NYMAGIC, INC. (NYSE: NYM) reported today the results of consolidated operations for the quarter ended June 30, 2008. The Company reported net losses of $4.7 million, or $.55 per diluted share for the three months ending June 30, 2008, compared with net earnings of $10.3 million, or $1.12 per diluted share, for the second quarter of 2007.
Net losses for the six months ended June 30, 2008 totaled $34.5 million, or $3.98 per diluted share, compared with net earnings of $17.8 million, or $1.93 per diluted share, for the six months ended June 30, 2007. A settlement of certain disputed reinsurance receivables primarily related to the Company's old Asbestos and Environmental book, and a re-evaluation of the provision for other potentially uncollectable reinsurance receivables of a similar nature in the same book resulted in after tax losses of $8.1 million, or $.93 per diluted share, in the second quarter and six months ended June 30, 2008.
Gross premiums written of $47.6 million and net premiums written of $34.3 million for the second quarter of 2008 decreased by 17% and 15%, respectively, over the same period of 2007. Gross premiums written of $119.2 million decreased by 5% for the six months ended June 30, 2008 compared to the same period of 2007, but net premiums written of $94.2 million increased by 1% for the six months ended June 30, 2008 over the same period of 2007. The reduction in gross premiums written is largely attributable to the Company's decision to terminate a cargo program with Southern Marine and Aviation at the end of 2007 and continued culling of the Hull book. In addition, total excess workers' compensation gross premiums written declined due to the fact that the Company recognized substantial additional audit premiums in early 2007 from its former program with CRM that was terminated at the end of 2006. Excess workers' compensation gross premiums written through a current program with Midlands Management increased substantially on a year to year basis for the six months ending June 30, 2008, although they were down slightly during the second quarter. A small decline in E&O premiums accounted for the balanceof the reduction, with increases (decreases) in other lines roughly offsetting each other.
Net premiums earned of $43.1 million for the second quarter increased by 18% over the same period of 2007. Net premiums earned of $88.0 million for the six months ended June 30, 2008 increased 15% over the same period of 2007.
Total revenues of $49.0 million for the second quarter of 2008 decreased by 7% from the same period of 2007. Total revenues of $48.7 million for the six months ended June 30, 2008 decreased by 53% from the same period of 2007, as increases in net premiums earned were more than offset by declines in net investment income.
Adverse loss reserve development amounted to $10.1 million and $9.1 million for the second quarter and six months ended June 30, 2008, respectively. Adverse development included $12.4 million attributable to a settlement of certain disputed reinsurance receivables related to the Company's old Asbestos and Environmental book, and a re-evaluation of the provision for other potentially uncollectable reinsurance receivables of a similar nature related to the same book that was partially offset by continuing favorable development in the ocean and inland marine lines of business. Favorable loss reserve development amounted to $8.3 million and $9.7 million for the second quarter and six months ended June 30, 2007, respectively. During 2007 favorable development included $5.7 million attributable to the novation of certain excess workers' compensation policies written in conjunction with CRM.
The Company's combined ratio was 130.1% for the three months ended June 30, 2008 as compared with 95.6% for the same period of 2007. The Company's combined ratio was 114.4% for the six months ended June 30, 2008 as compared with 96.7% for the same period of 2007. The reinsurance receivables write-offs contributed 28.8% and 14.1% to the second quarter and six months ended June 30 combined ratio, respectively.
The Company's loss ratio was 85.6% for the three months ended June 30, 2008 as compared with 50.4% for the same period of 2007. The Company's loss ratio was 71.5% for the six months ended June 30, 2008 as compared with 52.8% for the same period of 2007. The reinsurance receivables write-offs during the second quarter of 2008 contributed 28.8% and 14.1% to the second quarter and six months ended June 30 loss ratio, respectively. During 2007, the novation of certain excess workers' compensation policies reduced both the second quarter and six months ended June 30 2007 loss ratios by 15.4% and 7.7%, respectively.
The Company's expense ratio was 44.5% for the three months ended June 30, 2008 as compared with 45.2% for the same period of 2007. The Company's expense ratio was 42.9% for the six months ended June 30, 2008 as compared with 43.9% for the same period of 2007.
Net investment income decreased by 69% to $4.9 million for the second quarter of 2008 compared with $15.7 million for the same period of 2007. Through the six months ended June 30, 2008, investment (loss) income was ($8.1) million as compared with $27.6 million for the same period of 2007. The decrease in investment income in 2008 was largely due to losses in trading portfolio activities, lower limited partnership hedge fund income and reduced interest income from fixed maturities available for sale.
Net realized investment gains after taxes were $583,000, or $.07 per diluted share, for the second quarter of 2008, as compared with $4,000, or $.00 per diluted share, for the same period of 2007. Net realized investment losses after taxes for the six months ended June 30, 2008 were $20.4 million, or $2.35 per diluted share, compared with net realized investment gains after taxes of $176,000, or $.02 per diluted share, for the same period in 2007. The realized investment losses for the six months ended June 30, 2008 were almost entirely attributable to the decline in the market value of "super senior" residential mortgage backed securities held by the Company that was recorded at the end of the first quarter of 2008. These securities are rated AAA by S&P, are collateralized by pools of "Alt-A" mortgages, and receive priority payments from these pools.
The Company's securities rank senior to subordinated tranches of debt collateralized by each respective pool of mortgages. As of July 1, 2008 the levels of subordination ranged from 27% to 51% of the total debt outstanding for each pool. Delinquencies within these underlying mortgage pools (defined as payments 60+ days past due plus foreclosures plus real estate owned) ranged from 7.3% to 28.5% of total amounts outstanding. As of March 1, 2008, delinquencies ranged from 3.4% to 21.2%. In each case, current pool subordination levels remain substantially in excess of current pool delinquency rates. Delinquency rates are not the same as loss rates, but are an indication of the potential for some degree of loss in future periods. Net realized investment gains for the second quarter of 2008 does not reflect a $5.7 million increase in the market value of these securities during this period that is contained in comprehensive income as of June 30, 2008.
During July of 2008, the market value of the Company's mortgage backed securities, preferred stock and exchange traded financial index shares declined markedly. The Company sold all of its financial index shares and half of its position in preferred stock of FNMA and FHLMC. Taking into account the realized losses incurred in connection with those sales, the aggregate value of these securities as of July 31, 2008 has declined by approximately $36.8 million pre tax since June 30, 2008.
At June 30, 2008 the Company's total cash, investments and net receivable for securities sold amounted to $638.3 million. The investment portfolio at June 30, 2008 consisted of cash, short-term investments and net receivable for securities sold of $115.3 million, or 18.1%; fixed maturities and other debt investments of $257.5 million, or 40.3%, limited partnership hedge funds of $171.1 million, or 26.8%; and preferred stocks and equity securities of $94.4 million, or 14.8%. NYMAGIC plans to make a capital contribution of $20 million to its insurance subsidiaries in the near future.
During the second quarter of 2008, the Company repurchased 207,900 shares of its common stock at an average price of $21.51. During July 2008, the Company repurchased an additional 108,700 shares of its common stock at an average price of $19.00. -- NYMAGIC, INC.
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