American Safety Insurance Holdings, Ltd. Reports Second Quarter Financial Results

American Safety Insurance Holdings, Ltd. (NYSE:ASI) today reported net earnings of $2.2 million for the three months ended June 30, 2012, or $0.21 per diluted share, as compared to $4.1 million, or $0.38 per diluted share, for the same period of 2011.

Financial highlights for the quarter included 1 :
  • Gross written premiums increased 6% to $87.5 million
  • Net earned premiums increased 5% to $62.0 million
  • Total revenues were $70.1 million compared to $68.2 million
  • The combined ratio was 107.1% compared to 105.6%
  • The combined ratio excluding net weather related property losses was 101.3% compared to 97.0%
  • Net operating earnings 2 exclusive of net weather related property losses were $5.2 million compared to $7.3 million
  • Annualized return on average equity (exclusive of realized and unrealized gains from investments) was 3.0%
  • Book value was $32.28 per diluted share versus $30.80 at December 31, 2011

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

2 Net operating earnings (loss) is a non-GAAP financial measure defined by the Company as net earnings adjusted for net realized gains (losses), net of applicable taxes.

Second Quarter Results

Total revenues in the quarter increased to $70.1 million from $68.2 million in 2011 driven by an increase in net earned premiums, partially offset by a decrease in investment income. Net earnings include $3.0 million of after-tax net weather related property losses compared to $3.4 million in the 2011 quarter.

The combined ratio of 107.1% consists of a loss ratio of 65.8% and an expense ratio of 41.3%, compared to 67.4% and 38.2%, respectively, for the same quarter of 2011. Pre-tax net weather related property losses in the 2012 quarter were $3.6 million (or 5.8 points) compared to $5.1 million (or 8.6 points) for the 2011 quarter. The expense ratio increase was attributable to: (a) lower acquisition costs in 2011 due to the impact of property catastrophe losses on profit commissions, (b) mix of business and (c) costs associated with growth initiatives.

Year to Date Results

Total revenues for the six months ended 2012 were $140.1 million compared to $142.0 million in 2011. Net earned premiums increased 9% to $123.4 million, and net realized gains decreased $11.3 million.

The combined ratio was 104.2% compared to 110.8%, composed of a loss ratio of 63.3% and an expense ratio of 40.9%, compared to 72.3% and 38.5%, respectively, in the prior year. The decrease in the loss ratio is primarily attributable to lower pre-tax net weather related property losses of $3.6 million (or 2.9 points) for the six months ended June 30, 2012 compared to $10.8 million (or 9.5 points) for the same period in 2011. The 2011 loss ratio also included $5.0 million (or 4.4 points) of prior year loss reserve strengthening in the Assumed Reinsurance division. The increase in the expense ratio is due to the same factors discussed in the quarter results.

Net earnings for the six months ended June 30, 2012, were $6.2 million, or $0.59 per diluted share, compared to $12.0 million, or $1.11 per diluted share, for the same period in 2011. Net earnings for the six months ended June 30, 2012, include after-tax net weather related property losses of $3.0 million and minimal net realized gains. For the same six months of 2011, after-tax net weather related property losses totaled $8.4 million and net realized gains of $11.3 million. Net operating earnings, exclusive of net weather related property losses, were $9.2 million compared to $9.1 million.

Invested assets increased 2.9% to $908.6 million at June 30, 2012, from $883.1 million at December 31, 2011. Book yield on the portfolio was 3.6% net of investment fees compared to 3.9% in 2011.

Commenting on the results, Stephen R. Crim, President and Chief Executive Officer said, “We achieved growth in the E&S and Reinsurance divisions, advancing our strategy to build scale in our product platform. During the quarter, the overall rate environment continued to improve, supporting our ability to generate growth in existing products. Based on our current capital position, we will repurchase shares under our current authorization and expect to complete it by the end of the year.”

Conference Call

A conference call to discuss second quarter 2012 results is scheduled for Thursday, August 2, 2012, at 9:00 a.m. (Eastern Daylight Time), which will be broadcast through Vcall’s Investor Calendar at www.investorcalendar.com, or the Company’s website at www.amsafety.com. If you are unable to participate at this time, a replay will be available for 30 days, beginning approximately two hours 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.

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)
(dollars in thousands)
       
Three Months Ended

June 30,

 
Six Months Ended

June 30,
  2012           2011     2012           2011  
INCOME STATEMENT DATA:

Revenues:
Direct earned premiums $ 60,595 $ 60,801 $ 121,123 $ 118,456
Assumed earned premiums 15,259 13,851 29,124 25,135
Ceded earned premiums   (13,837 )   (15,502 )   (26,818 )   (30,073 )
Net earned premiums 62,017 59,150 123,429 113,518
Net investment income 7,402 8,050 15,214 15,486
Net realized gains (losses) (13 ) 194 39 11,302
Fee income 717 786 1,385 1,651
Other income   12     12     25     23  
Total revenues   70,135     68,192     140,092     141,980  
Expenses:
Losses and loss adjustment expenses 40,819 39,869 78,100 82,129
Acquisition expenses 14,337 13,239 29,081 24,994
Other underwriting expenses 12,013 10,171 22,764 20,370
Interest expense 367 354 785 740
Corporate and other expenses   848     1,026     2,104     1,852  
Total expenses   68,384     64,659     132,834     130,085  
Earnings before income taxes 1,751 3,533 7,258 11,895
Income tax (benefit) expense   (234 )   (549 )   872     (581 )
Net earnings 1,985 4,082 6,386 12,476
Less: Net earnings (loss) attributable
to the non-controlling interest   (182 )   30     163     523  
Net earnings attributable to ASIH, Ltd. $ 2,167   $ 4,052   $ 6,223   $ 11,953  
Net earnings per share:
Basic $ 0.21   $ 0.39   $ 0.61   $ 1.15  
Diluted $ 0.21   $ 0.38   $ 0.59   $ 1.11  
Weighted average number of shares outstanding:
Basic   10,256,634     10,429,188     10,238,667     10,436,848  
Diluted   10,555,222     10,764,542     10,544,627     10,776,398  
Loss ratio 65.8 % 67.4 % 63.3 % 72.3 %
Expense ratio   41.3 %   38.2 %   40.9 %   38.5 %
Combined ratio   107.1 %   105.6 %   104.2 %   110.8 %
Net operating earnings:
Net earnings attributable to ASIH, Ltd. $ 2,167 $ 4,052 $ 6,223 $ 11,953
Less: Realized investment gains (losses),
net of taxes   (13 )   146     20     11,208  
Net operating earnings $ 2,180   $ 3,906   $ 6,203   $ 745  
 
BALANCE SHEET DATA:     June 30, 2012       December 31, 2011
(unaudited)      
Total investments $ 908,626 $ 883,099
Total assets 1,328,057 1,286,532
Unpaid losses and loss adjustment expenses 698,465 680,201
Total liabilities 977,683 951,852
Total shareholders’ equity 350,374 334,680
Book value per share-diluted $ 32.28 $ 30.80
 
 
American Safety Insurance Holdings, Ltd. and Subsidiaries
Segment Data
(Unaudited)
(dollars in thousands)
           
Three Months Ended June 30, 2012
Insurance Other  
E&S     ART Reinsurance Run-off   Total
Gross written premiums $ 50,448 $ 21,498 $ 15,603 $ - $ 87,549
Net written premiums 39,735 14,579 15,603 - 69,917
Net earned premiums 33,600 13,157 15,260 - 62,017
Fee & other income - 738 - (9 ) 729
Losses & loss adjustment expenses 20,221 11,875 8,751 (28 ) 40,819
Acquisition & other underwriting expenses***   15,140     5,865     4,471     874     26,350  
Underwriting profit (loss) (1,761 ) (3,845 ) 2,038 (855 ) (4,423 )
Net investment income   4,285     1,348     1,595     174     7,402  
Pre-tax operating income (loss) 2,524 (2,497 ) 3,633 (681 ) 2,979
Net realized gains - - - - (13 )
Interest and corporate expenses**** - - - -   1,215  
Earnings before income taxes - - - - 1,751
Income tax expense - - - -   (234 )
Net earnings - - - - $ 1,985
Less: Net earnings attributable to the non-controlling interest - - - -   (182 )
Net earnings attributable to ASIH, Ltd. - - - - $ 2,167  
Loss ratio 60.2 % 90.3 % 57.3 % *NM 65.8 %
Expense ratio   45.1 %   39.0 %   29.3 %   NM     41.3 %
Combined ratio**   105.3 %   129.3 %   86.6 %   NM     107.1 %
 
 
Three Months Ended June 30, 2011
Insurance Other  
E&S ART Reinsurance Run-off   Total
Gross written premiums $ 43,929 $ 23,923 $ 15,028 (1 ) $ 82,879
Net written premiums 34,413 17,140 14,864 (1 ) 66,416
Net earned premiums 29,085 15,616 14,450 (1 ) 59,150
Fee & other income (5 ) 770 - 33 798
Losses & loss adjustment expenses 17,885 12,830 9,153 1 39,869
Acquisition & other underwriting expenses***   12,412     5,916     4,249     833     23,410  
Underwriting profit (loss) (1,217 ) (2,360 ) 1,048 (802 ) (3,331 )
Net investment income   5,081     1,232     1,586     151     8,050  
Pre-tax operating income (loss) 3,864 (1,128 ) 2,634 (651 ) 4,719
Net realized gains - - - - 194
Interest and corporate expenses**** - - - -   1,380  
Earnings before income taxes - - - - 3,533
Income tax benefit - - - -   (549 )
Net earnings - - - - $ 4,082
Less: Net earnings attributable to the non-controlling interest - - - -   30  
Net earnings attributable to ASIH, Ltd. - - - - $ 4,052  
Loss ratio 61.5 % 82.2 % 63.3 % *NM 67.4 %
Expense ratio   42.7 %   33.0 %   29.4 %   NM     38.2 %
Combined ratio**   104.2 %   115.2 %   92.7 %   NM     105.6 %
 
* NM = Ratio is not meaningful

** The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses net of fee income to earned premiums.
*** Reclassifications between divisions and segments were made to allocate indirect corporate overhead costs.
**** Excise taxes have been classified as corporate expenses resulting in a reclassification of expenses for prior year.
 
 
American Safety Insurance Holdings, Ltd. and Subsidiaries
Segment Data
(Unaudited)
(dollars in thousands)
           
Six Months Ended June 30, 2012
Insurance Other  
E&S     ART Reinsurance Run-off   Total
Gross written premiums $ 89,059 $ 42,676 $ 29,579 $ - $ 161,314
Net written premiums 70,468 30,722 29,579 - 130,769
Net earned premiums 64,750 29,501 29,178 - 123,429
Fee & other income - 1,402 - 8 1,410
Losses & loss adjustment expenses 39,138 21,862 17,100 - 78,100
Acquisition & other underwriting expenses***   29,057     12,253     8,801     1,734     51,845  
Underwriting profit (loss) (3,445 ) (3,212 ) 3,277 (1,726 ) (5,106 )
Net investment income   8,910     2,778     3,216     310     15,214  
Pre-tax operating income (loss) 5,465 (434 ) 6,493 (1,416 ) 10,108
Net realized gains - - - - 39
Interest and corporate expenses**** - - - -   2,889  
Earnings before income taxes - - - - 7,258
Income tax benefit - - - -   872  
Net earnings - - - - $ 6,386
Less: Net earnings attributable to the non-controlling interest - - -

 
-   163  
Net earnings attributable to ASIH, Ltd. - - - - $ 6,223  
Loss ratio 60.4 % 74.1 % 58.6 % *NM 63.3 %
Expense ratio   44.9 %   36.8 %   30.2 %   NM     40.9 %
Combined ratio**   105.3 %   110.9 %   88.8 %   NM     104.2 %
 
 
Six Months Ended June 30, 2011
Insurance Other  
E&S ART Reinsurance Run-off   Total
Gross written premiums $ 79,924 $ 45,801 $ 31,500 (1 ) $ 157,224
Net written premiums 64,015 32,046 30,366 (1 ) 126,426
Net earned premiums 57,079 29,971 26,469 (1 ) 113,518
Fee & other income - 1,630 - 44 1,674
Losses & loss adjustment expenses 35,638 21,844 24,647 - 82,129
Acquisition & other underwriting expenses***   24,633     11,964     7,114     1,653     45,364  
Underwriting profit (loss) (3,192 ) (2,207 ) (5,292 ) (1,610 ) (12,301 )
Net investment income   9,896     2,352     2,935     303     15,486  
Pre-tax operating income (loss) 6,704 145 (2,357 ) (1,307 ) 3,185
Net realized gains - - - - 11,302
Interest and corporate expenses**** - - - -   2,592  
Earnings before income taxes - - - - 11,895
Income tax benefit - - - -   (581 )
Net earnings - - - - $ 12,476
Less: Net earnings attributable to the non-controlling interest - - - -   523  
Net earnings attributable to ASIH, Ltd. - - - - $ 11,953  
Loss ratio 62.4 % 72.9 % 93.1 % *NM 72.3 %
Expense ratio   43.2 %   34.5 %   26.9 %   NM     38.5 %
Combined ratio**   105.6 %   107.4 %   120.0 %   NM     110.8 %
 
* NM = Ratio is not meaningful

** The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses net of fee income to earned premiums.
*** Reclassifications between divisions and segments were made to allocate indirect corporate overhead costs.
**** Excise taxes have been classified as corporate expenses resulting in a reclassification of expenses for prior year.

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