CPHL Castlepoint Holdings Ltd (MM)

CastlePoint Holdings, Ltd. (NASDAQ:CPHL) today reported net income of $9.6 million and basic and diluted earnings per share of $0.25 for the first quarter of 2008. Operating earnings for the first quarter of 2008 were $11.0 million and $0.29 per share(a). Key Operating Highlights (all percentage increases compare the first quarter results to the same period in 2007): Operating income and operating earnings per share on a diluted basis increased by 56.3% and 26.1%, respectively during the first quarter. Operating return on average equity for the first quarter was 10.5%. Net premiums written for the quarter were $118.1 million, an increase of 64.3% from the prior year period. The combined ratio for our reinsurance and insurance segments combined was 90.6% for the quarter. (a) Note on Non-GAAP Financial Measures: Operating income excludes net realized gains (losses) and unrealized gains (losses) included in net investment income. Operating income, operating earnings per share, and operating return on average equity are common performance measurements for property and casualty insurance companies. We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. Additionally, these are key internal management performance measures. � Three MonthsEndedMarch 31,2008 � Three MonthsEndedMarch 31,2007 Net premiums written 118,090 71,896 Net premiums earned 100,404 46,596 Net investment income: Net investment income excl Partnership 8,136 5,791 Realized and unrealized gains (losses) on investment in Partnership (1) (2,979 ) 0 Total net investment income 5,157 5,791 Net realized gains (losses) on investments 1,365 6 Total revenues 114,904 53,954 Net income 9,565 7,071 � Earnings Per Share - Basic $ 0.25 $ 0.23 Earnings Per Share - Diluted $ 0.25 $ 0.23 Return on Average Equity 9.1 % 9.6 % � Excluding realized and unrealized gains (losses), net of tax: (1) Net Income excluding realized and unrealized gains (losses), net of tax 11,043 7,065 Reconciliation to Net Income: Net realized and unrealized losses on investment in Partnership (2) (2,979 ) 0 Net realized gains on investments 1,365 6 Tax effect on net realized and unrealized gains (losses) � 136 � � 0 � Net Income $ 9,565 $ 7,071 Earnings per share - Basic $ 0.29 $ 0.23 Earnings per share - Diluted $ 0.29 $ 0.23 Return on Average Equity 10.5 % 9.6 % � (1) Excluding realized and unrealized gains (losses) on all investments including limited partnerships � (2) Realized and unrealized gains and losses from our investment in a limited partnership were recorded as a component of net investment income Michael H. Lee, Chief Executive Officer of CastlePoint Holdings, Ltd. stated, �We are extremely pleased with our operating results for the first quarter due to our strong growth combined with excellent underwriting results. We are continuing to see strong demand for our products due to our unique approach to the business, especially from clients other than Tower. While the investment loss was a distraction to our strong operating results, we believe we have a very high quality investment portfolio and do not believe it will affect our results in 2008 in a meaningful way.� Net earned premiums increased 115.5% to $100.4 million in the first quarter of 2008 from $46.6 million for the same period in 2007. Net investment income declined by 11.0% to $5.2 million for the three months ended March 31, 2008, as compared to $5.8 million for the same period in 2007. Net investment income includes a $3.0 million loss in a limited partnership that invests primarily in tax free bonds. The partnership manager is in the process of liquidating this partnership, and this investment should be off our books by June 30, 2008. The overall book yield on the investment portfolio excluding cash and cash equivalents was 5.65% as of March 31, 2008. The overall investment portfolio at March 31, 2008 is AA rated. As of March 31, 2008 we had cash and cash equivalents, net of payable for securities purchased at the end of the quarter, of $107.3 million. CastlePoint Re, our Bermuda based reinsurance subsidiary, assumed 40% of Tower�s brokerage business as well as 50% of CastlePoint Insurance Company�s program business in the quarter. Net premiums written increased by 31.0% to $94.2 million for the three months ended March 31, 2008 compared to $71.9 million for the same period in the prior year. The net combined ratio was 89.1% in the quarter as compared to 88.7% for the same prior year period. CastlePoint Insurance Company had net written premiums in the first quarter of $34.9 million. The combined ratio for CastlePoint Insurance Company in the first quarter was 95.5% on a net basis primarily reflecting costs for ceded property catastrophe protection, and was 82.9% on a gross basis before ceded reinsurance. Additional Highlights and Disclosures: Dividend Declaration CastlePoint Holdings, Ltd. Board of Directors previously had approved a quarterly dividend of $0.05 per share payable June 30, 2008 to stockholders of record as of June 16, 2008. 2008 Guidance For the second quarter of 2008, we project our net income to be in a range between $13.5 million and $15.8 million, and diluted earnings per share to be in a range between $0.35 and $0.41 per share. For the full year we are confirming our guidance for net income is in a range of $67.5 million to $71.5 million with diluted earnings per share between $1.75 and $1.85. About CastlePoint Holdings, Ltd. CastlePoint, a Bermuda-based holding company, through its subsidiaries, CastlePoint Reinsurance Company, CastlePoint Management Corp., and CastlePoint Insurance Company, provides property and casualty insurance and reinsurance business solutions, products and services to small insurance companies and program underwriting agents in the United States. CPHL-F Cautionary Note Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This press release or any other written or oral statements made by or on behalf of CastlePoint may include forward-looking statements that reflect CastlePoint�s current views with respect to future events and financial performance. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may," "will," "plan," "expect," �project,� �guide or guidance,� "intend," "estimate," "anticipate," "believe" or "continue" or their negative or variations or similar terminology. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause CastlePoint�s actual results to differ materially from those indicated in these statements. The company believes that these factors include but are not limited to ineffectiveness or obsolescence of its business strategy due to changes in current or future market conditions; increased competition on the basis of pricing, capacity, coverage terms or other factors; greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than CastlePoint�s underwriting, reserving or investment practices anticipate based on historical experience or industry data; the ability to obtain necessary governmental licenses; the ability to hire and retain executive officers and other key personnel; the ability to make certain acquisitions in a timely fashion necessary to fulfill the company�s business plan; the effects of acts of terrorism or war; developments in the world's financial and capital markets that adversely affect the performance of the company�s investments; changes in regulations or laws applicable to CastlePoint, its subsidiaries, brokers or customers including tax laws in Bermuda and the United States; acceptance of CastlePoint�s products and services, including new products and services; changes in the availability, cost or quality of reinsurance and failure of CastlePoint�s reinsurers to pay claims timely or at all; decreased demand for the company�s insurance or reinsurance products; the effects of mergers, acquisitions and divestitures; changes in rating agency policies or practices; changes in legal theories of liability under CastlePoint�s insurance policies or the policies that it reinsures; changes in accounting policies or practices; and changes in general economic conditions, including inflation and other factors. Forward-looking statements speak only as of the date on which they are made, and CastlePoint undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. For more information visit CastlePoint�s website at http://www.castlepoint.bm/. CastlePoint Holdings, Ltd. Consolidated Balance Sheets � � (unaudited) March 31,2008 December 31,2007 ($ in thousands, except par valueand share amounts) Assets Fixed-maturity securities, available-for-sale, at fair value (amortized cost $524,532 for 2008; $484,523 for 2007) $ 516,791 $ 484,972 Equity securities, available-for-sale, at fair value (cost $42,623 for 2008; $52,867 for 2007) 37,397 42,402 Short-term investments, available-for-sale, at fair value (amortized cost $39,102 for 2008; $0 for 2007) � 39,102 � � � � Total available-for-sale investments 593,290 527,374 Investment in partnerships, equity method 5,525 8,503 Common trust securities � statutory business trusts, equity method � 4,022 � � 4,022 � Total investments 602,837 539,899 Cash and cash equivalents 193,714 153,632 Accrued investment income 3,834 4,064 Premiums receivable 168,562 125,597 Premiums receivable � programs 21,203 9,083 Prepaid reinsurance premiums 7,480 3,475 Deferred acquisition costs 78,405 73,073 Deferred income taxes 7,825 7,051 Deferred financing fees 3,642 3,673 Other assets � 10,258 � � 7,196 � Total Assets $ 1,097,760 � $ 926,743 � � Liabilities and Shareholders� Equity � Liabilities Loss and loss adjustment expenses $ 151,816 $ 121,426 Unearned premium 239,209 217,518 Losses payable (primarily with related parties) 21,334 8,527 Premiums payable - programs 37,028 16,257 Accounts payable and accrued expenses 3,060 3,592 Payable for securities 86,402 � Other liabilities 5,049 3,595 Subordinated debentures � 134,022 � � 134,022 � Total Liabilities � 677,920 � � 504,937 � � Shareholders� Equity Common shares ($0.01 par value, 100,000,000 shares authorized; and 38,305,735 and 38,289,430 shares issued in 2008 and 2007) 383 383 Additional paid-in-capital 385,524 385,057 Accumulated other comprehensive net loss (12,091 ) (1,051 ) Retained earnings � 46,024 � � 37,417 � Total Shareholders� Equity � 419,840 � � 421,806 � Total Liabilities and Shareholders� Equity $ 1,097,760 � $ 926,743 � CastlePoint Holdings, Ltd. Consolidated Statements of Income and Comprehensive Income (Unaudited) � � Three Months EndedMarch 31, 2008 2007 � Revenues Net premiums earned $ 100,404 $ 46,596 Insurance service revenue 7,978 1,561 Net investment income 5,157 5,791 Net realized investment (losses) gains � 1,365 � � 6 � Total revenues � 114,904 � � 53,954 � Expenses Loss and loss adjustment expenses 54,535 25,326 Commission and other acquisition expenses 41,524 16,573 Other operating expenses 6,437 3,336 Interest expense � 2,843 � � 2,201 � Total expenses � 105,339 � � 47,436 � Income before income taxes 6,518 Income tax benefit � - � � 553 � Net income $ 9,565 � $ 7,071 � � Comprehensive Income Net income $ 9,565 $ 7,071 Other comprehensive income: Gross unrealized investment holding (losses) gains arising during period � � 715 (10,449 ) Less: reclassification adjustment for gains included in net income � 1,365 � � 6 � (11,814 ) 709 Income tax recovery related to items of other comprehensive income � 774 � � (28 ) Total other comprehensive (loss) income � (11,040 ) � 681 � Comprehensive (Loss)/Income $ (1,475 ) $ 7,752 � � Earnings Per Share Basic earnings per common share $ 0.25 � $ 0.23 � Diluted earnings per common share $ 0.25 � $ 0.23 � � Weighted Average Common Shares Outstanding: Basic 38,277,704 30,421,659 Diluted 38,494,609 30,570,021 Reinsurance Segment Results of Operations (Unaudited) � Three Months Ended March 31, 2008 � 2007 ($ in thousands) Revenues Premiums earned Gross premiums earned $ 76,452 $ 46,596 Less: ceded premiums earned � (9 ) � � � Net premiums earned � 76,443 � � 46,596 � Expenses Loss and loss adjustment expenses Gross loss and loss adjustment expenses 41,341 25,326 Less: ceded loss and loss adjustment expenses � � � � � � Net loss and loss adjustment expenses � 41,341 � � 25,326 � Underwriting expenses Ceding commission expense 25,653 15,357 Other underwriting expenses � 1,091 � � 650 � Total underwriting expenses � 26,744 � � 16,007 � Underwriting Profit $ 8,358 � $ 5,263 � � Key Measures Premiums written Gross premiums written $ 94,167 $ 71,896 Less: ceded premiums written � (9 ) � � � Net premiums written $ 94,158 � $ 71,896 � Loss Ratios Gross 54.1 % 54.3 % Net 54.1 % 54.3 % Accident Year Loss Ratios Gross 54.7 % 53.2 % Net 54.7 % 53.2 % Underwriting Expense Ratios Gross 35.0 % 34.4 % Net 35.0 % 34.4 % Combined Ratios Gross 89.1 % 88.7 % Net 89.1 % 88.7 % Insurance Segment Results of Operations (Unaudited) � Three Months Ended March 31, � 2008 � 2007 ($ in thousands) Revenues Premiums earned Gross premiums earned $ 31,594 $ � Less: ceded premiums earned � (7,634 ) � � � Net premiums earned � 23,960 � � � � Expenses Loss and loss adjustment expenses Gross loss and loss adjustment expenses 16,479 � Less: ceded loss and loss adjustment expenses � (3,284 ) � � � Net loss and loss adjustment expenses � 13,195 � � � � Underwriting expenses Commission expense 8,949 � Other underwriting expenses � 736 � � 2 � Total underwriting expenses � 9,685 � � 2 � Underwriting Profit/(Loss) $ 1,080 � $ (2 ) � Key Measures Premiums written Gross premiums written $ 34,949 $ � Less: ceded premiums written � (11,017 ) � � � Net premiums written $ 23,932 � $ � � Loss Ratios Gross 52.2 % n/a Net 55.1 % n/a Accident Year Loss Ratios Gross 50.6 % n/a Net 53.5 % n/a Underwriting Expense Ratios Gross 30.7 % n/a Net 40.4 % n/a Combined Ratios Gross 82.9 % n/a Net 95.5 % n/a Insurance Services Segment Results of Operations (Unaudited) � Three Months Ended March 31, 2008 � 2007 ($ in thousands) Revenues Direct commission revenue from programs $ 8,709 � $ 1,561 � Total Revenues � 8,709 � � 1,561 � Expenses Direct commissions expense for programs 7,653 1,216 Other insurance services expenses � 1,980 � � 1,344 � Total Expenses � 9,633 � � 2,560 � Insurance Services Loss $ (924 ) $ (999 )