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American Overseas Group Limited Announces Results of Operations for the Year Ended December 31, 2015

HAMILTON, Bermuda, June 24, 2016 (GLOBE NEWSWIRE) -- American Overseas Group Limited (BSX:AOREF.BH) (Pink Sheets:AOREF.PK) (“AOG” or the “Company”) today reported consolidated net income available to common shareholders of $16.2 million, or $370.36 per diluted share, for the year ended December 31, 2015. This compares to consolidated net income available to common shareholders of $38.4 million, or $1,797.58 per diluted share, for the year ended December 31, 2014.1

The results for 2015 were impacted by unrealized gains in credit derivatives of $30.1 million, and include fair value adjustments of $5.5 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, 2015 was $1,650.27, an improvement from the book value per share of $1,327.28 at December 31, 2014.

For the year ended December 31, 2015, the Company had an operating loss of $14.7 million, or $334.86 per diluted share, compared to an operating loss of $3.2 million, or $150.13 per diluted share for the year ended December 31, 2014. Operating income for the property and casualty segment in 2015 was $4.9 million, compared to the $2.3 million operating loss in 2014 for this segment. The financial guaranty segment had operating losses of $16.1 million in 2015, 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 $385.0 million for 2015 compared to $418.3 million for 2014. Fees earned by the Company’s management companies were $13.4 million for 2015 compared to $13.6 million for 2014 before intercompany consolidation eliminations with their regulated affiliates. EBITDA margins earned on these fees were 44% for 2015 and 34% for 2014. Net earned property and casualty premiums were $6.4 million for 2015 compared to $36.5 million for 2014. 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. This contributed to the overall improvement for the property and casualty segment, from an operating loss of $2.3 million in 2014 to operating income of $4.9 million in 2015.

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 $16.1 million in 2015 compares to an operating loss of $1.5 million in 2014. Insured par outstanding (net of escrowed transactions) declined to $4.7 billion at December 31, 2015 from $6.2 billion at December 31, 2014, a 24% 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 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

1 The diluted weighted average shares outstanding at December 31, 2015 were 43,761, as compared to 21,375 at December 31, 2014. On October 28, 2014, the Company acquired Orpheus Group Ltd., formerly the principal shareholder of the Company, for a combination of common stock and senior notes. The issuance of common shares to Orpheus Group Ltd. shareholders increased the Company’s shares outstanding.

American Overseas Group Limited
Consolidated Balance Sheets
(unaudited)
As at December 31, 2015 and 2014
(dollars in thousands)
December 31, 2015 December 31, 2014
Assets
Investments:
Fixed-maturity securities held as available for sale, at fair value $103,802 $123,527
Equity investments held as available for sale, at fair value 6,856 32,212
Cash and cash equivalents 31,131 35,497
Restricted cash 51,403 46,968
Accrued investment income 203 320
Premiums receivable 61,877 57,194
Reinsurance balances receivable, net 277,439 282,980
Salvage and subrogation recoverable 1,214 2,662
Deferred policy acquisition costs 193 452
Intangible assets 4,800 7,038
Goodwill 33,050 33,050
Assets held in segregated accounts 537
Other assets 2,030 1,063
Total Assets $573,998 $623,500
Liabilities and Equity
Liabilities:
Loss and loss expense reserve $249,204 $265,439
Unearned premiums 93,472 95,277
Ceded premium payable 64,380 56,135
Payable to general agents 1,194 355
Funds withheld 3,926 2,568
Accounts payable and accrued liabilities 2,316 4,149
Liabilities related to segregated accounts - 537
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, 2015 and 2014) 9,787 9,446
Derivative liabilities 16,779 46,696
Notes payable 40,000 60,890
Non-owned interest in VIE 300 300
Interest payable 1,023 1,188
Fair value adjustment 19,355 22,104
Deferred tax liability 38 31
Total Liabilities 501,774 565,115
Shareholders' Equity:
Common shares 4,377 4,399
Additional paid-in capital 186,399 185,638
Accumulated other comprehensive (loss) income (2,214) 893
Retained deficit (122,390) (138,598)
Total Shareholders' Equity 66,171 52,332
Non-controlling interest of preferred shares of subsidiaries 6,053 6,053
Total Equity 72,224 58,385
Total Liabilities and Equity $573,998 $623,500
See Notes to 2015 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, 2015 and 2014
(dollars in thousands, except share and per share amounts)
Year ended December 31,
2015 2014
Revenues
Net premiums earned $6,424 $36,298
Fee income 12,517 12,818
Change in fair value of credit derivatives
Realized gains and other settlements 459 587
Unrealized gains 30,070 18,173
Net change in fair value of credit derivatives 30,529 18,760
Net investment income 2,783 4,363
Net realized gains on investments (88) 4,844
Fair value adjustment 2,408 4,519
Other income 253 -
Total revenues 54,826 81,602
Expenses
Losses and loss adjustment expenses 11,584 12,685
Acquisition expenses 865 6,932
Operating expenses 15,927 16,337
Amortization of intangible assets 2,238 2,707
Other expense 280 500
Interest expense 5,376 2,535
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Total expenses 36,270 41,696
Net income (loss) available to common shareholders $ 18,556 $ 39,906
Income tax expense (7) (7)
Net income (loss) before dividends 18,549 39,899
Dividends on preference shares (2,341) (1,476)
Net income (loss) available to common shareholders $ 16,208 $ 38,423
Net income (loss) per common share:
Basic $371.96 $1,813.44
Diluted 370.36 1,797.58
Weighted-average number of common shares outstanding:
Basic 43,573 21,188
Diluted 43,761 21,375
* 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.
See Notes to 2015 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, 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 LTD.
NET INCOME AND OPERATING INCOME BY SEGMENT
(dollars in thousands)December 31, 2014
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$36,466 $36,466
Losses and loss adjustment expenses (35,897) (35,897)
Acquisition expenses (7,107) (7,107)
Fee income 12,818 12,818
Operating expenses (8,614) (8,614)
Amortization expense (2,707) 2,707 -
Income tax (7) (7)
Property and casualty (5,048) - - - 2,707 (2,341)
Financial guaranty:
Net premiums earned (168) 7,604 7,436
Net change in fair value of credit derivatives 18,760 (18,173) 587
Losses and loss adjustment expenses 23,211 (20,125) 3,086
Acquisition expenses 175 (5,757) (5,582)
Operating expenses (7,019) (7,019)
Financial guaranty 34,959 - (18,173) (18,278) - (1,492)
Corporate and investing:
Net investment income 4,363 4,363
Net realized gain on sales of investments 4,844 (4,844) -
Fair value adjustment 4,520 (4,520) -
Operating expenses (704) (704)
Interest expense (2,535) (2,535)
Other income/(expense) (500) (500)
Corporate and investing 9,988 (4,844) - (4,520) - 624
Group total$39,899 $(4,844)$(18,173)$(22,798)$2,707 $(3,209)


American Overseas Group Limited info@aoreltd.com

Source:American Overseas Group, Ltd.