American Safety Insurance Holdings, Ltd. Reports Fourth Quarter And Year End Financial Results

American Safety Insurance Holdings, Ltd. (NYSE:ASI) today reported a net loss of $6.9 million, or $(0.67) per diluted share, for the 2011 fourth quarter, compared to net earnings of $10.6 million, or $0.99 per diluted share, for the same period in 2010. Net earnings for the year ended December 31, 2011, were $10.8 million, or $1.01 per diluted share, compared to $30.5 million, or $2.87 per diluted share, for the year ended 2010.

Financial highlights for the quarter included 1 :
  • Gross written premiums decreased 8% to $68.1 million
  • Total revenues increased 3% to $68.5 million
  • Net earned premiums increased 5% to $60.4 million
  • The combined ratio was 124.2% compared to 101.4%

Financial highlights for the year included 1 :
  • Gross written premiums increased 8% to $298.5 million
  • Total revenues increased 16% to $278.5 million
  • Net earned premiums increased 16% to $232.9 million
  • The combined ratio was 112.0% compared to 100.3%
  • Cash flow from operations increased by 4% to $61.9 million
  • Book value increased 6% to $30.80 per diluted share

1 All comparisons are with the same period last year unless stated otherwise.

Fourth Quarter Results

E&S gross written premiums totaled $35.8 million compared to $37.9 million, ART gross written premiums were $19.1 million compared to $21.8 million, and Assumed Reinsurance gross written premiums were $13.2 million compared to $14.0 million.

The increase in total revenue to $68.5 million was driven by increased earned premiums of $3.1 million, partially offset by lower investment income. Investment income was $7.7 million as increased invested assets were offset by lower yields.

The combined ratio was 124.2%, composed of a loss ratio of 85.1% and an expense ratio of 39.1%. The loss ratio increased to 85.1% from 59.8% for the same quarter of 2010 due to pre-tax net loss reserve strengthening in the 2011 quarter of $16.4 million (27.2 points), of which $6.5 million (10.8 points) relates to prior accident years and $9.9 million (16.4 points) relates to current accident year losses. The components of the net loss reserve strengthening are: (1) E&S favorable net loss reserve development of $12.2 million, (2) ART net loss reserve strengthening of $18.7 million, (3) Assumed Reinsurance net loss reserve strengthening of $7.9 million, and (4) Run-off net loss reserve strengthening of $2.0 million.

The favorable net loss reserve development in the E&S division was driven primarily by the construction business. Net loss reserve strengthening in the ART division is primarily attributable to one program that was terminated in 2011. In the Assumed Reinsurance division, the net loss reserve strengthening of $7.9 million includes $3.6 million of catastrophe losses and the remainder is primarily associated with one professional liability contract that was non-renewed in 2010.

Year End Results

E&S gross written premiums were $155.5 million compared to $138.2 million, ART gross written premiums were $83.8 million compared to $88.8 million, and Assumed Reinsurance gross written premiums were $59.2 million compared to $50.6 million.

The increase in total revenue to $278.5 million was due to increases in net earned premiums and net realized gains on sales of investments of $32.1 million and $8.7 million, respectively. Investment income was $31.3 million compared to $32.1 million in 2010.

The combined ratio of 112.0% was composed of a loss ratio of 72.7% and an expense ratio of 39.3%. The 2011 loss ratio includes net loss reserve strengthening of $33.6 million (14.4 points), of which $13.4 million (5.7 points) relates to prior accident year loss reserves and $20.2 million (8.7 points) relates to current accident year losses. The components of the reserve strengthening are: (1) E&S net favorable loss reserve development of $8.8 million, (2) ART net reserve strengthening of $23.6 million, (3) Assumed Reinsurance net loss reserve strengthening of $16.8 million and (4) Run-off net loss reserve strengthening of $2.0 million. Included in the 2011 net loss reserve strengthening are $13.5 million (5.8 points) of losses attributable to property catastrophes and other weather events.

The investment portfolio increased 8% to $883.1 million. The book yield at December 31, 2011, was 4.1% and the duration was approximately four.

The Company has completed its 2010 common share repurchase authorization of 500,000 common shares at an average cost of $19.26. On January 24, 2012, the Company’s Board of Directors authorized an additional repurchase of up to 500,000 shares.

Commenting on the results, Stephen R. Crim, Chief Executive Officer, said: “2011 was a difficult year for the property & casualty insurance industry and ASI was not an exception. I am encouraged by our ability to obtain modest rate increases in certain products and the continued favorable performance of our excess and surplus lines business. The execution of our diversification strategy over the past several years has positioned the company well for premium growth and increased profitability as market conditions continue to improve.”

Conference Call

A conference call to discuss fourth quarter and year end 2011 results is scheduled for Wednesday, March 7, 2012, at 9:00 a.m. (Eastern Standard Time), which will be broadcast through Vcall’s Investor Calendar at www.investorcalendar.com, or the Company’s website at www.amsafety.bm. If you are unable to participate at this time, a replay will be available for 30 days, beginning approximately two hours after the call. A transcript of the call will be available on the Company’s website beginning several days after the call.

This press release contains forward-looking statements. The forward-looking statements reflect the Company’s current views with respect to future events and financial performance, including catastrophe and other losses. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially, including developments in loss trends and adequacy and changes in loss reserves and actuarial assumptions. We have presented Net operating earnings in the Financial and Operating Highlights section which is a non-GAAP financial measure because we believe that investors’ understanding of operating performance is enhanced by this disclosure. Net operating earnings (loss) represent after-tax operational results without consideration of after-tax net investment gains (losses).

About Us:

For 25 years, American Safety Insurance Holdings, Ltd. (NYSE:ASI), a Bermuda holding company, has offered innovative solutions outside the U.S. in the reinsurance and alternative risk markets through its subsidiaries, American Safety Reinsurance, Ltd. and American Safety Assurance, Ltd., and in the U.S. for specialty risks and alternative risk markets through its program administrator, American Safety Insurance Services, Inc., and insurance company subsidiaries and affiliates, American Safety Casualty Insurance Company, American Safety Indemnity Company, American Safety Risk Retention Group, Inc. and American Safety Assurance (Vermont), Inc. As a group, ASI’s insurance subsidiaries and affiliates are rated “A” (Excellent) IX by A.M. Best. For additional information, please visit www.asih.bm .

American Safety Insurance Holdings, Ltd. and Subsidiaries

Financial and Operating Highlights

(Unaudited) (in thousands)
     
Three Months Ended

December 31,

 
Twelve Months Ended

December 31,
2011   2010 2011   2010
INCOME STATEMENT DATA:

Revenues:
Direct earned premiums $ 60,473 $ 58,760 $ 241,428 $ 231,419
Assumed earned premiums 13,626 11,721 51,047 40,872
Ceded earned premiums   (13,730 )   (13,176 )   (59,596 )   (71,558 )
Net earned premiums 60,369 57,305 232,879 200,733
 
Net investment income 7,655 8,039 31,338 32,138
Net realized gains (losses) (345 ) 171 10,966 2,251
Fee income 815 909 3,309 4,631
Other income   12     (213 )   47     (443 )
Total revenues   68,506     66,211     278,539     239,310  
 
Expenses:
Losses and loss adjustment expenses 51,370 34,265 169,367 120,295
Acquisition expenses 13,499 12,267 52,506 43,485
Other underwriting expenses 10,919 12,486 42,230 42,158
Interest expense 329 647 1,444 2,677
Corporate and other expenses   451     395     2,262     2,826  
Total expenses   76,568     60,060     267,809     211,441  
 
Earnings (loss) before income taxes (8,062 ) 6,151 10,730 27,869
Income tax benefit   (3,982 )   (3,568 )   (3,394 )   (2,082 )
Net earnings (loss) (4,080 ) 9,719 14,124 29,951

Less: Net earnings (loss) attributable to the non-controlling interest
  2,828     (917 )   3,282     (557 )
 
Net earnings (loss) attributable to ASIH, Ltd. $ (6,908 ) $ 10,636   $ 10,842   $ 30,508  
 
Net earnings per share:
Basic $ (0.67 ) $ 1.03   $ 1.04   $ 2.96  
Diluted $ (0.67 ) $ 0.99   $ 1.01   $ 2.87  
 
Weighted average number of shares outstanding:
Basic   10,324,884     10,360,535     10,393,766     10,302,525  
Diluted   10,703,156     10,736,776     10,739,174     10,646,104  
 
Loss ratio 85.1 % 59.8 % 72.7 % 59.9 %
Expense ratio   39.1 %   41.6 %   39.3 %   40.4 %
Combined ratio   124.2 %   101.4 %   112.0 %   100.3 %
 
Net operating earnings:
Net earnings (loss) attributable to ASIH,

Ltd.
$ (6,908 ) $ 10,636 $ 10,842 $ 30,508
Less: Realized investment gains (losses),

net of taxes
  (350 )   197     10,849     1,857  
Net operating earnings (loss) $ (6,558 ) $ 10,439   $ (7 ) $ 28,651  
 
  At
BALANCE SHEET DATA: 12/31/2011               12/31/2010
(unaudited)              
Total investments $ 883,099 $ 818,450
Total assets 1,286,532 1,221,253
Unpaid losses and loss adjustment expenses 680,201 649,641
Total liabilities 951,852 902,719
Total shareholders’ equity 334,680 318,534
Book value per share-diluted $ 30.80 $ 29.00
 

American Safety Insurance Holdings, Ltd. and Subsidiaries

Segment Data

(Unaudited) (Dollars in thousands)
     
Three Months Ended December 31, 2011
Insurance       Other  
E&S   ART   Reinsurance Run-off     Total
Gross written premiums $ 35,828 $ 19,067 $ 13,180 $ -   $ 68,075
Net written premiums 29,471 11,243 13,258 - 53,972
Net earned premiums 31,395 15,144 13,830 - 60,369
Fee & other income 4 767 - 56 827

 
Losses & loss adjustment expenses 5,875 26,820 16,675 2,000 51,370
Acquisition & other underwriting expenses   13,503     6,511   3,171     1,233         24,418  
Underwriting profit (loss) 12,021 (17,420 ) (6,016 ) (3,177 ) (14,592 )
 
Net investment income   3,395     2,143   1,830     287         7,655  
Pre-tax operating income (loss) 15,416 (15,277 ) (4,186 ) (2,890 ) (6,937 )
 
Net realized losses (345 )
Interest and corporate expenses     780  
Loss before income taxes (8,062 )
Income tax benefit     (3,982 )
Net loss $ (4,080 )
Less: Net earnings attributable to the

non-controlling interest
    2,828  
Net loss attributable to ASIH, Ltd.   $ (6,908 )
 
Loss ratio 18.7 % 177.1 % 120.6 % NM 85.1 %
Expense ratio   43.0 %   37.9 % 22.9 %   NM         39.1 %
Combined ratio   61.7 %   215.0 % 143.5 %   NM         124.2 %
                                             
Three Months Ended December 31, 2010
Insurance Other  
E&S ART   Reinsurance Run-off   Total
Gross written premiums $ 37,939 $ 21,818 $ 13,977 $ (1 ) $ 73,733
Net written premiums 32,972 13,865 13,119 (1 ) 59,955
Net earned premiums 30,166 14,574 12,566 (1 ) 57,305
Fee & other income (expense) 109 761 41 (215 ) 696
 
Losses & loss adjustment expenses 16,142 11,736 7,748 (1,361 ) 34,265
Acquisition & other underwriting expenses   13,216   7,600     3,575     362     24,753  
Underwriting profit (loss) 917 (4,001 ) 1,284 783 (1,017 )
 
Net investment income   5,211   1,257     1,478     93     8,039  
Pre-tax operating income (loss) 6,128 (2,744 ) 2,762 876 7,022
 
Net realized gains 171
Interest and corporate expenses 1,042  
Earnings before income taxes 6,151
Income tax benefit (3,568 )
Net earnings $ 9,719
Less: Net loss attributable to the

non-controlling interest
(917 )
Net earnings attributable to ASIH, Ltd. $ 10,636  
 
Loss ratio 53.5 % 80.5 % 61.7 % NM 59.8 %
Expense ratio   43.4 % 46.9 %   28.1 %   NM     41.6 %
Combined ratio   96.9 % 127.4 %   89.8 %   NM     101.4 %
 

American Safety Insurance Holdings, Ltd. and Subsidiaries

Segment Data

(Unaudited) (Dollars in thousands)
 
Twelve Months Ended December 31, 2011
Insurance       Other  
E&S   ART   Reinsurance Run-off   Total
Gross written premiums $ 155,534 $ 83,820 $ 59,192 $ (1 ) $ 298,545
Net written premiums 125,107 57,329 58,183 (1 ) 240,618
Net earned premiums 119,225 60,667 52,988 (1 ) 232,879
Fee & other income (expense) (4 ) 3,203 - 157 3,356
 
Losses & loss adjustment expenses 60,532 57,130 49,705 2,000 169,367
Acquisition & other underwriting expenses 53,155   25,582   14,897   1,102   94,736  
Underwriting profit (loss) 5,534 (18,842 ) (11,614 ) (2,946 ) (27,868 )
 
Net investment income 18,572   5,681   6,358   727   31,338  
Pre-tax operating income (loss) 24,106 (13,161 ) (5,256 ) (2,219 ) 3,470
 
Net realized gains 10,966
Interest and corporate expenses 3,706  
Earnings before income taxes 10,730
Income tax benefit (3,394 )
Net earnings $ 14,124
Less: Net earnings attributable to the non-controlling interest 3,282  
Net earnings attributable to ASIH, Ltd. $ 10,842  
 
Loss ratio 50.8 % 94.2 % 93.8 % NM 72.7 %
Expense ratio 44.6 % 36.9 % 28.1 % NM     39.3 %
Combined ratio 95.4 % 131.1 % 121.9 % NM     112.0 %
                                 
  Twelve Months Ended December 31, 2010
Insurance     Other  
E&S     ART     Reinsurance Run-off       Total
Gross written premiums $ 138,166   $ 88,784 $ 50,618 $ (7 )     $ 277,561
Net written premiums 114,223 62,366 46,658 (7 ) 223,240
Net earned premiums 102,907 53,752 44,081 (7 ) 200,733
Fee & other income (expense) 501 3,615 269 (197 ) 4,188
 
Losses & loss adjustment expenses 58,119 34,663 28,880 (1,367 ) 120,295
Acquisition & other underwriting expenses   49,058       22,369       12,872     1,344           85,643  
Underwriting profit (loss) (3,769 ) 335 2,598 (181 ) (1,017 )
 
Net investment income   21,331       4,891       5,231     685           32,138  
Pre-tax operating income 17,562 5,226 7,829 504 31,121
 
Net realized gains 2,251
Interest and corporate expenses       5,503  
Earnings before income taxes 27,869
Income tax benefit       (2,082 )
Net earnings $ 29,951
Less: Net loss attributable to the non-controlling interest       (557 )
Net earnings attributable to ASIH, Ltd.     $ 30,508  
 
Loss ratio 56.5 % 64.5 % 65.5 % NM 59.9 %
Expense ratio   47.0 %     34.9 %     28.6 %   NM           40.4 %
Combined ratio   103.5 %     99.4 %     94.1 %   NM           100.3 %

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