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HAMILTON, Bermuda, June 22, 2017 -- American Overseas Group Limited (BSX:AOREF.BH) (Pink Sheets:AOREF.PK) (“AOG” or the “Company”) today reported consolidated net loss available to common shareholders of $7.5 million, or $169.14 per diluted share, for the year ended December 31, 2016. This compares to consolidated net income available to common shareholders of $16.2 million, or $370.36 per diluted share, for the year ended December 31, 2015.
The results for 2016 were impacted by unrealized gains in credit derivatives of $8.2 million, and include fair value adjustments of $0.8 million related to the business combination accounting from the combination of Orpheus Group Ltd. and AOG in 2013, when the entities came under common voting control. Book value per share at December 31, 2016 was $1,530.98, a decline from the book value per share of $1,650.27 at December 31, 2015.
For the year ended December 31, 2016, the Company had an operating loss of $14.6 million, or $328.90 per diluted share, compared to an operating loss of $14.7 million, or $334.86 per diluted share for the year ended December 31, 2015. Operating income for the property and casualty segment in 2016 was $3.0 million, compared to the $4.9 million operating income in 2015 for this segment. The financial guaranty segment had operating losses of $16.2 million in 2016, largely driven by losses from the Company’s reinsurance of Puerto Rico-related credits.
Gross property and casualty premiums written, which are the primary driver of the Company’s fee income, were $426.3 million for 2016 compared to $385.0 million for 2015. Fees earned by the Company’s management companies were $14.2 million for 2016 compared to $13.4 million for 2015 before intercompany consolidation eliminations with their regulated affiliates. EBITDA margins earned on these fees were 27% for 2016 and 44% for 2015. Net earned property and casualty premiums were $3.6 million for 2016 compared to $6.4 million for 2015. The drop in net premiums earned is the direct result of the Company’s success in deemphasizing the retention of underwriting risk. This contributed to the overall decrease for the property and casualty segment, from operating income of $4.9 million in 2015 to operating income of $3.0 million in 2016.
The legacy financial guaranty portfolio of American Overseas Reinsurance Company Limited continues to run-off satisfactorily, notwithstanding loss reserve increases mainly due to the Company’s continued exposure to Puerto Rico credits. The financial guaranty operating loss of $16.2 million in 2016 compares to an operating loss of $16.1 million in 2015. Insured par outstanding (net of escrowed transactions) declined to $3.0 billion at December 31, 2016 from $4.7 billion at December 31, 2015, a 36% decline.
As part of its ongoing capital management efforts, the Company will continue to redirect excess capital within the group to debt reduction unless other compelling opportunities present themselves.
Forward-Looking Statements
This release contains statements that may be considered "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, the Company's expectations respecting the volatility of its insured portfolio, losses, loss reserves and loss development, the adequacy and availability of its liquidity and capital resources, its current run off strategy, its strategy for writing other reinsurance businesses and its expense reduction measures. These statements are based on current expectations and the current views of the economic and operating environment and are not guarantees of future performance. A number of risks and uncertainties, including economic competitive conditions, could cause actual results to differ materially from those projected in forward-looking statements. The Company's actual results could differ materially from those expressed or implied in the forward-looking statements. Among the factors that could cause actual results to differ materially are: (i) the Company's reviewing the results of our entire portfolio of policies. Management considers credit derivative policies as a normal extension of AORE’s financial guaranty business and reinsurance in substance.
Explanation of Non-GAAP Financial Measures
The Company believes that the following non-GAAP financial measure included in this press release serve to supplement GAAP information and is meaningful to investors.
Operating income (loss): The Company believes operating income (loss) is a useful measure because it measures income from operations, unaffected by non-operating items such as realized investment gains or losses. Operating income (loss) is typically used by research analysts and rating agencies in their analysis of the Company.
Information About the Company
American Overseas Group Limited is an insurance holding company incorporated in Bermuda and a tax resident of the United Kingdom. Its operating subsidiaries provide specialty property/casualty insurance, reinsurance and insurance management services. More information can be found at www.aoreltd.com.
| American Overseas Group Limited | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| (unaudited) | ||||||||||
| As at December 31, 2016 and 2015 | ||||||||||
| (dollars in thousands) | ||||||||||
| December 31, 2016 | December 31, 2015 | |||||||||
| Assets | ||||||||||
| Investments: | ||||||||||
| Fixed-maturity securities held as available for sale, at fair value | $ | 80,525 | $ | 103,802 | ||||||
| Equity investments held as available for sale, at fair value | 6,653 | 6,856 | ||||||||
| Cash and cash equivalents | 71,131 | 31,131 | ||||||||
| Restricted cash | 48,306 | 51,403 | ||||||||
| Accrued investment income | 219 | 203 | ||||||||
| Premiums receivable | 69,419 | 61,877 | ||||||||
| Reinsurance balances receivable, net | 310,351 | 277,439 | ||||||||
| Salvage and subrogation recoverable | 1,896 | 1,214 | ||||||||
| Deferred policy acquisition costs | 157 | 193 | ||||||||
| Intangible assets | 4,800 | 4,800 | ||||||||
| Goodwill | 33,050 | 33,050 | ||||||||
| Other assets | 1,301 | 2,030 | ||||||||
| Total Assets | $ | 627,808 | $ | 573,998 | ||||||
| Liabilities and Equity | ||||||||||
| Liabilities: | ||||||||||
| Loss and loss expense reserve | $ | 276,688 | $ | 249,204 | ||||||
| Unearned premiums | 101,198 | 93,472 | ||||||||
| Ceded premium payable | 77,178 | 64,380 | ||||||||
| Payable to general agents | 1,334 | 1,194 | ||||||||
| Funds withheld | 43,334 | 3,926 | ||||||||
| Accounts payable and accrued liabilities | 4,174 | 2,316 | ||||||||
| Liabilities related to segregated accounts | - | - | ||||||||
| Redeemable preference shares: ($0.10 par value and $1,000 redemption value; authorized shares - 75,000; issued and outstanding shares - 58,600 and 59,700 at December 31, 2016 and 2015, respectively) | 9,920 | 9,787 | ||||||||
| Derivative liabilities | 8,358 | 16,779 | ||||||||
| Fair value adjustment | 17,044 | 19,355 | ||||||||
| Notes payable | 19,526 | 40,000 | ||||||||
| Non-owned interest in VIE | 300 | 300 | ||||||||
| Interest payable | 516 | 1,023 | ||||||||
| Deferred tax liability | 45 | 38 | ||||||||
| Total Liabilities | 559,615 | 501,774 | ||||||||
| Shareholders' Equity: | ||||||||||
| Common shares | 4,454 | 4,377 | ||||||||
| Additional paid-in capital | 187,282 | 186,399 | ||||||||
| Accumulated other comprehensive income (loss) | 301 | (2,214 | ) | |||||||
| Retained deficit | (129,897 | ) | (122,390 | ) | ||||||
| Total Shareholders' Equity | 62,140 | 66,171 | ||||||||
| Non-controlling interest of preferred shares of subsidiaries | 6,053 | 6,053 | ||||||||
| Total Equity | 68,193 | 72,224 | ||||||||
| Total Liabilities and Equity | $ | 627,808 | $ | 573,998 | ||||||
| See Notes to 2016 Consolidated Financial Statements available on American Overseas Group Ltd. Website at www.aoreltd.com | ||||||||||
| American Overseas Group Limited | ||||||||||
| Consolidated Statements of Operations | ||||||||||
| (unaudited) | ||||||||||
| For years ended December 31, 2016 and 2015 | ||||||||||
| (dollars in thousands, except share and per share amounts) | ||||||||||
| Year ended December 31, | ||||||||||
| 2016 | 2015 | |||||||||
| Revenues | ||||||||||
| Net premiums earned | $ | 3,094 | $ | 6,424 | ||||||
| Fee income | 12,091 | 12,517 | ||||||||
| Change in fair value of credit derivatives | ||||||||||
| Realized gains and other settlements | 2,380 | 459 | ||||||||
| Unrealized gains | 8,162 | 30,070 | ||||||||
| Net change in fair value of credit derivatives | 10,542 | 30,529 | ||||||||
| Net investment income | 1,763 | 2,783 | ||||||||
| Net realized (losses) on investments | (1,905 | ) | (88 | ) | ||||||
| Fair value adjustment | 1,958 | 2,408 | ||||||||
| Other income | 7 | 253 | ||||||||
| Total revenues | 27,550 | 54,826 | ||||||||
| Expenses | ||||||||||
| Losses and loss adjustment expenses | 14,279 | 11,584 | ||||||||
| Acquisition expenses | 652 | 865 | ||||||||
| Operating expenses | 16,456 | 15,927 | ||||||||
| Amortization of intangible assets | - | 2,238 | ||||||||
| Other expense | 398 | 280 | ||||||||
| Interest expense | 3,265 | 5,376 | ||||||||
| Total expenses | 35,050 | 36,270 | ||||||||
| Net (loss) income available to common shareholders | $ | (7,500 | ) | $ | 18,556 | |||||
| Income tax expense | (7 | ) | (7 | ) | ||||||
| Net (loss) income before dividends | (7,507 | ) | 18,549 | |||||||
| Dividends on preference shares of subsidiary | - | (2,341 | ) | |||||||
| Net (loss) income available to common shareholders | $ | (7,507 | ) | $ | 16,208 | |||||
| Net (loss) income per common share: | ||||||||||
| Basic | $ | (169.18 | ) | $ | 371.96 | |||||
| Diluted | (169.14 | ) | 370.36 | |||||||
| Weighted-average number of common shares outstanding: | ||||||||||
| Basic | 44,371 | 43,573 | ||||||||
| Diluted | 44,381 | 43,761 | ||||||||
| See Notes to 2016 Consolidated Financial Statements available on American Overseas Group Ltd. Website at www.aoreltd.com | ||||||||||
| AMERICAN OVERSEAS GROUP LTD. | |||||||||||||||||
| NET INCOME AND OPERATING INCOME BY SEGMENT | |||||||||||||||||
| (dollars in thousands) | December 31, 2016 | ||||||||||||||||
| Net income available to common shareholders | Net realized loss on sales of investments | Net change in fair value of credit derivatives | Fair value adjustments | Amortization of intangibles | Operating income | ||||||||||||
| Property and casualty: | |||||||||||||||||
| Net premiums earned | $ | 3,600 | $ | 3,600 | |||||||||||||
| Losses and loss adjustment expenses | (2,037 | ) | (2,037 | ) | |||||||||||||
| Acquisition expenses | (896 | ) | (896 | ) | |||||||||||||
| Fee income | 12,091 | 12,091 | |||||||||||||||
| Operating expenses | (9,740 | ) | (9,740 | ) | |||||||||||||
| Amortization expense | - | - | - | ||||||||||||||
| Income tax | (7 | ) | (7 | ) | |||||||||||||
| Property and casualty | 3,011 | - | - | - | - | 3,011 | |||||||||||
| Financial guaranty: | |||||||||||||||||
| Net premiums earned | (506 | ) | 9,857 | 9,351 | |||||||||||||
| Net change in fair value of credit derivatives | 10,542 | (8,162 | ) | 2,380 | |||||||||||||
| Losses and loss adjustment expenses | (12,242 | ) | (4,285 | ) | (16,527 | ) | |||||||||||
| Acquisition expenses | 244 | (4,447 | ) | (4,203 | ) | ||||||||||||
| Operating expenses | (7,236 | ) | (7,236 | ) | |||||||||||||
| Financial guaranty | (9,198 | ) | - | (8,162 | ) | 1,125 | - | (16,235 | ) | ||||||||
| Corporate and Investing | |||||||||||||||||
| Net investment income | 1,763 | 1,763 | |||||||||||||||
| Net realized loss on sales of investments | (1,905 | ) | 1,905 | - | |||||||||||||
| Fair value adjustment | 1,958 | (1,958 | ) | - | |||||||||||||
| Operating expenses | 520 | 520 | |||||||||||||||
| Interest expense | (3,265 | ) | (3,265 | ) | |||||||||||||
| Other expense, net of other income | (391 | ) | (391 | ) | |||||||||||||
| Corporate and investing | (1,320 | ) | 1,905 | - | (1,958 | ) | - | (1,373 | ) | ||||||||
| Group total | $ | (7,507 | ) | $ | 1,905 | $ | (8,162 | ) | $ | (833 | ) | $ | - | $ | (14,597 | ) | |
| AMERICAN OVERSEAS GROUP LTD. | |||||||||||||||||
| NET INCOME AND OPERATING INCOME BY SEGMENT | |||||||||||||||||
| (dollars in thousands) | December 31, 2015 | ||||||||||||||||
| Net income available to common shareholders | Net realized loss on sales of investments | Net change in fair value of credit derivatives | Fair value adjustments | Amortization of intangibles | Operating income | ||||||||||||
| Property and casualty: | |||||||||||||||||
| Net premiums earned | $ | 6,399 | $ | 6,399 | |||||||||||||
| Losses and loss adjustment expenses | (3,991 | ) | (3,991 | ) | |||||||||||||
| Acquisition expenses | (901 | ) | (901 | ) | |||||||||||||
| Fee income | 12,517 | 12,517 | |||||||||||||||
| Operating expenses | (9,075 | ) | (9,075 | ) | |||||||||||||
| Amortization expense | (2,238 | ) | 2,238 | - | |||||||||||||
| Income tax | (7 | ) | (7 | ) | |||||||||||||
| Property and casualty | 2,704 | - | - | - | 2,238 | 4,942 | |||||||||||
| Financial guaranty: | |||||||||||||||||
| Net premiums earned | 25 | 7,060 | 7,085 | ||||||||||||||
| Net change in fair value of credit derivatives | 30,529 | (30,070 | ) | 459 | |||||||||||||
| Losses and loss adjustment expenses | (7,593 | ) | (5,630 | ) | (13,223 | ) | |||||||||||
| Acquisition expenses | 36 | (4,481 | ) | (4,445 | ) | ||||||||||||
| Operating expenses | (5,983 | ) | (5,983 | ) | |||||||||||||
| Financial guaranty | 17,014 | - | (30,070 | ) | (3,051 | ) | - | (16,107 | ) | ||||||||
| Corporate and Investing | |||||||||||||||||
| Net investment income | 2,783 | 2,783 | |||||||||||||||
| Net realized loss on sales of investments | (88 | ) | 88 | - | |||||||||||||
| Fair value adjustment | 2,408 | (2,408 | ) | - | |||||||||||||
| Operating expenses | (869 | ) | (869 | ) | |||||||||||||
| Interest expense | (5,376 | ) | (5,376 | ) | |||||||||||||
| Other expense, net of other income | (27 | ) | (27 | ) | |||||||||||||
| Corporate and investing | (1,169 | ) | 88 | - | (2,408 | ) | - | (3,489 | ) | ||||||||
| Group total | $ | 18,549 | $ | 88 | $ | (30,070 | ) | $ | (5,459 | ) | $ | 2,238 | $ | (14,654 | ) | ||
American Overseas Group Limited [email protected]
