Greetings, and welcome to the Ambac Financial Group, Inc., Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Charles Sebaski, Head of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Ambac's second quarter 2023 call to discuss financial results. Speaking today will be Claude LeBlanc, President and CEO; and David Trick, Chief Financial Officer. Dave will discuss the financial results of our business and the current market environment, and after prepared remarks, we'll take your questions. For those of you following along the webcast, during the prepared remarks we will be highlighting some slides from the Investor Presentation, which can be located on our website. 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. These factors are described under the forward-looking statements in our earnings press release and our most recent 10-Q and 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also, in our prepared remarks or responses to questions, we may also mention some non-GAAP financial measures. Reconciliations to those non-GAAP measures are included in our most recent earnings press release, operating supplement and other materials available in the Investor Relations section of our website, ambac.com. I would now like to turn the call over to Mr. Claude LeBlanc.

Thank you, Chuck, and welcome to everyone joining today's call. During the second quarter, we continue to make material progress in advancing the strategic review of our Legacy Financial Guarantee business, in addition to significantly progressing the development and growth of our core specialty B&C business. With respect to our legacy business, working with our Wisconsin regulator, we believe we have made significant progress towards the finalization of a new capital and operating framework for AAC. The ultimate timing and determinations for the framework remain in the hands of our regulator, the OCI. However, based on the significant progress made-to-date, we have already commenced the evaluation of certain strategic options. During the quarter, we initiated discussions with a number of key stakeholders in order to begin preliminary evaluations. We also progressed other key strategic initiatives focused on the de-risking of our platform and further improving our economic and regulatory capital. I will provide more details on these initiatives in a moment. As previously mentioned, our strategic options are not mutually exclusive and we are evaluating all options on both a time- and risk-adjusted basis. With the significant progress made to-date, we believe we will be in a position to consider initiating certain strategic options focused on value creation and crystallization as early as the fourth quarter. As we previously noted, certain strategic initiatives will be subject to regulatory approvals and in all cases consideration of prevailing market conditions. With respect to our core specialty P&C business, we continue to record significant top and bottom line growth for both Everspan, our hybrid fronting platform, and Cirrata , our insurance distribution business. Our differentiated market positioning, combined with favorable market trends, position us well for continued robust growth in the coming quarters. Our consolidated financial results for the second quarter showed a…

Thank you Claude and good morning everyone. For the second quarter of 2023 Ambac reported a net loss of $13 million or $0.29 per diluted share compared to net income of $5 million or $0.11 per diluted share in the second quarter of 2022. Adjusted net income was $3 million or $0.07 per diluted share compared to an adjusted net loss of $38 million or $0.84 per diluted share in the second quarter of 2022. The $18 million decrease in net income for the second quarter of 2023 compared to the second quarter of 2022 was driven by several items related to the legacy financial guarantee business. First, results for the second quarter of 2022 that is [finished] from $57 million of realized gains from the extinguishment of debt. Second, net gains on derivative contracts declined 29 million compared to the second quarter of 2022. During the quarter we terminated our macro hedge interest rate derivative position which had a modest impact on results. And third, there was a $16 million dollar increase in incurred loss and loss expenses mostly due to the relative impact of higher discount rates in the second quarter of 2022. These differences were mostly offset by a $57 million improvement in investment income and a $29 million reduction to interest expense. The $41 million increase in adjusted net income for the second quarter of 2023 compared to the second quarter of 2022 was driven by new business growth, the improved investment results, and lower interest expense. Compared to GAAP net income, adjusted net income excludes gains on extinguishment of debt, realize investment gains and losses, intangible amortization, and litigation costs. Everspan generated $53 million of gross written premiums in the quarter, up 30% over the prior year period experiencing growth from both existing programs as…

Thank you, David. Going into the second half of the year we are well positioned to generate and crystallize significant value from both our legacy financial guarantee and core specialty P&C businesses. We expect to have greater near-term visibility on the strategic options available for our legacy business which will enable us to progress towards an execution mode. I am also very pleased with the continued strong growth of our core specialty P&C businesses. We are seeing the pipeline for both organic and strategic growth opportunities continue to rapidly expand as we've become increasingly recognized for our differentiated market strategy. I look forward to updating you on our progress in the coming quarter. Operator, please open the call for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And our first question comes from Giuliano Bologna with Compass Point. Please go ahead.

I'd like to touch on the potential timeline that you mentioned. When you were saying about to look at some strategic alternatives in 4Q, I'm curious to be thinking about launching a process for them or do you think there's the potential to execute some of those potential transactions in 4Q?

Thanks Giuliano and good morning. Currently, we're evaluating all of our options and progressing all of them in parallel as we've indicated they're not mutually exclusive so some of them could be executed or commenced in parallel with others. And in terms of the timeline we believe we will be in a position to having evaluated our options to initiate or commence initiating some of our options as early as the fourth quarter against subject to regulatory approvals as required and in market conditions.

That's very helpful. I'm thinking about -- from a broader capital allocation perspective, yes you have a fair amount of capital to hold and tell me a little there isn't necessarily much capital needed at Everspan at the moment and if you release more capital from AAC or AAC over time, I'd be curious how you think about capital allocation at that point and the best using your capital because you already have some capital to deploy at holding company levels today.

Thanks Giuliano. Capital allocation is something we debate and discuss frequently as we talked about before and certainly as I think we've talked about before Everspan is not a significant need for capital going forward. Our current plans generally involve more capital allocation as we demonstrated with the recent acquisition of verbatim that Claude mentioned in the Cirrata insurance distribution businesses. But nevertheless all of our capital allocation decisions always revolve around the opportunities in the marketplace to deploy capital and new businesses versus what the benefit is and return possibilities off returning capital to shareholders.

That's great and then just thinking on the litigation [indiscernible] side, I'd be curious just thinking about the cadence of potential litigation expenses over the next few quarters should we expect that to continue at the same level or start to turn down over the next few quarters?

Yes. The expense certainly has been running hot as we've talked about every quarter. We do expect that expense to moderate in coming quarters but in at least in the short term it's going to be continued spend to resolve the outstanding litigation.

That's great. Thank you for taking my questions and I will turn back in the queue.

Our next question comes from Geoffrey Dunn with Dowling & Partners. Please go ahead.

Thanks, good morning. I wanted to ask more about the re-insurance transaction. It looks like it was more a watch list than adversely adverse credits and just based on the numbers looks like it's more housing revenue bonds maybe. Was it military housing? Was it something else about that that stood out? Can you talk a little bit more about how you identified that particular transaction?

Thanks Geoff. I think it's fair to say the majority were the bulk of it was military housing and as we've indicated in the past this is a concentration risk in our portfolio. There are also many long gated exposures and some very large exposures, so I think it's an area that we have been keen looking to the Sculpting Portfolio. It also included some adversely classified credits as we mentioned and other credits that we viewed as also very long dated and potential stress credits that we wanted to exit. So I think overall it was a sort of a package of credits that we wanted to exit and had been working on this transaction for in fact a number of years. So we were very fortunate to be able to complete it this past quarter but I think your summation as to being primarily military housing I think is a good one.

Okay and just from an economic standpoint, I mean it's $6 million up front and then the instalment what was actually the company's cost for this because if it's $6 million up front that doesn't seem overly burdensome for getting rid of this type of exposure. Was the remaining 40-odd million instalment specific to the deal or what is the actual payment by Ambac above and beyond the premium flow associated with the transaction?

There wasn't payment above and beyond the premium flow from the transaction, so we're simply giving up the premium associated with the deal that were seeded.

Got you. Okay, thank you.

There are no further questions at this time. This concludes today's teleconference. We thank you for participating. You may disconnect your lines at this time. Thank you for your participation and have a good day.