Results of Operations for the Six Months Ended June 30, 2020 - American Overseas Group Limited Announces Net Loss of $2.3 Million and Operating Loss of $21.6 Million for the Six Months Ended June 30, 2020

HAMILTON, Bermuda, Sept. 23, 2020 (GLOBE NEWSWIRE) -- American Overseas Group Limited (BSX: AORE.BH) (Pink Sheets: AOREF.PK) (“AOG” or the “Company”) today reported consolidated net loss available to common shareholders of $2.3 million, or $48.97 per diluted share, for the six months June 30, 2020. This compares to consolidated net loss available to common shareholders of $3.8 million, or $82.18 per diluted share, for the six months ended June 30, 2019.

The results for the six months was driven by losses in the Company’s financial guaranty segment related to a commutation of the remaining portfolio of financial guaranty reinsurance business it had assumed from Assured Guaranty Municipal Corp (“AGMC”). Book value per share at June 30, 2020 was $1,112.19, a decline from the book value per share of $1,159.08 at December 31, 2019.  

For the six months ended June 30, 2020, the Company had an operating loss of $21.6 million, or $462.85 per diluted share, compared to an operating loss of $7.8 million, or $169.26 per diluted share for the six months ended June 30, 2019. Operating income for the property and casualty segment in 2020 was $1.0 million, compared to the $1.7 million operating income in 2019 for this segment. The financial guaranty segment had operating losses of $22.1 million for 2020, compared to operating losses of $9.8 million for 2019.

Net earned property and casualty premiums increased $4.1 million from $3.9 million in 2019 to $8.0 million in 2020, driven primarily by increased reinsurance participation on underlying non-standard auto programs in Texas. Loss and loss adjustment expenses as a percentage of earned premium increased from 25.1% to 53.3% driven primarily by lower prior year favorable development, however underwriting income increased from $0.2 million to $1.3 million driven by higher volume. Fee income decreased from $6.1 million to $5.3 million as underlying direct written premium volumes declined primarily impacted by temporary business contractions related to COVID-19. P&C operating income declined from $1.7 million to $1.0 million primarily driven by allocation of operating expenses from American Overseas Reinsurance Company Limited (“AORE”) as it transitioned to an affiliate reinsurer of non-standard auto business.

In 2020, the financial guaranty reinsurance business at AORE was eliminated as a result of the commutation with AGMC. The aggregate outstanding par value of the reinsurance portfolio commuted was $345.0 million. This commutation was the primary driver of the operating loss of $22.1 million in 2020, compared to operating losses of $9.8 million in 2019 which were driven by net losses associated with the commutation of $1.065 billion of outstanding par during the second quarter of 2019, as well as unfavorable development on outstanding losses. As of June 30, 2019, outstanding par within the financial guaranty segment was $372 million. As of June 30, 2020, AORE no longer has any financial guaranty exposure remaining.

Overall operating expenses excluding restructuring charges declined $0.4 million from $6.7 million to $6.3 million for the six months ended June 2020 and 2019.

As part of its ongoing capital management efforts, the Company will continue to redirect excess capital within the group to debt reduction unless other compelling opportunities present themselves.

Forward-Looking Statements

This release contains statements that may be considered "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, the Company's expectations respecting the volatility of its insured portfolio, losses, loss reserves and loss development, the adequacy and availability of its liquidity and capital resources, its current run off strategy, its strategy for writing other reinsurance businesses and its expense reduction measures. These statements are based on current expectations and the current views of the economic and operating environment and are not guarantees of future performance. A number of risks and uncertainties, including economic competitive conditions, could cause actual results to differ materially from those projected in forward-looking statements. The Company's actual results could differ materially from those expressed or implied in the forward-looking statements. Among the factors that could cause actual results to differ materially are: (i) the Company's reviewing the results of our entire portfolio of policies. Management considers credit derivative policies as a normal extension of AORE’s financial guaranty business and reinsurance in substance.

Explanation of Non-GAAP Financial Measures

The Company believes that the following non-GAAP financial measure included in this press release serve to supplement GAAP information and is meaningful to investors.

Operating income (loss): The Company believes operating income (loss) is a useful measure because it measures income from operations, unaffected by non-operating items such as realized investment gains or losses. Operating income (loss) is typically used by research analysts and rating agencies in their analysis of the Company.

Information About the Company

American Overseas Group Limited is an insurance holding company incorporated in Bermuda and a tax resident of the United Kingdom. Its operating subsidiaries provide specialty property/casualty insurance, reinsurance and insurance management services. More information can be found at www.aoreltd.com.

American Overseas Group Limited

[e-mail]

American Overseas Group Limited
Consolidated Balance Sheets
(unaudited)
As at June 30, 2020 and December 31, 2019
(dollars in thousands)
								June 30, 2020					December 31, 2019
Assets
		Investments:
			Fixed-maturity securities held as available for sale, at fair value					$	63,989				$	129,748
			Equity investments held as available for sale, at fair value						4,320					1,181
		Cash and cash equivalents							22,497					22,602
		Restricted cash							666					10,557
		Accrued investment income							329					675
		Premiums receivable							79,032					81,000
		Deferred insurance premiums							107,834					125,728
		Reinsurance balances receivable, net							199,802					210,405
		Salvage and subrogation recoverable							-					386
		Deferred policy acquisition costs							3,676					515
		Intangible assets							4,800					4,800
		Goodwill							33,050					33,050
		Other assets							4,690					3,184
			Total Assets					$	524,685				$	623,831
Liabilities and Equity
	Liabilities:
		Loss and loss expense reserve						$	194,855				$	263,686
		Deferred commission income							2,579					-
		Unearned premiums							111,755					128,793
		Ceded premium payable							80,116					89,078
		Payable to general agents							3,582					3,087
		Funds withheld							54,223					52,794
		Accounts payable and accrued liabilities							5,660					5,071
		Redeemable preference shares: ($0.10 par value and $1,000 redemption value; authorized shares - 75,000; issued and outstanding shares - 13,600 and 38,600 at June 30, 2020 and December 31, 2019, respectively)							2,616					7,292
		Derivative liabilities							-					10
		Notes payable							16,521					16,521
		Non-owned interest in VIE							300					300
		Interest payable							451					451
		Fair value adjustment							-					2,901
		Deferred tax liability							539					322
			Total Liabilities						473,197					570,306
	Shareholders' Equity:
		Common shares							4,638					4,618
		Additional paid-in capital							189,054					189,002
		Accumulated other comprehensive income							1,497					1,323
		Retained deficit							(149,754	)				(147,471	)
			Total Shareholders' Equity						45,435					47,472
		Non-controlling interest of preferred shares of subsidiaries							6,053					6,053
		Total Equity							51,488					53,525
			Total Liabilities and Equity					$	524,685				$	623,831
		See Notes to 2019 Consolidated Financial Statements available on American Overseas Group Ltd. Website at www.aoreltd.com

American Overseas Group Limited
Consolidated Statements of Operations
(unaudited)
For six months ended June 30, 2020 and 2019
(dollars in thousands, except share and per share amounts)
								Six Months ended June 30,
										2020				2019
	Revenues
		Net premiums earned							$	4,438			$	(10,382	)
		Fee income								5,251				6,052
	Change in fair value of credit derivatives
		Realized gains and other settlements								2				72
		Unrealized gains								-				189
			Net change in fair value of credit derivatives							2				261
		Net investment income								592				1,336
		Net realized gains on investments								1,500				87
		Fair value adjustment								2,077				11,917
		Other income								-				31
			Total revenues							13,860				9,302
	Expenses
		Losses and loss adjustment expenses								5,811				5,957
		Acquisition expenses								2,239				(444	)
		Operating expenses								6,690				6,677
		Other expense								284				-
		Interest expense								902				902
			Total expenses							15,926				13,092
Net (loss) available to common shareholders									$	(2,066	)		$	(3,790	)
		Income tax (expense)								(216	)			(2	)
Net (loss) before dividends										(2,282	)			(3,792	)
		Dividends on preference shares of subsidiary								-				-
Net (loss) available to common shareholders									$	(2,282	)		$	(3,792	)
	Net (loss) per common share:
	Basic								$	(49.30	)		$	(82.18	)
	Diluted									(48.97	)			(82.18	)
	Weighted-average number of common shares outstanding:
	Basic									46,295				46,142
	Diluted									46,605				46,142
	See Notes to 2019 Consolidated Financial Statements available on American Overseas Group Ltd. Website at www.aoreltd.com

AMERICAN OVERSEAS GROUP LTD.
NET INCOME AND OPERATING INCOME BY SEGMENT
(dollars in thousands)	June 30, 2020
	Net income available to common shareholders			Net realized loss on sales of investments			Net change in fair value of credit derivatives			Fair value adjustments			Restructuring Charges			Operating income
Property and casualty:
Net premiums earned	$	7,951														$	7,951
Losses and loss adjustment expenses		(4,234	)														(4,234	)
Acquisition expenses		(2,369	)														(2,369	)
Property/Casualty Underwriting Income		1,348															1,348
Fee income		5,251															5,251
Operating expenses		(5,623	)											362			(5,261	)
Income tax		(216	)											(76	)		(292	)
Property and casualty		760			-			-			-			286			1,046
Financial guaranty:
Net premiums earned		(3,513	)								3,703						190
Net change in fair value of credit derivatives		2						(2	)								-
Losses and loss adjustment expenses		(1,577	)								(19,546	)					(21,123	)
Acquisition expenses		130									(153	)					(23	)
Operating expenses		(1,100	)														(1,100	)
Financial guaranty		(6,058	)		-			(2	)		(15,996	)		-			(22,056	)
Corporate and Investing
Net investment income		592															592
Net realized loss on sales of investments		1,500			(21,000	)					19,500						-
Fair value adjustment		2,077									(2,077	)					-
Operating expenses		33															33
Interest expense		(902	)														(902	)
Other expense, net of other income		(284	)														(284	)
Corporate and investing		3,016			(21,000	)		-			17,423			-			(561	)
Group total	$	(2,282	)	$	(21,000	)	$	(2	)	$	1,427		$	286		$	(21,571	)
AMERICAN OVERSEAS GROUP LTD.
NET INCOME AND OPERATING INCOME BY SEGMENT
(dollars in thousands)	June 30, 2019
	Net income available to common shareholders			Net realized loss on sales of investments			Net change in fair value of credit derivatives			Fair value adjustments			Restructuring Charges			Operating income
Property and casualty:
Net premiums earned	$	3,881														$	3,881
Losses and loss adjustment expenses		(972	)														(972	)
Acquisition expenses		(2,689	)														(2,689	)
Property/Casualty Underwriting Income		220															220
Fee income		6,052															6,052
Operating expenses		(4,525	)														(4,525	)
Income tax		(2	)														(2	)
Property and casualty		1,745			-			-			-			-			1,745
Financial guaranty:
Net premiums earned		(14,263	)								12,852						(1,411	)
Net change in fair value of credit derivatives		261						(189	)								72
Losses and loss adjustment expenses		(4,985	)								(1,822	)					(6,807	)
Acquisition expenses		3,133									(2,855	)					278
Operating expenses		(1,899	)														(1,899	)
Financial guaranty		(17,753	)		-			(189	)		8,175			-			(9,767	)
Corporate and Investing
Net investment income		1,336															1,336
Net realized loss on sales of investments		87			(87	)											-
Fair value adjustment		11,917									(11,917	)					-
Operating expenses		(253	)														(253	)
Interest expense		(902	)														(902	)
Other income, net of other expense		31															31
Corporate and investing		12,216			(87	)		-			(11,917	)		-			212
Group total	$	(3,792	)	$	(87	)	$	(189	)	$	(3,741	)	$	-		$	(7,810	)