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Results of Operations for the Year Ended December 31, 2017 - American Overseas Group Limited Announces Net Loss Of $10.6 Million and Operating Loss of $20.8 Million For The Year Ended December 31, 2017

News Provided by GlobeNewswire2018-06-22
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HAMILTON, Bermuda, June 22, 2018 (GLOBE NEWSWIRE) -- 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 $10.6 million, or $233.62 per diluted share, for the year ended December 31, 2017.  This compares to consolidated net loss available to common shareholders of $7.5 million, or $169.14 per diluted share, for the year ended December 31, 2016.

The results for 2017 were impacted by unrealized gains in credit derivatives of $8.1 million, and include fair value adjustments of $1.0 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, 2017 was $1,308.58, a decline from the book value per share of $1,530.98 at December 31, 2016.

For the year ended December 31, 2017, the Company had an operating loss of $20.8 million, or $456.94 per diluted share, compared to an operating loss of $14.6 million, or $328.90 per diluted share for the year ended December 31, 2016.  Operating income for the property and casualty segment in 2017 was $1.1 million, compared to the $3.0 million operating income in 2016 for this segment.  The financial guaranty segment had operating losses of $24.1 million in 2017, 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 $422.0 million for 2017 compared to $426.3 million for 2016.  Fees earned by the Company’s management companies were $13.4 million for 2017 compared to $14.2 million for 2016 before intercompany consolidation eliminations with their regulated affiliates.  Net earned property and casualty premiums were $3.5 million for 2017 and compares to $3.6 million for 2016.  There was an overall decrease for the property and casualty segment, from operating income of $3.0 million in 2016 to operating income of $1.1 million in 2017, driven primarily by underwriting results.

The legacy financial guaranty portfolio of American Overseas Reinsurance Company Limited, excluding the Company’s exposure to Puerto Rico credits, continues to run-off satisfactorily.  The financial guaranty segment operating loss increased from an operating loss of $16.2 million in 2016 to an operating loss of $24.1 million in 2017, primarily due to loss reserve increases related to its Puerto Rico credits. Insured par outstanding (net of escrowed transactions) declined to $2.1 billion at December 31, 2017 from $3.0 billion at December 31, 2016, a 30% 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, 2017 and December 31, 2016
(dollars in thousands)
            
            
       December 31, 2017  December 31, 2016 
Assets
      
            
 Investments:      
  Fixed-maturity securities held as available for sale, at fair value $81,028   $80,525  
  Equity investments held as available for sale, at fair value  6,437    6,653  
 Cash and cash equivalents  40,173    71,131  
 Restricted cash  66,535    48,306  
 Accrued investment income  256    219  
 Premiums receivable  81,264    69,419  
 Reinsurance balances receivable, net  340,700    310,351  
 Salvage and subrogation recoverable  1,708    1,896  
 Deferred policy acquisition costs  101    158  
 Intangible assets  4,800    4,800  
 Goodwill   33,050    33,050  
 Other assets  1,899    1,300  
  Total Assets $657,951   $627,808  
            
            
Liabilities and Equity      
            
 Liabilities:      
  Loss and loss expense reserve $304,773   $276,688  
  Unearned premiums  105,690    101,198  
  Ceded premium payable  95,195    77,178  
  Payable to general agents  1,479    1,334  
  Funds withheld  44,985    43,334  
  Accounts payable and accrued liabilities  3,057    4,175  
  Redeemable preference shares: ($0.10 par value and $1,000 redemption value; authorized shares - 75,000;  issued and outstanding shares - 58,600 and 58,600 at December 31, 2017 and December 31, 2016, respectively) 10,312    9,920  
  Derivative liabilities  342    8,358  
  Notes payable  16,521    19,526  
  Non-owned interest in VIE  300    300  
  Interest payable  451    516  
  Fair value adjustment  15,199    17,044  
  Deferred tax liability  31    45  
   Total Liabilities  598,335    559,615  
            
 Shareholders' Equity:      
  Common shares  4,556    4,454  
  Additional paid-in capital  188,331    187,281  
  Accumulated other comprehensive income  1,190    301  
  Retained deficit  (140,514)   (129,897) 
  Total Shareholders' Equity  53,563    62,140  
  Non-controlling interest of preferred shares of subsidiaries  6,053    6,053  
  Total Equity  59,616    68,193  
            
            
  Total Liabilities and Equity $657,951   $627,808  
            
            
  See Notes to 2017 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, 2017 and 2016
 (dollars in thousands, except share and per share amounts)
             
             
          Year ended December 31,
           2017   2016 
  Revenues      
             
  Net premiums earned   $1,947  $3,094 
  Fee income    11,531   12,091 
            
 Change in fair value of credit derivatives      
  Realized gains and other settlements    113   2,380 
  Unrealized gains    8,125   8,162 
            
   Net change in fair value of credit derivatives    8,238   10,542 
            
  Net investment income    1,762   1,763 
  Net realized gains (losses) on investments    154   (1,905)
  Fair value adjustment    1,452   1,958 
  Other income    591   7 
            
    Total revenues     25,675    27,550 
            
 Expenses      
  Losses and loss adjustment expenses    19,783   14,279 
  Acquisition expenses    447   652 
  Operating expenses    13,772   16,456 
  Other expense    -   398 
   Interest expense    2,304   3,265 
             
    Total expenses     36,306    35,050 
             
             
 Net (loss) available to common shareholders   $  (10,631) $  (7,500)
   Income tax benefit (expense)    14   (7)
             
 Net (loss) before dividends    (10,617)  (7,507)
             
             
 Net (loss) available to common shareholders   $  (10,617) $  (7,507)
             
 
 Net (loss) per common share:      
 Basic     $(233.62) $(169.18)
 Diluted     (233.62)  (169.14)
            
 Weighted-average number of common shares outstanding:      
 Basic      45,444   44,371 
 Diluted     45,444   44,381 
 
 See Notes to 2017 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, 2017
 Net income available to common shareholdersNet realized loss on sales of investmentsNet change in fair value of credit derivativesFair value adjustmentsAmortization of intangiblesOperating income
Property and casualty:      
       
Net premiums earned$3,497     $3,497 
Losses and loss adjustment expenses (3,960)     (3,960)
Acquisition expenses (430)     (430)
Fee income 11,531      11,531 
Operating expenses (9,593)     (9,593)
Amortization expense -      - 
Income tax 14      14 
Property and casualty 1,059  -  -  -  - 1,059 
       
Financial guaranty:      
       
Net premiums earned (1,550)   7,242   5,692 
Net change in fair value of credit derivatives 8,238   (8,125)   113 
Losses and loss adjustment expenses (15,823)   (4,078)  (19,901)
Acquisition expenses (17)   (3,580)  (3,597)
Operating expenses (6,415)     (6,415)
Financial guaranty (15,567) -  (8,125) (416) - (24,108)
       
Corporate and Investing      
       
Net investment income 1,762      1,762 
Net realized loss on sales of investments 154  (1,034) $880   - 
Fair value adjustment 1,453    (1,453)  - 
Operating expenses 2,235      2,235 
Interest expense (2,304)     (2,304)
Other expense, net of other income 591      591 
Corporate and investing 3,891  (1,034) -  (573) - 2,284 
       
Group total$(10,617)$(1,034)$(8,125)$(989)$-$(20,765)
       
AMERICAN OVERSEAS GROUP LTD.      
       
NET INCOME AND OPERATING INCOME BY SEGMENT     
       
       
(dollars in thousands)December 31, 2016
 Net income available to common shareholdersNet realized loss on sales of investmentsNet change in fair value of credit derivativesFair value adjustmentsAmortization of intangiblesOperating 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 Limited
info@aoreltd.com



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