December 31, 2020. Key components of the decrease included, one, the accelerated refinancing of our last Chicago [ GO ] exposure, representing $170 million of the total decrease; two, the negotiated refinancing of a $200 million U.K. stadium transaction; and three, the negotiated early termination of a $300 million U.K. utility exposure. In addition, we work with the issuers of 2 of our largest insured exposures totaling approximately $1.5 billion in net par outstanding that had been adversely impacted by COVID in order to enhance liquidity, strengthen credit protections and facilitate future derisking of these exposures. We have continued our derisking momentum in 2021 as we progressed additional transactions to improve the quality of our book value and increase the optionality of our legacy platform. With regards to rationalizing our capital and liability structures, we made additional redemptions during the year of our outstanding secured notes with cumulative redemptions to date now totaling over $500 million, further delevering our balance sheet and lowering annual interest costs. Through ongoing cost reduction plans, we also reduced operating expenses in our legacy business by over $10 million. Regarding our loss recovery efforts, we have continued to progress our Bank of America Countrywide and other legacy RMBS related litigations. Trial in our main case against Bank of America Countrywide, which was originally scheduled for July 2020 and subsequently rescheduled to February 2021 was postponed due to COVID restrictions. With the encouraging developments related to the pandemic and the expected reopening of New York State courts, we are hopeful that a trial date will be set for later this year or early next year. As I mentioned earlier, 2020 also marked the year that we launched our specialty P&C insurance strategy, materially progressing our goal of driving initiatives that will create sustainable long-term shareholder value. Our 3-pillar specialty P&C strategy is focused on transforming Ambac Financial Group into a diversified financial services holding company with a portfolio of synergistic capital-light businesses that will generate strong earnings and allow for the utilization of our NOLs. Pillar 1 of our strategy is anchored by Everspan Group, our A.M. Best A- rated Class A specialty program insurance platform. Everspan was established during 2020, received its rating in February of 2021 and launched its first program at the beginning of this month. Everspan will generate revenue from fronting fees, net premiums on retained risks and investment income. Pillar 2 of our strategy is focused on fee-based managing general agent and managing general underwriter businesses, which we successfully launched in 2020 with the acquisition of 80% of Xchange, a specialty accident and health MGU. We plan to continue expanding our MGA, MGU program business through organic growth, additional acquisitions and the launch of de novo platforms. Pillar 3 of our strategy is focused on investments in companies that are complementary or synergistic to Pillar 1 and Pillar 2. To conclude, despite the challenging environment we faced in 2020, we remain focused in advancing all of our strategic priorities and achieved a number of key milestones during the year. The support of our Board of Directors and all of our employees is key to our success, and I would like to thank them for their ongoing dedication and commitment. I also want to thank our shareholders for your continued support and confidence as we advance our efforts to move the company in a new direction. I look forward to updating you as we progress our initiatives this year. Thank you. I will now turn the meeting back to Bill White to outline the protocol for questions.

In order to allow all stockholders the opportunity to ask questions, there will be only 1 question per stockholder at a time. We will begin by taking stockholder questions that are being entered today on the web portal. Please note, we will attempt to answer as many questions as time allows, but only questions that are germane to the meeting will be addressed. If for any reason, we do not get to your question today, please feel free to contact our Investor Relations Department directly.

Our first question comes from Mr. [ Whitehead ] and this question is for Mr. LeBlanc. Will management commit to limiting themselves to encouraging our employees to get the COVID vaccine? Mr. LeBlanc?

Thank you for the question, Mr. [ Whitehead ]. We are currently evaluating and developing our plan for reopening. We are very supportive of the vaccine protocols and evaluating all our options for reopening as soon as we can in a safe manner and subject to CDC standards.

As there are no further questions at this time, I will turn the call back to our Chairman, Jeffrey Stein, for some closing remarks. Thank you. Mr. Stein?

As we are at the end of the meeting, I would like to thank you all for attending our 2021 Annual Meeting of Stockholders. If you have any other questions, please feel free to contact our Investor Relations department directly. We look forward to speaking with you again. Thank you.