Ambac targets MGA acquisitions and adds to Everspan carrier platform

Rebooted specialty insurance platform Ambac is actively pursuing MGA acquisitions and continuing to build out its Everspan participatory fronting business with the purchase of admitted shells as it executes its underwriting and distribution strategy across three pillars.

In an interview with this publication, Ambac president and CEO Claude LeBlanc said the publicly traded financial services holding company’s strategy is based on building a platform with capital-light recurring fee-based businesses and a focus on alignment of interest in underwriting and distribution.

The three pillars include participatory fronting platform Everspan, the build-out of an MGA/MGU platform and making minority investments in businesses that are synergistic to pillars one and two.

Everspan – which is led by former State National veteran Wyatt Blackburn and former Crum & Forster and Endurance executive Steve Dresner – began writing new specialty programs in the second quarter of this year after its initial admitted carrier and surplus lines carrier secured an A- financial strength rating from AM Best.

LeBlanc revealed Ambac had explored the idea of buying an existing platform and had done extensive diligence on several potential candidates among the wave of entrants to the hybrid fronting space in recent years before deciding to build its own.

“We had the opportunity to look at the strengths and weaknesses of various fronting carriers and the skills needed to take on risk and manage those risks while still maintaining the credit and operational efficiency required to run a platform like Everspan,” said LeBlanc.

Everspan acquired admitted shell Providence Washington Insurance Company in October and LeBlanc also disclosed that Everpsan is in the process of adding additional admitted capabilities with the acquisition of three more shell companies.

That will enable it to provide broader distribution and licences to avoid potential channel conflicts for MGA partners. It could also use one of the carriers as a vehicle for a broader strategic relationship with a specific MGA or program administrator, he suggested.

Risk retention

LeBlanc said the participatory fronting platform has a number of characteristics he believes differentiate it from its rivals.

“We established a risk management culture unlike most of the market and said we’d take up to 30 percent. That’s not on all programs but it is meaningful,” he indicated.

With the addition of a highly experienced senior pricing actuary in the form of Michael Scholl and veteran head of claims Marc Karnell, Everspan says it has been building a platform that looks more like a specialty insurance carrier than a hybrid front.

“That’s intentional and it goes back to our risk appetite. When we speak to reinsurers they look to us as the lead on a program; we’re doing the due diligence, setting the standards of what we need on go-forward relationship and data requirements, and we’ll also be monitoring the program.

“That’s very different from some of the other fronting carriers in the market,” said LeBlanc.

Also speaking to this publication, Dresner said Everspan has developed relationships with a handful of reinsurers that have said they’d support the carrier on programs they might not otherwise support.

“They like our due diligence process and what they hear about our oversight and monitoring of business. They like when we share our evaluation of underwriting and pricing, that we have an in-house actuary and a seasoned veteran of 40 years on the claims side.

“As much as they care about the underwriting, reinsurers also care equally if not more about the claims handling and setting of reserves. Our philosophy is we don’t want surprises with the MGA or the reinsurers,” he explained.

LeBlanc pointed to the fact that Everspan is part of a public company infrastructure and has access to permanent capital which differentiates it from most of the fronting sector, with the exception of Markel-owned State National and Trisura.

MGA platform build-out

The second part of Ambac’s go-forward strategy is to build a distribution platform.

And LeBlanc said the company is actively pursuing MGA and MGU acquisitions where it would look to take a stake of between 50 percent and 80 percent, with management retaining the balance of ownership to ensure alignment of interest as Ambac helps them scale and grow their business.

Ambac has already completed one acquisition, with a deal to buy accident and health MGU Xchange earlier this year, and it is on the hunt for others – including some that are materially larger than Xchange – as well as pursuing team lifts to launch its own MGAs.

There will be no requirement for MGAs on the platform to utilise Everspan paper, although if a program is a natural fit and appetites align it could do business with the participatory fronting carrier.

“We’re looking for the right cultural fit with the right attributes, succession planning and a desire to scale and grow. We need to make sure we get an attractive return over time and look to support them for additional team lifts or acquisitions as they grow.

“We can also be a capital provider for these MGAs, and provide a host of other services,” said LeBlanc.

Ambac would consider MGAs writing lines of business that are outside the appetite of Everspan, such as cat-exposed property, with a focus on niche operators that can drive strong underwriting profitability.

The executive said that, in addition to capital, Ambac can bring strong institutional relationships and reinsurance relationships to MGAs.

It has a business services unit to provide functions such as HR, finance and operations to MGA partners, and is also making significant investments in its technology platform as a centralised offering.

“We’re working with leading policy administration and other technology providers and data companies to provide best-in-class solutions to MGAs,” said LeBlanc. 

Ambac is working on a number of tech platforms aimed at the different needs of MGAs, and is looking to invest in incorporating evolving technologies such as AI into processes.

“A lot of MGAs looking for an exit are seeing that they’re really disadvantaged on the tech side and are looking for capital and expertise to address that,” LeBlanc commented.

Investing in synergistic businesses

The third pillar of Ambac’s specialty insurance strategy is outside of the direct franchise model that drives its participatory fronting and MGA platforms.

It is also looking to make minority investments in businesses that are synergistic to those other areas of its business.

The company has so far made three investments, including a strategic investment in Cover Whale as part of the auto MGA’s $15.5mn seed funding.

Cover Whale has also partnered with Everspan to use the participatory front’s paper for a new E&S trucking program launched in September this year.

“We see opportunities to make investments in some of these businesses to assist in their growth and evolution,” said LeBlanc. He said these kinds of investments provide Ambac with visibility into the MGA market and areas of the industry that are rapidly developing.

But the targets for investment have to be strategic and synergistic to the first two core pillars of its business model. “We’ve been very pleased with the interest of some of our best program partners wanting us to invest in them,” he said. “It speaks to the alignment of interest. We want their alignment and they want ours and that’s core to our strategy.”

 

From rehab to reboot

Ambac’s main business was previously monoline financial guaranty insurance but it has spent the years since the subprime mortgage financial crisis that began in 2007 running off its book and seeking to optimise assets and reduce liabilities.

It went into Chapter 11 bankruptcy back in 2010 as its bond insurance unit was no longer able to pay dividends to the holding company, exiting Chapter 11 in 2013.

However, under LeBlanc’s leadership, Ambac’s legacy financial guaranty business was able to exit rehabilitation via a restructuring transaction and in recent investor presentations the company has spoken of its desire to deploy capital “in a tax-efficient way to diversify its platform and enhance long-term shareholder value”.

That includes a new business focus in specialty P&C insurance and reinsurance, credit and asset origination businesses, asset management and fee-based businesses, as well as insurtech and fintech related businesses.