CRM Holdings, Ltd. (Nasdaq: CRMH), a leading provider of a full range of products and services for the workers' compensation insurance industry, today announced results for the second quarter ended June 30, 2008.
Highlights For the Quarter
-- Growth of the risk based business. Combined revenues from CRM's wholly owned primary insurance subsidiary, Majestic, and its wholly owned reinsurance business, Twin Bridges, increased 27% over the same quarter last year. Following a successful launch of workers' compensation underwriting in New York and New Jersey last year, premiums earned outside California are now 38% of total and have been a significant driver of growth.
-- Affirmation of Majestic's A-minus rating by A.M. Best. A.M. Best has affirmed Majestic's A-minus (Excellent) financial strength rating. This enables Majestic to pursue additional growth in potentially profitable niches and geographies. Majestic has strengthened its capital base with the addition of $34.5 million of capital from CRM and Twin Bridges and has maintained strong external reinsurance partners for its excess layers starting July 1, 2008.
-- Continued profitability. Earnings per diluted share were $0.19 in a soft and challenging insurance market.
-- Increased shareholder value. Book Value per average diluted share at June 30, 2008, reached $7.01, up 6% compared to $6.59 at the same time a year ago.
Three Months Ended June 30, 2008
For the second quarter of 2008, net income was $3.1 million, or $0.19 per diluted share, compared to $5.2 million, or $0.32 per diluted share, a year ago. In the second quarter of 2007, the Company benefited from the novation of excess insurance agreements from a third party, which added $.07 per share to earnings. Total revenues in the second quarter of 2008 were $49.0 million, up 10.7% from $44.2 million in the second quarter of 2007.
Net earned premiums from primary insurance and reinsurance rose 22.9% to $41.2 million from $33.5 million the prior year. Majestic accounted for the bulk of the increase, generating $34.9 million of net earned premium, up 26.8% from $27.5 million a year ago, driven largely by expansion in New York and New Jersey. Twin Bridges generated $6.3 million of net earned premium, up from $6.0 million in the same quarter the prior year. Effective April 1, the Company reduced to 5% from 40% the quota share of Majestic's primary insurance business that was assigned to Twin Bridges. This resulted in increased earned premiums at Majestic and decreased earned premiums at Twin Bridges when compared sequentially to the first quarter of 2008.
Fee-based management services revenues declined to $3.1 million from $8.1 million the prior year. The decline resulted from the Company's exit from the management of self-insured groups in the state of New York during the quarter, lower insurance rates in California and reduced commissions on excess insurance policies placed with Majestic.
Investment income during the quarter increased to $4.7 million from $2.6 million a year ago, due to the growth of the Company's investment portfolio and the realization of $2.1 million of capital gains on the liquidation of Majestic's equity portfolio.
Total expenses increased to $44.7 million in the second quarter of 2008 from $38.2 million the prior year, largely due to increased loss and loss adjustment expenses at Majestic and Twin Bridges and expenses from litigation settlements. All of these expense items are further discussed in segment results below.
Six Months Ended June 30, 2008
For the first six months of 2008, net income declined 0.4% to $8.0 million, or $0.49 per diluted share, from $8.1 million, or $0.49 per diluted share, in 2007.
Net earned premiums from primary insurance and reinsurance increased 30.5% to $73.5 million from $56.3 million in the year-ago period. The increase resulted largely from growth in premiums written at Majestic, particularly in New York and New Jersey.
During the first six months of 2008, the combined ratio for the reinsurance segment was 76.6%, compared to 57.7% in 2007. The combined ratio for Majestic's primary insurance segment was 87.1%, compared to 92.0% a year ago.
Affirmation of Majestic Insurance Co. Rating by A.M. Best
In July, the Company announced that A.M. Best Co. removed from under review and affirmed the financial strength rating of A- (Excellent) of Majestic. A.M. Best also removed from under review and assigned a rating of B++ to Twin Bridges. During the quarter, the Company executed several important steps to retain Majestic's rating. These included:
-- increasing the capital available to Majestic for future growth by transferring $34.5 million of capital from Twin Bridges and CRM Holdings, Ltd., to Majestic; and
-- strengthening its reinsurance risk management arrangements by reducing Twin Bridges' reinsurance quota share of Majestic's excess layers from 40% to 5%, effective April 1, 2008, and entering into a 40% quota- share agreement with a highly rated, third-party reinsurance partner effective July 1, 2008.
"The markets remained very competitive during the second quarter. However, we have made notable steps forward in our risk-based business, including what we expect to be profitable growth outside California. Within California, we see a competitive market, but one that is still providing excellent underwriting opportunities. The overall business remains profitable as we transition out of the fee-based business in New York, and we remain set for prudent growth in the rest of our business," said Daniel G. Hickey Jr., CEO of CRM Holdings, Ltd.
"We are also very pleased to move forward with our reaffirmed A.M. Best rating, which will enable us to compete for superior-quality business. We recognize there will be costs to the new arrangements, but we believe they benefit CRM by securing its longer-term future and competitive position. We are also pleased to have two pieces of litigation behind us. First, with the New York Workers Compensation Board, where we were able to reach a settlement without admission of wrongdoing or financial penalty, and second, settlement of a contingency with Contractors Access Program of California, Inc. ("CAP") related to the Cornerstone litigation, which is now closed." -- CRM Holdings, Ltd.
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