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Results of Operations for the Year Ended December 31, 2016 - American Overseas Group Limited Announces Net Loss Of $7.5 Million and Operating Loss of $14.6 Million For The Year Ended December 31, 2016

HAMILTON, Bermuda, June 22, 2017 (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 $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 info@aoreltd.com

Source:American Overseas Group, Ltd.