Executive Summary / Key Takeaways

• Octave Specialty Group, Inc. (NYSE:AMBC) has completed a transformative shift, divesting its legacy financial guarantee business to emerge as a pure-play specialty Property & Casualty (P&C) insurance and distribution platform.
• The company's strategy centers on robust organic growth through its MGA incubation model (Octave Ventures) and disciplined acquisitions (Octave Partners), significantly expanding its MGA portfolio to 22 entities.
• Strong financial performance in the Insurance Distribution segment, with Q3 2025 revenue up 80% year-over-year and 40% organic growth, underscores the success of its platform expansion and MGA scaling.
• Octave is actively reducing corporate expenses, targeting approximately $30 million in adjusted expenses for 2026, and is committed to a disciplined capital allocation strategy, including share repurchases and strategic investments in technology.
• Management has set an aspirational goal of $80 million to $90 million in adjusted EBITDA attributable to common shareholders by 2028, driven by scaling MGAs, continued organic growth, and operational efficiencies.

A New Symphony: Octave's Pure-Play Specialty P&C Transformation

Ambac Financial Group, Inc., incorporated in 1991, has undergone a profound transformation, culminating in its rebranding as Octave Specialty Group, Inc. in November 2025. This strategic pivot marks the company's complete exit from its legacy financial guarantee business, a journey that began with a successful restructuring in 2018. Octave now stands as a pure-play specialty Property & Casualty (P&C) insurance and distribution platform, a significant evolution from its former identity as a capital-centric entity. This new era is defined by a collaborative and entrepreneurial ecosystem focused on people and services, aiming to maximize long-term shareholder value through targeted strategies in its Insurance Distribution and Specialty P&C Insurance businesses.

The broader Excess & Surplus (E&S) market, where Octave primarily operates, continues to perform robustly, driven by a persistent trend towards risk specialization. This environment is highly supportive of the Managing General Agent (MGA) market, which Octave is actively cultivating. The company observes high-single to double-digit rate increases in its focused U.S. casualty lines. While the property market has experienced some softening in late 2024 and early 2025, terms and conditions have largely held. Professional and financial lines, particularly large account and public market Directors & Officers (D&O), also show softness, but smaller accounts and management liability segments remain more resilient. These industry dynamics provide a fertile ground for Octave's specialized approach.

In this competitive landscape, Octave positions itself as a differentiated strategic operator. The specialty P&C and insurance distribution markets are highly competitive, featuring a wide array of specialty insurers, underwriting agencies, intermediaries, and larger, diversified financial services companies. Octave's unique value proposition, however, helps it stand out. It offers a true partnership model that aligns interests with MGA leaders, operates as a pure-play MGA platform with a holistic business service platform, and provides crucial aligned capacity through its Lloyd's Syndicates and Everspan. This model is designed to attract top industry talent and MGA partners, enabling Octave to compete effectively against rivals, including those leveraging technology-based solutions or direct-to-consumer models.

Technological Edge: Powering Growth and Efficiency

Octave's strategic blueprint is deeply intertwined with its commitment to technological differentiation and innovation. The company is making significant investments in data, Artificial Intelligence (AI), and core technologies to enhance its operational effectiveness, improve underwriting discipline, and accelerate speed to market. This technological focus is a cornerstone of its competitive moat.

A prime example is the company's partnership and controlling interest in Hammurabi, a San Francisco-based AI business specializing in Accident & Health (A&H) products. Hammurabi's proprietary technology is expected to significantly enhance the growth and performance of Octave's A&H businesses. The market has already shown a favorable reaction to Hammurabi's capabilities, leading to new capacity being secured to begin binding business in the fourth quarter of 2025. This integration of AI is designed to provide more sophisticated risk assessment, streamlined processes, and ultimately, better underwriting results. The strategic intent behind these investments is to leverage advanced analytics to make more informed decisions, reduce operational costs, and gain a competitive edge in a rapidly evolving insurance landscape.

The Octave Symphony: Insurance Distribution's Growth Engine

The Insurance Distribution segment, encompassing Octave Ventures (de novo incubation) and Octave Partners (M&A division), is the primary engine of Octave's growth. This segment has demonstrated remarkable expansion, fueled by strategic acquisitions and a robust pipeline of new MGA launches.

For the three months ended September 30, 2025, the Insurance Distribution segment reported revenues of $43.222 million, an impressive 80.10% increase over the same period in 2024. Organic revenue growth stood at a strong 40% for the quarter and 26.10% for the nine months ended September 30, 2025. This growth was significantly bolstered by the full inclusion of Beat Capital Partners Limited's results, acquired in August 2024, and the successful launch of new de-novo MGAs. Premiums placed by the segment surged by 69.30% to $245.394 million in Q3 2025 compared to Q3 2024, and by 152.50% to $728.493 million for the nine-month period.

Octave Ventures, the de novo incubation division, is built on attracting top-performing underwriting teams by offering a comprehensive support system: a broad distribution network, strong capacity partners, stable capital, experienced leadership, and integrated technology-enabled business services. New MGAs generally aim to achieve profitability within 18 to 24 months, with some 2024 startups already exceeding this target. The nine new MGAs launched in 2024 and 2025 are expected to be a key driver of EBITDA margin expansion as they scale. Octave Partners, the M&A division, focuses on disciplined acquisitions of high-growth platforms in niche markets, seeking businesses with natural entry barriers, proven underwriting, aligned ownership, and clear growth trajectories. The recent acquisition of ArmadaCare, a leading specialty A&H MGA, for $250 million on October 31, 2025, exemplifies this strategy, providing valuable product and line of business diversification.

The segment's adjusted EBITDA (before non-controlling interest) reached $10 million with a 23% margin in Q3 2025, a substantial increase from $3 million and an 11.1% margin in Q3 2024. Adjusted EBITDA attributable to shareholders also saw significant growth, rising 183% to $6 million at a 13.9% margin in Q3 2025. While de novo startup losses (just over $1 million in Q3 2025) initially impact earnings, they are strategic investments in future organic growth. The company also benefits from over $1.5 billion of committed third-party capacity for 2025, with a significant portion from long-standing relationships, validating the quality of its MGA underwriting.

Everspan: Underwriting Profitability and Strategic Realignment

The Specialty Property and Casualty Insurance segment, operating under the Everspan brand, is focused on generating underwriting profits from a diversified portfolio of commercial and personal liability risks. Everspan's strategy emphasizes profitability and capital utilization, leading to a proactive realignment of its business.

In Q3 2025, Everspan's net written and net earned premiums were $18 million and $17 million, respectively, down from $33 million and $27 million in the prior year. This reduction was a direct result of the proactive non-renewal of certain personal and commercial auto programs, a strategic decision to improve profitability and rebalance capital allocation. Despite the lower premium volume, the loss ratio for in-force programs is running in the mid-sixties, materially better than the runoff book. However, the reported Q3 2025 loss ratio increased to 84.5% from 74.4% in Q3 2024, primarily due to adverse development of over 23 percentage points from runoff commercial auto programs. This was partially offset by a sliding scale commission benefit of approximately seven percentage points. The combined ratio for Q3 2025 was 112.9%, compared to 100.5% in the prior year. Management anticipates the expense ratio will improve as earned premium expands and the portfolio migrates towards more profitable programs. For the full year 2024, Everspan achieved a combined ratio of 101.6%, a 490 basis point improvement over 2023, and recorded its second quarterly underwriting profit in Q4 2024 with a 96.5% combined ratio.

Everspan's priority remains profitability over aggressive top-line growth. Gross premium for 2025 is expected to be in the range of $370 million to $380 million, with modest growth anticipated into 2026, aiming for "somewhere north of $400 million." The segment's net retention levels are projected to be between 15% and 20% going forward, reflecting a strategy to retain 0% to 30% per program.

Financial Health and Capital Allocation Discipline

Octave's financial health has been significantly bolstered by the sale of its Legacy Financial Guarantee business on September 29, 2025, for $420 million. This transaction allowed the company to repay a $150 million credit facility used to finance the Beat acquisition and purchase AAC's $62 million co-investment in Beat. As of September 30, 2025, Octave's net assets (excluding operating subsidiaries) totaled $255.951 million, providing substantial liquidity.

For the three months ended September 30, 2025, Octave reported a net loss from continuing operations to shareholders of $32 million, primarily due to increased intangible amortization, interest, and G&A expenses related to the Beat acquisition and legacy business exit costs. Adjusted EBITDA from continuing operations to stockholders was a loss of $3 million. However, the company is actively reducing corporate expenses, with additional material reductions in Q3 2025 expected to decrease the run-rate adjusted corporate expenses by over $10 million. An initial target of approximately $30 million in adjusted corporate expenses has been set for 2026. Interest expense is also expected to drop significantly, with the full-year 2026 interest expense projected to be around $7 million following debt repayment.

Capital allocation remains a top priority, guided by a multi-pronged strategy. This includes continued investment in startups and organic growth opportunities, opportunistic share repurchases (3.1 million shares, or 6.5% of weighted average shares outstanding, repurchased post-Q3 2025), and selective, disciplined acquisitions like ArmadaCare. The company also plans continued investments in data, AI, and core technologies. Funding for potential put, call, and other capital commitments is expected not to exceed approximately $50 million in 2026. While management believes current liquidity is sufficient, future events could necessitate additional capital. The ArmadaCare acquisition was partially financed by a new $120 million credit facility, which includes covenants that will impact financial and operational flexibility.

Outlook and Aspirational Goals

Octave Specialty Group is poised for a future of robust growth and enhanced profitability. Management anticipates maintaining strong organic growth into 2026, driven by the momentum across its core businesses and the scaling of the nine new MGAs launched in 2024 and 2025. The fourth quarter of 2025 is expected to be the strongest quarter from a seasonality standpoint.

The company has set an ambitious yet achievable aspirational goal of generating $80 million to $90 million of adjusted EBITDA attributable to common shareholders by 2028. This target is underpinned by the continued scaling of its MGA platform, the realization of operational efficiencies from technology investments, and disciplined expense management. The most significant EBITDA buying opportunity lies with Beat, where Octave will have the chance to acquire the remaining 40% non-controlling interest over the next four years, further converging operating and shareholder-attributable EBITDA margins.

Conclusion

Octave Specialty Group, Inc. has successfully shed its legacy and embraced a focused future as a pure-play specialty P&C insurance and distribution powerhouse. This transformation, marked by strategic acquisitions, organic growth through MGA incubation, and a strong commitment to technological innovation, positions the company for significant value creation. While challenges such as market cycles, social inflation, and competitive pressures persist, Octave's differentiated partnership model, aligned capacity, and disciplined capital allocation strategy provide a robust framework for navigating these dynamics. The company's clear strategic roadmap, coupled with its aspirational EBITDA targets and ongoing expense reductions, presents a compelling investment thesis centered on sustained growth and expanding profitability in the specialty insurance market.