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| NYM > SEC Filings for NYM > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
Net realized investment losses after taxes were $9.7 million, or $1.16 per
share, for the third quarter of 2008, as compared to net realized investment
losses after taxes of $133,000, or $.01 per diluted share, for the same period
in 2007. Net realized investment losses after taxes for the nine months ended
September 30, 2008 were $30.1 million, or $3.51 per diluted share, compared to
net realized investment gains after taxes of $44,000, or $.00 per diluted share,
for the same period in 2007.
Shareholders' equity decreased to $183.2 million as of September 30, 2008
from $279.4 million as of December 31, 2007. The decrease was primarily
attributable to the net loss for the period.
The Company's gross premiums written and net premiums written increased by 6%
and 3%, respectively, for the three months ended September 30, 2008, when
compared to the same period in 2007. Net premiums earned decreased by 9% for the
three months ended September 30, 2008, when compared to the same period in 2007.
The Company's gross premiums written decreased by 2% for the nine months
ended September 30, 2008, when compared to the same period in 2007. Net premiums
written and net premiums earned increased by 2% and 6%, respectively, for the
nine months ended September 30, 2008, when compared to the same period in 2007.
Premiums for each segment were as follows:
NYMAGIC Gross Premiums Written By Segment
Nine months ended September 30, Three months ended September 30,
2008 2007 Change 2008 2007 Change
(Dollars in thousands)
Ocean marine $ 68,933 $ 79,315 (13 )% $ 23,375 $ 24,633 (5 )%
Inland marine/fire 12,685 13,124 (3 )% 4,146 4,406 (6 )%
Other liability 93,035 85,792 8 % 27,993 23,135 21 %
Subtotal 174,653 178,231 (2 )% 55,514 52,174 6 %
Runoff lines (Aircraft) 27 24 NM (30 ) 1 NM
Total $ 174,680 $ 178,255 (2 )% $ 55,484 $ 52,175 6 %
NYMAGIC Net Premiums Written By Segment
Nine months ended September 30, Three months ended September 30,
2008 2007 Change 2008 2007 Change
(Dollars in thousands)
Ocean marine $ 49,338 $ 55,262 (11 )% $ 15,594 $ 17,476 (11 )%
Inland marine/fire 3,825 4,867 (21 )% 1,170 1,527 (23 )%
Other liability 80,790 71,651 13 % 23,080 19,546 18 %
Subtotal 133,953 131,780 2 % 39,844 38,549 3 %
Runoff lines (Aircraft) 18 69 NM (77 ) (15 ) NM
Total $ 133,971 $ 131,849 2 % $ 39,767 $ 38,534 3 %
NYMAGIC Net Premiums Earned By Segment
Nine months ended September 30, Three months ended September 30,
2008 2007 Change 2008 2007 Change
(Dollars in thousands)
Ocean marine $ 51,433 $ 54,732 (6 )% $ 15,300 $ 19,887 (23 )%
Inland marine/fire 4,590 5,084 (10 )% 1,390 1,872 (26 )%
Other liability 72,431 60,916 19 % 23,864 22,723 5 %
Subtotal 128,454 120,732 6 % 40,554 44,482 (9 )%
Runoff lines (Aircraft) 19 62 NM (77 ) (22 ) NM
Total $ 128,473 $ 120,794 6 % $ 40,477 $ 44,460 (9 )%
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Ocean marine gross premiums written for the nine months ended September 30,
2008 decreased by 13% when compared to the same period in 2007, primarily
reflecting decreases in volume in the hull and cargo classes. The decrease in
cargo production resulted primarily from the termination of a relationship with
one of the Company's agents writing cargo business, Southern Marine and
Aviation. The decrease in hull premiums reflected the non-renewal of certain
unprofitable accounts. Rates in the various classes of marine business declined
slightly when compared to the prior year's comparable period. Net premiums
written decreased by 11% for the nine months ended September 30, 2008 when
compared to the same period in 2007. The larger net premium retention levels in
2008 were the result of lower excess of loss reinsurance costs and lower
reinsurance reinstatement costs. Losses from hurricane Ike resulted in incurring
reinsurance reinstatement costs of $1.7 million for the nine months ended
September 30, 2008 as compared with $2.3 million of reinsurance reinstatement
costs arising from a cargo loss for the same period of 2007. Net earned premiums
for the nine months ended September 30, 2008 largely reflected the decline in
gross premiums written, which was offset by lower reinsurance costs in 2008 when
compared to 2007.
Effective January 1, 2008, the Company maintained its net retention of
$5 million per risk and $6 million per occurrence in the ocean marine line when
compared to 2007; however, the Company's net retention could be as low as
$1 million for certain classes within ocean marine. While the 80% quota share
reinsurance protection for energy business also remains in effect for 2008, the
net retention from energy business is subject to inclusion within the ocean
marine reinsurance program.
Ocean marine gross premiums written and net premiums written decreased by 5%
and 11%, respectively, during the third quarter of 2008 when compared to the
same period in the prior year. Net premiums earned decreased 23% during the
third quarter of 2008 when compared to the same period in 2007. The third
quarter of 2008 reflected gross premiums written decreases in the rig and cargo
classes. The largest decrease occurred in cargo production and resulted
primarily from the termination of a relationship with one of the Company's
former agents writing cargo business. The current year's third quarter net
premiums written generally reflected lower costs from the ocean marine excess of
loss reinsurance program which was partially offset by reinsurance reinstatement
costs arising from hurricane Ike losses. Rates in the various classes of marine
business declined slightly when compared to the prior year's comparable period.
Net earned premiums for the third quarter ended September 30, 2008 largely
reflected the decline in gross premiums written over the past year, which is
primarily attributable to lower cargo production as well as higher reinstatement
costs from hurricane Ike.
Inland marine/fire gross premiums written and net premiums written for the
nine months ended September 30, 2008 decreased by 3% and 21%, respectively, when
compared to the same period in 2007. Net premiums earned for the nine months
ended September 30, 2008 were down 10% when compared to the same period in 2007.
Gross premiums written in 2008 reflect declines in production in certain
property risks and reflect mildly lower market rates when compared to the prior
year. Net premiums earned reflected the decreases in property earned premiums
offset by increases in surety production from the prior year.
Inland marine/fire gross premiums written, net premiums written and net
premiums earned for the three months ended September 30, 2008 decreased by 6%,
23% and 26%, respectively, when compared to the same period in 2007. Gross
premiums written during the third quarter of 2008 reflected mildly lower market
rates when compared to the same period in 2007 and declines in production in
certain property risks and surety premiums. Net premiums written in the third
quarter of 2008 reflected the decrease in gross property writings and additional
reinsurance costs as a result of a change in mix of gross property writings as
well as lower surety writings, which are written on a net basis without
reinsurance costs. The decrease in net premiums earned in 2008 reflected the
lower volume of property risks and mildly lower market rates when compared to
the same period in 2007.
Other liability gross premiums written, net premiums written and net premiums
earned for the nine months ended September 30, 2008 increased by 8%, 13% and
19%, respectively, when compared to the same period in 2007. The increase in
premiums is primarily due to an increase in production of excess workers'
compensation, professional liability and contractors' liability writings.
The Company writes excess workers' compensation insurance on behalf of
certain self-insured workers' compensation trusts. Gross and net premiums
written in the excess workers' compensation class increased to $30.9 million and
$27.6 million, respectively, in the first nine months of 2008 from $28.3 million
and $23.0 million, respectively, in the same period of 2007. Premiums in 2007
reflected larger reinsurance cessions primarily as a result of quota share
reinsurance.
Volume increases from the contractors' liability class were also achieved in
the first nine months of 2008 when compared to the same period in 2007.
Professional liability writings increased 3% in the first nine months of 2008
when compared to the same period in 2007 primarily due to production increases
that were partially offset by a softening of premium rates. In addition, general
liability premiums from the recently formed MMO Agencies contributed
approximately $750,000 in gross premiums written during 2008.
Other liability gross premiums written and net premiums written for the three
months ended September 30, 2008 increased by 21% and 18%, respectively, when
compared to the same period in 2007. Other liability net premiums earned
increased by 5%. The increase in gross premiums is primarily due to production
increases in excess workers' compensation, professional liability and
contractor's liability writings. In addition, general liability premiums from
the recently formed MMO agencies contributed approximately $750,000 in gross
premiums written during the 2008 third quarter. The increases in net earned
premium reflect the increases in excess workers' compensation, professional
liability and contractor's liability writings achieved during the past year.
Net losses and loss adjustment expenses incurred as a percentage of net
premiums earned (the "loss ratio") was 69.4% for the three months ended
September 30, 2008 as compared to 53.4% for the same period in 2007. The loss
ratio was 70.8% for the nine months ended September 30, 2008 as compared to
53.0% for the same period in 2007. The larger loss ratios in 2008 were primarily
attributable to losses incurred from hurricanes Gustav and Ike amounting to
$7.2 million, which added 15.7% and 5.1% to the third quarter and nine months
ended September 30, 2008 loss ratios, respectively. In addition, the resolution
of a dispute in the second quarter of 2008 over reinsurance receivables with a
reinsurer as well as a reevaluation of the provision for doubtful reinsurance
receivables resulted in additional losses of $12.4 million, which added 9.6% to
the nine months ended September 30, 2008 loss ratio. The decision to resolve a
dispute regarding non-core reinsurance receivables and adjust our allowance for
other potentially uncollectable non-core reinsurance receivables was related to
reinsurance cessions made under a number of reinsurance contracts written from
1978 to 1986. The Company's loss ratios in 2007 benefited from the novation of
substantially all of the excess workers' compensation policies written in
conjunction with a prior producer. The novation reduced the overall loss ratio
by 1.0% and 5.4% in the third quarter and nine months ended September 30, 2007,
respectively. Also contributing to a higher loss ratio in the other liability
segment in 2008 was a change in premium mix in the other liability class. Excess
workers' compensation premiums have higher loss ratios than other classes of
other liability business resulting in an overall increase in the other liability
loss ratio.
The Company reported adverse development of prior year loss reserves of
$7.2 million and favorable development of prior year loss reserves of
$1.9 million during the first nine months and third quarter of 2008,
respectively. The second quarter resolution of a dispute over reinsurance
receivables with a reinsurer and the reevaluation of the reserve for doubtful
reinsurance receivables in 2008 contributed $12.4 million of adverse development
in the first nine months of 2008. Partially offsetting this was favorable
development as a result of lower reported loss trends arising from the inland
marine and ocean marine lines of business. The aviation line of business
contributed $600,000 of adverse loss development in the first nine months of
2008.
The Company reported favorable development of prior year loss reserves of
$11.7 million and $2.0 million during the first nine months and third quarter of
2007, respectively. Favorable loss development of $6.2 million during the first
nine months was attributable to the novation of certain excess workers'
compensation policies. In addition, favorable development was recorded as a
result of lower reported loss trends arising from the ocean marine line of
business. The overall favorable loss development during the first nine months of
2007 was partially offset by approximately $2.0 million in adverse development
from the runoff aviation class.
Policy acquisition costs as a percentage of net premiums earned (the
"acquisition cost ratio") for the three months ended September 30, 2008 and 2007
were 24.8% and 21.3%, respectively. The acquisition cost ratios for the nine
months ended September 30, 2008 and 2007 were 22.9% and 21.9%, respectively. The
slightly higher 2008 ratios are due in part to a change in premium mix to the
other liability segment whose underlying classes of business have higher
acquisition cost ratios than other lines of business. In addition, slight
increases occurred in the other liability acquisition cost ratios in 2008 when
compared to 2007 as the prior year's third quarter and nine months ratios were
lower as a result of override commissions obtained from the quota share
reinsurance agreement in the excess workers' compensation class. The third
quarter of 2008 ocean marine acquisition cost ratio was adversely impacted by
the reinstatement premium charges from hurricane Ike.
General and administrative expenses increased by 17% and 13%, respectively,
for the third quarter and nine months ended September 30, 2008 when compared to
the same periods in 2007. Larger expenses were incurred in 2008 to service the
growth in the Company's business operations, including increased staffing,
consulting costs and additional office space.
The Company's combined ratio (the loss ratio, the acquisition cost ratio and
general and administrative expenses divided by net premiums earned) was 118.2%
for the three months ended September 30, 2008 as compared to 93.4% for the same
period in 2007. The Company's combined ratio was 115.6% for the nine months
ended September 30, 2008 as compared to 95.5% for the same period in 2007.
Interest expense of $5.0 million and $5.0 million, respectively, for the nine
and three months ended September 30, 2008 was comparable to the same periods in
2007.
Net investment (loss) income for the nine months ended September 30, 2008 was
$(47.5) million as compared to $32.1 million for the same period in 2007. The
decrease in 2008 reflected trading portfolio losses and lower income from
limited partnerships. Trading portfolio losses of $(37.2) million were recorded
in 2008 and resulted primarily from the fair value changes in the underlying
securities. This included municipal obligations of $(1.1) million, preferred
stocks of $(28.3) million, economic hedged positions of $(1.1) million and
exchange traded funds of $(6.7) million. Limited partnership income for the
first nine months of 2008, excluding income from Tricadia, decreased from the
prior year's comparable period as a result of lower returns amounting to (12.9)%
as compared to 4.7% for the same period in 2007. For the first nine months of
2008, most of our hedge fund strategies reported lower returns than the prior
year's comparable period. Income from Tricadia was $2.9 million and $7.3 million
for the nine months ended September 30, 2008 and 2007, respectively. Income from
Tricadia was greater in 2007 as a result of interest income received from the
warehousing of CDO and CLO debt securities. There were no such activities during
the first nine months of 2008. The reduction in income from fixed maturities
available for sale resulted from maintaining lower average balances in such
investments.
Net investment (loss) income for the three months ended September 30, 2008
was $(39.4) million compared to $4.5 million for the same period in 2007. The
decrease in 2008 reflected trading portfolio losses and losses from limited
partnerships. Trading portfolio losses of $(25.8) million were recorded in the
third quarter of 2008 and resulted primarily from the fair value changes in the
underlying securities. This included municipal obligations of $(0.8) million,
preferred stocks of $(23.8) million, economic hedged positions of $0.6 million,
and exchange traded funds of $(1.8) million. Limited partnership hedge fund
income in 2008, excluding income from Tricadia, decreased from the prior year's
comparable period as a result of lower yields on the limited partnership hedge
fund portfolio that amounted to (11.5)% for the third quarter ended
September 30, 2008 and (1.3)% for the same period in 2007. The investment income
from Tricadia amounted to $0.3 million and $1.0 million for the three months
ended September 30, 2008 and 2007, respectively, which was included in limited
partnership hedge fund portfolio income. The reduction in income from fixed
maturities available for sale resulted from maintaining lower average balances
in such investments.
Net investment (loss) income from each major category of investments for the
periods indicated is as follows:
Nine months ended Three months ended
September 30, September 30,
2008 2007 2008 2007
(in millions)
Fixed maturities available for sale $ 5.6 $ 11.3 $ 1.9 $ 3.1
Trading securities (37.2 ) 1.9 (25.8 ) 0.3
Short-term investments 2.2 6.1 0.7 2.7
Equity in (loss) earnings of limited
partnerships (14.0 ) 14.7 (14.6 ) (1.2 )
Commercial loans (0.7 ) - (0.4 ) -
Total investment (loss) income (44.1 ) 34.0 (38.2 ) 4.9
Investment expenses (3.4 ) (1.9 ) (1.2 ) (0.4 )
Net investment (loss) income $ (47.5 ) $ 32.1 $ (39.4 ) $ 4.5
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As of September 30, 2008 and 2007, investments in limited partnerships
amounted to approximately $159.1 million and $206.6 million, respectively. The
equity method of accounting is used to account for the Company's limited
partnership hedge fund investments. Under the equity method, the Company records
all changes in the underlying value of the limited partnership hedge fund to
results of operations.
As of September 30, 2008 and 2007, investments in the trading and commercial
loan portfolios collectively amounted to approximately $55.1 million and
$144.9 million, respectively. Net investment (loss) income for the nine months
ended September 30, 2008 and 2007 reflected approximately $(37.9) million and
$1.9 million, respectively, derived from combined trading portfolio and
commercial loan activities before investment expenses. These activities
primarily include the trading of collateralized debt obligations (CDOs),
collateralized loan obligations (CLOs), commercial loans, municipal obligations,
preferred stocks and exchange traded funds. The Company's trading and commercial
loan portfolios are marked to market, with the change recognized in net
investment income during the current period. Any realized gains or losses
resulting from the sale of trading and commercial loan investments are also
recognized in net investment income. There were no CDO or CLO securities held in
the trading portfolio by the Company at September 30, 2008.
The Company's investment income results may be volatile depending upon the
level of limited partnerships, commercial loans and trading portfolio
investments held. If the Company invests a greater percentage of its investment
portfolio in limited partnership hedge funds, and/or if the fair value of
trading and/or commercial loan investments held varies significantly during
. . .
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