Octave Specialty Group Aktie

Greetings, and welcome to Octave Specialty Group, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Karen Beyer, Head of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Octave's First Quarter 2026 Call to discuss financial results. 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. Also available for Q&A today will be executives from our Insurance Distribution segment. For those of you following along on 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 it 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 forward-looking statements in our earnings press release and in 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 mention some non-GAAP financial measures. Reconciliations to those non-GAAP measures are included in our recent earnings press release, operating supplement and other materials available in the Investors section on our website, octavegroup.com.

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

Thank you, Karen, and good morning, everyone. I'm pleased to report that we started the year with a strong first quarter. Our performance was led by our core insurance distribution business, which grew total revenues 92%, driven by robust organic growth of 42% and the October 2025 acquisition of ArmadaCare. Adjusted EBITDA for this segment was $25 million, nearly a fourfold increase compared to a year ago, with margins expanding to 32% versus 17% a year ago.

This performance is particularly compelling when considering the fact that 40% or 9 of our MGAs are new, having launched in 2024 and 2025. These MGAs are still in the early stages of growth with some still contributing negatively to adjusted EBITDA. Our Specialty Property & Casualty segment reported good top-line growth and is well positioned to grow through both third-party and Select Octave programs as the year progresses. Adjusted EBITDA for the quarter was $1.6 million, essentially flat year-over-year when excluding the impact of a settlement or a potential litigation matter related to an insurance claim. David will provide more details of the financial results for the quarter in his commentary.

Our story has been one of continued momentum. Over the last five years, we have executed a clear strategy to reposition Octave, transitioning from our legacy business toward a modern, scalable MGA platform. We have executed strategic acquisitions, including Beat Capital Partners in 2024 and ArmadaCare in 2025, while making significant strides in realigning our cost structure to match the scale of our growing platform. Octave Ventures, our incubator, is a best-in-class scalable platform offering a full suite of business solutions and capacity for startup MGAs, which provides us a significant advantage in attracting top underwriting talent in the market. Our pipeline and white space for startup MGAs remains broad and robust.

One of Octave's core strengths is the diversification of its platform, both in terms of sector and product line as well as in the maturity of our businesses. This is further bolstered by our focus on specialized areas where we have a competitive edge, a combination that we believe will enable our portfolio to perform across market cycles. For example, our Accident & Health segment is expected to represent about 30% of our production this year. Thanks to the acquisition of ArmadaCare and strong organic growth in our other A&H business. We believe our A&H businesses are well positioned to capitalize on secular trends, such as growth of self-funded employer health plans, leading to opportunities for growth in our employer stop-loss, employee benefits, and supplemental A&H businesses. As part of our key organic growth initiatives, our priority is to continue to increase our growth and margin through product and geographic expansion and cross-sell, supported by enhanced carrier relationships and a digital data infrastructure that reinforces underwriting and speed to market.

Octave's data and AI strategy, supported by our digital data infrastructure, is an integral part of our company strategy woven into our growth-Integration, and risk oversight plans. We are pursuing AI through two complementary tracks. The first is bespoke proprietary systems, which are capabilities built on our data, designed by us, and built by us for specific underwriting and servicing use cases. ArmadaCare, which I discussed last quarter, is one example.

The second is a curated partner model, where we work with best-in-class AI providers who bring proven commercial capabilities and where the data boundary is clearly defined and contractually protected. For us, we have chosen Anthropic as our core AI solution, with room for additional fit-for-purpose models where it makes sense. For example, structured data extraction from submissions. Together, these tracks let us move quickly on impactful opportunities while building the proprietary capabilities that will define and differentiate Octave as a data-rich and AI-powered MGA platform.

With that backdrop, I would like to provide our perspective on the current environment and how we see Octave navigating the current market. Property lines continue to soften following years of hardening. This is particularly evident in the large and middle market account segments as well as on CAT-driven exposures. At Octave, our property-focused MGAs are well-diversified across the U.S., U.K., and Bermuda markets, and primarily focused on low-CAT exposed lines and niche SME markets, which has sheltered us from the most volatile parts of the property markets.

So while we are exposed to property pricing trends, our property-focused portfolio companies are navigating rate declines and selectively seeking to underwrite risk where risk-adjusted returns remain attractive. In casualty lines, our portfolio companies continue to see a positive rate environment, particularly in higher hazard lines, such as transport and habitational, where loss trends continue to drive rate increases, in many cases above 10%. We are seeing a moderation of rate increases in segments with lower hazard risks and in the SME segment of the casualty market.

And lastly, our niche professional and other specialty portfolio companies continue to show good growth in a moderating to stable rate environment. In summary, while we have experienced some headwinds in certain lines, the diversification of our portfolio, our experienced underwriting leadership team, and the early-stage growth of our newest MGAs give us confidence in our ability to achieve our growth targets while maintaining strong underwriting performance. I will now turn the call over to David to review our first quarter results. David?

Thank you, Claude. Good morning, everyone. Octave reported a net loss to shareholders of $6.9 million or $0.13 per share in the first quarter of 2026, compared to a net loss from continuing operations to shareholders of $16.1 million or $0.57 per share in the first quarter of 2025, an improvement of 57%. Consolidated EBITDA and adjusted EBITDA to shareholders increased to $3.6 million and $20.1 million, compared to a negative $5.5 million and negative $1.3 million, respectively, in the first quarter of 2025, representing a $9.1 million and $21.4 million improvement, respectively.

Consolidated adjusted net income to shareholders was $16.6 million, or $0.37 per share, compared to a net loss of $6 million or $0.13 per share in the first quarter of 2025, an improvement of $22.6 million or $0.50 per share. Our non-GAAP metrics, adjusted EBITDA and adjusted net income, exclude the impact of a settlement of a potential litigation matter at Everspan, severance costs, other non-recurring costs, and equity compensation. The favorable movement in our results for the quarter were driven by an Insurance Distribution segment and lower corporate overhead. Total revenue for the insurance distribution segment grew 92% to $78.5 million in the first quarter of 2026. Drivers of this growth included the acquisition of ArmadaCare in the fourth quarter of 2025 and organic growth of 42%. ArmadaCare, while not included in our organic growth calculations, grew revenue organically by 10% compared to its first quarter of 2025.

The diversity of our business and certain niche product lines helped deliver these favorable results in the face of softening conditions in certain lines. Insurance distribution net income to shareholders increased to $13.2 million in the quarter, compared to a net loss of $3.4 million in the prior year quarter, an improvement of $16.6 million. Insurance distribution adjusted EBITDA to shareholders grew nearly 4-fold to $25.3 million, compared to $7.1 million in the first quarter of 2025.

And adjusted net income to shareholders was $22 million, compared to $2.5 million in the first quarter of 2025. That is an increase of nearly 8 times. Our insurance distribution results for the quarter were driven by a number of factors, including the October 2025 acquisition of ArmadaCare, organic growth across our diverse group of MGAs, higher profit commissions, lower interest expense, resulting from both a reduction of debt and lower financing costs. It's worthy to note that after a couple of years of negative growth, as I've discussed on prior calls, our exchange benefits platform in particular had a strong first quarter, posting record results in its core ESL business, a testament to the discipline and commitment of our team.

The strong performance in the quarter, which on an absolute basis is also impacted by the seasonality of our A&H business, drove our margins to record highs 16.3% for pre-tax income to shareholders and 32.3% for adjusted EBITDA to shareholders, increasing 26 and 15 points respectively. As a result of seasonality and other factors such as the nature of de novos, we do anticipate variability in our results from quarter to quarter. Our results for the quarter also reflect our continued investment in de novo MGAs, which reduced EBITDA to shareholders by about $1.1 million in the first quarter of 2026 versus $600,000 in the first quarter of 2025. These costs were spread across approximately five MGAs.

While not impacting our first quarter results, we ended the quarter by acquiring an additional 10% of Octave Ventures as well as additional stakes to 4 other MGAs, three of which related to Octave Ventures. The total cost of these NCI buy-ins was about $44 million. These were funded with cash and by the expansion of our existing term loan facility. Our insurance distribution business debt to EBITDA on a pro forma TTM basis was roughly 3.2 times at March 31, 2026. We believe our bank facilities are attractive from the standpoint that they have 5-year tenors, modest required amortization, and are currently at a spread of 275 basis points over SOFR, which declines based on leverage.

As part of the increase, we agreed to provide the equity in Everspan's intermediate holding company as additional collateral, which is very much standard in bank-funded insurance financing transactions. Given that OSG guarantees the debt, this additional collateral also does not create a material change in the economic terms.

Turning to Everspan, gross premiums written and net premiums written and earned in the quarter were $104 million, $32 million, and $20 million, up 19%, 80%, and 28% respectively, driven by the repositioning of our portfolio, which began late in 2024. First quarter production included the impact of 24 programs, four of which were new compared to last year and two of which were Octave-related programs.

The actions we took, which I've previously spoken about, brought down our current quarter accident year loss ratio to 54%, while our active programs are running about a 57% loss ratio. Our reported net loss in the LAE ratio was 98.4% in the first quarter. As a result of losses and expenses incurred in connection with a settlement to resolve potential litigation matters related to an insurance claim. This settlement resulted in additional losses incurred of $2.1 million and LAE incurred for legal fees of $5.8 million. The settlement accounted for 39.6 loss ratio points in the quarter.

On a pro forma basis, including the settlement costs, severance, as well as other expenses mostly related to timing differences, our combined ratio for the quarter was approximately 95%, which is more in line with our long-term expectations. For the first quarter of 2026, Everspan produced a pre-tax loss of $8 million and adjusted EBITDA was $2 million, up 2% from the first quarter of 2025. Our recent expense reduction initiatives at corporate also began to take hold in the first quarter of 2026 as well with nominal expenses declining to just over $12 million from $15 million last year. Moreover, adjusted expenses declined to $7.2 million from $10.6 million in the prior year comparable period.

The difference between reported expenses and adjusted expenses in the current quarter were mainly attributable to acquisition and integration costs of about $1.1 million, severance and restructuring expenses of half a million, and equity compensation of $3.1 million, which included a catch-up accrual due to a change in performance factors of $1.7 million. We continue to evaluate all expenses in an effort to trend our adjusted expenses downward towards our longer-term goals. I will now turn the call back to Claude.

Thank you, David. I am immensely proud of what our team accomplished during the first quarter and we are very optimistic about our company's long-term trajectory and target goals we previously shared. As we look forward in 2026, we are very focused on the execution of our strategy with organic growth being our primary driver. Having taken steps to rebalance its portfolio, Everspan is also now well-positioned and on a trajectory towards delivering solid top-line and bottom-line results. As David previously mentioned, we've also made significant progress in addressing our corporate expenses, which will continue to be a central area of focus for us as we progress through the coming quarters.

Operator, I would now like to open the call for questions.

[Operator Instructions] The first question comes from the line of Mark Hughes with Truist Securities.

On the presentation, you show your 2026 guidance, you point out it was initially presented in February. Was the Q1 kind of relative to the guidance, was it consistent with your expectations? It seems like it was quite a strong quarter. Do you feel like you're ahead of where you started out at the beginning of the year? Or was this execution sort of according to plan?

Good question, Mark. I think we feel Q1 was a very strong quarter. So I think I put it ahead of our plan, certainly for our expectations in Q1. And I think we see a lot of tailwind carrying through for the rest of the year as well on some of the programs that we've launched in the last couple of years.

And the -- just to be clear, the guidance is essentially unchanged, but you're off to a strong start. Is that the key point?

That's correct, yes. We will consider adjusting guidance in the upcoming quarters.

Very good. And what does the pipeline look like for start-up MGAs? Is there going to be a 2026 class? How do we think about that?

Yes. So what we indicated previously is that we were targeting more in the range of our initial expectations on startups for 2026 in the range of 1-2 startups. Part of that is the significant number of launches that we undertook in the class of 2024 and 2025 that we're actively pursuing growth and expansion. Having said that, we have seen and continue to see a very deep and robust pipeline of opportunities that we're evaluating. Our team is very selective in terms of who we'd like to move forward with, but we do expect I'll say at least 1-2 launches this year. Could be a little bit more, but I think we're trying to keep it in that range, given the number of starts that we had in the last couple of years.

Understood. And the plans for buy-in for the remainder of the year, you spent $44 million looks like right at the end of Q1. So that will have an impact on Q2. What is the outlook now for any additional buy-ins of the noncontrolling interest through the balance of the year?

Yes. For the rest of the year, Mark, there wouldn't be any additional buy-ins currently planned.

And then what -- any observations about the capacity? You talked about how you're seeing some deceleration in rates still robust in some of these casualty lines, but maybe broadly speaking with property and some other lower hazard lines, maybe a little bit less buoyancy. How about in terms of capacity providers your ability to secure sufficient capacity for the MGAs and start-up MGAs. Any observations there?

Yes. I think we've seen just continued increases in opportunities with both existing and new capacity providers, I think the reinsurance markets in particular we've seen improvements in terms, broadening of appetite and opportunity. I think we mentioned on our last call that we've increased our capacity both in amount and duration of both aligned as third party capacity from $1.5 billion entering 2026 at over $2 billion.

So we continue to see many opportunities. We do manage our business on a curated capacity model and we'll continue to look to expand that as we progress through the year. But to date the opportunities continue to come to us and we're seeing broader, I'd say, more diversified opportunities as we continue to expand our platform.

Next question comes from the line of Ryan Tunis with Cantor Fitzgerald.

I guess first question kind of following along with the capacity discussion that you just had with Mark. Property, it looks like it's your second biggest line, you mentioned geographically diverse. I'm curious though, just from a concentration standpoint, is it -- you have concentrated MGAs? Like, where does the premium sit? Is it that you have MGAs that are largely property dedicated? Or does the property premium tend to sit in places where -- it's not solely just focused on property, that is question.

That's a great question, Ryan. I'm going to pass that over to Paul Rayner, Senior Executive and Director at Octave Ventures, to respond to that.

Yes, very pleased to. So I'm Paul Rayner, executive at Octave Ventures. Right. In response to your question, we have a number of different MGAs that play into the property market. Very much the model is each of our MGAs have their own specific pocket. We have an MGA that is focused more on the large commercial D&F. We have one in the U.S. more focused on middle market property. We have another focused on small commercial. Outside of that, we have MGAs that will have various package policies, which will include property and liability components.

On the whole, as you look across our market, our property focus, we are relatively low CAT compared to our peers, particularly in the London marketplace. I think that goes to a lot of Claude's comments around how whilst we are seeing rating changes, that is somewhat more muted for us. They're being led in our large commercial sector and becoming increasingly mixed as we move through the ranks as we get to the smaller end of it, of the sector. Did that answer your question, Ryan?

Yes, you did. That's helpful. I just wanted to push a little bit more on just the conversations. I guess, you're having with the capacity relative to a year ago, I mean, there's so much discussion about the property market. Yes, just what are the types of questions you're getting from capacity providers? Is it just that they're just really focused on results that I mean, they clearly have been good, but is it It's just a little bit surprising to me that the capital wouldn't start getting a little bit antsy given the competitive environment.

Should I continue, Claude?

Sure, Paul, yes.

Sure. So we continue to see technical rate adequacy in our property markets. You'll recall they've gone through a period of strong hardening, as we, whilst we are seeing rate reduction, we still see technical profitability within the rates. That's very much the conversation with our capacity partners. I think the add-on comment on capacity and building from Claude's comments is the capacity has been very loyal and strategic with our businesses. We've built good and deep relationships with them. They're very bolted on to the fact that we seek to govern our businesses in a way that protects their interests. And so on the one hand they're very understanding, ask a lot of questions, but they come from a very knowledgeable place.

On the second part, we've got a lot of structures to access capacity through both our managed balance sheets being the syndicates included which are all third-party capital as well as the traditional arrangements. So we have a lot of different conversations, a lot of different questions, but they come from a knowledgeable perspective, and ultimately that we are risk-selecting through this cycle to deliver the returns that we represent to them.

And just shifting gears last one for Claude. Really just on Everspan and what the vision is for that from here how it fits in with the overall business as it obviously continues to shrink as a percentage of the mix. We had a little more noise this quarter. Just, I guess, update us on the strategic priority of that business at this moment in time.

Sure. Our views on Everspan have not changed in that it is a strategic business within our ecosystem. We do view the program business which it manages, which is third-party business primarily. We don't do a lot of business between Octave Ventures and Everspan. So again, I think we have to remember it is primarily a third-party market business.

But that business continues to grow. It's provided us some opportunities on introductions to new MGAs, quite frankly, and new opportunities in the marketplace. We have done some selective programs that we've moved into Everspan. Again, they're selective to avoid competition in other third-party markets that Everspan competes in. But there are some good opportunities and we have added a couple more into Everspan. Again, the strategic fit and nature of Everspan is still very valuable to us and remains so.

I would say that we have and continue to look for ways to have Everspan be more relevant and valuable to us. And I think as we continue to grow and expand broadening of risk appetite, scale, risk limits, and rating, for example, are all things that we're hoping to be able to find ways to leverage Everspan in a greater way to the extent we can achieve that. We've been working and considering different ways to achieve that in order to allow Everspan to broaden, again its risk appetite, broaden its growth opportunities in the marketplace and increase its relevance to our core business as well. So again, it remains an important part of our business. We think we have it going in the right direction. We've made some changes having this litigation settlement behind us is another important step. I believe we're well-positioned as we look at the balance of the year.

Next question comes from the line of Tommy McJoynt with KBW. Please go ahead.

A couple questions on the insurance distribution segment. To start off, could you go into a bit more detail on how you see the quarterly seasonality of earnings this year following this very strong 1st quarter? In some sense, can we look at the quarterly seasonality of last year as a proxy, or has the recent acquisitions and growth in the A&H impacted that too much where we can't really look to the past to think about seasonality?

Sure, Tommy. Thanks. So yes, last year gave us a little bit of a roadmap to seasonality. We had some of the same dynamics last year in terms of the A&H business as we do this year. A little more pronounced given the inclusion of ArmadaCare. First quarter is certainly going to continue to be our strongest quarter. Fourth quarter is probably the second strongest and the second and third quarters are more in line with each other.

Okay. Got it. And then we've seen the public broker multiples sink on concerns of brokers being disintermediated by AI. As part of your evaluation and underwriting of MGAs, what are you looking for to make sure that those MGAs aren't going to be disintermediated or at least face lower barriers to entry that drives up competition? What does your underwriting process of those MGAs look like?

Yes. So it's a good question we've been listening to what the brokers have -- how they've been responding to the questions. I think from our perspective, we're not a broker. We're not into retail or wholesale broking, and we are really more of a pure play MGA platform. I think the risk associated with AI on the in particular the MGA market, I think is much more limited. Having said that, I believe and we strongly believe, we've built this into our strategy, that AI will be a core component of our growth strategy and oversight of our business going forward. We've made significant strides, as I mentioned earlier, investments into AI.

I think we're approaching this from a position of strength given that, while we made some acquisitions our largest acquisition being Beat Capital Partners, where most of our MGAs have been launched, initially are on a homogeneous tech stack. We've been actively moving our other MGAs onto the same tech stack, which we'll have completed that in the U.S. marketplace by mid-year this year. Aggressively moving into a data architecture across all of our MGAs globally.

Being able to do that without legacy systems and disparate systems, I think gives us a big advantage to implement that quickly. So we believe that we're going start seeing the benefits of that in terms of efficiency, velocity of underwriting, underwriting effectiveness, if you will, better risk selection, as we progress through the year and into next year. I believe those are some of the key benefits that we see coming out of AI in the near term. But I don't see AI as an individual component or business model disintermediating the MGA space in any way, especially in the commercial or more complex specialized risk components of the MGA sector.

Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Karen Beyer for closing comments.

Thank you everyone for joining us this morning. We'll be around for your calls today. Thanks, and have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, good morning, and welcome to the Octave Specialty Group Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Karen Beyer, Head of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Octave Specialty Group's Fourth Quarter 2025 Call to discuss financial results. 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. After prepared remarks, we will take your questions. For those of you following along on the webcast, during the prepared remarks, we will be highlighting some slides from the investor presentation, which can be located on our website.

On 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 forward-looking statements in our earnings press release and in our most recent 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements.

Also in our prepared remarks and responses to questions, we may mention some non-GAAP financial measures. Reconciliation to those non-GAAP measures are included in our recent earnings press release, operating supplement and other materials available in the Investors section on our website, octavegroup.com.

Now I'd like to turn the call over to Mr. Claude LeBlanc.

Thank you, Karen, and good morning, everyone. As we close out 2025, the fourth quarter marks the first full period in which Octave Specialty Group operated as a stand-alone specialty insurance platform, a milestone that reflects the culmination of a multiyear strategic transformation. Our insurance distribution platform, inclusive of Octave Partners and Octave Ventures is well established and uniquely positioned in the specialty program sector with aligned underwriting capacity, a scalable data and technology infrastructure and a clear path for sustained organic growth and meaningful margin expansion.

Our model has allowed us to attract and partner with top underwriting talent, distribution partners and leading capital and capacity providers. The culture we have built is one of entrepreneurship, collaboration, specialization and partnership, supported by a centralized and scalable operating model. As we move forward in 2026 and beyond, we are starting from a position of strength. Despite an increasingly challenging market in 2025, Octave was able to grow its insurance distribution business revenue by 65% over 2024, fueled by 14% organic growth. This number excludes 8 months of Octave Ventures, formerly known as Beat, and does not include our recent acquisition, ArmadaCare. David will walk through the detailed financial results for the fourth quarter shortly.

As we look ahead, our well-diversified, high-growth and rapidly scaling platform is supported by strong tailwinds, including the following: one, embedded growth. 9 of our total 22 MGAs were launched in 2024 and 2025. With over 40% of our total MGA portfolio in early growth stages and some already delivering strong top line and early bottom line growth, we believe this stable of MGAs will represent a significant portion of our future organic growth and earnings as they continue to scale over the next 2 to 4 years.

Looking at Octave Ventures on a stand-alone basis, we saw organic revenue growth of approximately 18% in 2024, increasing to approximately 47% in 2025. The Ventures incubator platform has a strong pipeline of future MGA opportunities it's evaluating with particular focus on the U.S. E&S and SME segments.

Two, geographic and product diversification. Our MGAs are geographically spread with 9 of our total MGAs based in London and Bermuda with the remaining 13 in the United States. This provides us with a competitive advantage, supporting growth and managing through market cycles. Our Lloyd's market MGAs tend to move to profitability faster than U.S. MGAs and also move faster through pricing cycles, which creates more frequent opportunities to deploy capital opportunistically.

Our U.S. market MGAs by contrast offer greater rate stability and more predictable underwriting conditions, which supports consistent margin management. Our MGA portfolio is also diversified by line of business with approximately 28% in specialty A&H and the remaining 72% in several specialty P&C lines, split 30% casualty and 42% non-cat-exposed property. Outside of A&H, we cover approximately 9 segments of the P&C market. We believe the diversity of our platform is one of our core strengths and differentiators.

Three, aligned and curated third-party capacity. In 2025, we continue to expand our aligned capacity through our Lloyd's syndicates as well as our rapidly broadening curated capital and capacity partners, which together with Everspan stands at over $2 billion entering 2026.

And lastly, our minority interest buy-in. For certain MGAs, Octave has the ability to acquire material portions of minority interest over a predetermined schedule, which allows us to systematically expand earnings attributable to our shareholders aligned with the ongoing performance of the MGAs. This also represents a built-in source of earnings growth, which when combined with other growth drivers will enable us to rapidly scale both top and bottom line growth in the near to medium term.

In total, when considering Octave's embedded growth, diversified product and geographic mix, access to align capacity and contractual rights to buy in minority interest, we believe we are well positioned for strong growth for years to come. I will now turn to our ArmadaCare acquisition. The acquisition of ArmadaCare in the fourth quarter fits our goal of increasing shareholder value and mark a defining step in our transformation. ArmadaCare enhances our product diversification, deepens our position in the specialty A&H market, adds meaningful scale and generates recurring revenue streams with attractive EBITDA margins of over 40% that are less correlated to the general P&C commercial cycle.

It is precisely the kind of complementary durable business we want in our portfolio as we enter a softening P&C market cycle. While our fourth quarter results reflect only a 2-month contribution, the integration of ArmadaCare has progressed ahead of schedule, and the platform's early performance is exceeding our expectations. With the addition of ArmadaCare, we are actively progressing revenue synergies across broader accident and health MGAs. We expect A&H to account for roughly 1/4 of our distribution business in 2026 across 3 platforms and 7 lines of business.

I'm also pleased with our fourth quarter launch of 1889 Specialty, a management liability and professional lines MGA focused on the SME financial institutions market, led by Blair Bartlett and backed by A+ rated capacity. This launch reflects our continued ability to identify top talent within the specialty market who have track records of delivering strong underwriting results and Octave Ventures ability to stand up businesses quickly.

Over the past several years, we have purposely constructed a specialty platform designed to deliver innovative, differentiated solutions to brokers, agents and carriers across multiple specialty verticals. As our platform has grown, so has our operational sophistication. We are executing a focused initiative to unify our operating infrastructure onto a single integrated data and technology architecture, one that will further enhance scalability, improve data analytics and risk selection and accelerate our operational velocity, driving scale and revenue growth.

Central to this effort is the integration of AI-driven tools across our MGA platform. These tools are designed to improve risk selection, elevate pricing sophistication and drive meaningful operational efficiency gains, ultimately translating into expanded margins. This is not future state thinking. It is already underway, and I will discuss one specific example in a moment.

Turning to Everspan. We were happy with the steps we took to reposition the book in 2024. And after some reserve strengthening in the first 9 months of the year, we produced a loss ratio, including the impact of sliding scale of 62.9% in the fourth quarter 2025. We now believe Everspan is positioned for reasonable and controlled growth in 2026. Everspan's focus remains on the casualty markets, where we are continuing to see more pricing discipline than in the property markets.

As for our 2026 outlook, we expect our EBITDA profile to follow a natural maturation curve. As our MGA scale and season, we expect contribution margins to improve and operating leverage to emerge with increasing clarity beginning in 2026 and accelerated beyond. We are already seeing signs of this in the first quarter. And while not yet complete, early Q1 results across most of our businesses are very encouraging and supportive of our guidance, which I will cover shortly.

One notable example is our exchange platform, which is on track for record results in our ESL business following a couple of years of challenging results. One catalyst for this performance is the official launch of Hammurabi, our proprietary AI platform built specifically around the medical stop-loss business. Hammurabi replaces traditional labor-intensive processes with near-instant risk prediction and pricing accuracy, enabling our underwriters to move faster, price more precisely and scale more efficiently than ever before. We believe Hammurabi is a genuine competitive differentiator that has the potential to expand to other business lines over time, and we are just beginning to unlock this potential.

We are also actively utilizing and developing data and AI tools across our platform, which we believe will help us to rapidly scale and differentiate our business model into the future.

I will now turn the call over to David to review our fourth quarter results. David?

Thank you, Claude, and good morning, everyone. For the fourth quarter of 2025, Octave reported a net loss to shareholders of $30 million or $0.84 per share compared to a net loss from continuing operations to shareholders of $22 million or $0.56 per share in the fourth quarter of 2024. The higher loss in the fourth quarter of 2025 was driven by costs associated with the ArmadaCare acquisition, exit from the financial guarantee business and associated expense reduction initiatives and an impairment of a legacy strategy minority investment. Significantly lower interest expense and to a lesser degree, the benefit of 2 months of ArmadaCare results helped to partially offset these transitional and transactional expenses.

Adjusted EBITDA from continuing operations to stockholders, which excludes these transactional and transitional expenses, increased to $1.4 million compared to $0.5 million in the fourth quarter of 2024. Adjusted EBITDA improved as a result of growth in the Insurance Distribution segment and lower adjusted corporate expenses, partially offset by lower results at Everspan in connection with the strategic repositioning of that business. Everspan is now positioned for controlled and profitable growth into 2026.

Despite some of the market dynamics that Claude mentioned, Octave's Insurance Distribution segment grew premium production 9%, commission revenue 13% and generated organic revenue growth of just over 8%. These results are a testament to the platform we continue to build and set a foundation for our 2026 expectations, which Claude will review momentarily. Total revenues were up 5% to just under $47 million in fourth quarter 2025 versus fourth quarter 2024 and were impacted by lower profit commissions and FX gains, which collectively declined by about $4 million. The reduction in profit commissions was not a result of any systemic shift, and we believe our underwriting results remain in line with expectations.

The Insurance Distribution segment net loss to shareholders improved to $1.4 million in the quarter compared to a net loss of $6 million in the prior year quarter, benefiting mostly from a significant reduction in interest expense and growth in the business, including 2 months contribution from ArmadaCare. Adjusted EBITDA to shareholders grew to just over $7 million compared to just over $5 million in the fourth quarter of 2024, a 33% increase.

During the fourth quarter, our investment in start-up MGAs created a drag on total adjusted EBITDA of just under $3 million or approximately $1.5 million to shareholders. This investment is about 3/4 of the impact of last year's fourth quarter. Notably, we had 6 entities that produced a negative EBITDA in the fourth quarter of 2025. All but 2 of these are anticipated to be breakeven or be profitable by the fourth quarter of 2026. This dynamic is characteristic of a component of our underlying growth engine and our ability to expand EBITDA margins over time.

Insurance Distribution adjusted EBITDA margin in the fourth quarter of '25 was 15%, up from 12% last year at this time, trending favorably towards our longer-term goal of mid-20s plus margins. On an operating basis, that is before the impact of NCI, Insurance Distribution reported over $10 million of adjusted EBITDA at a 22.6% margin compared to just under $10 million and a 22.3% margin in the fourth quarter of 2024. 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, but will converge over time with margins on an operating basis as we buy in certain NCI.

Everspan's gross premium written and net premium written and earned in the quarter were $80 million, $23 million and $18 million, respectively. Gross premiums written were up 34%, while net premiums written were up from last year's negative $3 million and net earned premium was basically flat year-over-year. Production and total revenues were heavily influenced by the repositioning of our portfolio, which began in late 2024. We now believe Everspan is positioned for controlled and profitable growth.

Our net loss and LAE ratio was 61.8% in the fourth quarter of '25, up from 51.9% in the fourth quarter of 2024. However, losses were meaningfully impacted by sliding scale commissions, which we have used as an effective tool to help moderate loss results. Including the impact of sliding scale commissions, our effective loss and LAE ratio was 62.9% in the fourth quarter of '25 compared to 66.8% in the fourth quarter of '24, a decrease of nearly 4 full percentage points. Moreover, our active programs as opposed to those in runoff, were operating a combined loss ratio in the low 60s as of year-end.

At 99.4%, our combined ratio fell to below 100% for the first time this year, and our expectations are that this will remain the case in 2026. Our G&A ratio was 11.7% in the fourth quarter of '25, higher than we want. But as noted before, our expectations are that our G&A ratio will recede as we approach scale, which we generally consider at about $500 million of gross written premiums, which we believe can be achieved in 2028.

For the fourth quarter of 2025, Everspan's pretax income was $1.3 million and adjusted EBITDA was $1.5 million, down from $2.6 million and $2.7 million, respectively, in the fourth quarter of 2024. The decline was mostly related to the $1.8 million reduction in revenue related to the factors I noted earlier as well as an increase in G&A.

Corporate G&A expenses were $25 million in the quarter compared to $14.6 million in the fourth quarter of 2024. On an adjusted basis, G&A expenses were $7.5 million compared to $8.8 million in the fourth quarter of 2024. The difference between reported expenses and adjusted expenses in the current quarter was attributable to acquisition and integration costs of about $7.8 million, impairment of a legacy minority investment of $3.1 million and restructuring and expense reduction initiatives of $7.6 million.

We previously outlined certain select corporate expense reduction initiatives. These select initiatives are estimated to generate approximately $17 million of reported expense savings compared to where we were presale of our legacy financial guarantee business and have over a $10 million impact on adjusted corporate EBITDA when fully complete.

I will now turn the call back to Claude.

Thank you, David. As we look ahead, I believe we are uniquely positioned to grow both revenue and EBITDA as our newest MGAs build momentum and scale, our more established MGAs expand product lines, we continue to grow our distribution channels and all of our platforms work together to deliver synergies. The sum of these parts is expected to deliver improving margins and increasing operating leverage in 2026 and beyond. With that in mind, we are providing guidance regarding our expectations for 2026.

For our Insurance Distribution segment, we are expecting organic revenue growth of at least 20% and adjusted EBITDA of approximately $40 million for the full year 2026. For our Specialty Insurance segment, which includes Everspan, we expect gross written premiums of around $410 million and adjusted EBITDA of approximately $7.5 million for the full year 2026. Corporate adjusted expenses are expected to be below $30 million for the year. And on a consolidated basis, we expect to generate adjusted net income of around $0.50 per share for 2026.

We are proud of what we have built and excited about the opportunities that lie ahead of us to deliver meaningful value to our shareholders. We look forward to providing you updates on our progress in the coming quarters.

Operator, please open the call for questions.

[Operator Instructions]

The first question is from Mark Hughes from Truist Securities.

Claude, how do you see the -- you talked about a strong pipeline of de novo start-ups. What are you seeing for 2026?

Thanks, Mark. Yes, we're seeing a number of opportunities that are both in the Lloyd's market, but I'd say primarily in the U.S. market where we're focused principally for our growth initiatives. And we're currently looking to continue to diversify and broaden our writings in other lines and other areas, and we're seeing lots of opportunity for that and we still have a lot of white space. So I think we can certainly fit in a number of other businesses.

But I would say that we're probably targeting a lesser number certainly than the last 2 years, maybe 2 or 3, just given the significant number that we were able to launch in '24 and '25 and really focusing on their growth over the next 2 to 3 years. But we're looking for, I'll say, 2 to 4 per year, I think, is what we indicated previously, and that's probably our continued cadence that we're targeting.

Very good. David, how do we think about the cash flow in 2026? And I'm thinking one thing in particular, the buy-in of noncontrolling interest, but how do you see cash from operations? And then any outlays, again, like the noncontrolling kind of netting out through the course of the year?

Sure. So overall, cash flow is continuing to improve in terms of distributions, if you will, up to the holding company and at the operating level as well. Our expectations based on our current view is, and I think we gave a similar amount in last quarter is that NCI buy-in this year will be less than $50 million. And so funding for that will come from cash and our expectations at this point is some marginal additional borrowing as well.

Appreciate that. And then maybe a couple of specific items, equity-based comp and net investment income, again, for 2026, any early thoughts?

Net investment income, I would say, be relatively flat to marginally higher in 2026 and equity comp will be relative to 2025 would be down a few million dollars from the prior year.

Very good. And then when you think about the earnings throughout the year, kind of seasonally, the $0.50, I think you've talked about the profitability of the new de novo start-up should be improving, hit breakeven or better by the fourth quarter. But when you take into account seasonality, any rough guidance on how the quarterly earnings spread should look?

Yes. I mean while it's continuing to shift based on, as you know, some of the new MGAs that come into play, which we would expect to improve throughout the year for those start-ups that are currently losing money. And like I mentioned in my comments, most of which will be profitable by the end of the year. So that's a favorable dynamic through the course of the year in terms of weighting earnings towards the back end.

But nonetheless, our A&H businesses, in particular, as well as a number of other businesses are very heavily weighted towards the first quarter. So overall, our seasonality continues as it has in the past, while it's mutating a little bit, continues to be heavily weighted towards the first quarter and the fourth quarter. And in particular, for example, some of our A&H businesses, including ArmadaCare, they're weighted about 60% of their earnings and EBITDA is weighted towards the first quarter. So overall, we continue with our seasonality profile that's both first quarter and fourth quarter, but certainly starting to moderate modestly as the new businesses start to reach breakeven and move towards profitability.

Then maybe one final question. How do you see the pricing environment in the kind of 3 main buckets: the accident and health, the casualty and non-cat property?

Yes. So on the non-cat property side, I think fairly consistent with some of the market commentary. I think we're seeing probably 5% to 10% rate reductions on some of the programs. Others have been more stable in non-cat property. On the casualty side, we've seen some rate increases and some programs that have been more on the stable side. So really a blend, but the more challenging areas, certainly the excess casualty lines that really have seen double-digit rate increases. And as far as A&H goes, very strong organic growth. And I'd say that's probably on average when we look at the balance of our portfolio, probably double-digit organic growth in our 3 businesses.

And is that double-digit pricing for...

It's a combination. The pricing is probably close to double digit, a little higher, 10% to 12%. And the volume is -- revenue growth is also very significant because of new products and just other growth initiatives that are being put in place.

This concludes the question-and-answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, good morning, and welcome to the Octave Specialty Group's Third Quarter 2025 earnings call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Karen Beyer, Head of Investor Relations. Please go ahead, Karen.

Thank you. Hello. I'm Karen Beyer, the new Head of Investor Relations for Okta, and it is my pleasure to welcome you to our third quarter 2025 earnings call. For those of you following along on the webcast, we have posted a new investor presentation on our website, which Claude will be speaking to during his prepared remarks.

Our call today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties, and it 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 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 and responses to questions we may mention some non-GAAP financial measures. Reconciliation to those non-GAAP measures are included in our recent earnings release. investor presentation and operating supplement and other materials available to investors on our website, octavgroup.com. Speaking today will be Claude LeBlanc, President and CEO of Octave and David Trick, Chief Financial Officer.

With that, I will turn over the call to close LeBlanc, President and CEO of Octave.

Thank you, Karen. We are very pleased to have you participating on the call today, and I would like to extend a warm welcome to you as the newest member of our team. 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. .

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. 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. 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 guaranty business in 2018, ultimately leading to its recent sale. In parallel, we defined a vision and strategy for our new business which we launched just under 5 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.

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.

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; 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 outstanding. 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. And four, in addition to the successful close of the sale of our legacy financial guaranty business to Oaktree for $420 million, we announced and closed the purchase of RemoteCare a leading specialty A&H MGA platform.

With respect to our organic growth initiatives, we announced the launch of a new professional lines MGA, 1889 Specialty Insurance Services, the launch of the Alcor U.S. MGA, and we converted our investment in the recently launched PIVOX-MGA, led by McMiller to a majority stake bringing our total class of 2025 MG start-ups 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 organic growth, bolstered by continued momentum across our core businesses including the significant number of start-ups 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 multipronged strategy that includes investment in start-ups organic growth opportunities, share repurchases, selective and disciplined acquisitions and continued investments in data, AI and core technologies that 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 one that is defined by people and services working in a collaborative and entrepreneurial ecosystem. We believe Active captures the essence of who we are today. a collection of unique, high-performing businesses working in Harmony.

I should note that our line capacity, including our Lloyd's syndicates, Endeavor spin 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 Serata 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, Ambac reported a net loss from continuing operations to shareholders of $32 million or $0.67 per diluted share compared to a loss of $18 million or $0.43 per share in the third quarter of 2024. The higher loss was driven by a $15 million combined increase in intangible amortization and interest and G&A expenses, coupled with the impact of Everspan's prior period $7.5 million gain on the sale of Sonic, all of which more than offset stronger results in the insurance distribution segment. .

The third quarter of 2024 also benefited by a $4.8 million gain at corporate on an FX hedge related to the July 2024 acquisition of Beat. The increase in expenses resulted from the acquisition of beat as well as costs related to the exit from the financial guaranty business and expense reduction 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 EBITDA from continuing operations to stockholders was a loss of $3 million compared to a sub $2 million 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, and a $1.5 million reduction in Everspan adjusted EBITDA and $1.2 million of corporate expenses, mostly related to M&A and legacy litigation. These variances more than offset a threefold increase to $6 million in adjusted EBITDA 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 EBITDA, producing a 23% margin compared to $3 million and 11.1% margin in the third quarter of 2024.

Adjusted EBITDA 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 to 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 de novo losses, approximately $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. but will converge over time with margins on an operating basis as we buy in certain NCI. Everspan's net written and net earned premium in the quarter were $18 million and $17 million, down from $33 million and $27 million, respectively, from the prior year period due to the previously disclosed proactive nonrenewal of certain personal and commercial auto programs.

While reported losses in LAE declined year-over-year, the loss ratio increased to 84.5% in the third quarter of 2025 and from 74.4% in the third quarter of 2024. Adverse development accounted for just over 23 percentage points of this quarter's loss ratio due 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 3.5 points of increase in the acquisition cost and G&A expense ratios, partially offset by a 5-point increase in the sliding scale benefit.

As Everspan is experiencing steady growth in earned premium sequentially, we continue to expect the expense ratio to improve. The resulting combined ratio for the third quarter of 112.9% compared to 100.5% in the prior year period. For the quarter, Everspan was breakeven on an adjusted EBITDA basis. which was down from $1.6 million in the third quarter of 2024.

Corporate G&A expenses were $26.6 million in the quarter compared to $27.2 million in the third quarter of 2024. On an adjusted basis, G&A expenses were $9.3 million compared to $8.5 million in the third quarter of 2024. The difference between reported expenses and adjusted expenses in the current quarter is attributable to equity compensation and costs associated with our exit 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 we'll have over a $10 million impact on adjusted corporate EBITDA when fully complete.

I will now turn the call back to Claude.

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-forward value creation opportunities.

One, platform expansion. Since beginning our journey 5 years ago, we've expanded from 1 MGA to 22, including our Modicare. On a pro forma basis, our revenue has grown more than sevenfold since 2021; two, accretive 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 Modicare last week. Three, expense reductions. As noted, we have already taken significant steps to reduce our corporate expenses across both compensation and noncomp areas, and we'll continue to pursue additional measures to align our cost structure with the scale of our business. And four, 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. We Consistent with the expansion of our business, we have built a leadership team that I am incredibly proud of, 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 significant value to the MGA partners on our platform.

Moving to 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 interest with our MGA leaders as a pure-play MGA platform having a holistic and unified business service platform and align capacity through our Lloyd's syndicates and Everspan.

Moving to Slide 14. Our platform is uniquely positioned to deliver value through 2 complementary growth engines, our de novo incubation division, Octave Ventures, led by John Cavanagh and Paul Rayner and our M&A division, Octave Partners, led by Navin Anan. Both are supported by access to broad aligned and curated third-party capacity relationships, including our Lloyd's syndicates and Everspan. This dual strategy has created a diversified, high-performing platform where our MGA partners operate independently, but with 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 attract 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 have made targeted investments and high-performing underwriting teams with proven track records in their respective markets. We generally expect these MGAs to reach profitability within 18 to 24 months. Our U.K. MGAs typically achieve scale in approximately 3 years. While in the U.S., the time line is slightly longer, but generally offers a much larger addressable market and stronger long-term growth potential. The 9 new MGAs launched in 2024 and 2025 will be a key driver of EBITDA approach to acquisitions, targeting high-growth platforms that operate in niche markets with significant barriers 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 synergies. Our partners division has enabled us to achieve substantial product diversification in businesses supported by leading MGA entrepreneurs.

Turning to Slide 18. Once launched or acquired our focus shifts to growth and margin expansion for our MGA platform. We utilized a number of key growth and 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 accelerated speed to market.

Looking ahead to our aspirational $80 million EBITDA 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 EBITDA expansion has a development curve that follows top line growth as MGAs reach breakeven and later critical scale. With the 9 MGAs launched completed in 2024 and 2025, Octave Ventures has significant potential built-in EBITDA growth and margin expansion which we expect will push through in the 2026 to 2028 period.

As it relates to another key EBITDA growth driver on Slide 26, a we provide a schedule of Beat and other MGA call put dates. The most significant EBITDA buying opportunity will be driven by Beat, 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 EBITDA, 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 have made in a short amount of time.

Thank you for your continued support. I am truly optimistic about going ahead and the Octave chapter. With that, operator, please open the call for questions from analysts.

[Operator Instructions] Our first question is from the line of Mark Hughes with Truist Securities.

The organic growth of 40% in the distribution business, quite strong. Could you talk about the -- I think you said in Q1, Q2, the -- if you had incorporated beat the growth would have been in the teens, I think low teens, upper teens, obviously, nice acceleration in the third quarter. I wonder if you could talk about what contributed to that? And were there any contingents or performance-based commissions that might be nonrecurring that contributed to that 40%?

Mark, David. Thanks for the question. No, I think the -- it was really driven by just momentum in the business. There's no profit commissions or contingent commissions that are included in the revenue numbers for the calculation of organic growth, no impact from FX either. So it is a purely a same-store sales type of calculation. And what we've seen is just continued momentum in the business as a number of the MGAs that we have, we started to particularly once have started up in '23 and '24 have started to really build momentum in terms of their business.

So just a solid quarter with growth moving in line with our expectations for a number of the businesses as we had set those expectations when we launch them.

Very good. And then the 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 that presumably suggests you're going to need some more capacity to back the distribution business. How should we think about that going into 2026?

Yes. At this time, Mark, we believe we have sufficient capacity for the business, the $1.5 million does not include the new business of Armada Care, which is coming on October 1. Just to point that out, it also does not include Everspan. So we believe we have sufficient capacity with interest from capital providers that well exceeded what we think our needs are for next year. So in the event that additional capacity where needed, we are very confident we would be able to get that capacity. .

Very good. And then when you think about capital allocation, I think you've made the point that of your expected M&A on the distribution side, you've achieved 80% of your target with our Modicare. When we think about uses of capital, the noncontrolling interest would be one. But what would be the priority to pay down debt, buy back stock, additional M&A, perhaps above and beyond that target? How would we think about uses of capital?

Mark I think we're obviously very focused on balancing these various interests or capital, but I would put them in the strategic launches as being a continued focus of ours as we are a very growth-focused business. We will look at deployment of some capital potentially in M&A, although I don't believe there'll be large M&As in the near future, given our focus on organic growth. We will certainly continue to look at share buybacks. It's also a very important component, especially given where our current stock price -- our recent stock price has been. And we're also going to continue investing in select M&A data and technology platforms as we continue to build out our infrastructure and support for our various businesses. .

Yes. I did have one real specific question. the time line of acquisitions of noncontrolling interest, the Beat the 10% per year, understand that. The MGA 1 is the one of the other, the single MGA that you're looking at a 2026 by end of that noncontrolling interest. How much capital roughly at this point is involved in that MGA 1 20% piece -- Sorry, I know that's a little detailed, but just sort of curious, magnitude of what your capital spending would be on that and then the associated EBITDA if you have some thoughts there?

Sure, Mark. So that is not a significant amount of capital, today would be less than double-digit capital commitment, and it would not is not something that we've determined whether or not we would call and the management team hasn't decided whether they would put and we would have a conversation with the management team and talk about what's the best path forward for the business and for them, so it will be done in a collaborative way, but not a significant financial commitment. .

[Operator Instructions] our next questions is a follow-up from the line of Mark Hughes, Truist Securities.

In Everspan, what you think about the premium outlook there. You've had some adjustments that have been focusing on your more profitable programs. Is there kind of a run rate to think about going into 2026?

Yes, Mark, I mean, if you look at the last couple of quarters in 2025, right, we've seen this relatively controlled, modest growth on a sequential basis. So that is what I would expect to continue through the end of the year into 2026. Sometimes due to some seasonality depending on programs that come online and a number of other factors that are somewhat unique to the program business, you can get a little jumps in bobs and weeds, if you will, but generally speaking, we're looking to grow that top line at a relatively controlled pace. .

So I think the prior guidance that we've given is around $400 million for this year. I'd say we'd probably be in the kind of $370 million, $380 million or so this year based on the current pace, unless there's a little bit of a year-end burst from just some of the underlying MGAs and then next year, having pulled out full year guidance, we continue to expect some of that modest growth. So somewhere north of $400 million, but not looking to push the top line.

Yes. And then interest expense, post-care, what's the run rate on interest expense or interest...

Probably about $7 million of the full year to spend next year probably run around what the average quarterly was for this year. So a significant drop in interest expense.

Yes, yes. And then just to make sure I've got it straight. I think you talked about EBITDA margins kind of the EBITDA ratio is 5% to 7% relative to written premium. When you think about revenue to written premium, I wonder if you could -- if you have any specific numbers there that you might share when thinking about that outlook?

Yes. That's a little more challenging because it does really depend on the underlying business. And what I mean by that is there are a number of businesses that, I would say, average, let's say, 20% of premium production would be your revenue number, but there's also businesses that we report because of the nature of the contract, our commission income is reported on a net basis. So what you wind up having is some kind of adjustments to that ratio based on both seasonality and relative growth. So as that -- the business that reports on a net grows, then that ratio of revenue to premium plays would come down. But at the end of the day, the bottom line result wouldn't shift dramatically, and that's why we're focused more on the bottom line results relative to that premium as opposed to the nuances of the revenue recognition at the top line.

Understood. Am I right to think that are to the U.K. versus the U.S. .

That's primarily the difference. That's correct. .

Thank you. At this time, this will conclude today's question-and-answer session and will also conclude today's conference. We thank for you for your participation. You may now disconnect your lines, and have a wonderful day.

Greetings, and welcome to the Ambac Financial Group Second Quarter 2025 Earnings Call. [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.

Thank you. Good morning, and welcome to Ambac's Second Quarter 2025 call to discuss financial results. 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.

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. Our call today includes forward-looking statements. The company cautions investors that any forward-looking statements involve 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 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 mention some non-GAAP financial measures. Reconciliations to those non-GAAP measures are included in our recent earnings press release, operating supplement and other materials available in the Investors section on 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. We are very pleased to report that last month the Wisconsin OCI recommended the approval of the sale of our Legacy financial guaranty business and set September 3 as a hearing date for the Form 8 application submitted by Oaktree Capital Management. Approval of the sale by the OCI remains the last closing condition to be satisfied, and we stand ready to close following receipt of such final approval.

With near-term visibility into the closing of the AAC sale, we would like to share a series of strategic initiatives we plan to launch in the first 120 days following the close. We believe these initiatives are key steps in completing our business transformation and will materially accelerate the growth of our P&C business into 2026. These include, one, an organizational rebrand; two, a new executive comp program aligned with the new business; three, expense realignment at the holdco; four, implementation of a new target operating model to improve our organizational efficiencies and reduce expenses; five, progressing our capital management plan; six, continued investment in data and AI technologies. And lastly, executing on a strong pipeline of organic and strategic opportunities, many of which are already well advanced.

We believe these initiatives will drive strong growth and profitability for our businesses in both the short and long term. Looking at our quarterly results. Our operating businesses delivered strong growth producing $346 million of premium, up 110% and generating $54 million of revenue, up 20%, both from the prior period last year.

Beat continues to be a significant accelerator of our overall growth, up 26% from the second quarter of 2024. David will cover the financial results in more detail in just a moment. Turning to Insurance Distribution segment. Cirrata generated $250 million in premium for the quarter, up 368%. A key driver for the expansion of our platform will be organic growth via new MGAs and the continued scaling of recently launched MGAs, and we are very pleased with our results to date. The growth and development of our 2024 class of de novo MGAs has been in line with or exceeding our expectations.

We generally expect new MGAs to attain profitability in 18 to 24 months on average. Two of the 6 class of 2024 start-ups achieved profitability within 12 months and we expect 4 of the 6 to profitable in 2025. As we previously noted, de novo's will have an earnings drag impacting true run rate EBITDA until they achieve the needed scale and profitability. Given the significant number of de novo launches in 2024, we are well positioned to continue driving strong organic growth.

When including Beat, organic growth would have been over 12% in the quarter compared to the slight pullback reported, which stemmed almost entirely from the continued industry turbulence in the ESL and short-term medical markets. We now see the ESL markets beginning to stabilize and showing early signs of improvement. We remain bullish on the overall A&H sector, which has continued with strong performance and growth.

As part of our strategic initiatives in A&H, last quarter, we partnered with a team and secured a controlling interest in a San Francisco-based AI business by the name of Hammurabi on A&H products. We believe Hammurabi proprietary technology will enhance the growth and performance of our A&H businesses for the foreseeable future. We have already received very favorable reaction from the market on Hammurabi capabilities and secured new capacity to begin binding business in the fourth quarter.

Turning now to Everspan. From a growth perspective, Everspan continues to manage through the underwriting decisions made late last year, which had an impact on gross premium production in the quarter at $96 million, down 13% from the prior year. Overall, we are encouraged by the direction of Everspan's underwriting performance and capital management improvements.

As we indicated over the last several quarters, Everspan has been focused on rebalancing capital allocation for expanding primary affiliate and market opportunities with the deemphasis on assumed programs. Consistent with this strategic realignment during the last quarter, Everspan progressed the underwriting of various new programs including from Cirrata MGAs, which we believe will be accretive to both businesses going forward.

I will now turn the call over to David to discuss our financial results for the quarter, David?

Thank you, Claude, and good morning, everyone. For the second quarter of 2025, Ambac generated a net loss from continuing operations to shareholders of $21 million or $0.45 per share compared to a loss of $15 million or $0.33 per share in the second quarter of 2024. The higher net loss was driven by a $14 million combined increase in intangible amortization and interest expense related to the July 2024 acquisition of Beat.

Adjusted EBITDA from continuing operations to stockholders was a loss of $5 million compared to a sub $1 million loss in the second quarter of 2024. A higher net corporate loss stemming from lower investment income and lower net cost reimbursements in connection with the separation from the legacy business led to the reduction of adjusted EBITDA to stockholders despite improvements in both business segments.

Total revenues from continuing operations were up 8% to $55 million in the quarter, compared to the second quarter of 2024. The Insurance distribution revenues driven by the acquisition of Beat outpaced the reduction in earned premium at Everspan driven by the repositioning of the insured book we've discussed before. Total expenses from continuing operations of $78 million compared to $66 million in the second quarter of 2024 were driven by the inclusion of Beat's expenses, an $8 million increase in intangible amortization and interest expense of $6 million related to the short-term financing that will be repaid with the proceeds from the sale of the legacy business.

As previously noted, we continue to expect some volatility in earnings in connection with expenses related to the separation from the legacy business and repositioning of our operations for a leaner future state. These increases were partially offset by lower losses incurred by Everspan. Insurance distribution revenue increased by 148% compared to the second quarter of 2024, to $33 million. The growth was driven primarily by the acquisition of Peak Capital, partially offset by some contraction in ESL and short-term medical.

Revenue was also impacted by net FX losses of $2.5 million. These losses stem from U.S. dollar-based assets on Beat's balance sheet given that their functional currency is the British pound. This P&L impact was more than offset by net translation gains of $20 million running directly to AFG's shareholders' equity through other comprehensive income related to the translation of Beat's British Pound balance sheet into U.S. Dollars.

On an operating basis, that is before the impact of noncontrolling interest, Insurance distribution produced $5 million of adjusted EBITDA on a 13.9% margin compared to $2 million on an 18.1% margin in the second quarter of 2024.

Insurance distribution contributed adjusted EBITDA to shareholders of $2.5 million for the quarter at a 7.6% margin, up 27.6% compared to $2 million at a 14.8% margin for the second quarter of 2024. The lower margin in the second quarter of 2025 versus 2024 is related to a few items, including on a full operating basis. The $2.5 million of foreign exchange loss, approximately $2.1 million of drag from start-up expenses, and the aforementioned weakness in ESL and short-term medical, which as Claude noted, we are beginning to see some positive change based on the market situation and actions we've taken.

These items also impacted bottom line margins, which we expect to flex a bit quarter-to-quarter, depending on the relative performance of each underlying MGA compared to our ownership level but will convert over time with margins on an operating basis as we buy in certain noncontrolling interests. Everspan's net written and net earned premiums in the quarter were $15 million and $16 million down from $32 million and $27 million, respectively from the prior year period due to the proactive nonrenewal of an assumed nonstandard auto and certain other commercial auto and general liability programs. The loss ratio of 67.8% in the second quarter of 2025 improved from 85.1% in the second quarter of 2024. The quarter benefited from our underwriting actions and is performing more in line with our longer-term expectations.

Of note, our in-force programs were running at a loss ratio of approximately 63% in the quarter materially better than the book in runoff. The expense ratio of 38.9% in the second quarter of 2025 was up from 24.3% in the prior year quarter. This increase was driven by the prior year period having a 5.6% benefit from sliding scale commissions compared to a 2.6% benefit this quarter and certain other expenses over a lower earned premium base.

Going forward, we expect the expense ratio to improve as we, amongst other actions continue to expand our earned premium and fee based. The resulting combined ratio for the second quarter of 106.7% is down 270 basis points from the 109.4% prior year period. For the quarter, Everspan produced $0.7 million of adjusted EBITDA to stockholders, a $1.7 million improvement compared to the second quarter of 2024.

AFG on a stand-alone basis, excluding investments in subsidiaries had cash, investments and net receivables of approximately $85 million or $1.83 per share.

I'll now turn the call back to Claude for some closing remarks.

Thank you, David. As we eagerly await final regulatory approval for the sale of our Legacy business, we are focused on the growth of our Specialty P&C business. Following the close of the sale, we will continue to take all necessary steps to position Ambac as a growth platform with the goal of creating material shareholder value.

As mentioned earlier, our first 120-day initiatives include measures to rebrand the company and reduce corporate expenses, reactivation of our capital management plan. Additional data and AI technology investments and continued execution on de novo and other strategic opportunities that are well advanced. These actions will ready Ambac to hit 2026 firing on all cylinders. As we indicated earlier in the year, we intend to provide updated guidance following the close of the AAC sale.

As we look ahead, we continue to believe that the company is well positioned to profitably grow and scale towards our targeted long-term goal of $80 million to $90 million of adjusted EBITDA to Ambac common shareholders in 2028. I would like to thank our shareholders for their confidence and support as we near the final steps of our business transformation.

Operator, please open the call for questions.

[Operator Instructions] The first question is from Mark Hughes from Truist Securities.

Within Everspan, you talked about some movement there, a shift out of certain assumed programs, the nonstandard auto, the GL that put some pressure on premium in the quarter. Last year, you did close to $400 million. Do you anticipate that this kind of -- the runoff is going to have a similar impact in coming quarters? Does that stabilize? Is there any kind of goal for 2025 we should think about in terms of gross written at Everspan?

Yes. Thanks, Mark. We're -- certainly, the priority here with regards to Everspan is profitability. But that said, growth is certainly a key component of profitability as we mentioned in terms of scaling back our earned premium base, if you will, from some of the actions we took, which had put some pressure on gross and net. That has a big impact, obviously, on the expense ratio. So we're estimating around $400 million of gross premium this year. We're not going to push it unless we're happy with the programs and our expected loss ratios in those programs. But in and around the area of $400 million is where we would expect on a gross basis for the year?

Yes. How about net? Net to gross was bit lower this quarter, I think, 16%. Last year, you've been running in kind of the low 20s. Is that just a seasonal effect? Or is this a good number on a go-forward basis?

No. I think last year and last quarter, we had the impact of some of the assumed programs, which the net to gross on those is 100%, if you will. So I would expect that net to be lower. We always say that our retention levels will be 0% to 30%. And we don't necessarily have a hard target around that, but averaging the lower averages has put us between 15% and 20% on a net retention level going forward.

Understood. In the distribution business, the gross premium is placed obviously up sharply with Beat acquisition. Commission income relative to gross premiums placed. Your premiums placed were up sequentially, then the commission income was down sequentially. What drives that? And is that also -- or is that potentially a seasonal issue?

Yes. It's definitely a seasonal issue. And we also have another dynamic in there, which relates to, in particular, Beat. The reporting of Beat's commissions is different than our other businesses for the most part. So I'll call it our non-beat businesses generally report their commission income on a gross basis. So gross commissions and then they pay retail agents or wholesale agents a commission and then you get net commissions. Beat, because of the nature of their business and their contracts report the commissions on a net basis. So depending on both the mix of business in terms of the nonmeat business, which, of course, has all different commission levels in them, but the mix of business between Beat and non-Beat business, you can get a variation between the commission levels that are reported relative to commission -- premium place because of the different reporting framework for Beat and the rest of the businesses that, again, being gross versus net.

Understood. The organic growth, obviously, with Beat and Beat on its own generating very good organic, the reported kind of down 2 to 3. I hear what you're saying on the medical, A&H and that's stabilizing, getting better. Is that going to kind of flip in the fourth quarter? How do you think about Q3? Is it still feel likely to be under a little bit of pressure?

Yes. I'll just jump in here. I think we saw some stabilization in the A&H space, as we have mentioned -- sorry ESL space in the end of the second quarter. And we saw that line really beginning its challenges in the middle to late last year. So I think it's encouraging what we're seeing at least at the present time, but I'd say more of a stabilization. There is also, as David mentioned, some seasonality that impacts the growth and also the percentage ownership and business mix impacting renewals. But we believe the third and fourth quarters we expect to be strong and historically as we look at the book of business, the first and fourth quarter are our strongest quarters.

Very good. And then I'll ask one more question, if I might. The property business within the distribution that was what may be about 1/3, a little less than 1/3 of the total premiums placed. How is your experience kind of within property given that's been a softer market. I wonder if you could kind of characterize what kind of end markets you're focused on within that property and then how that might have performed year-over-year, understanding this was kind of the first year with that line, I think, within distribution?

So for the large property markets, we've certainly seen some price pressures in that area. And I think you've heard that from other market participants in the D&F markets and the cat-exposed property areas that we've seen the biggest reductions, we don't have a lot of exposure to those markets. We're primarily focused on non-cat-exposed property and smaller property markets. So I would say that for us, while we're seeing some declines, they've not been very significant, maybe in the mid single-digit area on average across our programs. And we do expect to see potentially some continued pressure on that. But with the diversification of our portfolio and growth and hardening in some of our other lines, in particular, Specialty and Casualty, we think there's a solid offset to some of those pressures.

The next question is from Deepak Sarpangal from Repertoire Partners.

I appreciate the progress on all the fronts. Just wanted to make sure I understood some of the call-outs you had on the onetime items on FX and start-up losses. So $2.5 million of FX translation losses and then $2.1 million of start-up losses. And then can you remind me, last quarter for Q1, what the amounts were for those in the numbers? I think it was sort of a little bit lower in each of those.

Yes. Thanks, Deepak. Yes, on the startup costs in the first quarter, they were under $1 million, about $800,000 and the FX was less than $1.5 million. I believe, it was $1.4 million -- $1.4 million.

Got it. And so if I look at that like if I kind of add those back in adjusted EBITDA, you kind of have $5 million of EBITDA going to on an adjusted basis, $9 million for this quarter and then in Q1 $12 million that's kind of more like $14 million. That's on a pre-noncontrolling interest basis. And then, of course, if that kind of take pro rata, the impact of the noncontrolling interest, the EBITDA to stockholders would seemingly be for this quarter, we had $2.4 million, which is kind of more like $4.8 million adjusted. And then last quarter, $7.1 million that I guess would be more like $8.4 million. So I guess for the first half of this year on an adjusted basis, have got EBITDA to stockholders that's more like a little above $13 million. And then I know there's seasonality where Q1 and Q4 are typically the strongest quarters and then it's lighter in Q2 and Q3. Is Q4 expected to be typically stronger than Q1? Now that you have Beat, which I think has a different seasonality profile?

That's our expectation, Deepak, for the year. I appreciate that. Yes, seasonality certainly will have an impact on quarters when you look at them sequentially. There's also occasionally dynamics within particular books of business in terms of shifting renewal dates and other factors that can impact quarters on a year-over-year basis and sequential basis. But our expectation for '25 is that the fourth quarter will be the strongest quarter from a seasonality standpoint.

Okay. Great. So kind of it would be a reasonable expectation to think on an adjusted basis, we have kind of a little above $13 million in the first half, a little above $13 million in the second half given the seasonality at the minimum. So we're kind of talking about closer to $30 million on an adjusted basis for the full year and then presumably kind of double-digit organic growth once you incorporate Beat. So something north of that going forward. Is that fair?

That's, I would say, a good analysis. But as you know, we haven't really provided guidance. So I don't want to confirm or deny that, but that sounds like a pretty good assessment of the dynamic that we're chasing.

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 .