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

HAMILTON, Bermuda--(BUSINESS WIRE)--

American Safety Insurance Holdings, Ltd. 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 included¹:

• 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 earnings² 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. 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.