Mr. Ted Goldthorpe reports

MOUNT LOGAN CAPITAL INC. ANNOUNCES SECOND QUARTER 2024 FINANCIAL RESULTS

Mount Logan Capital Inc. today released its financial results for the quarter ended June 30, 2024. All amounts are stated in United States dollars, unless otherwise indicated.

Second quarter 2024 highlights

• Total revenue for the asset management segment of the company of $3.4-million, an increase of $400,000, or 13 per cent, as compared with the second quarter of 2023. The increase is primarily due to growth in fees attributable to the increase in SOFIX, CLO and subadvisory fees, as well as the increase in Ovation management and incentive fees. Second quarter asset management revenues exclude $1.5-million of management fees associated with Mount Logan's management of the assets of Ability Insurance Company, a wholly owned subsidiary of the company, during the second quarter of 2024, which increased by $600,000, or 58 per cent as compared with second quarter 2023 of $1.0-million.
• Total net investment income for the insurance segment was $23.5-million for the three months ended June 30, 2024, an increase of $2.1-million, or 10 per cent, as compared with the second quarter of 2023, driven by an increase in total insurance investment assets and improvements in yield across the investment portfolio attributable to deployment of capital in a higher rate environment. Excluding the funds withheld under reinsurance contracts and Modco, Ability's net investment income was $14.9-million, an increase of $2.2-million, or 17 per cent, as compared with the second quarter of 2023. An 8.2-per-cent yield on the insurance investment portfolio as of June 30, 2024, due to continuing portfolio and capital optimization across the insurance solutions portfolio alongside the benefit of higher base rates. Excluding the funds withheld under reinsurance contracts and Modco, the yield was 8.5 per cent.
• Ability's total assets managed by Mount Logan increased to $636.2-million as of June 30, 2024, up $198.9-million from second quarter 2023 of $437.3-million. As of June 30, 2024, the insurance segment included $1.1-billion in total investment assets, up $142.0-million or 15 per cent from second quarter 2023 investment assets of $1.0-billion.
• Book value of the insurance segment as of June 30, 2024, was $88.8-million, an increase of $48.6-million as compared with $40.2-million for second quarter 2023, driven by higher insurance net income.
• SRE for the insurance segment increased to $11.6-million for the trailing 12 months ended June 30, 2024, up $17.0-million from trailing 12 months ended June 30, 2023, of ($5.4)-million primarily driven by an increase in net investment income and lower operating expenses, which was partially offset by increased cost of funds. SRE is a non-IFRS (international financial reporting standards) financial measure used to assess the insurance segment's generation of profits excluding the impact of certain market volatility and other one-time, non-core components of insurance segment income (loss). The company believes this measure is useful to securityholders as it provides additional insight into the underlying economics of the insurance segment.
• FRE for the asset management segment was $1.6-million for the three months ended June 30, 2024, an increase of 6.1 per cent compared with second quarter 2023. FRE was $6.6-million for the trailing 12 months ended June 30, 2024, an increase of $700,000, or 12.2 per cent, compared with the trailing 12 months ended June 30, 2023, of $5.9-million primarily driven by the previously mentioned revenue improvements, as well as roll-off of one-time expenses.

Subsequent events

• Declared a shareholder distribution in the amount of two Canadian cents per common share for the quarter ended June 30, 2024, payable on Aug. 30, 2024, to shareholders of record at the close of business on Aug. 22, 2024. This cash dividend marks the 20th consecutive quarter of the company issuing a two-Canadian-cent distribution to its shareholders. This dividend is designated by the company as an eligible dividend for the purpose of the Income Tax Act (Canada) and any similar provincial or territorial legislation. An enhanced dividend tax credit applies to eligible dividends paid to Canadian residents.

Management commentary

• Ted Goldthorpe, chief executive officer and chairman of Mount Logan, stated: "We are excited to announce our second quarter 2024 results, which demonstrate the earnings power of both our asset management and insurance segments. Fee-related earnings, or FRE, of the asset management segment was up significantly year over year and highlights the growing profitability of our asset management business. Additionally, our spread-related earnings, or SRE, highlights the continued profitability of our insurance segment. The integration of our businesses and focus on profitability are driving better operating performance."

Selected financial highlights

• Total capital of the company was $149.7-million as at June 30, 2024, an increase of $20.2-million as compared with Dec. 31, 2023. Total capital consists of debt obligations and total shareholders equity.
• Consolidated net income (loss) before taxes was $3.9-million for the three months ended June 30, 2024, an increase of $4.8-million from $(900,000) for second quarter 2023. The increase was primarily attributable to revenue growth in both the segments, asset management and insurance segment. Asset management revenue increased due to increase in management fees, and improvement in insurance segment revenue resulted from better insurance service results and higher investment income. These improvements were partially offset by an increase in costs related to MYGA liabilities due to interest accretion on new MYGA business assumed which was further offset by reduced administrative expenses.
• Basic earnings per share (EPS) was 14 cents for the three months ended June 30, 2024, an increase of 17 cents from (three cents) for the second quarter 2023.
• Adjusted basic EPS was 15 cents for the second quarter 2024, an increase of 10 cents from five cents for the second quarter 2023.

Quarter ended fee-related earnings (FRE)

FRE is a non-IFRS (international financial reporting standards) financial measure used to assess the asset management segment's generation of profits from revenues that are measured and received on a recurring basis and are not dependent on future realization events. The company calculates FRE, and reconciles FRE to net income from its asset management activities, as shown in the attached table.

The attached table presents FRE, the performance measure of the company's asset management segment for the trailing-12-month period ended June 30, 2024, and June 30, 2023, respectively.

Insurance

IFRS 17 insurance contracts (IFRS 17) is effective for years beginning as of Jan. 1, 2023, and has been applied retrospectively with a transition date of Jan. 1, 2022. IFRS 17 does not impact the underlying economics of the business, nor does it impact the company's business strategies.

Spread-related earnings (SRE)

Effective March 31, 2024, the company has introduced a new non-IFRS measure, SRE. The company uses SRE to assess the performance of the insurance segment, excluding the impact of certain market volatility and other one-time, non-core components of insurance segment income (loss). Excluded items under SRE are investment gains (losses), effects of discount rates and other financial variables on the value of insurance obligations (which is a component of "net insurance finance income/(expense)"), other income and certain general, administrative, and other expenses. The company believes this measure is useful to securityholders as it provides additional insight into the underlying economics of the insurance segment, as further discussed herein.

For the insurance segment, SRE equals the sum of (i) the net investment income on the insurance segment's net invested assets (excluding investment income earned on funds held under reinsurance contracts) less; (ii) cost of funds (as described herein); and (iii) certain operating expenses.

Cost of funds includes the impact of interest accretion on insurance and investment contract liabilities and amortization of losses recognized for new insurance contracts that are deemed onerous at initial recognition. It also includes experience adjustments which represents the difference between actual and expected cash flows and includes the impact of certain changes to non-financial assumptions.

The company reconciles SRE to net income (loss) before tax from its insurance segment activities, as shown in the attached table.

The attached table presents SRE, the performance measure of the insurance segment.

SRE was $11.6-million for the trailing 12 months ended June 30, 2024, compared with ($5.4)-million for the trailing 12 months ended June 30, 2023, an increase of $17.0-million. SRE increased year over year due to increased investment income and lower other operating expenses, which was partially offset by increased cost of funds. Investment income increased primarily due to an increase in total insurance investment assets as a result of new MYGA business and improvements in yield across the investment portfolio attributable to deployment of capital in a higher rate environment. Cost of funds increased primarily because of increase in interest accretion on MYGA contract liabilities due to addition of new MYGA business, partially offset by the one-time benefit of $4.8-million in the first quarter of 2024 as a result of an in-force update to long-term care business. Other operating expenses decreased as a result of efforts to reduce overall operating cost.

SRE as a percentage of average net invested assets was 1.9 per cent for the trailing 12 months ended June 30, 2024, compared with (1.2) per cent for the trailing 12 months ended June 30, 2023.

Liquidity and capital resources

As of June 30, 2024, the asset management segment had $71.8-million (par value) of borrowings outstanding, of which $33.8-million had a fixed rate and $38-million had a floating rate. As of June 30, 2024, the insurance segment had $14.3-million (par value) of borrowings outstanding. Liquid assets, including high-quality assets that are marketable, can be pledged as security for borrowings, and can be converted to cash in a time frame that meets liquidity and funding requirements. As of June 30, 2024, and Dec. 31, 2023, the total liquid assets of the company were as shown in the attached table.

The company defines working capital as the sum of cash, restricted cash, investments that mature within one year of the reporting date, management fees receivable, receivables for investments sold, accrued interest and dividend receivables, and premium receivables, less the sum of debt obligations, payables for investments purchased, amounts due to affiliates, reinsurance liabilities and other liabilities that are payable within one year of the reporting date.

As at June 30, 2024, the company had working capital of $211.1-million, reflecting current assets of $227.3-million, offset by current liabilities of $16.1-million, as compared with working capital of $183.4-million as at Dec. 31, 2023, reflecting current assets of $230.8-million, offset by current liabilities of $47.4-million. The increase in working capital was driven by settlement of payables related to MYGA against the new MYGA policies assumed. It is further due to increased cash in the asset management segment from increased management and incentive fee receipts and net proceeds from the issuance of debenture units, as well as a decrease in due to affiliates in the asset management segment driven by timing of repayment of operating expenses paid by B.C. partners on behalf of the company to third party providers of goods or services and administrative fees.

Interest rate risk

The company has obligations to policyholders and other debt obligations that expose it to interest rate risk. The company also owns debt assets and interest rate swaps that are exposed to interest rate risk. The fair value of these obligations and assets may change if base rate changes in interest rates occur.

The attached table summarizes the potential impact on net assets of hypothetical base rate changes in interest rates assuming a parallel shift in the yield curve, with all other variables remaining constant.

Actual results may differ significantly from this sensitivity analysis. As such, the sensitivities should only be viewed as directional estimates of the underlying sensitivities for the respective factors based on the assumptions outlined herein.

Conference call

The company will hold a conference call on Friday, Aug. 9, 2024, at 12 p.m. Eastern Time to discuss the second quarter 2024 financial results. Shareholders, prospective shareholders and analysts are welcome to listen to the call. To join the call, please use the dial-in information herein. A recording of the conference call will be available on the company's website in the investor relations section under events.

Canada dial-in toll-free:   1-226-828-7575

United States dial-in toll-free:  1-833-470-1428

International dial-in:  1-929-526-1599

Access code:   563266

About Mount Logan Capital Inc.

Mount Logan Capital is an alternative asset management and insurance solutions company that is focused on public and private debt securities in the North American market and the reinsurance of annuity products, primarily through its wholly owned subsidiaries, Mount Logan Management LLC and Ability Insurance Company, respectively. The company also actively sources, evaluates, underwrites, manages, monitors and primarily invests in loans, debt securities and other credit-oriented instruments that present attractive risk-adjusted returns and present low risk of principal impairment through the credit cycle.

Ability is a Nebraska-domiciled insurer and reinsurer of long-term care policies, acquired by Mount Logan in the fourth quarter of fiscal year 2021. Ability is unique in the insurance industry in that its long-term care portfolio's morbidity risk has been largely reinsured to third parties, and Ability is no longer insuring or reinsuring new long-term-care risk.

We seek Safe Harbor.