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| NYM > SEC Filings for NYM > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
Shareholders' equity increased to $187.6 million as of June 30, 2009 compared to
$164.1 million as of December 31, 2008. The increase was primarily attributable
to net income for the period.
Accumulated other comprehensive income (loss) included in shareholders' equity
as of June 30, 2009 decreased by $(20.4) million to $(23.3) million from $(2.9)
million as of December 31, 2008. This includes $(26.1) million attributable to
the reclassification from retained earnings to accumulated other comprehensive
income (loss) of non-credit investment impairment losses previously recognized
in net income on the Company's residential mortgage backed securities holdings
as a result of the adoption of FASB 115-2 in the second quarter of 2009. The
adoption of FASB 115-2 had no impact on total shareholders' equity. The change
in accumulated other comprehensive income (loss), in addition to the effect of
adopting FASB 115-2, was $5.0 million due to unrealized appreciation in
corporate bonds and municipal bonds held as available for sale.
The Company's gross premiums written, net premiums written and net premiums
earned decreased by 1%, 6% and 10%, respectively, for the six months ended
June 30, 2009, when compared to the same period of 2008.
Premiums for each segment were as follows:
NYMAGIC Gross Premiums Written By Segment
Six months ended June 30, Three months ended June 30,
2009 2008 Change 2009 2008 Change
(dollars in thousands) (dollars in thousands)
Ocean marine $ 44,600 $ 45,557 (2 )% $ 24,516 $ 23,316 5 %
Inland marine/fire 11,291 8,539 32 % 5,095 4,971 2 %
Other liability 62,039 65,042 (5 )% 20,739 19,268 8 %
Subtotal 117,930 119,138 (1 )% 50,350 47,555 6 %
Runoff lines (Aircraft) 9 58 NM (74 ) 13 NM
Total $ 117,939 $ 119,196 (1 )% $ 50,276 $ 47,568 6 %
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NYMAGIC Net Premiums Written By Segment
Six months ended June 30, Three months ended June 30,
2009 2008 Change 2009 2008 Change
(dollars in thousands) (dollars in thousands)
Ocean marine $ 29,937 $ 33,744 (11 )% $ 15,719 $ 16,190 (3 )%
Inland marine/fire 3,776 2,654 42 % 1,869 1,413 32 %
Other liability 54,739 57,711 (5 )% 17,823 16,667 7 %
Subtotal 88,452 94,109 (6 )% 35,411 34,270 3 %
Runoff lines (Aircraft) (149 ) 96 NM (123 ) 18 NM
Total $ 88,303 $ 94,205 (6 )% $ 35,288 $ 34,288 3 %
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NYMAGIC Net Premiums Earned By Segment
Six months ended June 30, Three months ended June 30,
2009 2008 Change 2009 2008 Change
(dollars in thousands) (dollars in thousands)
Ocean marine $ 27,425 $ 36,133 (24 )% $ 14,137 $ 18,310 (23 )%
Inland marine/fire 2,749 3,201 (14 )% 1,567 1,556 - %
Other liability 49,146 48,567 1 % 23,460 23,208 1 %
Subtotal 79,320 87,901 (10 )% 39,164 43,074 (9 )%
Runoff lines (Aircraft) (149 ) 96 NM (123 ) 18 NM
Total $ 79,171 $ 87,997 (10 )% $ 39,041 $ 43,092 (9 )%
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Ocean marine gross premiums written for the six months ended June 30, 2009 decreased by 2%, primarily reflecting reduced volume in the cargo class. The first six months of 2008 reflected $4.9 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 $0.2 million in gross cargo premiums received during
the same period of 2009. Increases were recorded in other ocean marine classes
largely due to additional production in the marine liability class and firmer
rates in the energy and marine liability classes.
Ocean marine net premiums written and net premiums earned for the six months
ended June 30, 2009 decreased by 11% and 24% respectively, when compared to the
same period of 2008. Net written and earned premiums for six months ended
June 30, 2009 largely reflected the decline in gross cargo premiums written over
the past year.
Ocean marine gross premiums written for the three months ended June 30, 2009
increased by 5%, primarily reflecting additional production in the marine
liability class and firmer rates in the energy and marine liability classes
which was partially offset by a decline in gross cargo premiums arising from one
of the Company's program management agreements which was terminated at the end
of 2007. The second quarter of 2009 reflected $0.2 million of such gross cargo
premiums as compared to $1.9 million for the same period in 2008. Net written
and earned premiums for three months ended June 30, 2009 largely reflected the
decline in gross cargo premiums written and additional ceded premiums in the
energy class 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
32% and 42% for the six months ended June 30, 2009 when compared to the same
period of 2008. Net premiums earned for the six months ended June 30, 2009
decreased by 14%. Gross premiums written in the first six months of 2009
reflected increases in production largely relating to property risks written on
a nationwide basis. Premiums reflected mildly lower market rates when compared
to the prior year. The decrease in net premiums earned reflected decreases in
surety and fire premium production from the prior year.
Inland marine/fire gross premiums written and net premiums written increased by
2% and 32% for the three months ended June 30, 2009 when compared to the same
period of 2008. Net premiums earned for the three months ended June 30, 2009 was
flat when compared to the same period in 2008. Gross premiums written for the
three months ended June 30, 2009 reflect increases in production largely
relating to inland marine and surety risks. Partially offsetting this increase
were declines in production in fire business largely resulting from mild rate
decreases. The increase in net premiums written for the three months ended
June 30, 2009 resulted from a change in gross premiums mix which resulted in
lower premium cessions to reinsurers. Surety premiums are written net of
reinsurance and inland marine premiums have a smaller percentage ceded to
reinsurers than fire premiums. Net premiums earned reflected increases in
production largely relating to property risks written on a nationwide basis
which was offset by declines in surety production from the prior year.
Other liability gross premiums written and net premiums written each decreased
5%, respectively, for the six months ended June 30, 2009 when compared to the
same period in 2008. Net premiums earned for the six months ended June 30, 2009
increased by 1% when compared to the same period in 2008. The decrease in
premiums written is primarily due to declines in excess workers' compensation,
contractors' liability and commercial auto premiums that resulted from lower
production largely as a consequence of reduced construction and commercial
activities. Partially offsetting the decrease in gross premiums in 2009 were
$4.7 million in premiums written from MMO Agencies which was formed in 2008 to
write premiums through a network of general agents with binding authority
subject to underwriting criteria established and monitored by the Company.
Other liability gross premiums written and net premiums written increased 8% and
7%, respectively, for the three months ended June 30, 2009 when compared to the
same period in 2008. Net premiums earned for the three months ended June 30,
2009 increased by 1% when compared to the same period in 2008. The increase in
gross and net premiums written is largely attributable to premiums from MMO
Agencies and professional liability that were partially offset by declines in
premiums from contractor's liability. Net premiums earned increased largely as a
result of a change in mix of gross premiums in the various classes within other
liability.
Net losses and loss adjustment expenses incurred as a percentage of net premiums
earned (the loss ratio) was 44.4% for the three months ended June 30, 2009 as
compared to 85.6% for the same period of 2008. The loss ratio was 48.0% for the
six months ended June 30, 2008 as compared to 71.5% for the same period in 2008.
The lower loss ratios in 2009 were 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 loss reserve
development. The ocean marine loss ratio benefited in part due to the
non-renewal of certain unprofitable hull business and lower reported current
accident year losses. 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 loss ratios reflected larger amounts of favorable loss reserve
development. The larger loss ratios in 2008 were primarily attributable to the
resolution of a dispute over reinsurance receivables with a reinsurer as well as
a reevaluation of the provision for doubtful reinsurance receivables that
resulted in additional losses of $12.4 million, or added 28.8% and 14.1% to the
second quarter and six months ended 2008, respectively, overall loss ratios. 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 reported favorable development of prior year loss reserves of
$9.3 million and $6.2 million during the first six months and second quarter of
2009, respectively, as a result of favorable reported loss trends arising from
the ocean marine and other liability lines of business in 2009, including
favorable resolution of large severity claims and lower than expected reporting
of claims. In addition, partially contributing to the favorable loss development
in 2009 was approximately $2.0 million and $1.8 million in the six months and
second quarter ended June 30, respectively, in favorable loss development in the
aviation line.
The Company reported adverse development of prior year loss reserves of
$9.1 million and $10.1 million during the first six months and second quarter of
2008, respectively. The 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. 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.
Policy acquisition costs as a percentage of net premiums earned (the acquisition
cost ratio) for the three months ended June 30, 2009 and June 30, 2008 were
21.8% and 22.1%, respectively. The acquisition cost ratios for the six months
ended June 30, 2009 and 2008 were 22.5% and 22.0%, respectively. The slightly
lower acquisition cost ratio for the three months ended June 30, 2009 was
largely attributable to lower acquisition cost ratios in the ocean marine line
due to larger writings and override commissions in the energy class. The
slightly higher acquisition cost ratio for the six months ended June 30, 2009
was due in part to the other liability line and in part to the ocean marine line
of business, largely resulting from the impact of excess of loss reinsurance
costs on the acquisition cost ratio.
General and administrative expenses increased by 11.1% for the six months ended
June 30, 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 93.0%
for the three months ended June 30, 2009 as compared to 130.1% for the same
period in 2008. The Company's combined ratio was 96.4% for the six months ended
June 30, 2009 as compared to 114.4% for the same period in 2008.
Interest expense of $3.4 million and $1.7 million for the six and three months
ended June 30, 2009 was comparable to the same periods of 2008.
Net investment income (loss) for the six months ended June 30, 2009 was
$19.7 million as compared to $(8.1) million for the same period of 2008. Net
investment income in 2009 reflected increases in income in trading, limited
partnerships and commercial loan portfolios. Trading portfolio income of
$3.7 million resulted primarily from the fair value changes in municipal
obligations. The net investment (loss) for the six months ended June 30, 2008
reflected trading portfolio losses and losses from limited partnerships. Trading
portfolio losses of $(11.4) million resulted primarily from the fair value
changes in municipal obligations $(0.3) million, preferred stocks $(4.4)
million, economic hedged positions $(1.7) million and exchange traded funds
$(5.0) million. Income from our investment in Altrion was $3.0 million and
$2.5 million for the first six months of 2009 and 2008, respectively. Limited
partnership income for the first six months of 2009 increased from the same
period of the prior year as a result of higher returns amounting to 7.6% as
compared to 1.4% for the same period of 2008. For the first six months of 2009,
fixed income hedge fund strategies reported higher returns than the prior year's
comparable period.
Net investment income for the three months ended June 30, 2009 was $13.2 million
as compared to $4.9 million for the same period of 2008. Net investment income
in 2009 reflected increases in income from trading, limited partnerships and
commercial loan portfolios. Trading portfolio income of $0.7 million resulted
primarily from the fair value changes in municipal obligations. Income from
commercial loans of $1.8 million resulted primarily from the favorable rally in
the market for these types of securities during the second quarter of 2009. The
net investment income for the three months ended June 30, 2008 reflected income
from limited partnerships that was partially offset by trading portfolio losses.
Trading portfolio losses of $(0.7) million resulted primarily from the fair
value changes in municipal obligations $2.4 million, preferred stocks $(2.2)
million, economic hedged positions $2.3 million and exchange traded funds $(3.1)
million. Income from our investment in Altrion was $2.9 million and $2.2 million
for the second quarter of 2009 and 2008, respectively. Limited partnership
income of $8.0 million in the second quarter of 2009 increased from $3.7 million
in the prior year's second quarter as a result of higher returns amounting to
6.8% as compared to 2.0% for the same period of 2008. For the second 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:
Six months ended Three months ended
June 30, June 30,
2009 2008 2009 2008
(in millions)
Fixed maturities held to maturity $ 1.1 $ - $ 0.5 $ -
Fixed maturities available for sale 4.7 3.7 2.7 1.7
Trading securities 3.7 (11.4 ) 0.7 (0.7 )
Commercial loans 1.9 (0.3 ) 1.8 0.8
Equity in earnings of limited
partnerships 9.2 0.6 8.0 3.7
Short-term investments 0.3 1.5 0.1 0.5
Total investment (loss) income 20.9 (5.9 ) 13.8 6.0
Investment expenses (1.2 ) (2.2 ) (0.6 ) (1.1 )
Net investment (loss) income $ 19.7 $ (8.1 ) $ 13.2 $ 4.9
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As of June 30, 2009 and 2008, investments in limited partnerships amounted to
approximately $120.2 million and $171.1 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 June 30, 2009 and June 30, 2008 investments in the trading and commercial
loan portfolios collectively amounted to approximately $18.0 million and
$135.3 million, respectively. Net investment income (loss) for the six months
ended June 30, 2009 and 2008 reflected approximately $5.6 million and $(11.7)
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 $127,000 for the six months ended
June 30, 2009 from $139,000 for the same period in the prior year.
Net realized investment gains were $1.7 million for the three months ended
June 30, 2009 as compared to net realized investment gains of $898,000 for the
same period in the prior year. Net realized investment gains were $1.3 million
for the six months ended June 30, 2009 as compared to net realized investment
losses of $31.4 million for the same period in the prior year. Net realized
investment gains in 2009 reflect gains from the sales of municipal bonds and US
Treasury securities. Net realized investment losses for the three months ended
June 30, 2008 include other-than-temporary Impairment (OTTI) in the fair value
of securities amounting to $32.4 million. The OTTI in 2008 was primarily
attributable to the decline in the fair value of "super senior" residential
mortgage backed securities held by the Company. The decision to write down such
securities as of June 30, 2008 was based upon our uncertainty then that we might
not hold such securities until their fair value decline was recovered.
Write-downs from (OTTI) in the fair value of securities amounted to $0.5 million
for the three months and six months ended June 30, 2009. The OTTI recorded in
the three months ended June 30, 2009 was attributable to the Company's intention
to sell certain municipal securities that are not expected to recover their
entire amortized cost prior to sale.
Total income tax expense (benefit) amounted to $1.9 million and $(4.0) million,
respectively, for the three months ended June 30, 2009 and 2008, respectively.
Total income tax expense or benefit as a percentage of income or (loss) before
taxes was 11.7% and (45.8%) for the three months ended June 30, 2009 and 2008,
respectively. Total income tax expense (benefit) amounted to $3.0 million and
$(20.9) million, respectively, for the six months ended June 30, 2009 and 2008,
respectively. Total income tax expense or benefit as a percentage of income or
(loss) before taxes was 14.4% and (37.7%) for the six months ended June 30, 2009
and 2008, respectively. The lower percentage in 2009 was largely attributable to
tax benefits of $3.3 million as a result of the partial reversal of the deferred
tax valuation allowance previously provided for capital losses and 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
$612.2 million at June 30, 2009, principally as a result of the fair value
increases of its investments and favorable cash flows from operations. The level
. . .
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