CRM Holdings, Ltd. Announces Third Quarter Results

• Press Release
• Source: CRM Holdings, Ltd.
• On 8:00 am EST, Thursday November 5, 2009

HAMILTON, Bermuda--(BUSINESS WIRE)--CRM Holdings, Ltd. ("CRM" or “the Company”) (Nasdaq: CRMH - News), a provider of a full range of products and services for the workers' compensation insurance industry, today announced results for the third quarter ended September 30, 2009.

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Symbol	Price	Change
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Three Months Ended September 30, 2009

In the third quarter of 2009, the Company incurred a net loss from continuing operations of $15.7 million, or $(0.93) per diluted share. In the same quarter of the prior year, the Company incurred a net loss from continuing operations of $2.9 million, or $(0.18) per diluted share. Unless otherwise stated, all further results discussed in this release refer to continuing operations for 2009 and results on a comparable basis for 2008.

The net loss includes a non-cash valuation allowance of $11.3 million, or ($0.72) per diluted share, with respect to the Company’s net deferred tax assets, representing an allowance of the full amount of that asset. This relates future tax deductions in the Company's domestic operations (including tax loss carry-forwards) and arises because the Company re-evaluated the realizability of the asset in light of the decline in the Company’s domestic taxable income. The tax loss carry-forward remains available to offset taxes over the next 20 years.

Total revenues in the third quarter of 2009 were $21.8 million, compared to $29.2 million in the same quarter of the prior year. The Company enjoyed higher rates on policy renewals and growth in the number of policies written in its major market of California. However, three principal items more than offset these gains, resulting in an overall decline in revenue. First, underwriting actions taken on business written by the company’s primary insurance subsidiary, Majestic Insurance Company (“Majestic”), reduced business in New York by $2.8 million. Second, the execution of quota share treaties between Majestic and third party reinsurers resulted in Majestic ceding 47% of earned premiums effective July 1, 2009, as compared to Majestic ceding 40% under a quota share treaty that was in place in the third quarter of 2008. The increase in ceded premiums accounted for approximately $2.3 million of reduced net premiums earned by Majestic. Finally, prior year loss sensitive reinsurance treaties required the accrual of additional premiums payable (“reinstatement premiums”) of $3.1 million.

Investment income during the quarter increased to $3.5 million from $2.9 million in the third quarter of 2008. Excluding the benefits of realized capital gains, interest income earned was relatively unchanged from 2008.

Total underwriting expenses for the third quarter declined to $20.9 million from $23.8 million a year ago. Loss and loss adjustment expenses were reduced due to the 47% ceded quota share treaties that commenced on July 1, 2009, as compared to the 40% ceded party quota share treaty that was in place in third quarter of 2008. For the third quarter of 2009, the Company’s overall loss ratio was 99.2% and the overall combined ratio was 142.1%, as compared to an overall loss ratio of 81.0% and an overall combined ratio of 124.2% for the third quarter of 2008.

Book value per share on a diluted basis decreased by $1.56 to $5.04 at September 30, 2009, from $6.60 per diluted share at December 31, 2008.

“Our results for the third quarter were below our expectations, mainly due to the impact of adjustments originating in prior periods. Even as the market continues to be competitive, we are seeing a strong flow of business opportunities in California where our reputation for outstanding levels of service in loss control and claims continues to provide a distinct competitive advantage. We are focusing on other territories where improvement is needed, and we remain confident our results will return to acceptable levels as we move forward,” said James J. Scardino, Chief Executive Officer.

Primary Insurance

During the quarter, Majestic experienced a decline in revenues compared to the same quarter of 2008. Net earned premiums for the quarter ended September 30, 2009, were $14.1 million, compared to $20.5 million in the same quarter a year ago, largely as a result of underwriting actions taken on the Company’s New York primary insurance business, the 47% ceded quota share treaties, and the reinstatement premiums discussed previously. These effects were partly offset by higher rates on renewing business and growth in the number of policies written in California.

The loss ratio for the 2009 third quarter of 112.4% was increased due to the effects of reinstatement premiums and $1.4 million of prior year development. Excluding those items, the loss ratio for third quarter of 2009 was 80.6%.

Majestic’s underwriting loss was $8.2 million for the quarter ended September 30, 2009, compared to an underwriting loss of $6.9 million a year ago. This increase was principally due to the reinstatement premiums and unfavorable loss reserve development, somewhat offset by reduced underwriting expenses.

Despite declining payroll and deliberate underwriting actions in New York, Majestic’s submissions and premium written remained robust. As of September 30, 2009, in-force premiums from primary insurance policies at Majestic were $152.0 million, compared with $154.3 million at the same time last year.

Reinsurance

The Company’s reinsurance segment, Twin Bridges, generated $3.2 million of net earned premiums in the third quarter of 2009, down from $4.0 million in the third quarter of the prior year. The reduction was principally due to a decrease in the volume of reinsurance premiums earned on excess insurance policies issued to the self-insured groups managed by the Company’s fee-based business segment. The underwriting profit of $0.9 million for the quarter was essentially unchanged from the same quarter of 2008. Losses and loss adjustment expenses were 41.3% of net premiums earned for the three months ended September 30, 2009, compared to 46.9% of net premiums earned for the same three months in 2008. Twin Bridges’ combined ratio for the quarter was 70.9%, compared to 76.5% a year ago.

Fee-based Business

Fee-based management services revenues were $1.1 million for the third quarter of 2009, compared to $2.0 million in the third quarter of 2008. The reduction reflected a decline in insured payroll in the self-insured groups managed by the Company and a reduction of the number of groups from 5 in the third quarter of 2008 to 2 in the third quarter of 2009. Effective January 1, 2010, the Contractors Access Program self-insured group will terminate active operations and the Company will have one self-insured group under management going forward. The continuing fee-based management services operations, which are now focused solely on the California market, produced a pre-tax operating loss of $15 thousand, compared to pre-tax operating income of $0.5 million in the same quarter of 2008.

Nine Months Ended September 30, 2009

For the first nine months of 2009, the Company’s net loss from continuing operations was $25.9 million, or ($1.55) per diluted share, compared to net income from continuing operations of $8.3 million, or $0.50 per diluted share, in 2008. The major factors contributing to the swing in profits were the establishment of a tax valuation allowance, a decrease in net earned premiums, which includes the reinstatement premiums incurred in the third quarter of 2009, favorable loss reserve development in 2008 as compared to unfavorable development in 2009 and severance expense related to the former co-CEOs incurred in the first quarter of 2009. As a result of these changes, during the first nine months of 2009, the combined ratio for the primary insurance segment was 130.9%, compared to 99.7% in 2008. The combined ratio for the reinsurance segment was 104.0%, compared to 76.6% a year ago.

Investment Portfolio

At September 30, 2009, the Company had no exposure to equities, collateralized debt obligations or collateralized mortgage obligations. The overall credit rating of Majestic’s fixed income portfolio was AA+. The following tables illustrate Majestic’s investment portfolio distribution by sector and average credit rating.

The effective portfolio duration was 3.4 years, and the average portfolio yield was 3.7%. Net unrealized gains in the portfolio increased by $4.4 million from $5.0 million at December 31, 2008 to $9.4 million at September, 30, 2009.

Conference Call

The Company will host a conference call at 9:00 a.m. ET on Thursday, November 5, 2009, to discuss earnings for the third quarter ended September 30, 2009. To participate in the event by telephone, please dial 877-795-3610 five to 10 minutes prior to the start time (to allow time for registration) and reference passcode 3485848. International callers should dial 719-325-4833. The conference call will be broadcast live over the Internet and can be accessed by all interested parties at CRM’s Web site at http://www.CRMHoldingsLtd.bm/events.cfm. To listen to the call please go to this Web site at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live webcast, an audio replay of the conference call will be archived for 90 days on CRM’s Web site at http://www.CRMHoldingsLtd.bm/events.cfm. A digital replay of the call will also be available on Thursday, November 5, at approximately 11:00 a.m. ET through Wednesday, November 11, at midnight ET. Dial 888-203-1112 and enter the conference ID number 3485848. International callers should dial 719-457-0820 and enter the same conference ID number.

About CRM Holdings, Ltd.

CRM Holdings, Ltd. is a provider of workers’ compensation insurance products. Its main business activities include underwriting primary workers’ compensation insurance policies, underwriting workers’ compensation reinsurance and excess insurance policies, and providing fee-based management and other services to self-insured entities. The Company provides primary workers’ compensation insurance to employers in California, Arizona, Florida, Nevada, New Jersey, New York, and other states. The Company reinsures some of the primary business underwritten and provides excess workers’ compensation coverage for self-insured organizations. CRM is also a provider of fee-based management services to self-insured groups in California. Further information can be found on the CRM Web site at www.CRMHoldingsLtd.bm.

CRMH-E

Forward-Looking statements

This press release contains forward-looking statements within the meaning of federal securities law, including statements concerning plans, objectives, goals, strategies, projections of future events or performance and underlying assumptions (many of which are based, in turn, upon further assumptions). These statements are based on our current expectations and projections about future events and are identified by terminology such as “may,” “will,” “should,” “expect,” “scheduled,” “plan,” “seek,” “intend,” “anticipate,” “believe,” “estimate,” “aim,” “potential,” or “continue” or the negative of those terms or other comparable terminology.

All forward-looking statements involve risks and uncertainties. Although the Company believes that its plans, intentions and expectations are reasonable, the Company may not achieve such plans, intentions or expectations. There are or may be important factors that could cause actual results to differ materially from the forward-looking statements the Company makes in this document. Such risks and uncertainties are discussed in the Company's Form 10-K for the year ended December 31, 2008 and in other documents filed by the Company with the Securities and Exchange Commission. The Company believes that these factors include, but are not limited to the following:

• The cyclical nature of the insurance and reinsurance industry;
• Premium rates;
• Investment results;
• Legislative and regulatory changes;
• The estimation of loss reserves and loss reserve development;
• Reinsurance may be unavailable on acceptable terms, and we may be unable to collect reinsurance;
• The occurrence and effects of wars and acts of terrorism;
• The effects of competition;
• The possibility that the outcome of any litigation, arbitration or regulatory proceeding is unfavorable;
• Failure to retain key personnel;
• Economic downturns; and
• Natural disasters.

These risks and others could cause actual results to differ materially from those expressed in any forward-looking statements made. The Company undertakes no obligation to update publicly or revise any forward-looking statements made.

CCG Investor Relations
Mark Collinson, 310-954-1343