American Overseas Group Limited Issues Supplement Information and Updated Earnings Release Regarding Net Income and Operating Loss for the Year Ended December 31, 2014


HAMILTON, Bermuda, July 03, 2015 (GLOBE NEWSWIRE) -- American Overseas Group Limited (BSX:AOREF.BH) (Pink Sheets:AOREF.PK) (“AOG” or the “Company”) today reported consolidated net income of $38.4 million, or $1,797.58 per diluted share, for the year ended December 31, 2014.  This compares to a consolidated net loss of $0.3 million, or $16.39 per diluted share, for the year ended December 31, 2013.  The 2013 financial statements of AOG have been restated to reflect the fact that AOG and Orpheus Group Ltd. came under common voting control on June 26, 2013, and to include the results of Orpheus Group Ltd. from that date.  The results for 2014 were impacted by fair value adjustments of $22.8 million and unrealized gains in credit derivatives of $18.2 million.  Book value per share at December 31, 2014 was $1,327.28.

For the year ended December 31, 2014, the Company had an operating loss of $3.2 million, or $150.13 per diluted share, compared to operating income of $3.1 million, or $147.52 per diluted share for the year ended December 31, 2013 as restated.

Gross property and casualty premiums written, which are the primary driver of the Company’s fee income, were $418.3 million for 2014 compared to $224.9 million for 2013.  Fees earned by the Company’s management companies were $13.6 million for 2014 compared to $7.0 million for 2013 before intercompany consolidation eliminations with their regulated affiliates.  EBITDA margins earned on these fees were 34% for 2014 and 2013.  Net earned property and casualty premiums were $36.5 million for 2014 compared to $35.1 million for 2013.  The drop in net premiums earned is the direct result of the termination of a large assumed reinsurance treaty in May of 2014 in accordance with the Company’s decision to deemphasize the retention of underwriting risk.

The legacy financial guaranty portfolio of American Overseas Reinsurance Company Limited continues to run-off satisfactorily.  Insured par outstanding (net of escrowed transactions) declined to $6.2 billion at December 31, 2014 from $7.6 billion at December 31, 2013, a 18.4% decline.

As part of its ongoing capital management efforts, the Company will continue to redirect excess capital within the group to debt reduction unless compelling acquisition or investment 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 results to differ materially are: (i) the Company’s reviewing the results of our entire portfolio of polices.  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 measures included in this press release serve to supplement GAAP information and are 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, 2014 and 2013 
(dollars in thousands) 
              
        December 31, 2014  December 31, 2013  
Assets          
              
 Investments:         
  Fixed-maturity securities held as available for sale, at fair value        
  (Amortized cost: $122,812 and $172,903)  $  123,527   $ 171,842   
  Equity investments, at fair value (Cost: $31,943 and $21,334)     32,212      24,339   
 Cash and cash equivalents     35,497      36,347   
 Restricted cash     46,968      43,688   
 Unsettled trades     -       9,068   
 Accrued investment income     320      785   
 Premiums receivable     57,194      72,581   
 Reinsurance balances receivable, net     282,980     330,122   
 Salvage and subrogation     2,662      6,684   
 Deferred policy acquisition costs     452      941   
 Intangible assets     7,038      9,745   
 Goodwill    33,050    33,050   
 Assets held in segregated accounts     537      2,364   
 Other assets     1,063      1,055   
  Total Assets  $  623,500   $ 742,611   
              
              
Liabilities and Equity        
              
 Liabilities:        
  Loss and loss expense reserve  $  265,439   $ 323,604   
  Unearned premiums     95,277     108,948   
  Ceded premium payable     56,135      77,751   
  Payable to general agents     355      401   
  Funds withheld     2,568      3,816   
  Accounts payable and accrued liabilities     4,149      3,386   
  Liabilities related to segregated accounts     537      2,364   
  Redeemable preference shares: ($0.10 par value and $1,000 redemption value; authorized shares - 75,000;  issued and outstanding shares - 59,700 at December 31, 2014 and 2013)    9,446      9,429   
  Derivative liabilities     46,696      64,973   
  Notes payable     60,890      47,750   
  Non-owned interest in VIE     300      300   
  Interest payable     1,188      318   
  Dividend payable     -       75   
  Fair Value Adjustment     22,104      26,640   
  Deferred tax liability     31      24   
   Total Liabilities   565,115    669,779   
              
 Shareholders' Equity:        
  Common shares   4,399    1,533   
  Additional paid-in capital   185,638    233,211   
  Accumulated other comprehensive income   893    6,056   
  Retained deficit   (138,598)   (177,021)  
  Total Shareholders' Equity   52,332    63,779   
   Non-controlling interest of preferred shares of subsidiaries   6,053    9,053   
  Total Equity   58,385    72,832   
              
              
  Total Liabilities and Equity  $  623,500   $ 742,611   
              
              
  See Notes to 2014 Consolidated Financial Statements available on American Overseas Groups Ltd. Website at www.aoreltd.com  
              

 

American Overseas Group Limited       
 Consolidated Statements of Operations       
 (unaudited)       
 For years ended December 31, 2014 and 2013       
 (dollars in thousands, except share and per share amounts)       
                    
                    
           Year ended December 31,
       
           2014   2013        
  Revenues             
                    
  Net premiums earned   $  36,298  $  35,839      
  Fee income      12,818     6,263      
                 
 Change in fair value of credit derivatives           
  Realized gains and other settlements      587     1,755      
  Unrealized gains      18,173     162      
                 
   Net change in fair value of credit derivatives      18,760     1,917      
                 
  Net investment income      4,363     5,000      
  Net realized gains on investments      4,844     2,337      
  Fair value adjustment      4,519     1,652      
  Other income      -     99      
                 
    Total revenues      81,602      53,107         
                   
 Expenses             
  Losses and loss adjustment expenses      12,685     31,235        
  Acquisition expenses      6,932     9,281        
  Operating expenses      16,337     10,008        
  Amortization of intangible assets      2,707     2,290        
  Other expense      500     -        
   Interest expense      2,535     640  
              
    Total expenses      41,696      53,453         
              
              
 Net income (loss) available to common shareholders   $   39,906   $   (346)       
   Income tax expense      (7)    (4) 
              
 Net income (loss) before dividends      39,899     (350) 
   Dividends on preference shares      (1,476)    -   
              
              
 Net income (loss) available to common shareholders   $   38,423   $   (350)       
              
 
 Net income (loss) per common share:          
 Basic     $  1,813.44  $  (16.61)    
 Diluted       1,797.58     (16.39)    
                
 Weighted-average number of common shares outstanding:          
 Basic        21,188     21,056     
 Diluted       21,375     21,345     
 
 * Shares outstanding and net income per share as of December 31, 2014, reflect the effects of a 1 for 100 reverse stock split on   
 October 14, 2014.  For comparative purposes, the outstanding shares along with the net income per common share for the   
 year ending December 31, 2013, have been adjusted to reflect the change in capital structure as if the reverse stock split had   
 occurred in that period.          
 
 See Notes to 2014 Consolidated Financial Statements available on American Overseas Groups Ltd. Website at www.aoreltd.com  
 

 

AMERICAN OVERSEAS GROUP LIMITED       
 
OPERATING INCOME BY SEGMENT 
 
     December 31, 2014  
 Property/ Financial    
(dollars in thousands)Casualty Guaranty Corporate Total
 
Net premiums earned$  36,466  $  (168) $  -  $  36,298 
Net change in fair value of credit derivatives   -     18,760     -     18,760 
Losses and loss adjustment expenses   (35,897)    23,211     -     (12,686)
Acquisition expenses   (7,107)    175     -     (6,932)
Underwriting gain (loss)   (6,538)    41,978     -     35,440 
        
Fee income   12,818     -     -     12,818 
Net investment income   -     -     4,363     4,363 
Net realized gains on sales of investments   -     -     4,844     4,844 
Fair value adjustment   -     -     4,520     4,520 
Operating expenses   (8,614)    (7,019)    (704)    (16,337)
Interest expense   -     -     (2,535)    (2,535)
Amortization expense   (2,707)    -     -     (2,707)
Other expense   -     -     (500)    (500)
Income tax   (7)    -     -     (7)
Net income (loss) before noncontrolling interest$  (5,048) $  34,959  $  9,988  $  39,899 
        
Net income (loss) before noncontrolling interest$  (5,048) $  34,959  $  9,988  $  39,899 
Less after tax adjustments:       
 Net realized gains on sales of investments   -     -     (4,844)    (4,844)
 Net change in fair value of credit derivatives   -     (18,173)    -     (18,173)
 Fair value adjustments   -     (18,278)    (4,520)    (22,798)
 Amortization of intangibles   2,707     -     -     2,707 
Operating income (loss)$  (2,341) $  (1,492) $  624  $  (3,209)
        
 
     As Adjusted December 31, 2013  
 Property/ Financial    
(dollars in thousands)Casualty Guaranty Corporate Total
 
Net premiums earned$  35,128  $  711  $  -  $  35,839 
Net change in fair value of credit derivatives   -     1,917     -     1,917 
Losses and loss adjustment expenses   (33,794)    2,559     -     (31,235)
Acquisition expenses   (8,512)    (769)    -     (9,281)
Underwriting gain (loss)   (7,178)    4,418     -     (2,760)
        
Fee income   6,264     -     -     6,264 
Net investment income   -     -     5,000     5,000 
Net realized gains on sales of investments   -     -     2,337     2,337 
Fair value adjustment   -     -     1,652     1,652 
Operating expenses   (4,411)    (5,458)    (139)    (10,008)
Interest expense   -     -     (640)    (640)
Amortization expense   (2,290)    -     -     (2,290)
Other expense   -     -     99     99 
Income tax   (4)    -     -     (4)
Net income (loss) before non controlling interest$  (7,619) $  (1,040) $  8,309  $  (350)
        
Net income (loss) before non controlling interest$  (7,619) $  (1,040) $  8,309  $  (350)
Less after tax adjustments:       
 Net realized gains on sales of investments   -     -     (2,337)    (2,337)
 Net change in fair value of credit derivatives   -     (162)    -     (162)
 Fair value adjustments   -     5,360     (1,652)    3,708 
 Amortization of intangibles   2,290     -     -     2,290 
Operating income (loss)$  (5,329) $  4,158  $  4,320  $  3,149 
        

 

AMERICAN OVERSEAS GROUP LIMITED          
 
RESULT FOR P&C SEGMENT 
 
     December 31, 2014     
 U.S. Non-U.S. Subtotal Eliminations and
adjustments
 Total 
 
Direct premiums written$  418,292  $  -  $  418,292  $  -   $  418,292  
Reinsurance assumed (ceded)   (416,585)    28,894     (387,692)    -      (387,692) 
Net premiums written and assumed   1,707     28,894     30,600     -      30,600  
           
Net premiums earned   1,292     35,174     36,466     -      36,466  
           
Loss and loss adjustment expenses   937     34,960     35,897     -      35,897  
Acquisition costs   157     6,950     7,107     -      7,107  
    1,094     41,910     43,004     -     43,004  
           
Underwriting gain (loss)$  198  $  (6,736) $  (6,538) $  -  $  (6,538) 
           
Loss and loss adjustment expense ratio 72.5%  99.4%  98.4%    -   98.4% 
Expense ratio 12.1%  19.8%  19.5%    -   19.5% 
           
Combined ratio 84.7%  119.2%  117.9%    117.9% 
           
           
Fee income$  11,819  $  1,775  $  13,594  $  (776) $  12,818  
           
Operating expenses   7,133     1,890     9,023     (409)    8,614  
Less amortization and depreciation   (7)    (37)    (43)    -      (43) 
    7,126     1,853     8,979     (409)    8,570  
           
EBITDA$  4,692  $  (78) $  4,614  $  (367) $  4,247  
           
EBITDA margin 39.7%  -4.4%  33.9%    -    33.1% 
           
           
     December 31, 2013     
 U.S. Non-U.S. Subtotal Eliminations and
adjustments
 Total 
 
Direct premiums written$  224,866  $  -  $  224,866  $  -   $  224,866  
Reinsurance assumed (ceded)   (224,695)    35,885     (188,810)    -      (188,810) 
Net premiums written and assumed   171     35,885     36,056     -      36,056  
           
Net premiums earned   844     34,284     35,128     -      35,128  
           
Loss and loss adjustment expenses   1,215     32,579     33,794     -      33,794  
Acquisition costs   84     8,428     8,512     -      8,512  
    1,299     41,007     42,306     -      42,306  
           
Underwriting gain (loss)$  (455) $  (6,723) $  (7,178) $  -   $  (7,178) 
           
Loss and loss adjustment expense ratio 143.9%  95.0%  96.2%    -    96.2% 
Expense ratio 9.9%  24.6%  24.2%    -    24.2% 
           
Combined ratio 153.9%  119.6%  120.4%    -    120.4% 
           
           
Fee income$  5,918  $  1,068  $  6,986  $  (722) $  6,264  
           
Operating expenses   3,662     945     4,606     (195)    4,411  
Less amortization and depreciation   (3)    (8)    (11)    -      (11) 
    3,659     936     4,595     (195)    4,400  
           
EBITDA$  2,259  $  132  $  2,391  $  (527) $  1,863  
           
EBITDA margin 38.2%  12.3%  34.2%    -    29.7% 
           



            

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