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

American Safety Insurance Holdings, Ltd. (NYSE:ASI) today reported net earnings of $34.8 million for the three months ended June 30, 2013, or $3.54 per diluted share, as compared to $2.2 million, or $0.21 per diluted share, for the same period of 2012. Net earnings for the second quarter ended June 30, 2013 include after tax net realized gains of $31.4 million, or $3.20 per share.

Financial highlights for the quarter included 1 :
  • Gross written premiums decreased 4.2% to $83.9 million
  • Total revenues were $105.6 million compared to $70.1 million
  • Pre-tax net realized gains were $37.5 million
  • The combined ratio was 102.2% compared to 107.1%
  • Annualized return on average equity (exclusive of realized and unrealized gains from investments) was 4.4%
  • Book value was $32.79 per diluted share versus $34.21 at December 31, 2012

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

Second Quarter Results

Total revenues in the quarter increased to $105.6 million from $70.1 million in 2012 due to net realized gains of $37.5 million in the quarter partially offset by lower investment income. During the quarter ended June 30, 2013 the Company sold $778.9 million of its investment portfolio in compliance with the merger agreement with Fairfax Financial Holdings Limited. The decline in net investment income in the 2013 quarter was due to the liquidation of a substantial portion of the investment portfolio and subsequent reinvestment of the proceeds.

The investment portfolio (exclusive of cash) totaled $928.7 million at June 30, 2013 with an average credit quality of AAA, a duration of approximately six years and a book yield of 1.31 percent. The investment portfolio at June 30, 2013 includes U.S. Treasury securities of $760.3 million.

The combined ratio of 102.2% consists of a loss ratio of 60.6% and an expense ratio of 41.6%, compared to 65.8% and 41.3%, respectively, for the same quarter of 2012. The decrease in the loss ratio is primarily attributable to lower weather related losses experienced in the second quarter of 2013 as compared to the 2012 quarter. Net operating earnings 2 for the quarter ended June 30, 2013 and 2012 were $3.4 million and $2.2 million, respectively. Operating earnings in the second quarter of 2012 includes $3.0 million of weather related losses.

Year to Date Results

Total revenues for the six months ended 2013 were $177.9 million compared to $140.1 million in 2012. Net earned premiums increased 0.6% to $124.1 million. Net realized gains increased $38.9 million on investment sales of $790.1 million.

The combined ratio was 102.4% compared to 104.2%, composed of a loss ratio of 60.9% and an expense ratio of 41.5%, compared to 63.9% and 40.9%, respectively, in the prior year. Weather related losses during the second quarter of 2012 impacted the 2012 loss ratio by 2.9 points while for the six months ended June 30, 2013 weather related losses were minimal. The increase in expense ratio for the six months ended June 30, 2013 is primarily attributable to the July 1, 2012 acquisition of a surety managing general agency.

Net earnings for the six months ended June 30, 2013, were $40.3 million, or $4.12 per diluted share, compared to $6.2 million, or $0.59 per diluted share, for the same period in 2012 due primarily to after tax net realized gains of $32.6 million, or $3.33 per share. Net operating earnings, exclusive of weather related property losses, were $7.7 million for the six months ended June 30, 2013 compared to $9.2 million in the same period in 2012. The decrease in net operating earnings is primarily attributable to lower net investment income due to the sales of the investment portfolio noted in the quarterly results.

Book value decreased to $32.79 per diluted share as compared to $34.21 at December 31, 2012. Accumulated other comprehensive income at June 30, 2013 totaled $3.7 million as compared to $48.4 million at March 31, 2013 resulting in a $44.7 million decline in the second quarter of 2013. At December 31, 2012 accumulated other comprehensive income totaled $53.6 million. At June 30, 2013 book value, including the impact of all shares vesting under a change in control, was $31.17 per share. Book values per fully diluted share do not include transaction costs or other change in control costs.

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.

This press release contains forward-looking statements and non-GAAP financial measures. The forward-looking statements reflect the Company’s current views with respect to future events and financial performance, including insurance market conditions, combined ratio, premium growth, acquisitions and new products and the impact of new accounting standards. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially, including competitive conditions in the insurance industry, levels of new and renewal insurance business, developments in loss trends, adequacy and changes in loss reserves and actuarial assumptions, timing or collectability of reinsurance recoverables, market acceptance of new coverages and enhancements, changes in reinsurance costs and availability, potential adverse decisions in court and arbitration proceedings, the integration and other challenges attendant to acquisitions, and changes in levels of general business activity and economic conditions.

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, and American Safety Risk Retention Group, 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,
2013 2012 2013 2012
INCOME STATEMENT DATA:
Revenues:
Direct earned premiums $ 65,122 $ 60,595 $ 128,693 $ 121,123
Assumed earned premiums 15,795 15,259 30,724 29,124
Ceded earned premiums   (18,725 )   (13,837 )   (35,301 )   (26,818 )
Net earned premiums 62,192 62,017 124,116 123,429
Net investment income 5,582 7,402 13,214 15,214
Net realized gains (losses) 37,482 (13 ) 38,936 39
Fee income 335 717 1,563 1,385
Other income   12     12     24     25  
Total revenues   105,603     70,135     177,853     140,092  
Expenses:
Losses and loss adjustment expenses 37,673 40,819 75,636 78,100
Acquisition expenses 13,814 14,337 28,568 29,081
Other underwriting expenses 12,382 12,013 24,523 22,764
Interest expense 358 367 712 785
Corporate and other expenses   655     848     1,436     2,104  
Total expenses   64,882     68,384     130,875     132,834  
Earnings before income taxes 40,721 1,751 46,978 7,258
Income tax expense   5,900     (234 )   6,577     872  
Net earnings 34,821 1,985 40,401 6,386
Less: Net earnings (loss) attributable to
the non-controlling interest   10     (182 )   98     163  
Net earnings attributable to ASIH, Ltd. $ 34,811   $ 2,167   $ 40,303   $ 6,223  
Net earnings per share:
Basic $ 3.65   $ 0.21   $ 4.25   $ 0.61  
Diluted $ 3.54   $ 0.21   $ 4.12   $ 0.59  
Weighted average number of shares outstanding:
Basic   9,538,924     10,256,634     9,490,498     10,238,667  
Diluted   9,824,228     10,555,222     9,786,953     10,544,627  
 
Loss ratio 60.6 % 65.8 % 60.9 % 63.3 %
Expense ratio   41.6 %   41.3 %   41.5 %   40.9 %
Combined ratio   102.2 %   107.1 %   102.4 %   104.2 %
 
Net operating earnings:
Net earnings attributable to ASIH, Ltd. $ 34,811 $ 2,167 $ 40,303 $ 6,223
Less: Realized investment gains (losses),
net of taxes   31,431     (13 )   32,586     20  
Net operating earnings $ 3,380   $ 2,180   $ 7,717   $ 6,203  
 
 
BALANCE SHEET DATA: June 30, 2013 December 31, 2012
(unaudited)
Total investments $ 928,688 $ 930,648
Total assets 1,351,162 1,373,131
Unpaid losses and loss adjustment expenses 727,278 725,244
Total liabilities 1,017,099 1,028,083
Total shareholders’ equity 334,063 345,048
Book value per share-diluted $ 32.79 $ 34.21
 
American Safety Insurance Holdings, Ltd. and Subsidiaries
Segment Data

(Unaudited)

(dollars in thousands)
                     
Three Months Ended June 30, 2013
Insurance   Other    
E&S   ART   Reinsurance Run-off   Total
Gross written premiums $ 52,063 $ 16,156 $ 15,641 $ - $ 83,860
Net written premiums 41,669 3,000 15,641 - 60,310
Net earned premiums 38,844 8,093 15,255 - 62,192
Fee & other income (362 ) 697 - 12 347
Losses & loss adjustment expenses 23,317 5,226 9,130 - 37,673
Acquisition & other underwriting expenses   17,275     3,528     4,623     770     26,196  
Underwriting profit (loss) (2,110 ) 36 1,502 (758 ) (1,330 )
Net investment income   3,380     815     1,304     83     5,582  
Pre-tax operating income (loss) 1,270 851 2,806 (675 ) 4,252
Net realized gains 37,482
Interest and corporate expenses   1,013  
Earnings before income taxes 40,721
Income tax expense   5,900  
Net earnings $ 34,821
Less: Net earnings attributable to the non-controlling
interest   10  
Net earnings attributable to ASIH, Ltd. $ 34,811  
 
Loss ratio 60.0 % 64.6 % 59.8 % NM 60.6 %
Expense ratio   45.4 %   35.0 %   30.3 %   NM     41.6 %
Combined ratio(2)   105.4 %   99.6 %   90.1 %

(1)NM
    102.2 %
 
                   
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 losses (13 )
Interest and corporate expenses   1,215  
Earnings before income taxes 1,751
Income tax benefit   (234 )
Net earnings $ 1,985
Less: Net loss 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(2)   105.3 %   129.3 %   86.6 %

(1)NM
    107.1 %
 
(1) NM = Ratio is not meaningful
(2) The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of losses and loss adjustment expenses, acquisition and other underwriting expenses net of fee income to earned premiums.
 
American Safety Insurance Holdings, Ltd. and Subsidiaries
Segment Data

(Unaudited)

(dollars in thousands)
                     
Six Months Ended June 30, 2013
Insurance   Other    
E&S   ART   Reinsurance Run-off   Total
Gross written premiums $ 100,016 $ 32,758 $ 32,285 $ - $ 165,059
Net written premiums 79,215 12,879 32,285 - 124,379
Net earned premiums 75,385 19,255 29,476 - 124,116
Fee & other income (30 ) 1,468 - 149 1,587
Losses & loss adjustment expenses 45,344 12,619 17,673 - 75,636
Acquisition & other underwriting expenses   33,871     8,358     9,272     1,590     53,091  
Underwriting profit (loss) (3,860 ) (254 ) 2,531 (1,441 ) (3,024 )
Net investment income   7,978     2,045     2,974     217     13,214  
Pre-tax operating income (loss) 4,118 1,791 5,505 (1,224 ) 10,190
Net realized gains 38,936
Interest and corporate expenses   2,148  
Earnings before income taxes 46,978
Income tax expense   6,577  
Net earnings $ 40,401
Less: Net earnings attributable to the non-controlling

interest
  98  
Net earnings attributable to ASIH, Ltd. $ 40,303  
 
Loss ratio 60.1 % 65.5 % 60.0 % NM 60.9 %
Expense ratio   45.0 %   35.8 %   31.5 %   NM     41.5 %
Combined ratio(2)   105.1 %   101.3 %   91.5 %

(1)NM
    102.4 %
 
                   
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 expense   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(2)   105.3 %   110.9 %   88.8 % (1)NM     104.2 %
 
(1) NM = Ratio is not meaningful
(2) The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of losses and loss adjustment expenses, acquisition and other underwriting expenses net of fee income to earned premiums.

Copyright Business Wire 2010

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