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| NYM > SEC Filings for NYM > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
During the three months ended March 31, 2008 the Company acquired a book of
professional liability business oriented to insurance brokers and agents and
also formed MMO Agencies, which will focus on generating additional premium
growth through a network of general agents with binding authority subject to
underwriting criteria established and monitored by MMO.
Results of Operations
The Company reported net income for the first quarter ended March 31, 2009 of
$3.5 million, or $.40 per share, compared with a net loss of $29.7 million, or
$3.42 per diluted share, for the first quarter of 2008. The increase in results
of operations for the first quarter of 2009 when compared to the same period of
2008 was primarily attributable to stronger investment results from trading
activities and limited partnership income. For the three months ended March 31,
2008 the Company recorded after tax other-than-temporary write downs of
$21.0 million from residential mortgage backed securities and losses from
limited partnerships and trading portfolio.
Shareholders' equity increased to $171.2 million as of March 31, 2009 compared
to $164.1 million as of December 31, 2008. The increase was primarily
attributable to net income for the period and increases in other comprehensive
income.
The Company's gross premiums written, net premiums written and net premiums
earned decreased by 6%, 12% and 11%, respectively, for the three months ended
March 31, 2009, when compared to the same period of 2008.
Premiums for each segment were as follows:
NYMAGIC Gross Premiums Written By Segment
Three months ended March 31,
2009 2008 Change
(dollars in thousands)
Ocean marine $ 20,084 $ 22,241 (10 )%
Inland marine/fire 6,196 3,568 74 %
Other liability 41,300 45,774 (10 )%
Subtotal 67,580 71,583 (6 )%
Runoff lines (Aircraft) 84 45 NM
Total $ 67,664 $ 71,628 (6 )%
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NYMAGIC Net Premiums Written By Segment
Three months ended March 31,
2009 2008 Change
(dollars in thousands)
Ocean marine $ 14,218 $ 17,554 (19 )%
Inland marine/fire 1,907 1,241 54 %
Other liability 36,916 41,044 (10 )%
Subtotal 53,041 59,839 (11 )%
Runoff lines (Aircraft) (26 ) 78 NM
Total $ 53,015 $ 59,917 (12 )%
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NYMAGIC Net Premiums Earned By Segment
Three months ended March 31,
2009 2008 Change
(dollars in thousands)
Ocean marine $ 13,289 $ 17,823 (25 )%
Inland marine/fire 1,182 1,645 (28 )%
Other liability 25,686 25,359 1 %
Subtotal 40,157 44,827 (10 )%
Runoff lines (Aircraft) (27 ) 78 NM
Total $ 40,130 $ 44,905 (11 )%
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Ocean marine gross premiums written for the three months ended March 31, 2009
decreased by 10%, primarily reflecting reduced volume in the cargo class. The
first quarter of 2008 reflected $3.0 million in gross cargo premiums arising
from one of the Company's program management agreements which was terminated at
the end of 2007. This compared to no premiums in the same period of 2009.
Excluding the decline in cargo premiums, increases were recorded in other ocean
marine classes largely due to additional production in the marine liability
class and firmer rates in the energy classes. Rates in the other ocean marine
classes were slightly down when compared to the prior year's comparable period.
Ocean marine net premiums written and net premiums earned for the three months
ended March 31, 2009 decreased by 19% and 25% respectively, when compared to the
same period of 2008. Net written and earned premiums for three months ended
March 31, 2009 largely reflected the decline in gross cargo premiums written in
addition to declines in hull business earned over the past year.
Effective January 1, 2009, the Company maintained its $5 million per risk net
loss retention in the ocean marine line that was in existence during 2008. In
addition, the Company's net retention could be as low as $1 million for certain
classes within ocean marine. The 80% quota share reinsurance protection for
energy business, which commenced in 2006, also remains in effect for 2009 and
the net retention from losses arising from energy business is subject to
inclusion within the ocean marine reinsurance program.
Inland marine/fire gross premiums written and net premiums written increased by
74% and 54% for the three months ended March 31, 2009 when compared to the same
period of 2008. Net premiums earned for the three months ended March 31, 2009
decreased by 28%. Gross premiums written in the first three months of 2008
reflect increases in production largely relating to two property risks written
on a nation wide basis. Partially offsetting this increase were declines in
production in certain surety business largely resulting from lower construction
activity. Premiums reflect mildly lower market rates when compared to the prior
year. The decrease in net premiums earned reflected decreases in surety, inland
marine and fire premium production from the prior year.
Other liability gross premiums written and net premiums written each decreased
10%, respectively, for the three months ended March 31, 2009 when compared to
the same period in 2008. Net premiums earned for the three months ended
March 31, 2009 increased by 1% when compared to the same period in 2008. The
decrease in premiums written is primarily due to declines in the excess workers'
compensation, contractors' liability and commercial auto premiums that were
largely the result of declines in production largely as a result of reduced
construction and commercial activities.
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 decreased to $21.6 million and $20.1 million,
respectively, in the first three months of 2009 from $24.8 million and
$23.0 million, respectively, in the same period of 2008.
Net losses and loss adjustment expenses incurred as a percentage of net premiums
earned (the loss ratio) was 51.5% for the three months ended March 31, 2009 as
compared to 57.9% for the same period of 2008. The lower loss ratio in 2009 was
partly attributable to a lower current accident year loss ratio in the ocean
marine and other liability lines of business and partly attributable to larger
amounts of favorable reserve development. The lower ocean marine loss ratio was
due in part to the non-renewal of certain unprofitable hull business. The lower
other liability loss ratio was due in part to lower loss estimates used for
contractors liability business. Partially offsetting this was a higher loss
ratio in the inland marine/fire segment as the prior year's first quarter
reflected larger amounts of favorable loss reserve development.
The Company reported favorable development of prior year loss reserves of
$3.1 million and $1.0 million during the first three months of 2009 and 2008,
respectively, as a result of favorable reported loss trends arising from the
ocean marine and other liability lines of business in 2009 and favorable
reported loss trends in the inland marine and ocean marine lines of business in
2008. Partially offsetting the overall redundancy in 2008 was approximately
$400,000 of adverse development in the aviation line.
Policy acquisition costs as a percentage of net premiums earned (the acquisition
cost ratio) for the three months ended March 31, 2009 and March 31, 2008 were
23.2% and 21.9%, respectively. The slightly lower 2008 ratio is due in part to
lower acquisition cost ratios in the ocean marine line and other liability line
of business, largely resulting from the impact of lower excess of loss
reinsurance costs on the acquisition cost ratio.
General and administrative expenses increased by 14.6% for the three months
ended March 31, 2009 when compared to the same period of 2008. Larger expenses
were incurred in 2009 to service the growth in the Company's business
operations, including increased staffing from MMO Agencies personnel as well as
computer system implementation expenditures.
The Company's combined ratio (the loss ratio, the acquisition cost ratio and
general and administrative expenses divided by net premiums earned) was 99.7%
for the three months ended March 31, 2009 as compared with 99.4% for the same
period of 2008.
Interest expense of $1.7 million for the three months ended March 31, 2009 was
comparable to the same period of 2008.
Net investment income(loss) for the three months ended March 31, 2009 was
$6.6 million as compared to $(13.0) million for the same period of 2008. Net
investment income in 2009 reflected increases in income in trading, limited
partnerships and commercial loan portfolios. The net investment (loss) in 2008
reflected trading portfolio losses and losses from limited partnerships. Trading
portfolio losses of ($10.8) million resulted primarily from the fair value
changes in municipal obligations ($2.7) million, preferred stocks ($2.2)
million, economic hedged positions ($4.0) million and exchange traded funds
($1.9) million. Income from our investment in Altrion was $0.1 million and
$0.2 million for the first quarter of 2009 and 2008, respectively. Limited
partnership income for the first quarter of 2009 increased from the prior year's
first quarter as a result of higher returns amounting to 1.0% as compared to
(1.6%) for the same period of 2008. For the first quarter of 2009, fixed income
hedge fund strategies reported higher returns than the prior year's comparable
period.
Investment income (loss) , net of investment fees, from each major category of
investments was as follows:
Three months ended
March 31,
2009 2008
(in millions)
Fixed maturities, held to maturity $ 0.6 $ -
Fixed maturities, available for sale 2.0 2.0
Fixed maturities, trading securities 3.1 (10.8 )
Short-term investments 0.2 1.0
Equity in earnings of limited partnerships 1.2 (3.0 )
Commercial loans 0.1 (1.1 )
Total investment income (loss) 7.2 (11.9 )
Investment expenses (0.6 ) (1.1 )
Net investment income (loss) $ 6.6 $ (13.0 )
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As of March 31, 2009 and March 31, 2008 investments in limited partnerships amounted to approximately $113.7 million and $181.1 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 March 31, 2009 and March 31, 2008 investments in the trading and
commercial loan portfolios collectively amounted to approximately $15.8 million
and $126.3 million, respectively. Net investment income (loss) for the three
months ended March 31, 2009 and 2008 reflected approximately $3.2 million and
($11.9) million, respectively, derived from combined trading portfolio and
commercial loan activities before investment expenses. These activities
primarily include the trading of 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 sales of trading and commercial loan investments are also
recognized in net investment income.
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 different periods,
there may also be a greater volatility associated with the Company's investment
income.
Commission and other income decreased to $5,000 for the three months ended
March 31, 2009 from $59,000 for the same period in the prior year.
Net realized investment losses were $417,000 for the three months ended
March 31, 2009 as compared to net realized investment losses of $32.2 million
for the same period in the prior year. Net realized investment losses in 2009
reflect losses from the sales of municipal bonds that were partially offset by
realized gains of $545,000. Net realized investment losses for the three months
ended March 31, 2008 include write-downs from other-than-temporary declines in
the fair value of securities amounting to $32.4 million. There were no
write-downs of investment balances during the three months ended March 31, 2009.
The write downs in 2008 was primarily attributable to the decline in the fair
value of "super senior" residential mortgage backed securities held by the
Company. The Company has collected all applicable interest and principal
repayments on such securities to date. The decision to write down such
securities as of March 31, 2008 was based upon the uncertainty that we may not
hold such securities until the fair value decline is recovered.
Total income tax expense (benefit) amounted to $1.0 million and ($16.9) million,
respectively, for the three months ended March 31, 2009 and 2008, respectively.
Total income tax expense or benefit as a percentage of income or (loss) before
taxes was 23.8% and 36.2% for the three months ended March 31, 2009 and 2008,
respectively. The lower percentage in 2009 was largely attributable to greater
investments in tax exempt municipal bonds.
Liquidity and Capital Resources
Cash and total investments increased from $547.0 million at December 31, 2008 to
$583.0 million at March 31, 2009, principally as a result of the fair value
increases of its investments and favorable cash flows from operations. The level
of cash and short-term investments of $186.0 million at March 31, 2009 reflected
the Company's high liquidity position.
Cash flows provided by operating activities were $32.3 million for the three
months ended March 31, 2009 as compared to cash flows used in operating
activities of $123.9 million for the same period in 2008. Trading portfolio and
commercial loan activities of $16.0 million favorably affected cash flows for
the three months ended March 31, 2009 while such activities adversely affected
cash flows by $101.1 million for the three months ended March 31, 2008. Trading
portfolio activities include the purchase and sale of preferred stocks,
municipal bonds and exchange traded funds. Commercial loan activities include
the purchase and sale of middle market loans made to commercial companies. As
the Company's trading and commercial loan portfolio balances may fluctuate
significantly from period to period, cash flows from operating activities may
also be significantly impacted by such activities. Contributing to an increase
in operating cash flows, other than trading and commercial loan activities,
during the first quarter of 2009 was the collection of premiums and reinsurance
recoverable balances. Contributing to a reduction in operating cash flows, other
than trading and commercial loan activities, during the first quarter of 2008
was the payment of gross losses in the ocean marine line of business for
hurricane losses in 2005, substantially all of which were reinsured and to be
collected from reinsurers in subsequent periods.
Cash flows used in investing activities were $67.6 million for the three months
ended March 31, 2009 as compared to cash flows provided by investing activities
of $24.3 million for the three months ended March 31, 2008. The cash flows for
the three months ended March 31, 2009 were adversely impacted by the net
purchase of fixed maturity available for sale investments. Contributing to cash
flows from investing activities for the three months ended March 31, 2008 were
the net sale of fixed maturity available for sale investments.
Cash flows used in financing activities were $221,000 and $2.5 million for the
three months ended March 31, 2009 and 2008, respectively. In 2008, a substantial
portion of the use of cash flows was attributable to the repurchase of the
Company's common stock.
On March 10, 2009, the Company declared a dividend to shareholders of four
(4) cents per share amounting to $337,000, payable on April 7, 2009 to
shareholders of record on March 31, 2009. On March 6, 2008, the Company declared
a dividend of eight (8) cents per share amounting to $697,000 to shareholders of
record on March 31, 2008, payable on April 3, 2008.
New York Marine and Gotham did not declare any ordinary dividends to the Company
during the first three months of 2009 and 2008, respectively.
Under the NYMAGIC, INC. Amended and Restated 2004 Long-Term Incentive Plan (the
"LTIP"), the Company granted 8,000 restricted share units, and up to 49,000
performance share units and 100,000 stock options to the President and Chief
Executive Officer during the three months ended March 31, 2009. The market price
per share and option price per share on the grant date of the stock option were
$9.88 and $15.00 per share, respectively. During the three months ended
March 31, 2008, 8,000 and 5,000 restricted share units were granted to the
President and Chief Executive Officer and the former Chairman of the Board of
Directors, respectively.
Under the NYMAGIC, INC. non-qualified 2002 Stock Option Plan, 10,000 stock
options were awarded to a Director during the three months ended March 31, 2008.
Under the Common Stock Repurchase Plan, the Company may purchase up to
$75 million of the Company's issued and outstanding shares of common stock on
the open market. During the first three months of 2008, there were 20,300 shares
repurchased at a total cost of approximately $466,000. There were no repurchases
of the Company's common stock during the first three months of 2009.
Premiums and other receivables, net increased to $34.6 million as of March 31,
2009 from $23.4 million as of December 31, 2008, primarily as a result of excess
workers' compensation gross writings, which are substantially written during the
first quarter of the calendar year.
Deferred income taxes at March 31, 2009 decreased to $31.8 million from
$35.5 million at December 31, 2008, primarily due to reductions in deferred tax
benefits arising from the increase in the fair value of investments. Management
believes the Company's total deferred tax asset, net of the recorded valuation
allowance account, as of March 31, 2009 will more-likely-than-not be fully
realized.
Reserve for unearned premiums increased to $99.4 million as of March 31, 2009
from $83.4 million as of December 31, 2008, primarily as a result of excess
workers' compensation gross writings, which are substantially written during the
first quarter of the calendar year.
Reinsurance receivables on paid balances, net at March 31, 2009, decreased to
$23.5 million from $28.4 million at December 31, 2008 largely as a result of the
collection of reinsurance balances on gross losses paid on prior year hurricane
claims.
Property, improvements and equipment, net at March 31, 2009, increased to
$11.0 million from $10.0 million at December 31, 2008 largely as a result of
capitalized expenditures relating to information technology infrastructure
initiatives.
Other assets at March 31, 2009 increased to $24.9 million from $23.9 million at
December 31, 2008 largely as a result of an increase in federal income tax
recoverables.
Reinsurance payable at March 31, 2009 increased to $27.3 million from
$23.8 million at December 31, 2008 primarily due to the timing of payments of
certain reinsurance expense.
Investments
A summary of the Company's investment components at March 31, 2009 and
December 31, 2008 is presented below:
March 31, 2009 Percent December 31, 2008 Percent
Fixed maturities held to maturity
(amortized cost):
Mortgage-backed securities $ 60,380,813 10.36 % $ 61,246,212 11.20 %
Total fixed maturities held to
maturity $ 60,380,813 10.36 % $ 61,246,212 11.20 %
Fixed maturities available for sale
(fair value):
U.S. Treasury securities $ 40,418,176 6.93 % $ 40,783,969 7.46 %
Municipal obligations 125,653,607 21.55 % 90,483,461 16.54 %
Corporate securities 41,016,047 7.04 % 13,710,996 2.51 %
Total fixed maturities available
for sale $ 207,087,830 35.52 % $ 144,978,426 26.51 %
Fixed maturities trading (fair
value):
Municipal obligations $ 13,236,400 2.27 % $ 17,399,090 3.18 %
Total fixed maturities trading $ 13,236,400 2.27 % $ 17,399,090 3.18 %
Total fixed maturities $ 280,705,043 48.15 % $ 223,623,728 40.89 %
Equity securities trading (fair
value):
Preferred stock $ - 0.00 % $ 11,822,620 2.16 %
Total equity securities $ - 0.00 % $ 11,822,620 2.16 %
Cash and short-term investments 186,013,377 31.91 % 185,921,881 33.99 %
Total fixed maturities, equity
securities, cash and short-term
investments $ 466,718,420 80.06 % $ 421,368,229 77.04 %
Commercial loans (fair value) 2,593,554 0.44 % 2,690,317 0.49 %
Limited partnership hedge funds
(equity) 113,653,278 19.50 % 122,927,697 22.47 %
Total investment portfolio $ 582,965,252 100.00 % $ 546,986,243 100.00 %
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As of March 31, 2009, 97.50% of the carrying value of the Company's fixed income and short-term investment portfolios were considered investment grade by S&P. As of March 31, 2009, the Company invested approximately $11.7 million in fixed maturities that were below investment grade.
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