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Results of Operations for the Six Months Ended June 30, 2019 - American Overseas Group Limited announces Net Loss Of $3.8 Million and Operating Loss of $7.8 Million For the Six Months Ended June 30, 2019

HAMILTON, Bermuda, Sept. 23, 2019 (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 $3.8 million, or $82.18 per diluted share, for the six months June 30, 2019.  This compares to consolidated net loss available to common shareholders of $2.4 million, or $51.30 per diluted share, for the six months ended June 30, 2018.

The results for the six months was driven by losses in the Company’s financial guaranty segment related to commuted policies and Puerto Rico related credits.  Book value per share at June 30, 2019 was $1,186.27, a decline from the book value per share of $1,212.83 at December 31, 2018. 

For the six months ended June 30, 2019, the Company had an operating loss of $7.8 million, or $169.26 per diluted share, compared to an operating loss of $1.5 million, or $32.4 per diluted share for the six months ended June 30, 2018.  Operating income for the property and casualty segment in 2019 was $1.7 million, compared to the $1.4 million operating income in 2018 for this segment.  The financial guaranty segment had operating losses of $9.8 million for 2019, compared to operating losses of $2.6 million for 2018. 

Net earned property and casualty premiums increased $2.5 million from $1.4 million in 2018 to $3.9 million in 2019, driven by the addition of new agency relationships.  Loss and loss adjustment expenses as a percentage of earned premiums improved from 67.2% to 25.1% driven by both current and prior accident year results.  Fee income increased from $6.0 million to $6.1 million, while operating expenses for property and casualty decreased from $4.7 million to $4.5 million.  Overall operating income improved 29.1% from $1.4 million to $1.7 million within property and casualty.

The legacy financial guaranty portfolio of American Overseas Reinsurance Company Limited (“AORE”) continues to run-off within expectations.  The financial guaranty operating loss of $9.8 million in 2019 is driven by net losses associated with the commutation of $1.065 billion of outstanding par during the second quarter of 2019, as well as unfavorable development on outstanding losses.  As of June 30, 2019, outstanding par within the financial guaranty segment is $372 million compared to $1.949 billion at June 30, 2018. 

Overall operating expenses declined $0.3 million to $6.7 million in 2019 compared to $7.0 million in 2018.

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

info@aoreltd.com

American Overseas Group Limited
Consolidated Balance Sheets
(unaudited)
As at June 30, 2019 and December 31, 2018
(dollars in thousands)
                         
                         
                June 30, 2019     December 31, 2018  
Assets                  
                         
  Investments:              
    Fixed-maturity securities held as available for sale, at fair value     $ 129,811       $ 135,896    
    Equity investments held as available for sale, at fair value       6,421         5,730    
  Cash and cash equivalents       30,436         34,708    
  Restricted cash       1,605         6,554    
  Accrued investment income       732         662    
  Premiums receivable       77,979         78,610    
  Reinsurance balances receivable, net       224,019         322,338    
  Deferred insurance premiums       128,991         -    
  Salvage and subrogation recoverable       25         333    
  Deferred policy acquisition costs       225         161    
  Intangible assets       4,800         4,800    
  Goodwill         33,050         33,050    
  Other assets       4,097         1,712    
    Total Assets     $ 642,191       $ 624,554    
                         
                         
Liabilities and Equity              
                         
  Liabilities:              
    Loss and loss expense reserve     $ 276,303       $ 266,727    
    Unearned premiums       130,449         110,812    
    Ceded premium payable       92,343         94,330    
    Payable to general agents       2,247         1,428    
    Funds withheld       53,768         54,440    
    Accounts payable and accrued liabilities       6,118         2,524    
    Redeemable preference shares: ($0.10 par value and $1,000 redemption value; authorized shares - 75,000;  issued and outstanding shares - 38,600 at June 30, 2019 and December 31, 2018)     7,165         7,038    
    Derivative liabilities       12         266    
    Notes payable       16,521         16,521    
    Non-owned interest in VIE       300         300    
    Interest payable       451         451    
    Fair value adjustment       1,697         13,741    
    Deferred tax liability       37         35    
      Total Liabilities       587,411         568,613    
                         
  Shareholders' Equity:              
    Common shares       4,618         4,613    
    Additional paid-in capital       188,851         188,729    
    Accumulated other comprehensive income       2,736         237    
    Retained deficit       (147,478 )       (143,691 )  
    Total Shareholders' Equity       48,727         49,888    
    Non-controlling interest of preferred shares of subsidiaries       6,053         6,053    
    Total Equity       54,780         55,941    
                         
                         
    Total Liabilities and Equity     $ 642,191       $ 624,554    
                         
                         
    See Notes to 2018 Consolidated Financial Statements available on American Overseas Group Ltd. Website at www.aoreltd.com  


American Overseas Group Limited  
  Consolidated Statements of Operations  
  (unaudited)  
  For six months ended June 30, 2019 and 2018  
  (dollars in thousands, except share and per share amounts)  
                           
                           
                    Six Months ended June 30, 
 
                      2019       2018    
    Revenues              
                           
      Net premiums earned       $ (10,382 )   $ 999    
      Fee income         6,052       5,969    
                           
    Change in fair value of credit derivatives              
      Realized gains and other settlements         72       (0 )  
      Unrealized gains         189       59    
                           
        Net change in fair value of credit derivatives         261       59    
                           
      Net investment income         1,336       1,123    
      Net realized gains on investments         87       1    
      Fair value adjustment         11,917       (274 )  
      Other income         31       41    
                           
        Total revenues           9,302         7,918    
                           
    Expenses              
      Losses and loss adjustment expenses         5,957       1,363    
      Acquisition expenses         (444 )     174    
      Operating expenses         6,677       6,974    
      Other expense         -       74    
      Interest expense         902       1,096    
                           
        Total expenses         13,092       9,681    
                           
                           
  Net (loss) available to common shareholders       $ (3,790 )   $ (1,763 )  
      Income tax (expense)         (2 )     (2 )  
                           
  Net (loss) before dividends         (3,792 )     (1,765 )  
      Dividends on preference shares of subsidiary         -       (585 )  
                           
                           
  Net (loss) available to common shareholders       $ (3,792 )   $ (2,350 )  
                           
                           
    Net (loss) per common share:              
    Basic           $ (82.18 )   $ (51.30 )  
    Diluted           (82.18 )     (51.30 )  
                           
    Weighted-average number of common shares outstanding:              
    Basic             46,142       45,808    
    Diluted           46,142       45,808    
                           
    See Notes to 2018 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) June 30, 2019
  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 $ 3,881           $ 3,881  
Losses and loss adjustment expenses   (972 )           (972 )
Acquisition expenses   (2,689 )           (2,689 )
Fee income   6,052             6,052  
Operating expenses   (4,525 )           (4,525 )
Amortization expense   -             -  
Income tax   (2 )           (2 )
Property and casualty   1,745     -     -     -     -   1,745  
             
Financial guaranty:            
             
Net premiums earned   (14,263 )       12,852       (1,411 )
Net change in fair value of credit derivatives   261       (189 )       72  
Losses and loss adjustment expenses   (4,985 )       (1,822 )     (6,807 )
Acquisition expenses   3,133         (2,855 )     278  
Operating expenses   (1,899 )           (1,899 )
Financial guaranty   (17,753 )   -     (189 )   8,175     -   (9,767 )
             
Corporate and Investing            
             
Net investment income   1,336             1,336  
Net realized loss on sales of investments   87     (87 )         -  
Fair value adjustment   11,917         (11,917 )     -  
Operating expenses   (253 )           (253 )
Interest expense   (902 )           (902 )
Other expense, net of other income   31             31  
Corporate and investing   12,216     (87 )   -     (11,917 )   -   212  
             
Group total $ (3,793 ) $ (87 ) $ (189 ) $ (3,741 ) $ - $ (7,810 )
             
AMERICAN OVERSEAS GROUP LTD.            
             
NET INCOME AND OPERATING INCOME BY SEGMENT          
             
             
(dollars in thousands) June 30, 2018
  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 $ 1,408           $ 1,408  
Losses and loss adjustment expenses   (946 )           (946 )
Acquisition expenses   (355 )           (355 )
Fee income   5,969             5,969  
Operating expenses   (4,722 )           (4,722 )
Amortization expense   -             -  
Income tax   (2 )           (2 )
Property and casualty   1,352     -     -     -     -   1,352  
             
Financial guaranty:            
             
Net premiums earned   (409 )       2,560       2,151  
Net change in fair value of credit derivatives   59       (59 )       0  
Losses and loss adjustment expenses   (417 )       (1,924 )     (2,341 )
Acquisition expenses   181         (569 )     (388 )
Operating expenses   (1,990 )           (1,990 )
Financial guaranty   (2,576 )   -     (59 )   67     -   (2,568 )
             
Corporate and Investing            
             
Net investment income   1,123             1,123  
Net realized loss on sales of investments   1     (15,601 )     15,600       -  
Fair value adjustment   (274 )       274       -  
Operating expenses   (263 )           (263 )
Interest expense   (1,095 )           (1,095 )
Other expense, net of other income   (33 )           (33 )
Corporate and investing   (541 )   (15,601 )   -     15,874     -   (268 )
             
Group total $ (1,765 ) $ (15,601 ) $ (59 ) $ 15,941   $ - $ (1,484 )