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

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 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 $ 3,497           $ 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 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 Limited
info@aoreltd.com

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