American Safety Insurance Holdings, Ltd.
Reports Net Earnings Increases of 42% for the
Fourth Quarter and 40% for the Year
HAMILTON, Bermuda, February 28, 2007 — American Safety Insurance Holdings, Ltd. (NYSE: ASI) today reported a 42% increase in fourth quarter net earnings to $6.4 million, or $0.59 per diluted share, from $4.5 million, or $0.63 per diluted share, for the same period in 2005. Net earnings for the year ended December 31, 2006 increased 40% to $20.5 million, or $2.26 per diluted share, as compared to $14.7 million, or $2.05 per diluted share, for the same period of 2005. Net earnings per diluted share for the quarter and year were negatively impacted by the shares issued in the equity offering in June 2006.
Financial highlights for the quarter and year included:
o Gross premiums written rose 15.0% for the quarter and 2.4% for the year.
o Net premiums earned grew 1.2% for the quarter and 6.7% for the year.
o Net investment income increased 59.2% for the quarter and 52.0% for the year.
o Loss ratio was 67.1% for the quarter compared to 59.7% for the same period of 2005.
o Loss ratio was 62.9% for the year and 61.4% for the previous year.
o Combined ratio was 99.7% for the quarter compared to 100.6% for the same period of 2005.
o Combined ratio was 98.6% for each of the 2005 and 2006 years.
o Book value per share increased 6.0% for the year to $18.59.
o Cash flow from operations was $70.7 million in 2006 compared to $70.4 million in 2005.
o The annualized return on average equity was 12.1% for the quarter and 12.4% for the year compared to 15.5% and 13.0% for the comparable 2005 periods.
Fourth Quarter Results
The increase in net earnings for the quarter was primarily due to increased investment income, realized gains on investments and a $1.1 million reduction in payroll and related expenses due to the reclassification of certain in-house claims expenses to loss and loss adjustment expenses. These expenses were reclassified due to the elimination of third party claims administrators in our construction line of business and did not increase the ultimate loss ratio. Financial results for the quarter were adversely affected by the accrual of $1.9 million in reinsurance reinstatement premiums and $1.0 million of reserve development.
Revenues for the quarter totaled $45.9 million, an increase of 9% over 2005. Net premiums earned, which were negatively impacted by the reinstatement premium, increased 1.2% to $38.2 million. The increase in investment income related to a 27.8% increase in average invested assets and a 24.6% increase in the average yield to 5.1%. Net realized gains on the investment portfolio after taxes were $621,000.
The accrual of reinsurance reinstatement premiums resulted from claims in our environmental line that penetrated the upper layers of our reinsurance treaties. The prior year loss development related to an environmental program written by our non-subsidiary affiliate risk retention group. The development impacted the combined ratio for the quarter but did not impact overall earnings as the risk retention group’s results are eliminated through minority interest. The net effect of the accrual, loss development and the reduction in payroll and related expenses discussed above increased the reported combined ratio by 4.5 percentage points.
The 2005 quarter included $1.4 million of prior year adverse loss development and a $1.3 million valuation allowance related to reinsurance recoverables, partially offset by a $1.4 million reversal of an accrual related to the settlement of rescission litigation.
Year End Results
Net earnings increased 40% to $20.5 million for the year ended December 31, 2006 compared to $14.7 million for 2005. The increase is primarily due to greater investment income and realized gains on investments. Total revenues increased 9.8% to $171.4 million, as net premiums earned increased 6.7% to $146.8 million. The increase in investment income related to a 30.3% increase in average invested assets and a 16.7% increase in the average yield to 4.5%. Net realized gains on the investment portfolio after taxes were $921,000. Financial results for the year were adversely affected by the accrual of $3.7 million in reinsurance reinstatement premiums and $2.6 million of reserve development. The net effect of the accrual and loss development increased the reported combined ratio by 4.1 percentage points. The 2005 year included $2.6 million of prior year adverse loss development, a $1.3 million allowance related to reinsurance recoverables and a $2.4 million reinsurance reinstatement premium, partially offset by a $1.4 million reversal of the accrual related to the settlement of rescission litigation.
Comments by Management
Stephen R. Crim, President and Chief Executive Officer of American Safety Insurance Holdings, Ltd., said, “During 2006 we raised capital through a common equity offering to support our growth plan, began deploying that capital by increasing net retentions and growing net premiums written and achieved an improved A.M. Best rating with the affirmation of an “A” excellent rating with a “stable” outlook. Our efforts to increase net retentions resulted in a 66% ratio of net to gross premiums written, compared to 59% in 2005. I am also pleased that we produced a comparable return on equity despite an increase of over 40% in our capital from the common equity offering. Furthermore, we completed the year with strong growth of 15% in gross premiums written in the fourth quarter, as compared to the same period in 2005. While the insurance market continues to show signs of softening and we are experiencing a modest decline in rates overall, I remain confident in our ability to achieve our growth targets in 2007 of 8% gross premium written growth and 16% net premium written growth, and to improve the combined ratio toward our 95% target.”
This press release contains forward-looking statements regarding insurance market conditions, gross premium growth, net premium growth and combined ratio. 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 collectibility 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 additional factors, which could influence the Company’s operating and financial performance, see the Company’s filings with the Securities and Exchange Commission.
Contacts:
American Safety Insurance Services, Inc.
William C. Tepe
(770) 916-1908
American Safety Insurance Holdings, Ltd. and Subsidiaries
Financial and Operating Highlights
(Unaudited)
Three Months Ended Twelve Months Ended December 31, December 31, 2006 2005 2006 2005 INCOME STATEMENT DATA: Revenues: Direct and assumed premiums earned $ 57,594,054 $ 60,879,617 $222,392,131 $229,156,767 Ceded premiums earned (19,364,462) (23,088,405) (75,636,276) (91,576,899) ---------------- ----------------- ----------------- ------------- Net premiums earned 38,229,592 37,791,212 146,755,855 137,579,868 - - Net investment income $ 6,495,174 $ 4,078,960 $ 21,766,562 $14,315,891 Net realized gains (losses) 839,205 (34,238) 1,190,328 (54,101) Real estate Income - - - 3,000,078 Fee income 214,481 399,512 1,531,756 1,196,505 Other income 159,045 20,252 195,609 76,286 ---------------- ----------------- ----------------- ------------- Total revenues $ 45,937,497 $ 42,255,698 $171,440,110 $156,114,527 ---------------- ----------------- ----------------- ------------- Expenses: Losses and loss adjustment expenses $ 25,635,507 $ 22,551,843 $ 92,329,283 $84,406,158 Acquisition expenses 6,917,429 7,842,477 27,378,292 28,751,979 Payroll and related expenes 3,001,422 3,637,213 14,896,180 12,130,136 Real estate expenses 156,763 352,066 381,243 2,439,022 Interest expense 796,456 462,060 3,376,124 1,257,064 Other expenses 3,067,270 3,050,714 12,105,188 10,566,778 Minority Interest (1,409,162) 69,359 (1,872,690) 515,233 -------------- ----------------- ----------------- ------------- Total expenses 38,165,685 37,965,732 148,593,620 140,066,370 ---------------- ----------------- ----------------- ------------- Earnings before income taxes 7,771,812 4,289,966 22,846,490 16,048,157 Income taxes 1,355,366 (234,049) 2,314,292 1,391,747 ---------------- ----------------- ----------------- ------------- Net earnings $ 6,416,446 $ 4,524,015 $ 20,532,198 $14,656,410 ================ ================= ================= ============= Net earnings per share: Basic $ 0.61 $ 0.67 $ 2.35 $ 2.18 ================ ----------------- ================= ============= Diluted $ 0.59 $ 0.63 $ 2.26 $ 2.05 ================ ================= ================= ============= Average number of shares outstanding: Basic 10,550,758 6,736,379 8,729,734 6,736,938 ================ ================= ================= ============= Diluted 10,928,456 7,167,921 9,095,423 7,163,892 ================ ================= ================= ============= GAAP combined ratio 99.7% 100.6% 98.6% 98.6% ================ ================= ================= ============= BALANCE SHEET DATA: December 31, December 31, 2006 2005 Total investments $551,158,355 $415,496,577 Total assets 847,130,668 694,998,977 Unpaid losses and loss adjustment expenses 439,673,496 393,493,107 Total liabilities 650,980,488 576,563,730 Total shareholders' equity 196,150,180 118,435,247 Book value per share $ 18.59 $ 17.54
American Safety Insurance Holdings, Ltd. and Subsidiaries
Financial and Operating Highlights
(Unaudited)
Three Months Ended Twelve Months Ended December 31, December 31, 2006 2005 2006 2005 PREMIUM SUMMARY (in Thousands) Gross Premiums Written: Excess and Surplus Lines Segment Environmental $ 12,517 $ 11,332 $ 51,805 $ 51,014 Construction 23,966 25,112 96,918 93,315 Excess 1,595 633 3,945 2,091 Surety 917 812 4,004 2,581 Non Construction 1,065 0 2,344 0 ---------- ---------- ---------- -------- Total Excess and Surplus Lines Segment 40,060 37,889 159,016 149,001 Alternative Risk Transfer Segment Specialty Programs 23,710 17,443 80,590 85,138 ---------- ---------- ---------- --------- Total Alternative Risk Transfer Segment 23,710 17,443 80,590 85,138 Runoff 0 98 0 (81) ----------- ---------- ---------- --------- Total Gross Premiums Written $ 63,770 $ 55,430 $239,606 $234,058 =========== ========== =========== ========= Total Fully Funded Fees Written $ 586 $ 1,474 $ 2,124 $ 1,722 =========== ========== ========== ========= Net Premiums Written: Excess and Surplus Lines Segment Environmental $ 8,070 $ 8,366 $ 37,746 $ 41,477 Construction 23,987 22,159 92,530 77,639 Excess 165 1 670 387 Surety 911 406 3,042 1,345 Non Construction 927 0 1,524 0 ----------- ---------- -------- -------- Total Excess and Surplus Lines Segment 34,060 30,932 135,512 120,848 Alternative Risk Transfer Segment Specialty Programs 6,149 5,238 21,756 19,712 ----------- ---------- ---------- -------- Total Alternative Risk Transfer Segment 6,149 5,238 21,756 19,712 Runoff 0 98 0 (2,045) ---------- ---------- --------- -------- Total Net Premiums Written $ 40,209 $ 36,268 $157,268 $138,515 ========== ========== ========= ======== Total Fully Funded Fees Written $ 586 $ 1,474 $ 2,124 $ 1,722 ========== ========== ========= ======== Net Premiums Earned: Excess and Surplus Lines Segment Environmental $ 7,831 $ 10,017 $ 35,138 $ 38,081 Construction 23,590 22,385 88,612 81,451 Excess 154 128 532 457 Surety 1,062 337 2,566 1,148 Non Construction 474 0 653 0 -------- ---------- -------- --------- Total Excess and Surplus Lines Segment 33,111 32,867 127,501 121,137 Alternative Risk Transfer Segment Specialty Programs 5,118 4,826 19,255 18,297 --------- ---------- ------- --------- Total Alternative Risk Transfer Segment 5,118 4,826 19,255 18,297 Runoff 0 98 0 (1,854) --------- ---------- -------- ---------- Total Net Premiums Earned $ 38,229 $ 37,791 $146,756 $ 137,580 ========= ========== ======== ========== Total Fully Funded Fees Earned $ 214 $ 400 $ 1,532 1,196 ========= ========== ======== =========