Ambac has continued its repositioning under the leadership of Claude LeBlanc with a deal to buy accident and health-focused MGU Xchange, in the first fee-business acquisition in a two-pillar strategy that also involves the build-out of its specialty program carrier platform.
The move marks the latest step in Ambac’s transition towards the specialty program market, with the US holding company aiming to build a platform of both admitted and non-admitted carriers, as well as MGAs and MGUs.
Ambac said it is to acquire an 80 percent stake in Xchange, which will continue under its current brand, with the MGUs management led by president and CEO Peter McGuire retaining the remaining 20 percent of the company.
LeBlanc said Ambac had been “actively pursuing acquisitions in the MGU and MGA space” adding that the acquisition would generate recurring fee-based income with attractive risk-adjusted returns.
As revealed earlier this year, US holding company Ambac Financial Group has also been repurposing its admitted Everspan Insurance Company (EIC) subsidiary as a fronting carrier that will participate by retaining risk on programs it writes.
EIC has now redomesticated to Arizona and been approved to write broader P&C lines of business. The Everspan Group platform that houses the admitted carrier has also established a surplus lines carrier called Everspan Indemnity Insurance Company (EIIC), also in Arizona.
The platform has been building out a management team including former Endurance and Crum & Forster executive Steve Dresner and former State National executive Wyatt Blackburn.
Blackburn is president of the two carrier subsidiaries, with Dresner holding the position of managing director, chief underwriting officer and chief reinsurance officer.
Ambac said it was continuing to progress Pillar I of its specialty insurance strategy via the Everspan Group platform which will enable it to participate in fronting for admitted and non-admitted specialty program carriers.
It added that the acquisition of Xchange was the first step towards the development of its Pillar II strategy, which will focus on fee-based MGA and MGU businesses and plans to expand over the coming year via acquisitions.
The company said Xchange - which was launched a decade ago - has built a successful business supported by major insurers, reinsurers, third party administrators, brokers and producers.
It added that the acquisition will allow the MGU to realise significant growth potential through geographic and product diversification to accelerate its strategic plans.
LeBlanc commented: “We expect the acquisition of Xchange to be immediately accretive to Ambac and allow us to use our net operating losses. We also believe that the acquisition furthers Ambac’s commitment to unlocking long-term shareholder value by generating recurring fee-based income with attractive risk adjusted returns.”
McGuire added: “This transaction provides us with a strategic partner plus access to permanent capital that will accelerate our planned growth strategy and Ambac will benefit from a proven, established niche MGU with a history of consistently strong operating results and carrier support.”
Stonybrook Capital acted as exclusive financial advisor to Xchange, while UBS Investment Bank acted as financial advisor to Ambac on the transaction.
AFG’s main business was previously as a monoline financial guaranty insurer but has spent the years since the subprime mortgage financial crisis that began in 2007 running off its book and seeking to optimize assets and reduce liabilities including through a raft of long-running legal actions.
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 it 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.
Debevoise & Plimpton LLP served as legal advisor and UBS Investment Bank as financial adviser to Ambac on the transaction.