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HAMILTON, Bermuda, May 6, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- CRM Holdings, Ltd. ("CRM" or "the Company") (Nasdaq: CRMH), a provider of a full range of products and services for the workers' compensation insurance industry, today announced results for the first quarter ended March 31, 2009.
Three Months Ended March 31, 2009
In the first quarter of 2009, the Company incurred a net loss from continuing operations of $8.2 million, or $(0.49) per diluted share. In the same quarter of the prior year, the Company earned net income from continuing operations of $6.6 million, or $0.40 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 swing in profitability was primarily due to the following items, whose amounts are stated after tax:
- Recognition of $3.4 million of expenses related to severance obligations for the Company's former co-chief executive officers.
- An increase in the allowance for uncollectible premiums of $0.9 million.
- Completion of premium audits on prior-period policies which resulted in a return of premiums to policyholders, thereby reducing current year premium by $0.7 million.
- Unfavorable loss reserve development of $1.0 million in 2009, compared with favorable development of $5.9 million in 2008.
Total revenues from continuing operations in the first quarter of 2009 were $26.1 million, compared to $35.9 million in the first quarter of 2008. The principal reason for the decline was the replacement of a 40% inter-company quota share reinsurance arrangement between the Company's primary insurance subsidiary, Majestic Insurance Company ("Majestic"), and its Bermuda-based reinsurance subsidiary, Twin Bridges (Bermuda), Ltd. ("Twin Bridges"), with a third-party, 40% quota share treaty, effective July 1, 2008.
Investment income during the quarter increased to $3.3 million from $1.6 million in the first quarter of the prior year. This increase was largely due to a 17% increase in total investments from a year ago and the recognition of $1.2 million of asset impairment charges in the first quarter of 2008.
Total underwriting expenses for the quarter increased to $21.0 million from $19.3 million in the first quarter of 2008, primarily as a result of increased calendar-year loss and loss adjustment expenses and an allowance for uncollectible premiums of $1.4 million before taxes. These increased expenses, coupled with net earned premiums that were reduced by the return of premium following completion of premium audits, resulted in an overall loss ratio of 80.8% and an overall combined ratio of 132.1% during the first quarter of 2009, compared to an overall loss ratio of 45.4% and an overall combined ratio of 76.7% during the first quarter of 2008.
Book value per share on a diluted basis decreased by $0.53 to $6.12 at March 31, 2009, from $6.65 per diluted share at March 31, 2008, and by $0.48 since December 31, 2008.
"Despite our poor result, we have some reasons to be encouraged. Our underwriting standards have been prudent, and when we peel away the effects of prior periods from premiums earned and loss and loss adjustment expenses, we find our 2009 accident year loss ratios to be acceptable, given current market conditions," said James J. Scardino, Chief Executive Officer. "In addition, business submission continues to be strong, enabling us to be selective and write policies that we expect to be of good quality."
Primary Insurance
During the quarter, Majestic experienced continuing growth compared to the same quarter last year, largely through its expansion in New York and New Jersey. The Company's net earned premiums in California were reduced by return premium audits on prior period policies which resulted from lower payrolls during the current economic downturn. As of March 31, 2009, in-force premiums from primary insurance policies at Majestic were $158.1 million, compared with $120.8 million at the same time last year. Net earned premiums for the quarter ended March 31, 2009, were $18.8 million, compared with $17.5 million in the same quarter a year ago.
Majestic's underwriting loss was $5.6 million for the quarter ended March 31, 2009, compared to an underwriting profit of $2.5 million in the same quarter in 2008. The swing was due to the recognition of $0.7 million of unfavorable loss reserve development in the first quarter of 2009 versus $3.0 million of favorable loss reserve development in the first quarter of 2008, lower ceding commissions on its 40% quota share treaty in 2009 than in 2008, an increase in its reserve for uncollectible premiums, and the return of $1.1 million of prior period premiums due to completion of premium audits. In response to this environment, Majestic increased its filed rates in California by 11.6% effective January 1, 2009.
The loss and loss adjustment expense ratio for Majestic for the quarter ended March 31, 2009 was 77.7%. Excluding prior year adjustments (loss development of $1.2 million and return premiums on premium audits of $1.1 million), Majestic's loss and loss adjustment expense ratio on the current accident year is 70.2%, a slight improvement over the 72.0% recorded for the current accident year in the first quarter of 2008.
Total underwriting acquisition and insurance expenses at Majestic were $9.8 million in the first quarter, compared to $5.8 million in the same quarter a year ago. Majestic received a ceding commission of 38% on a 40% inter-company quota share treaty with Twin Bridges in the first of quarter of 2008, compared to a 30% ceding commission on a 40% third party quota share in the first quarter of 2009. The other factor causing the variance was the increase in reserve for uncollectible premium. Majestic's combined ratio (total losses and loss adjustment expenses, underwriting, acquisition and general expenses as a percentage of net premiums earned) for the first quarter was 129.9%, compared to 85.6% a year ago.
Reinsurance
The Company's reinsurance segment, Twin Bridges, generated $2.3 million of net earned premiums in the first quarter of 2009, down from $14.8 million in the first quarter of 2008. The decline was primarily attributable to the replacement of the 40% inter-company quota share treaty, which was effective during the first quarter of 2008, with a 5% inter-company quota share treaty effective April 1, 2008. The underwriting loss of $1.2 million for the quarter, compared to an underwriting profit of $5.0 million in the same quarter in the prior year, was due to the increase in the expected ultimate value of claims originating from the self-insured groups formerly managed by the Company's subsidiaries and the assumption from Majestic of higher loss ratio business in 2009 than in 2008. Losses and loss adjustment expenses were 106.5% of net premiums earned for the three months ended March 31, 2009, compared to 37.1% of net premiums earned for the same three months in 2008. Twin Bridges' combined ratio was 150.2%, compared to 66.1% in the first quarter of 2008.
Fee-based Business
Fee-based management services revenues were $1.7 million for the quarter ending March 31, 2009, compared to $2.1 million in the first quarter of 2008, reflecting the reduction of the number of self-insured groups managed by the Company from 5 in the first quarter of 2008 to 3 in the first quarter of 2009. The continuing fee-based management services operations, which are now focused solely on the California market, produced a pre-tax operating profit of $0.1 million, compared to pre-tax operating profit of $0.6 million in the same quarter a year ago.
Outlook
For the remainder of 2009, the Company expects its current accident year loss ratio to be approximately 70% and an underwriting expense ratio of approximately 35%. Based on this, the Company expects to break-even from continuing operations for the remainder of the 2009 fiscal year, with a loss expected for the full 2009 fiscal year which takes into account the net loss incurred during the first quarter of 2009.
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.
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