CRM Holdings, Ltd. ("CRM" or “the Company”) (Nasdaq: CRMH), a
specialty provider of workers' compensation insurance products,
announced results for the first quarter ended March 31, 2010.
For the first quarter of 2010, the Company incurred a net loss
from continuing operations of $7.7 million, or $(0.46) per diluted
share, compared to a net loss from continuing operations of $8.2
million, or $(0.49) per diluted share, for the same period in 2009.
Effective January 1, 2010, the Company no longer reports multiple
segments, which reflects the Company’s current business activities
and organizational changes. Unless otherwise stated, all further
results discussed in this release refer to continuing operations
for 2010 and results on a comparable basis for 2009.
Total revenues in the first quarter of 2010 were $16.7 million,
compared to $26.1 million in the same quarter of the prior year.
This decline resulted from three factors. First, Majestic Insurance
Company (Majestic) was not able to retain or compete for certain
rating sensitive business based on the downgrade of its A.M. Best
financial strength rating from A- to B++ in December 2009. Second,
during the quarter Majestic sought to improve its overall price
adequacy which caused some insureds to non-renew their policies.
Third, Majestic’s quota share reinsurance treaty in place during
the first quarter of 2010 entailed a cession rate approximately 15%
higher than the treaty in place during the same period of 2009.
Investment income decreased to $2.4 million for the first quarter
2010 from $2.8 million in 2009 due to lower asset yields.
The Company’s loss ratio increased to 106% for the first quarter
of 2010 from 81% for the first quarter 2009. The higher loss ratio
resulted from a higher current accident year loss ratio and
unfavorable loss reserve development on prior accident years of
$1.5 million for the first quarter of 2010 compared to $1.2 million
for the same period in 2009. The higher current accident year loss
ratio was due to decreased net earned premiums, the impact of lower
ceding commission income on unallocated loss adjustment expenses,
and an increase in claims severity trends on primary insurance
policies underwritten in California.
Policy acquisition costs decreased $0.9 million, or 23%, to $3.0
million for the first quarter of 2010, from $3.9 million for the
first quarter of 2009. This decrease was primarily attributable to
lower net earned premiums that resulted in reduced broker
commissions and premiums taxes. Other underwriting expenses
decreased $2.4 million, or 35%, to $4.4 million in the first
quarter of 2010, from $6.9 million in the first quarter of 2009.
The decrease reflected a $1.4 million reduction in bad debt expense
and reductions totaling approximately $1.0 million in professional
fees and other expenses. General and administrative expenses
decreased $6.6 million, or 76%, to $2.1 million in the first
quarter of 2010, from $8.7 in the first quarter of 2009. The
decrease arose primarily from the recognition of $5.3 million of
severance expense related to the Company’s former co-chief
executive officers during the first quarter of 2009. The remainder
of the decrease was due to various cost cutting measures, including
a $0.4 million reduction in workforce, instituted during the first
quarter of 2010. The workforce reduction is expected to result in
$2.6 million of overall annual cost savings.
Investment Portfolio
At March 31, 2010, the overall credit rating of the Company’s
fixed income portfolio was AA+, and the following tables illustrate
the Company’s investment portfolio distribution by sector and
average credit rating.
Portfolio Distribution by
Sector
Portfolio Distribution by
Credit Rating
3/31/2010
12/31/2010
% ofPortfolio
AverageCreditRating
% ofPortfolio
AverageCreditRating
Quality
3/31/2010
12/31/2009
AAA
48.4%
46.9%
Government
19.1%
AAA
21.1%
AAA
AA
24.2%
25.3%
Agency
5.6%
AAA
5.1%
AAA
A
25.7%
26.1%
Corporate
25.7%
A
30.0%
A
BBB
1.7%
1.4%
Mortgage backed securities
21.0%
AAA
17.4%
AAA
Below BBB
0.0%
0.3%
Asset backed securities
2.8%
AA+
3.4%
AA+
100.0%
100.0%
Municipal
25.8%
AA-
23.0%
AA
Total
100.0%
AA+
100.0%
AA+
Average Credit rating
AA+
AA+
The effective portfolio duration was 3.8 years, and the average
portfolio yield was 3.7%.
Strategic Alternatives
The Company has formed a Special Committee of the Board of
Directors and has retained Macquarie Capital to explore strategic
alternatives to strengthen its capital position. Alternatives could
include, but may not be limited to, a sale, merger or other
business combination involving the Company, a sale of shares or
other recapitalization of the Company, a joint venture arrangement,
the sale or spin off of Company assets, or the continued execution
of the Company’s business plan. There can be no assurance that the
exploration of strategic alternatives will result in any
transaction, or that, if completed, any transaction will be on
attractive terms.
Conference Call
The Company will host a conference call at 9:00 a.m. ET on
Thursday, May 6, 2010, to discuss earnings for the first quarter
ended March 31, 2010. To participate in the event by telephone,
please dial 877-303-2905 five to 10 minutes prior to the start time
(to allow time for registration) and reference passcode 71851628.
International callers should dial 408-427-3868. 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, May
6, at approximately 11:00 a.m. ET through Wednesday, May 12 at
midnight ET. Dial 800-642-1687 and enter the conference ID number
71851628. International callers should dial 706-645-9291 and enter
the same conference ID number.
About CRM Holdings, Ltd.
CRM Holdings, Ltd. is a specialty provider of workers’
compensation insurance products. Through its subsidiaries, CRM
Holdings offers workers’ compensation insurance coverage,
reinsurance, and fee-based management services for self-insured
entities. The Company seeks to provide quality products and
services that fit the needs of its insureds and clients and is
dedicated to developing and maintaining a mutually beneficial,
long-term relationship with them. The Company’s workers’
compensation insurance coverage is offered to employers in
California, New York, New Jersey, Arizona, Nevada, and other
states. The Company's reinsurance is underwritten from Bermuda, and
the fee-based management services are provided to self-insured
entities in California. Further information can be found on the
Company’s website at http://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, 2009 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.
(Financial tables and contact
information follow)
Table 1 CRM Holdings, Ltd. Consolidated
Balance Sheets Unaudited March
December 31, 2010 31, 2009 (Dollars in
thousands)
Assets Investments Fixed-maturity securities,
available-for-sale (amortized cost $295,101 and $275,480) $ 298,144
$ 276,593 Short-term investments 4,953 4,893 Investment in
unconsolidated subsidiary 1,083 1,083 Total investments 304,180
282,569 Cash and cash equivalents 20,301 44,087 Restricted cash and
cash equivalents 4,022 5,922 Total cash and cash equivalents 24,323
50,009 Accrued interest receivable 2,589 2,542 Premiums receivable,
net 5,398 6,246 Reinsurance recoverable and prepaid reinsurance
126,562 123,767 Accounts receivable, net 2,413 3,178 Deferred
policy acquisition costs 811 758 Current income taxes, net 5,217
6,979 Other intangible assets 397 436 Prepaid expenses 2,362 3,675
Other assets 2,672 2,788
Total assets $ 476,924 $
482,947 Liabilities and shareholders'
equity Reserve for losses and loss adjustment expenses $
320,763 $ 317,497 Reinsurance payable 22,312 20,357 Unearned
premiums 8,250 10,599 Long-term debt 44,083 44,083 Other
liabilities 27,253 29,677 Total liabilities 422,661 422,213
Common shares Authorized 50 billion shares; $0.01 par value per
share; 16.5 million common shares issued and outstanding 165 165
0.4 million Class B shares issued and outstanding 4 4 Additional
paid-in capital 71,209 71,057 Retained deficit (19,093) (11,215)
Accumulated other comprehensive income 1,978 723 Total
shareholders' equity 54,263 60,734
Total liabilities and
shareholders' equity $ 476,924 $ 482,947
Table 2 CRM Holdings, Ltd. Unaudited
Consolidated Statements of Operations
Three Months Ended
March 31,
2010 2009
(Dollars in thousands,except per
share amounts)
Written premiums Gross premiums written $ 28,660 $
40,008 Ceded premiums written (14,898) (17,225) Net premiums
written 13,762 22,783
Revenues Net premiums earned $
13,638 $ 21,142 Fee-based management services 270 1,674 Net
investment income 2,438 2,778 Net realized gains 373 472 Total
revenues 16,719 26,066
Expenses Losses and loss
adjustment expenses 14,458 17,085 Policy acquisition costs 3,022
3,906 Other underwriting expenses 4,448 6,865 General and
administrative expenses 2,068 8,700 Interest expense 1,091 900
Total expenses 25,087 37,456 Loss from continuing operations
before income taxes (8,368) (11,390) Tax benefit from continuing
operations (665) (3,204)
Loss from continuing operations
(7,703) (8,186) Loss from
discontinued operations (175) (203) Net
Loss $ (7,878) $ (8,389) Loss per share
from continuing operations Basic ($0.46) ($0.49) Diluted ($0.46)
($0.49) Loss per share from discontinued operations Basic ($0.01)
($0.01) Diluted ($0.01) ($0.01) Net loss per share Basic ($0.47)
($0.50) Diluted ($0.47) ($0.50) Weighted average shares outstanding
Basic 16,914 16,618 Diluted 16,914 16,618
Table 3
CRM Holdings, Ltd. Unaudited Consolidated
Statements of Cash Flow Three Months Ended March 31,
2010 2009 (Dollars in
thousands)
CASH FLOWS FROM OPERATING ACTIVITIES Net loss $
(7,878) $ (8,389)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 179 209 Amortization of unearned
compensation, restricted stock 156 627 Amortization of premiums and
discounts on available-for-sale investments 430 360 Net realized
gains on sale of available-for-sale investments (373) (472) Write
off of uncollectible premiums receivable 243 834 Deferred income
taxes (676) (306) Changes in: Accrued interest receivable (47) 215
Premiums receivable, net 605 4,813 Reinsurance recoverable and
prepaid reinsurance (2,795) (11,973) Accounts receivable, net 693
(243) Deferred policy acquisition costs (53) (20) Current income
taxes, net 1,762 (2,993) Prepaid expenses 1,302 (414) Other assets
2 (89) Reserve for losses and loss adjustment expenses 3,266 15,264
Reinsurance payable 1,955 (5,257) Unearned premiums (2,349) (466)
Other liabilities (3,431) 3,194 Net cash used in operating
activities (7,009) (5,106)
CASH FLOWS FROM INVESTING
ACTIVITIES Purchases of available-for-sale investments (43,931)
(52,728) Proceeds from sales of available-for-sale investments
16,894 40,586 Proceeds from maturities of available-for-sale
investments 7,360 16,643 Net purchases, sales and maturities of
short-term investments (60) (110) Decrease (increase) in receivable
for securities sold 72 (27) Increase in payable for investments
purchased 1,007 - Purchases of fixed assets (18) (15) Disposals of
fixed assets 3 19 Net cash (used in) provided by investing
activities (18,673) 4,368
CASH FLOWS FROM FINANCING
ACTIVITIES Change in restricted cash and cash equivalents 1,900
(125) Repayments under long-term debt 0 33 Retirement of common
shares - share-based compensation (4) (9) Net cash provided by
(used in) financing activities 1,896 (101) Net decrease in cash
(23,786) (839) Cash and cash equivalents Beginning 44,087 28,044
Ending $ 20,301 $ 27,205 Table 4
CRM Holdings, Ltd. Premiums by State
Three months ended March 31,
2010 2009 (Dollars in thousands) Gross Written
Premiums California $ 21,081 $ 24,981 New York/New Jersey 6,148
12,798 Other 1,431 2,229 28,660 40,008 Net
Earned Premiums California $ 9,242 $ 12,712 New York/New Jersey
3,715 7,156 Other 681 1,273 13,638 21,142
Table 5 CRM Holdings, Ltd. Insurance
Operations Data Three months ended
March 31, 2010 2009 (Dollars in thousands)
Net premiums earned $ 13,638 $ 21,142 Current year
losses and loss adjustment expenses 12,990 15,908 Prior year losses
and loss adjustment expenses 1,468 1,177 Losses and loss adjustment
expenses 14,458 17,085 Policy acquisition and other
underwriting expenses 7,470 10,771 Underwriting loss
$ (8,290) $ (6,714) Current Year Loss Ratio (1) 95.2% 75.2%
Prior Year Loss Ratio (2) 10.8% 5.6% Total Loss Ratio (3) 106.0%
80.8% Expense Ratio (4) 54.8% 50.9% Combined
Ratio (5) 160.8% 131.7% (1) The current accident year loss
ratio is calculated by dividing current accident year losses and
loss adjustment expenses by net premiums earned. (2) The
prior accident year loss ratio is calculated by dividing the prior
accident year losses and loss adjustment expenses by net premiums
earned. (3) The total loss ratio is calculated by dividing
the losses and loss adjustment expenses by net premiums earned.
(4) The expense ratio is calculated by dividing policy
acquisition and other underwriting expenses for the period by net
primary insurance premiums earned. (5) The combined ratio is
the sum of the loss ratio and the expense ratio.
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