American Safety Insurance Holdings, Ltd. Reports Net Earnings of $5.0 Million

October 28, 2009 4:30 PM EDT

Book Value Per Share Increased 23% to $25.97

HAMILTON, Bermuda--(BUSINESS WIRE)-- American Safety Insurance Holdings, Ltd. (NYSE: ASI) today reported net earnings of $5.0 million for the three months ended September 30, 2009, or $0.47 per diluted share, as compared to $(4.3) million, or $(0.42) per diluted share, for the same period of 2008.

Financial highlights for the quarter included:

    --  Gross premiums written increased 24.3% to $92.6 million.
    --  Net premiums written decreased 6.1% to $38.1 million.
    --  Net premiums earned decreased 4.1% to $40.0 million.
    --  Investment income decreased 2.2% to $7.3 million.
    --  Cash flow from operations was $12.6 million compared to $69.6 million
        for the same period in 2008.
    --  Combined ratio decreased to 100.2% from 103.2% for the same period of
        2008.
    --  Loss ratio improved to 57.7% compared to 60.1% for the same period of
        2008.
    --  Expense ratio improved to 42.5% from 43.1% for the same period of 2008.
    --  Annualized return on average equity increased to 8.4% from (7.4)% for
        the same period of 2008. Excluding net realized gains and (losses), the
        return was 8.3% compared to 8.1% for the same period of 2008.
    --  Book value increased to $25.97 per outstanding share and $25.03 per
        diluted share compared to $21.12 and $20.55, respectively, at December
        31, 2008.

Third Quarter Results

Net earnings of $5.0 million for the quarter include a $1.6 million increase in other underwriting expenses resulting from the write-off of a reinsurance recoverable related to a legacy program. Net earnings also include $60 thousand in net realized gains on investments as compared with $9.2 million in net realized losses on investments in the 2008 quarter.

Gross premiums written for the quarter increased by $18.1 million primarily due to a specialty program written in the third quarter for which the Company assumes no underwriting risk and receives fee income.

Revenues for the quarter increased 20.0% to $48.6 million from $40.5 million in the 2008 quarter due to the impact of $9.2 million in net realized losses on investments in the 2008 period. The decline in net premiums earned resulted from a decline in the construction and assumed reinsurance lines of business. The decline in the construction line was due to the slow housing market and our exercise of underwriting discipline, while the decline in the assumed reinsurance line was due to the impact of the cancellation of one treaty. Investment income totaled $7.3 million, a decrease of $0.2 million, due to yield contraction across the investment portfolio. Cash flow for the quarter was $12.6 million compared to $69.6 million in the 2008 quarter, due to collections related to certain reinsurance treaties in the prior year.

The improvement in the loss ratio to 57.7% from 60.1% was due primarily to $1.5 million in adverse prior year reserve development recognized in the 2008 quarter which added 3.6 points to the 2008 loss ratio. There was no prior year reserve development in the 2009 quarter.

The expense ratio of 42.5% for the quarter includes the impact of the $1.6 million write-off. The impact of the write-off was partially offset by lower acquisition costs in our assumed reinsurance line of business, due to the cancellation of a reinsurance treaty and the shift to excess of loss treaties from quota share.

Year to Date Results

Net earnings for the nine months ended September 30, 2009 were $17.4 million, or $1.65 per diluted share, compared to $8.5 million, or $0.79 per diluted share for the same period in 2008. Net realized gains on investments for the current nine month period were approximately $0.3 million compared to net realized losses on investments of $8.4 million during 2008.

Results in 2009 reflect an improvement in both the loss ratio and expense ratio. The combined ratio for the nine months ended September 30, 2009 was 99.5%, composed of a 58.9% loss ratio and a 40.6% expense ratio. The 2008 combined ratio was 102.5%, with a loss ratio of 60.6% and an expense ratio of 41.9%.

During 2009, there has been no prior year reserve development, while 2008 results include $1.5 million of development related to prior year loss reserves. The improvement in the expense ratio resulted from the same factors impacting the three month results.

Invested assets increased 9.8% to $739.7 million at September 30, 2009 from $673.7 million at December 31, 2008. The pretax book yield realized during the nine months on the investment portfolio was 4.3% compared to 4.7% for the same period in 2008.

Book value at September 30, 2009 increased 23.0% to $25.97 per outstanding share and 21.8% to $25.03 per outstanding diluted share as compared to December 31, 2008 due to net earnings and appreciation in the value of the investment portfolio.

Commenting on the results, Stephen R. Crim, President and Chief Executive Officer said, "We have been able to generate improved underwriting results in this extremely competitive market. We will continue to use our diversified platform to opportunistically grow as market conditions permit."

Conference Call

A conference call to discuss third quarter 2009 results is scheduled for Thursday, October 29, 2009 at 9:00 a.m. (Eastern Daylight Time), which will be broadcast through Vcall's Investor Calendar at www.investorcalendar.com, or the Company's website at www.amsafety.com. If you are unable to participate at this time, a replay will be available for 30 days, beginning approximately two hours after the call. A transcript of the call will be available on the Company's website beginning several days after the call.

This report contains forward-looking statements and non-GAAP financial measures. The forward-looking statements reflect the Company's current views with respect to future events and financial performance, including insurance market conditions, combined ratio, premium growth, acquisitions and new products and the impact of new accounting standards. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially, including competitive conditions in the insurance industry, levels of new and renewal insurance business, developments in loss trends, adequacy and changes in loss reserves and actuarial assumptions, timing or collectability of reinsurance recoverables, market acceptance of new coverages and enhancements, changes in reinsurance costs and availability, potential adverse decisions in court and arbitration proceedings, the integration and other challenges attendant to acquisitions, and changes in levels of general business activity and economic conditions.

About Us:

American Safety Insurance Holdings, Ltd. (NYSE: ASI), a Bermuda holding company, offers innovative solutions outside the U.S. in the reinsurance and alternative risk markets through its subsidiaries, American Safety Reinsurance, Ltd. and American Safety Assurance, Ltd., and in the U.S. for specialty risks and alternative risk markets through its program administrator, American Safety Insurance Services, Inc., and insurance company subsidiaries and affiliates, American Safety Casualty Insurance Company, American Safety Indemnity Company, American Safety Risk Retention Group, Inc, American Safety Assurance (Vermont), Inc. and Victore Insurance Company. As a group, ASI's insurance subsidiaries and affiliates are rated "A" (Excellent) VIII by A.M. Best. For additional information, please visit www.asih.bm.

American Safety Insurance Holdings, Ltd. and Subsidiaries

Financial and Operating Highlights

(Unaudited)

(in thousands except per share data and percentages)

                                          Three Months Ended  Nine Months Ended

                                          September 30,       September 30,

                                          2009     2008       2009      2008

PREMIUM SUMMARY (in Thousands)

Gross Premiums Written:

Excess and Surplus Lines Segment

Environmental                             $9,406   $11,345    $32,224   $37,676

Construction                              5,811    8,183      16,653    28,253

Products Liability                        1,484    1,385      5,700     4,498

Excess                                    1,118    1,544      4,426     5,874

Property                                  2,141    1,415      7,328     5,705

Surety                                    4,021    3,561      9,776     8,180

Healthcare                                2,929    3,121      9,313     8,224

Total Excess and Surplus Lines Segment    26,910   30,554     85,420    98,410

Alternative Risk Transfer Segment

Specialty Programs                        58,593   30,088     89,477    60,586

Total Alternative Risk Transfer Segment   58,593   30,088     89,477    60,586

Assumed Reinsurance Segment               7,100    13,829     25,327    42,457

Total Gross Premiums Written              $92,603  $74,471    $200,224  $201,453

Net Premiums Written:

Excess and Surplus Lines Segment

Environmental                             $7,325   $9,048     $26,149   $27,669

Construction                              4,836    7,019      13,814    21,921

Products Liability                        1,251    1,134      4,781     3,625

Excess                                    177      935        676       1,566

Property                                  1,260    1,351      5,471     4,363

Surety                                    2,914    2,506      6,982     6,183

Healthcare                                1,904    2,028      6,054     5,345

Total Excess and Surplus Lines Segment    19,667   24,021     63,927    70,672

Alternative Risk Transfer Segment

Specialty Programs                        11,262   10,551     30,995    31,020

Total Alternative Risk Transfer Segment   11,262   10,551     30,995    31,020

Assumed Reinsurance Segment               7,134    5,975      25,776    34,603

Total Net Premiums Written                $38,063  $40,547    $120,698  $136,295

Net Premiums Earned:

Excess and Surplus Lines Segment

Environmental                             $8,804   $8,575     $27,204   $26,404

Construction                              5,350    8,550      17,946    29,240

Products Liability                        1,528    1,280      4,391     3,463

Excess                                    215      551        856       913

Property                                  1,636    1,622      4,769     3,377

Surety                                    2,473    1,907      6,707     5,259

Healthcare                                2,019    1,061      6,578     1,781

Total Excess and Surplus Lines Segment    22,025   23,546     68,451    70,437

Alternative Risk Transfer Segment

Specialty Programs                        11,261   10,238     31,758    27,426

Total Alternative Risk Transfer Segment   11,261   10,238     31,758    27,426

Assumed Reinsurance Segment               6,695    7,908      26,041    30,020

Total Net Premiums Earned                 $39,981  $41,692    $126,250  $127,883

American Safety Insurance Holdings, Ltd. and Subsidiaries

Financial and Operating Highlights

(Unaudited)

(in thousands)

                          Three Months Ended          Nine Months Ended

                          September 30,               September 30,

                          2009          2008          2009          2008

INCOME STATEMENT DATA:

Revenues:

Direct premiums earned    $58,877       $53,786       $160,057      $148,057

Assumed premiums earned   6,895         13,107        26,991        35,220

Ceded premiums earned     (25,791    )  (25,201    )  (60,798    )  (55,394    )

Net premiums earned       39,981        41,692        126,250       127,883

Net investment income     7,331         7,497         22,850        22,141

Net realized gains        61            (9,153     )  298           (8,358     )
(losses)

Fee income                1,250         499           3,368         2,017

Other income (loss)       (41        )  (37        )  44            (7         )

Total revenues            48,582        40,498        152,810       143,676

Expenses:

Losses and loss           23,074        25,059        74,322        77,468
adjustment expenses

Acquisition expenses      7,844         9,685         26,920        30,723

Payroll and related       5,321         5,729         16,843        15,397
expenses

Other underwriting        5,055         3,042         10,839        9,552
expenses

Interest expense          828           715           2,379         2,370

Corporate and other       639           696           2,076         (612       )
expenses

Total expenses            42,761        44,926        133,379       134,898

Earnings (loss) before    5,821         (4,428     )  19,431        8,778
income taxes

Income taxes              446           179           1,420         422

Net earnings before       5,375         (4,607     )  18,011        8,356
noncontrolling interest

Less: Net earnings
attributable to the       421           312           593           (160       )
noncontrolling interest

Net earnings (loss)       $4,954        $(4,295    )  $17,418       $8,516

Net earnings (loss) per
share:

Basic                     $0.48         $(0.42     )  $1.69         $0.81

Diluted                   $0.47         $(0.42     )  $1.65         $0.79

Weighted average number
of shares outstanding:

Basic                     10,303,121    10,326,661    10,297,303    10,521,209

Diluted                   10,608,138    10,326,661    10,536,027    10,782,741

Loss Ratio                57.7       %  60.1       %  58.9       %  60.6       %

Expense Ratio             42.5       %  43.1       %  40.6       %  41.9       %

GAAP combined ratio       100.2      %  103.2      %  99.5       %  102.5      %

                                            At

BALANCE SHEET DATA:                         9/30/2009       12/31/2008

                                            (unaudited)

Total investments                           $739,674        $ 673,739

Total assets                                1,135,125       1,026,364

Unpaid losses and loss adjustment expenses  618,869         586,647

Total liabilities                           863,493         806,242

Total shareholders' equity                  267,654         217,030

Book value per share                        $25.97          $21.12

    Source: American Safety Insurance Holdings, Ltd.

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