ESG Re Ltd. Reports Net Loss in 2Q Results

For the second quarter of 2001, Bermuda-based ESG Re Limited reported a consolidated net loss of $5.9 million, or $0.50 per share.

An underwriting profit of $1.2 million in the quarter together with investment income and gains from the sale of securities covered most of the company’s operating costs. The majority of the loss in the quarter was the result of a $4.2 million write-down of the company’s carrying value of its other investments and an additional provision of $0.9 million to its legal reserve, which covers various contingent matters.

Commenting on the developments, Alasdair P Davis, Chief Executive Officer of ESG Re Limited, noted, “We are beginning to see in our operating results the benefits of executing our business plan with respect to our stated strategies of select reinsurance writings and the partnership enterprise segment. Furthermore, following the work done late last year to increase loss reserves to address the underwriting issues of the past, we initiated full reviews and audits of all entities where ESG holds a minority shareholding interest. Based on the initial results of this exercise, we believe it to be prudent to adjust the company’s carrying value for these investments.”

Looking forward, Mr. Davis added, “We are on target on both fronts in our business plan. We continue to exploit those ongoing opportunities in the markets in which we now operate and we continue to make progress to close out the liabilities from the past underwriting years. As stated previously, our key markets continue to perform well and represent our best opportunity to return to overall profitability in the second half of this year. ”

Results

For the three months ended June 30, 2001, the Company had a net loss of $ 5.9 million compared to a net loss of $9.3 million for the second quarter of 2000. The net loss per share for the three months ended June 30, 2001 was $ 0.50 compared with a net loss per share of $0.79 for the second quarter 2000. Included in last year’s results was a loss from discontinued operations of $ 3.0 million or $ 0.26 per share representing the results from the divested non-core health care operations.

The net operating loss for the second quarter 2001, which excludes realized investment gains and losses, was $0.56 per share. Net operating loss for the second quarter 2000, which excludes realized investment gains and losses and loss on equity investments, was $0.82 per share.

For the six months ended June 30, 2001, the Company had a net loss of $ 9.9 million, compared to a net loss of $19.5 million for the same period in 2000. Net loss per share for the six months ended June 30, 2001 was $0.84 compared to net loss per share of $1.67 for the six months ended June 30, 2000.

Premiums

For the three months ended June 30, 2001, the Company underwrote a book of $ 31.7 million of gross premiums, of which it assumed $29.7 million for its own account. For the three months ended June 30, 2000, ESG underwrote $48.5 million of gross premiums for itself and co-reinsurers, of which it assumed $44.7 million for its own account.

For the six months ended June 30, 2001, in line with the company’s strategy of selective premium writings, gross premiums decreased by 53.1% compared to the six months ended June 30, 2000. The Company underwrote a book of $75.0 million of gross premiums, of which it assumed $66.9 million for its own account. For the six months ended June 30, 2000, ESG underwrote $160.3 million of gross premiums for itself and co-reinsurers, of which it assumed $149.2 million for its own account.

Revenues

Total revenues for the three months ended June 30, 2001 were $40.5 million, consisting of net premiums earned of $40.5 million, net investment income of $ 3.3 million, net realized investment losses of $ 3.5 million (including the provision of $4.2 million to write-down the carrying value of other investments), and management fee revenue of $ 0.2 million.

For the three months ended June 30, 2000 total revenues were $ 80.5 million consisting of net premiums earned of $ 76.5 million, net investment income of $ 3.2 million, realized investment gains of $ 0.3 million, loss on equity investments of $ 0.1 million and management fee revenue of $ 0.6 million.

Total revenues for the six months ended June 30, 2001 were $85.2 million, consisting of net earned premiums of $ 80.8 million, net investment income of $ 6.7 million, net realized investments losses of $ 2.7 million, and management fee revenue of $0.4 million. For the six months ended June 30, 2000 total revenues were $ 140.5 million consisting of net premiums earned of $ 134.2 million, net investment income of $ 6.1 million, realized investment losses of $ 1.1 million, gain on equity investments of $ 0.3 million and management fee revenue of $ 1.0 million.

Expenses

For the three months ended June 30, 2001, ESG’s expenses were $46.4 million, consisting of $ 26.2 million of losses and loss expenses, $ 13.1 million of acquisition costs, and $7.1 million of operating expenses. Total expenses for the three months ended June 30, 2000 were $86.8 million, consisting of $54.7 million of losses and loss expenses, $ 23.4 million of acquisition costs, and $ 8.7 million of operating expenses.

Total expenses for the six months ended June 30, 2001 were $95.0 million, consisting of $56.2 million of losses and loss expenses, $25.0 million of acquisition costs, and $13.8 million of operating expenses. For the six months ended June 30, 2000 total expenses were $154.1 million consisting of $99.9 million of losses and loss expenses, $38.1 million of acquisition costs, and $16.1 million of operating expenses.

Operating Ratios

The loss and acquisition expense ratios for the three months ended June 30, 2001 and 2000, were 97.1% and 102.2%, respectively. For the six months ended June 30, 2001 and 2000, the loss and acquisition expense ratios were 100.5% and 102.8%, respectively. The combined ratio for the three months ended June 30, 2001 was 114.5%, compared to 112.6% for the three months ended June 30, 2000.

The operating expense ratio for the second quarter 2001 was 17.4%, compared to 10.4% for the second quarter 2000 with the increase primarily a function of a decline in the amount of written and earned premium. The combined ratio for the six months ended June 30, 2001 was 117.4% compared to 113.7% for the six months ended June 30, 2000. The operating expense ratio for the six months ended June 30, 2001 was 16.9%, compared to 10.9% for 2000.

Book Value

At June 30, 2001, total assets were $471.8 million and shareholders’ equity was $ 105.5 million, or $8.95 per common share. At December 31, 2000, shareholders’ equity per common share was $9.64.

Topics Profit Loss