CPHL Castlepoint Holdings Ltd (MM)

CastlePoint Holdings, Ltd. (NASDAQ:CPHL) today reported net income of $10.3 million and basic and diluted earnings per share of $0.27 for the second quarter of 2008. Operating earnings for the second quarter of 2008 were $13.2 million and $0.35 per share(a). Key Operating Highlights (all percentage increases compare the second quarter results to the same period in 2007): Operating income and operating earnings per share on a diluted basis increased by 25.5% and 29.6%, respectively, during the second quarter. Operating return on average equity for the second quarter was 12.6%. Net premiums written for the quarter were $128.1 million, an increase of 59.1% from the prior year period. The combined ratio for our reinsurance and insurance segments combined was 91.3% for the quarter. (a)Note on Non-GAAP Financial Measures: Operating income excludes net realized gains (losses) and unrealized gains (losses) included in net investment income. Operating income, operating earnings per share, and operating return on average equity are common performance measurements for property and casualty insurance companies. We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. Additionally, these are key internal management performance measures. � Three Months � Three Months � Six Months � Six Months Ended June Ended June Ended June Ended June 30, 2008 � 30, 2007 � 30, 2008 � 30, 2007 ($ in thousands, except per share data) � Net premiums written 128,073 80,512 246,163 152,406 � Net premiums earned 110,815 54,940 211,219 101,536 Net investment income: Net investment income excl Partnership 8,778 8,088 16,914 13,879 Realized and unrealized losses on investment in Partnership (1) � (551) � 0 � (3,530) � 0 Total net investment income 8,227 8,088 13,384 13,879 � Net realized losses on investments (2,801) (25) (1,436) (19) � Total revenues 124,612 63,677 239,516 117,631 Net income 10,314 10,518 19,879 17,589 � Earnings Per Share � Basic $ 0.27 $ 0.27 $ 0.52 $ 0.51 Earnings Per Share � Diluted $ 0.27 $ 0.27 $ 0.52 $ 0.51 Return on Average Equity 9.8% 10.4% 9.4% 10.2% � Excluding realized and unrealized gains (losses), net of tax: (2) Net income excluding realized and unrealized gains (losses), net of tax 13,234 10,543 24,277 17,608 Reconciliation to Net Income: Realized and unrealized losses on investment in Partnership (1) (551) 0 (3,530) 0 Net realized losses on investments (2,801) (25) (1,436) (19) Tax effect on realized and unrealized gain (losses) � 432 � 0 � 568 � 0 Net income 10,314 10,518 19,879 17,589 Earnings per share � Basic $ 0.35 $ 0.27 $ 0.63 $ 0.51 Earnings per share � Diluted $ 0.35 $ 0.27 $ 0.63 $ 0.51 Return on Average Equity 12.6% 10.4% 11.5% 10.2% � (1) Realized and unrealized gains and losses from our investment in a limited partnership were recorded as a component of net investment income � (2) Excluding realized and unrealized gains (losses) on all investments including limited partnerships Book value as of June 30, 2008 was $423.3 million, which was $11.05 per share. For the six months ended June 30, 2008, operating earnings was $24.3 million or $0.63 per share, and net income was $19.9 million or $0.52 per share. Net earned premiums increased 101.7% to $110.8 million in the second quarter of 2008 from $54.9 million for the same period in 2007. Gross written premiums from clients other than Tower were 26% of total, which compares to 35% of gross written premiums from clients other than Tower in the first quarter 2008. The decline in the percentage of business from clients other than Tower reflects our desire to maintain underwriting and pricing discipline in a more challenging reinsurance market environment. Net investment income increased by 1.7% to $8.2 million for the three months ended June 30, 2008, as compared to $8.1 million for the same period in 2007. The net investment income in the quarter includes charges for other-than-temporary-impairments of $3.4 million that are isolated to a small portion of our investment portfolio with carried value of approximately $12.4 million at June 30, 2008. In July 2008, $8.0 million of these investments were sold resulting in an additional loss of $2.1 million. The remaining $4.4 million of these assets are expected to be sold before year-end with no significant additional loss. The overall investment portfolio is $764.9 million and is comprised of highly rated investments with an average credit rating of AA. The overall book yield on the investment portfolio was 5.2% as of June 30, 2008. CastlePoint Re, our Bermuda-based reinsurance subsidiary, assumed 35% of Tower�s brokerage business as well as 50% of CastlePoint Insurance Company�s program business in the quarter. Net premiums written increased by 43.0% to $95.8 million for the three months ended June 30, 2008, compared to $67.0 million for the same period in the prior year. The net combined ratio was 90.7% in the quarter as compared to 86.7% for the same prior year period. CastlePoint Insurance Company had net written premiums in the second quarter of $32.3 million. The combined ratio for CastlePoint Insurance Company in the second quarter was 93.2% on a net basis primarily reflecting costs for ceded property catastrophe protection, and was 84.0% on a gross basis before ceded reinsurance. Additional Highlights and Disclosures: Dividend Declaration CastlePoint Holdings, Ltd. Board of Directors previously had approved a quarterly dividend of $0.05 per share payable September 30, 2008 to stockholders of record as of September 15, 2008. About CastlePoint Holdings, Ltd. CastlePoint, a Bermuda-based holding company, through its subsidiaries, CastlePoint Reinsurance Company, CastlePoint Management Corp., and CastlePoint Insurance Company, provides property and casualty insurance and reinsurance business solutions, products and services to small insurance companies and program underwriting agents in the United States. CPHL-F Cautionary Note Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a �safe harbor� for forward-looking statements. This press release or any other written or oral statements made by or on behalf of CastlePoint may include forward-looking statements that reflect CastlePoint�s current views with respect to future events and financial performance. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology such as �may,� �will,� �plan,� �expect,� �project,� �guide or guidance,� �intend,� �estimate,� �anticipate,� �believe� or �continue� or their negative or variations or similar terminology. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause CastlePoint�s actual results to differ materially from those indicated in these statements. The company believes that these factors include, but are not limited to: ineffectiveness or obsolescence of its business strategy due to changes in current or future market conditions; increased competition on the basis of pricing, capacity, coverage terms or other factors; greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than CastlePoint�s underwriting, reserving or investment practices anticipate based on historical experience or industry data; the ability to obtain necessary governmental licenses; the ability to hire and retain executive officers and other key personnel; the ability to make certain acquisitions in a timely fashion necessary to fulfill the company�s business plan; the effects of acts of terrorism or war; developments in the world�s financial and capital markets that adversely affect the performance of the company�s investments; changes in regulations or laws applicable to CastlePoint, its subsidiaries, brokers or customers including tax laws in Bermuda and the United States; acceptance of CastlePoint�s products and services, including new products and services; changes in the availability, cost or quality of reinsurance and failure of CastlePoint�s reinsurers to pay claims timely or at all; decreased demand for the company�s insurance or reinsurance products; the effects of mergers, acquisitions and divestitures; changes in rating agency policies or practices; changes in legal theories of liability under CastlePoint�s insurance policies or the policies that it reinsures; changes in accounting policies or practices; and changes in general economic conditions, including inflation and other factors. Forward-looking statements speak only as of the date on which they are made, and CastlePoint undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. For more information visit CastlePoint�s website at http://www.castlepoint.bm/. CastlePoint Holdings, Ltd. Consolidated Balance Sheets (Unaudited) � � June 30, December 31, 2008 2007 ($ in thousands share except per share amounts) Assets � Fixed-maturity securities, available-for-sale, at fair value $ 556,431 $ 484,972 (amortized cost $570,734 for 2008; $484,523 for 2007) Equity securities, available-for-sale, at fair value 52,020 42,402 (cost $56,810 for 2008; $44,036 for 2007) Short-term investments, available-for-sale, at fair value (amortized cost $16,911 for 2008; $0 for 2007) � 16,911 � � - � Total available-for-sale investments 625,362 527,374 Investment in Partnerships, equity method 4,974 8,503 Common trust securities - statutory business trusts, equity method � 4,022 � � 4,022 � Total investments 634,358 539,899 � Cash and cash equivalents 149,362 153,632 Accrued investment income 4,204 4,064 Premiums receivable 160,957 125,597 Premiums receivable - programs 25,568 9,083 Prepaid reinsurance premiums 10,001 3,475 Reinsurance recoverable on paid loss & loss adjustment expense 1,366 22 Reinsurance recoverable on unpaid loss & loss adjustment expense 4,449 - Deferred acquisition costs 85,439 73,073 Deferred income taxes 9,189 7,051 Deferred financing fees 3,610 3,673 Other assets � 12,858 � � 7,174 � Total Assets $ 1,101,361 � $ 926,743 � � Liabilities and Shareholders' Equity � Liabilities Loss and loss adjustment expenses $ 191,287 $ 121,426 Unearned premium 258,987 217,518 Losses payable 20,672 8,527 Premiums payable - programs 47,102 16,257 Accounts payable and accrued expenses 2,145 3,592 Payable for securities 14,844 - Other liabilities 9,015 3,595 Subordinated debentures � 134,022 � � 134,022 � Total Liabilities � 678,074 � � 504,937 � � Shareholders� Equity Common shares ($0.01 par value, 100,000,000 shares authorized, 38,305,735 shares issued as of June 30, 2008 and 38,289,430 shares issued as of December 31, 2007) 383 383 Additional paid-in-capital 386,203 385,057 Accumulated other comprehensive net loss (17,722 ) (1,051 ) Retained earnings � 54,423 � � 37,417 � Total Shareholders' Equity � 423,287 � � 421,806 � Total Liabilities and Shareholders' Equity $ 1,101,361 � $ 926,743 � CastlePoint Holdings, Ltd. Consolidated Statements of Income and Comprehensive Income (Unaudited) � � Three Months Ended Six Months Ended June 30, June 30, 2008 � 2007 2008 � 2007 ($ in thousands, except share and per share amounts) Revenues Net premiums earned $ 110,815 $ 54,940 $ 211,219 $ 101,536 Insurance services revenue 8,371 674 16,349 2,235 Net investment income 8,227 8,088 13,384 13,879 Net realized loss on investments � (2,801 ) � (25 ) � (1,436 ) � (19 ) Total Revenues � 124,612 � � 63,677 � � 239,516 � � 117,631 � � Expenses Loss and loss adjustment expenses 60,660 27,982 115,195 53,308 Commission and other acquisition expenses 45,485 19,389 87,009 35,962 Other operating expenses 6,196 4,379 12,633 7,715 Interest expense � 2,826 � � 2,153 � � 5,669 � � 4,354 � Total Expenses 115,167 53,903 220,506 101,339 � Income before income taxes 9,445 9,774 19,010 16,292 Income tax benefit � 869 � � 744 � � 869 � � 1,297 � Net Income $ 10,314 � $ 10,518 � $ 19,879 � $ 17,589 � � Comprehensive Income Net income $ 10,314 $ 10,518 $ 19,879 $ 17,589 Other comprehensive income (loss): Gross unrealized investment holding losses arising during period (8,926 ) (6,661 ) (19,377 ) (5,945 ) � Less: reclassification adjustment for losses incl. in net income � (2,801 ) � (25 ) � (1,436 ) � (19 ) Other comprehensive loss (6,125 ) (6,636 ) (17,941 ) (5,926 ) � Income tax recovery related to items of other comprehensive income � 496 � � 614 � � 1,270 � � 585 � Total other comprehensive loss � (5,629 ) � (6,022 ) � (16,671 ) � (5,341 ) � Comprehensive Income $ 4,685 � $ 4,496 � $ 3,208 � $ 12,248 � � � Earnings Per Share Basic earnings per common share $ 0.27 $ 0.27 $ 0.52 $ 0.51 Diluted earnings per common share $ 0.27 $ 0.27 $ 0.52 $ 0.51 � � Weighted-Average Common Shares Outstanding: Basic 38,277,704 38,277,148 38,280,012 34,349,404 Diluted estimated 38,299,090 38,848,730 38,410,038 34,718,272 Reinsurance Segment Results of Operations (Unaudited) � � Three Months Ended Six Months Ended June 30, June 30, 2008 � 2007 2008 � 2007 ($ in thousands) Revenues Premiums earned Gross premiums earned $ 81,831 $ 53,610 $ 158,283 $ 100,206 Less: ceded premiums earned � (25) � � � (34) � � Net premiums earned � 81,806 � 53,610 � 158,249 � 100,206 � Expenses Loss and loss adjustment expenses Gross loss and loss adjustment expenses 45,348 27,264 86,689 52,590 Less: ceded loss and loss adjustment expenses � � � � � � � � Net loss and loss adjustment expenses � 45,348 � 27,264 � 86,689 � 52,590 Underwriting expenses Ceding commission expense 27,812 18,348 53,465 33,705 Other underwriting expenses � 1,034 � 839 � 2,125 � 1,489 Total underwriting expenses � 28,846 � 19,187 � 55,590 � 35,194 � Underwriting Profit $ 7,612 $ 7,159 $ 15,970 $ 12,422 � Key Measures Premiums written Gross premiums written $ 95,800 $ 66,978 $ 189,967 $ 138,874 Less: ceded premiums written � (24) � � � (33) � � Net premiums written $ 95,776 $ 66,978 $ 189,934 $ 138,874 � Loss Ratios Gross 55.4% 50.9% 54.8% 52.5% Net 55.4% 50.9% 54.8% 52.5% Accident Year Loss Ratios Gross 55.6% 52.2% 55.1% 52.7% Net 55.6% 52.2% 55.1% 52.7% Underwriting Expense Ratios Gross 35.3% 35.8% 35.1% 35.1% Net 35.3% 35.8% 35.1% 35.1% Combined Ratios Gross 90.7% 86.7% 89.9% 87.6% Net 90.7% 86.7% 89.9% 87.6% Insurance Segment Results of Operations (Unaudited) � � Three Months Ended Six Months Ended June 30, June 30, 2008 � 2007 2008 � 2007 ($ in thousands) Revenues Premiums earned Gross premiums earned $ 38,307 $ 1,330 $ 69,901 $ 1,330 Less: ceded premiums earned � (9,298) � � � (16,932) � � Net premiums earned 29,009 1,330 52,969 1,330 Ceding commission revenue � 1,346 � � � 2,408 � � Total revenue � 30,355 � 1,330 � 55,377 � 1,330 Expenses Loss and loss adjustment expenses Gross loss and loss adjustment expenses 19,123 718 35,602 718 Less: ceded loss and loss adjustment expenses � (3,811) � � � (7,095) � � Net loss and loss adjustment expenses � 15,312 � 718 � 28,507 � 718 Underwriting expenses Ceding commission expense 11,882 549 21,893 549 Other underwriting expenses � 1,196 � 19 � 1,932 � 21 Total underwriting expenses � 13,078 � 568 � 23,825 � 570 Underwriting Profit $ 1,965 $ 44 $ 3,045 $ 42 � Key Measures Premiums written Gross premiums written $ 42,403 $ 13,533 $ 77,352 $ 13,533 Less: ceded premiums written � (10,107) � � � (21,124) � � Net premiums written $ 32,296 $ 13,533 $ 56,228 $ 13,533 Loss Ratios Gross 49.9% 54.0% 50.9% 54.0% Net 52.8% 54.0% 53.8% 54.0% Accident Year Loss Ratios Gross 51.6% 54.0% 51.2% 54.0% Net 55.2% 54.0% 54.4% 54.0% Underwriting Expense Ratios Gross 34.1% 42.7% 34.1% 42.8% Net 40.4% 42.7% 40.4% 42.8% Combined Ratios Gross 84.0% 96.7% 85.0% 96.8% Net 93.2% 96.7% 94.2% 96.8% Insurance Services Segment Results of Operations (Unaudited) � � Three Months Ended Six Months Ended June 30, June 30, 2008 � 2007 2008 � 2007 ($ in thousands) Revenues Direct commission revenue from programs $ 9,286 $ 674 $ 17,995 $ 2,235 Total Revenues � 9,286 � 674 � 17,995 � 2,235 � Expenses Direct commissions expense for programs 8,052 492 15,705 1,708 Other insurance services expenses � 2,023 � 1,788 � 4,003 � 3,132 Total Expenses � 10,075 � 2,280 � 19,708 � 4,840 Insurance Services Loss $ (789) $ (1,606) $ (1,713) $ (2,605)