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

American Overseas Group Limited Announces Net Income Of $16.2 Million and Operating Loss of $14.7 Million 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  
         
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