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American Safety Insurance Holdings 10-Q 2010 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10 Q
“OR”
Commission File Number 1-14795
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
_X_ Yes ___ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ____ No __
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
____ Yes _X_ No
The aggregate number of shares outstanding of Registrant’s common stock, $0.01 par value, on November 3, 2010, was 10,336,898.
AMERICAN SAFETY INSURANCE HOLDINGS, LTD.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
American Safety Insurance Holdings, Ltd. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands except share data)
See accompanying notes to consolidated interim financial statements (unaudited).
3
American Safety Insurance Holdings, Ltd. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(dollars in thousands except per share data)
See accompanying notes to consolidated interim financial statements (unaudited).
4
American Safety Insurance Holdings, Ltd. and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
(dollars in thousands)
See accompanying notes to consolidated interim financial statements (unaudited).
5
American Safety Insurance Holdings, Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Earnings
(Unaudited) (dollars in thousands)
See accompanying notes to consolidated interim financial statements (unaudited).
6
American Safety Insurance Holdings, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2010
(Unaudited)
Note 1 - Basis of Presentation
The accompanying consolidated financial statements of American Safety Insurance Holdings, Ltd. (“American Safety Insurance”) and its subsidiaries and American Safety Risk Retention Group, Inc. (“American Safety RRG”), a non-subsidiary risk retention group affiliate (collectively, the “Company”), are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as established by the FASB Accounting Standards Codification© ("Codification" or "ASC"). The preparation of financial statements in conformity with GAAP requires management to make estimates, based on the best information available, in recording transactions resulting from business operations. Certain balance sheet amounts involve accounting estimates and/or actuarial determinations and are therefore subject to change and include, but are not limited to, invested assets, deferred income taxes, reinsurance recoverables, goodwill and the liabilities for unpaid losses and loss adjustment expenses. As additional information becomes available (or actual amounts are determinable), the recorded estimates may be revised and reflected in operating results. While management believes that these estimates are adequate, such estimates may change in the future.
The results of operations for the three and nine months ended September 30, 2010, may not be indicative of the results for the fiscal year ending December 31, 2010. These unaudited interim consolidated financial statements and notes should be read in conjunction with the financial statements and notes included in the audited consolidated financial statements on Form 10-K of the Company for the fiscal year ended December 31, 2009.
The unaudited interim consolidated financial statements include the accounts of American Safety Insurance, each of its subsidiaries and American Safety RRG. All significant intercompany balances as well as normal recurring adjustments have been eliminated. Unless otherwise noted, all balances are presented in thousands.
Certain balance sheet and statement of operations items have been reclassified for the 2009 periods. The presentation is consistent with the presentation for the three and nine months ended September 30, 2010, and did not result in any impact to net earnings or shareholders’ equity.
7
The amortized cost and estimated fair values of the Company’s investments at September 30, 2010, and December 31, 2009, are as follows (dollars in thousands):
8
The amortized cost and estimated fair values of fixed maturities at September 30, 2010 by contractual maturity are shown below. Expected maturities may differ from contractual maturities as certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalty.
The following tables summarize the gross unrealized losses of the Company's investment portfolio as of September 30, 2010 and December 31, 2009, by category and length of time that the securities have been in a continuous unrealized loss position.
9
We routinely review our investments that have experienced declines in fair value to determine if the decline is other than temporary. These reviews are performed with consideration of the facts and circumstances of an issuer in accordance with the Securities and Exchange Commission (“SEC”), Accounting for Non-Current Marketable Equity Securities; ASC-320-10-05, Accounting for Certain Investments in Debt and Equity Securities, and related guidance. The identification of distressed investments and the assessment of whether a decline is other-than-temporary involve significant management judgment and require evaluation of factors including but not limited to:
The Company routinely monitors and evaluates the difference between the cost and fair value of its investments. Additionally, credit analysis and/or credit rating issues related to specific investments may trigger more intensive monitoring to determine if a decline in market value is other than temporary ("OTTI"). For investments with a market value below cost, the process includes evaluating the length of time and the extent to which cost exceeds market value, the prospects and financial condition of the issuer, and evaluation for a potential recovery in market value, among other factors. This process is not exact and further requires consideration of risks such as credit risk and interest rate risk. Therefore, if an investment’s cost exceeds its market value solely due to changes in interest rates, impairment may not be appropriate. For the nine months ended September 30, 2010 and 2009, the Company has not incurred any OTTI losses.
10
Note 3 – Segment Information
Our business segments are classified into insurance operations and other, with the insurance operations consisting of three divisions: excess and surplus lines (E&S), alternative risk transfer (ART), and assumed reinsurance (Assumed Re). E&S includes seven products: environmental, construction, products liability, excess, property, surety, and healthcare. During September 2010, we added professional liability as a product line and will be underwriting business in the fourth quarter. ART includes two business lines: specialty programs and fully funded. In our Assumed Re division, the Company assumes specialty property and casualty business from unaffiliated insurers and reinsurers.
Within E&S, our environmental insurance products provide general, pollution, and professional liability coverage for contractors and consultants in the environmental remediation industry and property owners. Construction provides general liability insurance for residential and commercial contractors. Products liability provides general liability and product liability coverages for smaller manufacturers and distributors, non-habitational real estate, certain real property owners, landlord, and tenant risks. Excess provides excess and umbrella liability coverages over our own and other carriers’ primary casualty policies, with a focus on construction risks. Our property coverage encompasses surplus lines commercial property business and commercial multi-peril (CMP) policies. Surety coverage provides payment and performance bonds primarily to the environmental remediation and construction industries. Healthcare provides customized general and professional liability insurance solutions primarily for long-term care facilities. We broadened our product platform during the quarter adding a professional liability underwriting team that will underwrite Directors’ and Officers’ Liability, including employment practices and fiduciary liability, and miscellaneous professional liability.
In our ART division, specialty programs provide insurance to homogeneous niche groups through third party program managers. Our specialty programs consist primarily of property and casualty insurance coverages for certain classes of specialty risks including, but not limited to, construction contractors, pest control operators, auto dealers, consultants, restaurant and tavern owners, and bail bondsmen. Fully funded policies give our insureds the ability to fund their liability exposure via a self-insurance vehicle. Our fully funded product primarily offers general and professional liability for businesses operating in the healthcare and construction industries.
Our Assumed Redivision offers property and casualty reinsurance products in the form of treaty and facultative contracts. We provide this coverage primarily on an excess of loss basis targeting small specialty insurers, risk retention groups, and captives. We reinsure casualty business, which includes medical malpractice, professional liability for accountants and lawyers, commercial auto liability, general liability across multiple sectors, and small participations in property catastrophe treaties.
Our Other segment includes lines of business that we have placed in run-off, such as workers’ compensation, excess liability insurance for municipalities, other commercial lines, real estate, and other ancillary product lines.
The Company measures geographic segments using net income, total assets, and total equity. The reportable insurance divisions are measured by underwriting profit (loss) and pre-tax operating income.
11
The following table presents key financial data by segment for the three months ended September 30, 2010 and 2009, respectively (dollars in thousands):
12
The following table presents key financial data by segment for the nine months ended September 30, 2010 and 2009, respectively (dollars in thousands):
13
The Company conducts business in two geographic segments: the United States and Bermuda. Significant differences exist in the regulatory environment in each country.
The following table provides financial data about the geographic locations for the three months ended September 30, 2010 and 2009 (dollars in thousands):
The following table provides financial data about the geographic locations for the nine months ended September 30, 2010 and 2009 (dollars in thousands):
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