For release: | July 27, 2006 | |||
Contact: | Financial | Media | ||
| Kevin L. Tate, CPA | Stacey Manzo | |||
| Chief Financial Officer | (610) 660-6814 | |||
| (610) 660-6813 | smanzo@uaigroupinc.com | |||
| ktate@uaigroupinc.com |
United America Indemnity, Ltd. Reports Second Quarter 2006 Results
George Town, Grand Cayman, Cayman Islands (July 27, 2006)— United America Indemnity, Ltd. (NASDAQ:INDM) today reported results for the second quarter of 2006.
Selected financial data for the second quarter 2006 included:
| • | An 11.8% increase in operating income to $20.3 million or $0.55 per diluted share, compared to $18.2 million or $0.49 per diluted share recorded in the second quarter of 2005. | ||
| • | A combined ratio of 91.4%. | ||
| • | A 33.6% increase in cash flow provided by operating activities to $51.7 million as compared to $38.7 million in the second quarter of 2005. |
Financial highlights for the six months ended June 30, 2006 included:
| • | A 16.2% increase in operating income to $38.0 million or $1.03 per diluted share, compared to $32.7 million or $0.91 per diluted share for the six months ended June 30, 2005. | ||
| • | A combined ratio of 91.2%. | ||
| • | A $73.1 million reduction in reinsurance receivables, net of collateral, to $513.3 million or 0.8 x shareholders’ equity at June 30, 2006. | ||
| • | A 3.0% increase in book value per share to $18.03 compared to book value per share of $17.51 at December 31, 2005. Excluding the impact of FAS 115, book value per share increased 5.8% during the first six months of 2006. | ||
| • | A 51.8% increase in cash flow provided by operating activities to $91.7 million as compared to $60.4 million in the six months ended June 30, 2005. |
United America Indemnity’s Second Quarter 2006 Results
United America Indemnity’s (the “Company’s”) operating income for the three months ended June 30, 2006 increased 11.8% to $20.3 million ($0.55 per diluted share) compared with $18.2 million ($0.49 per diluted share) for the same period in 2005.
United America Indemnity’s net income for the three months ended June 30, 2006 increased 9.7% to $20.3 million ($0.55 per diluted share) compared with $18.5 million ($0.50 per diluted share) in the same period in 2005. Net income for the three months ended June 30, 2006 included $0.1 million of after-tax net realized investment losses compared to $0.3 million of after-tax net realized investment gains in the corresponding period of 2005.
Kevin L. Tate, Chief Financial Officer, noted, “United America posted another excellent quarter. Book value per share grew to $18.03 or nearly 12% over the last twelve months, excluding the marked-to-market adjustment of our investment portfolio. This growth is particularly noteworthy due to the
continued strength in our balance sheet as evidenced by our conservative investment portfolio, strengthening loss reserve position and declining reinsurance receivables.”
The Company’s combined ratio, a key measure of insurance profitability, was 91.4% in the second quarter of 2006 compared with 88.5% in the same quarter of last year.
Gross premiums written increased 2.1% to $167.3 million in the current quarter, from $163.9 million in the second quarter of 2005. Net premiums written increased 4.7% to $142.7 million from $136.3 million in the comparable quarter of 2005.
William F. Schmidt, President and CEO of U.S. Insurance Operations, noted, “With the merger of Penn-America and United National substantially complete, the strong support of our network of general agents and the continued development of our brokerage facilities, we are well-positioned to compete in today’s excess and surplus lines marketplace.”
Agency commission and fee revenues for Penn Independent Corporation (“Penn Independent”) were $8.8 million for the second quarter of 2006 also compared to $10.1 million for the second quarter of 2005.
The Company ended the second quarter of 2006 with cash and invested assets of $1,498.7 million, an increase of $74.5 million, or 5.2%, from December 31, 2005. Net investment income for the second quarter of 2006 of $17.9 million increased 61.4% compared to the same quarter in 2005 due to an increase in cash and investment assets and increased investment yields on our fixed income portfolio. Net investment income for the second quarter of 2006 also included $2.0 million of limited partnership distributions compared to $1.0 million in the same period last year. Cash flow provided by operating activities in the second quarter of 2006 was $51.7 million compared to $38.7 million in the second quarter of 2005.
The ratio of reinsurance receivables net of collateral to shareholders’ equity was 0.8 at June 30, 2006 and March 31, 2006 compared to 0.9 at December 31, 2005. Reinsurance receivables, net of collateral at June 30, 2006, decreased by 5.4% or $29.3 million from $542.6 million at March 31, 2006 and decreased by 12.5% or $73.1 million, to $513.3 million from $586.4 million at December 31, 2005. The aggregate amount of collateral securing the reinsurance receivables held by United America Indemnity was $654.3 million at June 30, 2006. Reinsurance receivables, gross of collateral at June 30, 2006, decreased 3.7% or $44.8 million, to $1,167.6 million from $1,212.4 million at March 31, 2006 and decreased 8.7% or $110.6 million from $1,278.2 million at December 31, 2005.
United America Indemnity’s book value at June 30, 2006 of $664.5 million represents a 3.8% increase from United America Indemnity’s book value of $639.9 million on December 31, 2005. The Company’s book value per share increased 3.0% to $18.03 per share, compared to $17.51 per share at December 31, 2005. Book value per share at June 30, 2006 is based on 36.9 million aggregate Class A and Class B common shares outstanding.
United America Indemnity’s Second Quarter Gross and Net Premiums Written Results by Business Unit
| Three Months Ended June 30, | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Gross Premiums Written | Net Premiums Written | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Penn-America | $ | 106,370 | $ | 105,629 | $ | 96,746 | $ | 93,701 | ||||||||
| United National | 60,925 | 58,273 | 45,942 | 42,593 | ||||||||||||
Total | $ | 167,295 | $ | 163,902 | $ | 142,688 | $ | 136,294 | ||||||||
Penn-America:Penn-America writes small commercial businesses through a select network of general agents. Gross premiums written and net premiums written increased 0.7% and 3.2%, respectively, compared with the second quarter of 2005. The increase in net premiums written was primarily the result of increased retentions relating to its casualty reinsurance treaties.
United National:United National writes specialty products in four distinct market segments — professional liability, class specific, property and casualty brokerage and umbrella/excess liability. Gross premiums written and net premiums written increased 4.6% and 7.9%, respectively, compared with the second quarter of 2005. The increase in gross and net premiums written related primarily to an increase in property brokerage premiums combined with increased retentions relating to its casualty reinsurance treaties.
United America Indemnity’s Six Months Ended June 30, 2006 Results
United America Indemnity, Ltd. completed its merger with Penn-America and its acquisition of Penn Independent on January 24, 2005. The results for United America Indemnity do not reflect the results of Penn-America and Penn Independent before this date.
United America Indemnity’s operating income for the six months ended June 30, 2006 increased 16.2% to $38.0 million ($1.03 per diluted share) compared with $32.7 million ($0.91 per diluted share) for the same period in 2005.
United America Indemnity’s net income for the six months ended June 30, 2006 increased 11.7% to $38.0 million ($1.03 per diluted share) compared with $34.0 million ($0.95 per diluted share) in the same period in 2005. Net income for the six months ended June 30, 2006 and 2005 included nominal amounts of after-tax net realized investment losses. Net income for the six months ended June 30, 2005 included an extraordinary gain of $1.4 million ($0.04 per diluted share). The Company’s combined ratio was 91.2% for the six months ended June 30, 2006 compared with 89.8% in the same period last year.
Gross premiums written for the six months ended June 30, 2006 increased 9.2% to $326.9 million, from $299.4 million in the same period in 2005. Net premiums written increased 13.1% to $278.0 million from $245.8 million in the comparable period of 2005.
Agency commissions and fee revenues for Penn Independent were $18.4 million for the six months ended June 30, 2006 compared to $16.4 million in the comparable period of 2005.
United America Indemnity’s Six Months Ended June 30, 2006 and 2005 Gross and Net Premiums Written Results by Business Lines
| Six Months Ended June 30, | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Gross Premiums Written | Net Premiums Written | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Penn-America | $ | 206,041 | $ | 183,949 | $ | 187,034 | $ | 163,180 | ||||||||
| United National | 120,812 | 115,413 | 90,991 | 82,635 | ||||||||||||
Total | $ | 326,853 | $ | 299,362 | $ | 278,025 | $ | 245,815 | ||||||||
Penn-America:Gross premiums written increased 12.0% and net premiums written increased 14.6%. The increase in gross and net premiums written was primarily the result of the merger of United America Indemnity with Penn-America. Net premiums written also increased resulting from increased retentions relating to its casualty reinsurance treaties.
United National:Gross premiums written and net premiums written increased 4.7% and 10.1% respectively, compared with the second quarter of 2005. The increase in gross and net premiums written related primarily to an increase in brokerage premiums combined with increased retentions relating to its reinsurance treaties.
About United America Indemnity, Ltd.
United America Indemnity, Ltd. (NASDAQ:INDM), through its several direct and indirect wholly owned subsidiary insurance companies, is a national and international provider of excess and surplus lines and specialty property and casualty insurance and reinsurance, both on an admitted and on a non-admitted basis, as well as a wholesale broker of personal and commercial insurance products. The company’s principal operating subsidiaries include:
| • | Penn-America, a provider to small businesses across the United States of excess and surplus lines property and casualty insurance through a select network of general agents; | ||
| • | United National, a provider of specialty excess and surplus lines property and casualty insurance products in four distinct market segments — professional liability, class specific property and casualty insurance programs, specialty property and casualty brokerage, and umbrella/excess liability; | ||
| • | Penn Independent Corporation, a wholesale broker of commercial excess and surplus lines and specialty property and casualty insurance; and | ||
| • | Wind River Insurance Company, Ltd., a Bermuda based treaty and facultative reinsurer of excess and surplus lines and specialty property and casualty insurance. |
For more information, visit the United America Indemnity, Ltd. Website at www.uai.ky.
Teleconference and Webcast for Interested Parties
Saul A. Fox, Chairman, Joseph F. Morris, President and Kevin L. Tate, CPA, Chief Financial Officer of United America Indemnity, Ltd. and William F. Schmidt, President and CEO of U.S. Insurance Operations, will conduct a teleconference for interested parties on July 27, 2006 at 10:00 a.m. Eastern Time to discuss
the second quarter 2006 results. To participate, telephone 800-901-5241 (U.S. and Canada) or 617-786-2963 (International) and enter access code 24274044 when prompted for a password. The teleconference will be available for replay until August 3, 2006. To listen to the replay, telephone 888-286-8010 (U.S. and Canada) or 617-801-6888 (International) and enter 86146391 when prompted for a password.
This teleconference is also being webcast by CCBN and can be accessed at the Company’s website at www.uai.ky. Please access the site at least 15 minutes prior to the teleconference to register, download and install any necessary software.
The webcast is also being distributed over CCBN’s Investor Distribution Network both to institutional and individual investors. Individual investors can listen to the teleconference through CCBN’s individual investor center as www.fulldisclosure.com or by visiting any of the investor sites in CCBN’s Individual Investor Network. Institutional investors can access the teleconference via CCBN’s password protected event management site, StreetEvents (www.streetevents.com).
Forward-Looking Information
This release contains forward-looking information about United America Indemnity, Ltd. and the operations of United America Indemnity, Ltd. that is intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “project,” “plan,” “seek,” “intend,” or “anticipate” or the negative thereof or comparable terminology, and include discussions of strategy, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives, expectations or consequences of the transactions, and statements about the future performance, operations, products and services of the companies.
The business and operations of United America Indemnity, Ltd. is and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experience may materially differ from those contained in any forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the following: (1) the ineffectiveness of United America Indemnity, Ltd.’s business strategy due to changes in current or future market conditions; (2) the effects of competitors’ pricing policies, and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products; (3) greater frequency or severity of claims and loss activity than United America Indemnity, Ltd.’s underwriting, reserving or investment practices have anticipated; (4) decreased level of demand for United America Indemnity, Ltd.’s insurance products or increased competition due to an increase in capacity of property and casualty insurers; (5) risks inherent in establishing loss and loss adjustment expense reserves; (6) uncertainties relating to the financial ratings of United America Indemnity, Ltd.’s insurance subsidiaries; (7) uncertainties arising from the cyclical nature of United America Indemnity, Ltd.’s business; (8) changes in United America Indemnity, Ltd.’s relationships with, and the capacity of, its general agents; (9) the risk that United America Indemnity, Ltd.’s reinsurers may not be able to fulfill obligations; (10) investment performance and credit risk; and (11) uncertainties relating to governmental and regulatory policies. The foregoing review of important factors should be read in conjunction with the other cautionary statements that are included in United America Indemnity, Ltd.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as well as in the materials filed and to be filed with the U.S. Securities and Exchange Commission (SEC). United America Indemnity, Ltd. does not make any commitment to revise or update any forward-looking statements in order to reflect events or circumstances occurring or existing after the date any forward-looking statement is made.
# # #
Note: Tables Follow
UNITED AMERICA INDEMNITY, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share data)
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Gross premiums written | $ | 167,295 | $ | 163,902 | $ | 326,853 | $ | 299,362 | ||||||||
| Net premiums written | $ | 142,688 | $ | 136,294 | $ | 278,025 | $ | 245,815 | ||||||||
| Net premiums earned | 133,751 | 119,802 | 269,181 | 221,914 | ||||||||||||
| Agency commission and fee revenues | 8,804 | 10,115 | 18,351 | 16,367 | ||||||||||||
| Investment income, net | 17,936 | 11,114 | 31,615 | 22,982 | ||||||||||||
| Net realized investment gains (losses) | (4 | ) | 394 | 39 | (222 | ) | ||||||||||
Total revenues | 160,487 | 141,425 | 319,186 | 261,041 | ||||||||||||
| Net losses and loss adjustment expense | 80,464 | 71,221 | 159,428 | 134,818 | ||||||||||||
| Acquisition costs and other underwriting expenses | 41,775 | 34,907 | 86,088 | 64,446 | ||||||||||||
| Agency commission and operating expenses | 8,863 | 10,174 | 18,731 | 17,093 | ||||||||||||
| Corporate and other operating expenses | 3,902 | 4,633 | 8,201 | 8,175 | ||||||||||||
| Interest expense | 2,958 | 2,180 | 5,678 | 4,096 | ||||||||||||
Income before income taxes | 22,525 | 18,310 | 41,060 | 32,413 | ||||||||||||
| Income tax expense | 2,315 | 145 | 3,600 | 226 | ||||||||||||
| Net income before equity in net income of partnerships | 20,210 | 18,165 | 37,460 | 32,187 | ||||||||||||
| Minority interests, net of tax | 4 | (23 | ) | — | 9 | |||||||||||
| Equity in net income of partnership | 40 | 314 | 572 | 425 | ||||||||||||
Net income before extraordinary gain | 20,254 | 18,456 | 38,032 | 32,621 | ||||||||||||
| Extraordinary gain | — | — | — | 1,426 | ||||||||||||
Net income | $ | 20,254 | $ | 18,456 | $ | 38,032 | $ | 34,047 | ||||||||
| Weighted average shares outstanding — basic | 36,665 | 36,393 | 36,615 | 35,331 | ||||||||||||
| Weighted average shares outstanding — diluted | 37,116 | 37,045 | 37,047 | 36,015 | ||||||||||||
Net income per share — basic | $ | 0.55 | $ | 0.51 | $ | 1.04 | $ | 0.96 | ||||||||
Net income per share — diluted | $ | 0.55 | $ | 0.50 | $ | 1.03 | $ | 0.95 | ||||||||
Combined ratio analysis: | ||||||||||||||||
| Before purchase accounting adjustments: | ||||||||||||||||
| Loss ratio | 60.2 | 56.1 | 59.2 | 57.1 | ||||||||||||
| Expense ratio | 31.2 | 33.1 | 32.0 | 33.3 | ||||||||||||
| Combined ratio | 91.4 | 89.2 | 91.2 | 90.4 | ||||||||||||
| Impact of purchase accounting adjustments: | ||||||||||||||||
| Loss ratio | — | 3.3 | — | 3.7 | ||||||||||||
| Expense ratio | — | (4.0 | ) | — | (4.3 | ) | ||||||||||
| Combined ratio | — | (0.7 | ) | — | (0.6 | ) | ||||||||||
| As reported, after purchase accounting adjustments: | ||||||||||||||||
| Loss ratio | 60.2 | 59.4 | 59.2 | 60.8 | ||||||||||||
| Expense ratio | 31.2 | 29.1 | 32.0 | 29.0 | ||||||||||||
| Combined ratio | 91.4 | 88.5 | 91.2 | 89.8 | ||||||||||||
Certain prior period amounts have been reclassified to conform to the 2006 presentation.
UNITED AMERICA INDEMNITY, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
| As of | As of | |||||||
| June 30, 2006 | December 31, 2005 | |||||||
ASSETS | ||||||||
| Bonds: | ||||||||
| Available for sale securities, at fair value (amortized cost: $1,277,588 and $1,092,137) | $ | 1,238,145 | $ | 1,085,624 | ||||
| Preferred shares: | ||||||||
| Available for sale securities, at fair value (cost: $3,744 and $6,563) | 4,060 | 6,400 | ||||||
| Common shares: | ||||||||
| Available for sale securities, at fair value (cost: $56,799 and $56,654) | 62,391 | 59,602 | ||||||
| Other invested assets | 56,224 | 52,427 | ||||||
| Total investments | 1,360,820 | 1,204,053 | ||||||
| Cash and cash equivalents | 137,894 | 220,122 | ||||||
| Accounts receivable | 23,812 | 24,235 | ||||||
| Agents’ balances, net | 89,301 | 78,669 | ||||||
| Reinsurance receivables, net | 1,167,575 | 1,278,156 | ||||||
| Accrued investment income | 14,076 | 12,260 | ||||||
| Federal income taxes receivable, net | 247 | 415 | ||||||
| Deferred federal income taxes, net | 25,954 | 21,646 | ||||||
| Deferred acquisition costs, net | 60,222 | 59,339 | ||||||
| Goodwill | 101,900 | 101,854 | ||||||
| Intangible assets, net | 30,007 | 30,852 | ||||||
| Prepaid reinsurance premiums | 40,129 | 41,688 | ||||||
| Other assets | 23,656 | 33,324 | ||||||
| Total assets | $ | 3,075,593 | $ | 3,106,613 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Liabilities: | ||||||||
| Unpaid losses and loss adjustment expenses | $ | 1,855,890 | $ | 1,914,224 | ||||
| Unearned premiums | 279,836 | 272,552 | ||||||
| Amounts held for the account of others | 21,869 | 22,781 | ||||||
| Ceded balances payable | 16,003 | 22,895 | ||||||
| Insurance premiums payable | 30,211 | 25,252 | ||||||
| Contingent commissions | 7,349 | 11,061 | ||||||
| Payable for securities | 6,622 | — | ||||||
| Senior notes payable | 90,000 | 90,000 | ||||||
| Junior subordinated debentures | 61,857 | 61,857 | ||||||
| Notes and loans payable | 5,512 | 6,455 | ||||||
| Other liabilities | 35,935 | 39,547 | ||||||
| Total liabilities | 2,411,084 | 2,466,624 | ||||||
| Minority interest | — | 62 | ||||||
Shareholders’ equity: | ||||||||
| Common shares, $0.0001 par value | 4 | 4 | ||||||
| Additional paid-in capital | 508,604 | 504,541 | ||||||
| Accumulated other comprehensive income | (8,042 | ) | 9,471 | |||||
| Retained earnings | 163,943 | 125,911 | ||||||
| Total shareholders’ equity | 664,509 | 639,927 | ||||||
| Total liabilities and shareholders’ equity | $ | 3,075,593 | $ | 3,106,613 | ||||
UNITED AMERICA INDEMNITY, LTD.
SUMMARY OF OPERATING INCOME
(Dollars and shares in thousands, except per share data)
SUMMARY OF OPERATING INCOME
(Dollars and shares in thousands, except per share data)
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
Operating income: | $ | 20,327 | $ | 18,187 | $ | 38,046 | $ | 32,728 | ||||||||
| Adjustments: | ||||||||||||||||
| Net realized investment gains (losses), net of tax | (73 | ) | 269 | (14 | ) | (107 | ) | |||||||||
| Extraordinary gain | — | — | — | 1,426 | ||||||||||||
Total after-tax adjustments | (73 | ) | 269 | (14 | ) | 1,319 | ||||||||||
| GAAP reported: | ||||||||||||||||
Net income | $ | 20,254 | $ | 18,456 | $ | 38,032 | $ | 34,047 | ||||||||
| Weighted average shares outstanding — basic | 36,665 | 36,393 | 36,615 | 35,331 | ||||||||||||
| Weighted average shares outstanding — diluted | 37,116 | 37,045 | 37,047 | 36,015 | ||||||||||||
Operating income per share — basic | $ | 0.55 | $ | 0.50 | $ | 1.04 | $ | 0.93 | ||||||||
Operating income per share — diluted | $ | 0.55 | $ | 0.49 | $ | 1.03 | $ | 0.91 | ||||||||
Note Regarding Operating Income
In managing its business and evaluating its performance, United America Indemnity’s management focuses on operating income (net income excluding after-tax net realized investment gains (losses) and extraordinary items that do not reflect overall operating trends) as a more appropriate measure of the net income attributable to the ongoing operations of the business. Operating income is not a substitute for net income determined in accordance with GAAP, and investors should not place undue reliance on this measure.