Greetings and welcome to the Ambac Financial Group in Q4 2022 earnings call. At this time, all participants are in a listen-only mode. A brief Q&A session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 Q4 2022 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'll take your questions. Our call today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under the forward-looking statements in our earnings press release and our most recent 10-Q and 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements.
Also, in our prepared remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliation to those non-GAAP measures are included in our recent earnings press release, operating supplements, and other materials available in the investor relations section of our website at ambac.com. I would now like to turn the call over to Mr. Claude LeBlanc.
Thank you, Charles. Welcome to everyone joining today's call. Yesterday, we posted a separate presentation to our website that I will be referencing during today's call, entitled 2022 Year-End Review. I'm gonna start on slide three of this presentation. 2022 was a transformational year for Ambac, a year during which we resolved a number of our most significant challenges and at the same time materially progressed our new business strategy. Today, I am pleased to report that Ambac is in its strongest financial position since the 2007 financial crisis. In 2022, we successfully resolved all of our remaining legacy RMBS rep and warranty litigations, recovering nearly $2 billion through settlements, and we completed the restructuring of our largest and most distressed financial guarantee exposures, notably our PRIFA, CCDA, and HTA Puerto Rico exposures, amongst others.
A result of these successes, in addition to our active asset liability management activities, which resulted in the capture of over $150 million of discount, we reduced our outstanding debt by $1.8 billion and increased our book value by $214 million, or $5.43 per share. In our specialty P&C businesses, we expanded our platform through both organic growth and acquisitions, producing in excess of $280 million of premiums. Everspan continued to increase its market share, generating gross written premiums of $146 million for the year. In addition, we successfully recruited top industry talent to our businesses, all of which positions Ambac very well for strong future expansion and earnings growth.
For the year ending December 31st, 2022, Ambac reported net income of $522 million, or $11.31 per diluted share, and adjusted earnings of $555 million, or $12.01 per diluted share. Ambac ended the year with a book value of $1.25 billion, an increase of 21%, and adjusted book value of $1.27 billion, an increase of 46% over year-end 2021. David will discuss our results in more detail shortly. Turning now to the review of our legacy financial guarantee business on slide four of the presentation. Each of AAC and AUK succeeded in materially increasing their book value and adjusted book value and the quality thereof, one of our key strategic priorities.
In summarizing some of our key achievements for the year, first, we have monetized all of our outstanding rep and warranty receivables when considering the receipt of the Nomura settlement in January of 2023. Secondly, we reduced our Puerto Rico exposure by 77%. Next, our debt leverage is down 74%. Loss reserves are down 51%. Adverse credit exposure is down 26%. Finally, net par outstanding is down 19%. Over the same period, book value per share increased 24% and adjusted book value per share increased by 50%. Turning to slide five of the presentation.
As outlined last quarter, our recent accomplishments, coupled with our significant de-risking and de-leveraging activities, positions us to begin the process of reevaluating the amount of capital needed to support our legacy businesses, as well as initiate a comprehensive review of the alternative strategic paths available to maximize value. Strategic review process will evaluate alternative options on both a time and risk-adjusted basis. I would also like to point out that certain alternatives are not mutually exclusive and may be considered in connection with others. Options under active consideration include, one, the ongoing active runoff of a profitable, delevered, and de-risked legacy platform, potentially consolidated with AUK. Two, strategic portfolio de-risking transactions with the goal of freeing up capital and further increasing the value of our businesses. Three, strategic joint venture arrangements to generate increased value and financial flexibility at AAC and AFG.
Lastly, a full or partial sale of the legacy business, which would consider the value for the well-preserved NOLs held by AAC. As previously mentioned, managing through the operating and capital reevaluation process with our regulator will take some time, but I wanted to offer an update on our progress thus far. First, our periodic examination process with our insurance regulators is well underway, and we are working towards establishing a new capital and operating framework with our Wisconsin insurance regulator by the middle of this year. Second, we are working with advisors in both the U.S. and the U.K. to assist us in the evaluation of strategic options for both AAC and AUK in order to further maximize value creation and recovery for shareholders.
The outcome from this analysis, combined with the outcome from the operating and capital framework, in addition to other considerations, is expected to provide us with greater clarity on preferred options and the timing thereof. We will update you further once the review process is complete. Turning now to our specialty P&C business on slide six of the presentation. Everspan Group, our specialty P&C program business, had a great first full year of business, generating gross premium written of $146 million, up over tenfold from its launch in May 2021. Everspan continues to expand and diversify its program partners, which currently stand at 14, up from seven at the start of 2022. The team remains focused on growth with strong underwriting focus program partners backed by a leading panel of highly rated reinsurers.
The U.S. MGA market remains robust and expanding with an expected range of $70 billion to 100 billion in premiums, which supports a strong pipeline of new program partners for Everspan. While growth is important, Everspan is a disciplined underwriting platform and selective in its risk assumption. In 2022, Everspan received over 180 submissions, but only contracted with nine that met their desired risk profile. The January 1st reinsurance renewals provided evidence that the disruptive forces within the P&C supply and demand dynamic identified earlier in the year were real, especially as it relates to property cat exposed business. Everspan, which has limited property exposure and program renewals spread throughout the calendar year, has so far been able to successfully mitigate these challenges with the broader industry.
To some degree, we believe that these industry dynamics may well provide Everspan with additional growth opportunities, especially in our preferred classes of business, as competitors work to address the changes in property cat capacity. We expect these factors, along with the strength of Everspan's current programs, to provide the business with the opportunity and resources to keep building on its gross premium growth. This year, we expect Everspan to generate in excess of $250 million of gross premium and reach profitability in the back half of the year, and to continue growing to upwards of $500 million of gross premium over the next several years. Turning to slide seven in our insurance distribution business. Cirrata, our insurance distribution segment, had another good year with premiums placed of $135 million, up 15% over 2021, which generated $7 million of EBITDA.
Cirrata is just getting started, and there is a lot of runway for growth both organically and strategically. Notably, Cirrata's 2022 performance only includes two months of results from the Q4 acquisitions of All Trans and Capacity Marine. Xchange, our first MGA acquisition, has recently announced several growth initiatives that we are very excited about. First, Xchange Re, a reinsurance MGU that will underwrite accident and health reinsurance coverage on a worldwide basis utilizing U.S. Fire as a carrier. Secondly, Distribution Re, a captive for Xchange's employer stop loss clients that will ensure accident and health risks, mainly in the form of high-deductible medical stop loss plans, both of which will add to top and bottom line growth in 2023.
As our business continues to transform, we have continued to successfully attract top P&C talent, including the recent hire of a leading industry executive, John Tatum, who is in the process of building out our second de novo incubation, an MGA in the construction space. These accomplishments, combined with an active M&A pipeline, position Cirrata favorably to hit projections exceeding $200 million of placed premium with attractive margins for 2023. Lastly, I would like to take a moment to acknowledge Jim Prier, who stepped down from our board after having served as a director for over seven years. The board and management have benefited tremendously from Jim's counsel and service over the years, leading to the significant milestone accomplishments dating back to the Segregated Account exit from rehabilitation in 2018, and through our numerous other achievements culminating to where we are today.
On behalf of the board and management, I want to personally thank Jim and wish him the best on his next endeavors. We plan to use Jim's departure as an opportunity to refresh our board. The board routinely reevaluates its composition to ensure the expertise and other qualities of the board as a whole are well-suited to the company's business and strategy. In light of the accomplishments and significant growth in our specialty P&C business, the board's governance and nominating committee is well advanced in its search to add a highly skilled director that brings additional specialty P&C insurance expertise to help steward Ambac in its next phase of growth. We look forward to updating you on that initiative at the appropriate time. I will now turn the call over to David to discuss our financial results for the quarter. David?
Thank you, Claude. Good morning, everyone. For the Q4 of 2022, Ambac reported net income of $175 million, or $3.86 per diluted share, compared to a net loss of $22 million, or $0.42 per diluted share in the Q4 of 2021. Adjusted earnings for the Q4 of 2022 were $190 million, or $4.18 per diluted share, compared to an adjusted loss of $10 million or $0.16 per diluted share in the Q4 of 2021. Adjusted earnings excluded legacy financial guarantee insurance, intangible amortization expense of $12 million, and unrealized foreign exchange transaction losses of $2 million for the Q4 of 2022.
The $197 million increase in net income for the Q4 2022 compared to the Q4 of 2021 was driven by several notable items. First, we realized a $121 million net gain from the previously announced settlements of legacy RMBS litigations. $78 million of the $121 million net gain related to the Bank of America settlement and $43 million related to the Nomura settlement. For the sake of clarity, I will walk through the various components of the gain and where they are recorded in our financials.
As it relates to the net Bank of America gain, $126 million of the gain is recorded as a litigation recovery in our income statement and related specifically to our allocation of a portion of the settlement to the HarborView Four litigation, and $5 million of the gain represents realized gains recorded in realized investment gains on Sitka Notes we held in the investment portfolio. Netted against these gains was $53 million of Sitka Note call premium and accelerated discount amortization expense recorded through realized gains and losses on extinguishment of debt. As it relates to the Nomura litigation, $43 million of net gains were recognized through loss and loss adjustment expenses. Secondly, we realized a $77 million gain from the repurchase at a discount of $364 million of principal and accrued interest of surplus notes.
This gain was recorded in net gains on extinguishment of debt and was partially offset by the previously mentioned $53 million Sitka Note expense. On account of these debt reductions, interest expense was $14 million less this quarter compared to the Q4 of 2021. As they occurred throughout the Q4, the full impact of these debt reductions on interest expense will not be realized until the Q1 of 2023. Premiums earned were $17 million in the Q4, up from $10.5 million earned in the Q4 of 2021. For the quarter, Everspan earned premiums grew $5.3 million, while legacy financial guarantee net earned premium grew $1.3 million due to the acceleration of premiums related to the de-risking of Puerto Rico.
Total net premiums earned for the quarter included $13.3 million of normal earned premium. Everspan accounted for over 40% of normal earned premium in the Q4 of 2022, compared to just 5% in the Q4 of 2021. As Everspan continues to grow and we continue to de-risk the legacy financial guarantee insured portfolio, we expect Everspan's earned premium to exceed that from the legacy financial guarantee book in 2023. In addition, we would highlight that of the $52 million of specialty P&C gross written premiums in the quarter, Everspan retained about 20% or $10 million, which we'll earn in over the next year. Everspan's business model allows us to retain up to 30% of gross written premium.
Everspan also collected $2.3 million and earned approximately $1.4 million of program fees in the quarter. As a reminder, program fees earn in over the course of a policy similar to how premium is earned. Therefore, as Everspan continues to add programs and grow gross premiums written, both earned premium and program fees will grow significantly. Cirrata, our distribution segment, also continues to grow both organically and strategically. Premiums placed of $38 million in the quarter were up 46%, benefiting from both the recent acquisitions of All Trans and Capacity Marine in November, as well as organic growth from Xchange. Insurance distribution business revenues come from commissions earned as a percentage of premiums placed. Total revenues for the quarter were $9 million, up 42% from the prior year period.
The insurance distribution segment produced nearly $2 million of EBITDA, net of non-controlling interest for the Q4, up from the $1 million produced in the Q4 2021. Revenues and EBITDA were favorably impacted by two months of All Trans and Capacity Marine results in organic growth at Xchange. Investment income for the Q4 was $23 million, down from $27 million in the Q4 of 2021 as a result of volatility across markets and a smaller allocation to alternatives. More specifically, the decrease in investment income during the Q4 of 2022 related to a net gain on fund investments of about $2 million, compared to a $13 million gain in the Q4 of 2021.
Allocations to alternative fund investments have been reduced by approximately $58 million year-to-date in connection with the regular rebalancing of the portfolio. Income from fixed income securities was up $7 million compared to the same period last year due to higher average yields. Capital deployed in fixed income available for sale securities for the Q4 was at a yield of approximately 5.7%. Loss and loss adjustment expenses were a $55 million benefit in the Q4 of 2022, compared to a $15 million benefit in the Q4 of 2021. The structured finance portfolio generated a benefit of $58 million this quarter, compared to an expense of $24 million in the Q4 of last year. The principal driver to this quarter's results was the $43 million gain from the Nomura settlement.
The remainder of the benefit for the quarter related to an overall net improvement in the performance of the reserve portfolio. Net gains on derivatives contracts, which remain positioned as a partial economic hedge against interest rate exposure in the financial guarantee and investment portfolios, were $5 million for the Q4, compared to $3 million for the Q4 of 2021. During the quarter and year, we reduced the sensitivity of the macrohedge, generally in line with the exposure we are hedging. As of year-end 2022, the sensitivity to a 1 basis point change in interest rates was approximately $156,000, compared to over $530,000 at the beginning of the year. We expect to continue to reduce the DV01 throughout 2023.
General administrative expenses were $51 million for the Q4, up from $29 million in the Q4 of 2021. The increase in operating expenses was due to an increase in legal expenses at AAC, higher headcount for specialty P&C and other associated costs with the continued growth of the business, acquisitions of All Trans and Capacity Marine, and the impact of timing on certain corporate expenses which impacted Q4 2021, which more than offset quarter expense reductions in the legacy business. Interest expense in the Q4 was approximately $30 million, down from $44 million in the Q4 of 2021, and $49 million in the Q3 of 2022. Approximately $12 million or 40% of this quarter's interest expense related to Sitka and Tier 2 Notes, all of which are now fully redeemed.
During the Q4, we also repurchased surplus notes totaling $364 million of par in accrued interest, which resulted in the previously mentioned $77 million gain and a $2 million reduction of interest expense. As a result of these repurchases, AAC's remaining surplus note debt as of 12/31/2022 is $945 million, inclusive of accrued and unpaid interest. Shareholders' equity increased by $244 million, or $5.42 per share, to $1.25 billion, or $27.85 per share at December 31st, 2022, from the end of the Q3. The increase was primarily due to Q4 earnings, unrealized gains on available for sale investments of $11 million, and foreign exchange translation gains related to AUK of $51 million.
Adjusted book value increased to $1.27 billion, or $28.29 per share at December 31st, 2022, from $1.04 billion, or $23.13 per share at the end of the Q3. This $5.16 per share increase in ABV was primarily due to adjusted earnings and FX translation gains. At December 31st, 2022, AFG, on a standalone basis, excluding investments in subsidiaries, had cash, investments and net receivables of approximately $223 million, or $4.96 per share. During the quarter, AFG sold all of its AAC surplus notes back to AAC, which increased AFG's liquidity by approximately $95 million. I will now turn the call back to Claude for some brief closing remarks.
2022 was an exciting year with the achievement of meaningful value-enhancing accomplishments. As we look ahead to 2023, our key strategic priorities will focus on, one, growth and diversification of Everspan Group. Two, targeted growth at Cirrata, both organically and through M&A. 3, as it relates to our legacy business, completing the following. One, the legacy business capital and operating framework. Two, our comprehensive review of strategic options for the legacy business. And three, initiating key strategic steps towards maximizing value for shareholders. We look forward to updating you on our progress in the coming months. Operator, please open the call for questions.
Thank you. We will now be conducting a Q&A session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from the line of Paul Devin with C. Devin and Association. Please go ahead.
Good morning, folks. How are you? A couple of things. First, I can't believe Claude and David will never be talking really about Puerto Rico or BMA or Nomura again. First off, congratulations to everybody on the team for getting that behind you. Now, you know, it's time to sort of what have you done for me lately and looking forward. I wonder, Claude, if you can talk a little bit about more granular on the growth plans for Cirrata, also Everspan. Then I had one minor question for David. With respect to the unassigned negative surplus in AAC, I know that was down to about $80 million at the end of the Q3. When do you think that will go positive? Thanks.
Thanks, Paul. Appreciate the questions. We're also happy not to have to talk about Puerto Rico and Nomura going forward. Good point in history. In terms of our go-forward businesses, we are seeing tremendous opportunities at Cirrata, both on the de novo side as well as on the strategic or M&A side.
I think the offering that we put forward in the market, where we support our MGA, MGU, and wholesale businesses through a business service offering, in addition to having the possibility of Everspan as a capacity provider, I think distinguishes us in a way that has led a lot of whether it be sellers or individuals who are looking to either launch an MGA or take an MGA to the next step, consider us as a true viable option relative to other options in the market. I think we've been very pleased with the types of opportunities we've been seeing, and, we're seeing more and more as time goes on.
I think we're very excited about the prospects for growth and scaling of the Cirrata platform. As far as Everspan goes, that is an organic game. The portfolio there just continues to scale. We have distinguished ourselves coming out of the box by being a party that looks to retaining risk. We on the scale of hybrid fronting carriers, we are on the far right where we retain up to 30% of risk. I think that has distinguished us significantly in the market. I think the team that we have built with leading underwriters, actuaries, claims people, you know, really distinguishes us in the market as being really a primary platform for the program business relative to peers.
Again, we feel very confident that that business will continue to scale. We are attracting high-quality partners and seeing a very deep pipeline of opportunities approaching us in the future. With that, I'll turn it over to David on the assigned surplus.
Sure. Thanks. Thanks for the question. Unassigned surplus is about $75 million negative at the end of the year. It actually would have been positive, had not been for the repurchase of the surplus notes, which are carried on a statutory basis at their par amount, not their par plus accrued amount. While, you know, we don't provide financial projections of earnings and retained earnings in the future, certainly our objective is to continue to deleverage and de-risk the balance sheet of AAC. As part of our broader strategic initiatives, and as certainly as part of that, we would expect to continue to grow both the size and quality of the surplus.
You know, the factors that will go into the timing of that unassigned surplus becoming positive will include, of course, the earnings power of the business, but also our capital management activities, including any, you know, future debt transactions and de-risking transactions. There's a bit of timing to the magic of when that number may become positive in the future.
David, fair enough. Thank you for that. Claude, just to follow up with Cirrata. You know, obviously, you've done All Trans to Capacity Marine and you're looking at a lot of things. I appreciate it's hard to say what opportunities you're seeing, but perhaps are there certain areas where Cirrata is just not interested? You know, what don't you wanna get into as much as what might be attractive?
You know, I think we have a relatively broad appetite at Cirrata, and we certainly are focused on MGU, MGA, as well as wholesale. We're not focused, obviously, on the retail brokerage side. I think fundamentally, what's core to platforms in Cirrata is really their underwriting performance and distribution performance. We are really looking at each of our MGA partners at Cirrata, and that goes as well as program partners for Everspan, for platforms that are very strong in the underwriting area that we believe and we can assess their viability, both in the hard markets that we're in today, but also, you know, longer term in the soft markets. We have fundamental criteria we look at that are, you know, we follow very carefully in evaluating opportunities.
We also look at, you know, areas where we see strong synergies, as between our MGA partners, and distribution partners, and also potential synergies with Everspan. Those are other categories and areas that we would focus on in terms of identifying, good opportunities at Cirrata.
Okay. Thank you very much.
Thanks, Colin.
Thank you. Ladies and gentlemen, to ask a question, please press star one on your telephone keypad. You may press star one to ask a question. As 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.