MAJC Majestic Capital, Ltd. - Common Shares (MM)

Majestic Capital, Ltd. (“the Company”) (Nasdaq: MAJC), a specialty provider of workers’ compensation insurance products, announced results for the quarter ended June 30, 2010.

For the second quarter of 2010, the Company incurred a net loss from continuing operations of $3.9 million, or $(0.23) per diluted share, compared to a net loss from continuing operations of $2.1 million, or $(0.12) per diluted share, for the same period in 2009. Unless otherwise stated, all further results discussed in this release refer to continuing operations for 2010 and results on a comparable basis for 2009.

Total revenues in the second quarter of 2010 were $14.5 million, compared to $26.4 million in the same quarter of the prior year. Net premiums earned for the second quarter of 2010 decreased 52% to $10.9 million compared to $22.6 million for the same period in 2009. This decrease resulted primarily from competitive market conditions and the Company’s continuing efforts to improve overall price adequacy under those conditions, the December 2009 downgrade of Majestic Insurance Company’s financial strength rating to a level unacceptable to certain potential insureds, and a cession rate approximately 17% higher on Majestic’s external quota share reinsurance agreements in place during 2010 as compared to 2009. Majestic non-renewed its external quota share reinsurance program effective July 1, 2010, based on the Company’s operating results through the first half of 2010 and its current financial strength rating and capital position.

The Company’s net investment income increased 17% to $3.3 million for the second quarter 2010 from $2.8 million in 2009 due to higher net realized gains.

Total expenses for the second quarter 2010 decreased 34% to $19.7 million compared to $30.0 million for the same period in 2009.

The Company’s loss and loss adjustment expense ratio for the second quarter of 2010 was 85% compared to 79% for the same period of 2009. During the second quarter of 2010, the Company recognized $1.3 million of favorable development of prior years’ loss reserve estimates, compared to $1.1 million of favorable development of prior years’ loss reserve estimates in the second quarter of 2009.

Total underwriting and acquisition expenses for the second quarter of 2010 were $8.0 million compared to $7.3 million for the same period in 2009. The expense ratio for the second quarter was 73% compared to 33% in the same period in 2009, primarily due to the effects of the reduction in net earned premiums. For the second quarter of 2010, general and administrative expenses decreased 67% to $1.3 million from $4.0 million for the same period in 2009. The combined ratio for the second quarter 2010 was 158% compared to 112% for the same period in 2009.

At June 30, 2010, the overall credit rating of the Company’s fixed income portfolio was AA+. The Company’s average portfolio yield on available-for-sale investments was 3.8% as at June 30, 2010, compared to 3.6% as at December 31, 2009. The Company’s effective portfolio duration was 3.4 years as at June 30, 2010. The following tables illustrate the Company’s investment portfolio distribution by sector and average credit rating:

         

Portfolio Distribution by Sector

Portfolio Distribution by Credit Rating

           

6/30/2010

     

12/31/2009

                 

Average

     

Average

% of

Credit

% of

Credit

Quality

6/30/2010

12/31/2009

Portfolio

Rating

Portfolio

Rating

AAA 36.6 % 46.9 % Government 15.5 % AAA 21.1 % AAA AA 29.6 % 25.3 % Agency 10.3 % AAA 5.1 % AAA A 31.1 % 26.1 % Corporate 31.0 % A 30.0 % A BBB 2.6 % 1.4 %

Mortgage backed securities

7.6 % AAA 17.4 % AAA Below BBB 0.1 % 0.3 %

Asset backed securities

3.4 % AA+ 3.4 % AA+ 100.0 % 100.0 % Municipal           32.2 %       AA- 23.0 %      

AA

            Total           100.0 %       AA+ 100.0 %       AA+

Average credit rating

      AA+ AA+  

Conference Call

The Company will host a conference call at 9:00 a.m. ET on Thursday, August 5, 2010, to discuss earnings for the second quarter ended June 30, 2010. To participate in the event by telephone, please dial (877) 303-2905 five to ten minutes prior to the start time (to allow time for registration) and reference the conference passcode 88946022. International callers should dial (408) 427-3868. A digital replay of the call will be available on Thursday, August 5, at approximately 11:00 a.m. Eastern Time through Wednesday, August 11, at midnight Eastern Time. Dial (800) 642-1687 and enter the conference ID number 88946022. International callers should dial (706) 645-9291 and enter the same conference ID number. The conference call will also be webcast live over the internet and can be accessed by all interested parties at the Company's website at http://www.MajesticCapital.com/events.cfm. To monitor the live webcast, please go to this website at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software. An audio replay of the event will be archived for 90 days on the Company's website at http://www.MajesticCapital.com/events.cfm.

About Majestic Capital, Ltd.

Majestic Capital, Ltd., through its subsidiaries, is a specialty provider of workers' compensation insurance products. The Company seeks to provide quality products and services that fit the needs of its insureds and is dedicated to developing and maintaining a mutually beneficial, long-term relationship with them. The Company's workers' compensation insurance coverage is offered to employers in California, New York, New Jersey, Arizona, Nevada, and other states. Further information can be found on the Company's website at http://www.MajesticCapital.com.

Forward-Looking statements

This press release contains forward-looking statements within the meaning of federal securities law, including statements concerning plans, objectives, goals, strategies, projections of future events or performance and underlying assumptions (many of which are based, in turn, upon further assumptions). These statements are based on our current expectations and projections about future events and are identified by terminology such as “may,” “will,” “should,” “expect,” “scheduled,” “plan,” “seek,” “intend,” “anticipate,” “believe,” “estimate,” “aim,” “potential,” or “continue” or the negative of those terms or other comparable terminology.

All forward-looking statements involve risks and uncertainties. Although the Company believes that its plans, intentions and expectations are reasonable, the Company may not achieve such plans, intentions or expectations. There are or may be important factors that could cause actual results to differ materially from the forward-looking statements the Company makes in this document. Such risks and uncertainties are discussed in the Company's Form 10-K for the year ended December 31, 2009 and in other documents filed by the Company with the Securities and Exchange Commission. The Company believes that these factors include, but are not limited to the following:

• The cyclical nature of the insurance and reinsurance industry;
• Premium rates;
• Investment results;
• Legislative and regulatory changes;
• The estimation of loss reserves and loss reserve development;
• Reinsurance may be unavailable on acceptable terms, and the Company may be unable to collect reinsurance;
• The occurrence and effects of wars and acts of terrorism;
• The effects of competition;
• The possibility that the outcome of any litigation, arbitration or regulatory proceeding is unfavorable;
• A downgrade in the Company’s financial strength ratings;
• Economic downturns; and
• Natural disasters.

These risks and others could cause actual results to differ materially from those expressed in any forward-looking statements made. The Company undertakes no obligation to update publicly or revise any forward-looking statements made.

MAJC-E

          Table 1 Majestic Capital, Ltd. Consolidated Balance Sheets             Unaudited

June 30,

December 31,

           

2010

         

2009

(Dollars in thousands) Assets Investments Fixed-maturity securities, available-for-sale (amortized cost $228,933 and $275,480) $ 235,491 $ 276,593 Short-term investments 3,653 4,893 Investment in unconsolidated subsidiary   1,083               1,083   Total investments 240,227 282,569 Cash and cash equivalents 24,083 44,087 Restricted cash and cash equivalents   4,141               5,922   Total cash and cash equivalents 28,224 50,009 Accrued interest receivable 2,735 2,542 Premiums receivable, net 4,604 6,246 Reinsurance recoverable and prepaid reinsurance 131,774 123,767 Accounts receivable, net 3,069 3,106 Receivable for investments sold 54,898 72 Deferred policy acquisition costs 674 758 Current income taxes, net 5,217 6,979 Other intangible assets, net 358 436 Prepaid expenses 2,559 3,675 Other assets             2,525               2,788   Total assets           $ 476,864             $ 482,947       Liabilities and shareholders' equity Reserve for losses and loss adjustment expenses $ 317,304 $ 317,497 Reinsurance payable 27,839 20,357 Unearned premiums 8,790 10,599 Long-term debt 44,083 44,083 Payable for investments purchased 10,400 - Other liabilities             15,850               29,677   Total liabilities             424,266               422,213     Common shares

Authorized 50 billion shares; $.01 par value per share; 16.6 and 16.5 million common shares issued and outstanding

166 165 0.4 million Class B shares issued and outstanding 4 4 Additional paid-in capital 71,324 71,057 Retained deficit (23,159 ) (11,215 ) Accumulated other comprehensive income             4,263               723   Total shareholders' equity             52,598               60,734   Total liabilities and shareholders' equity           $ 476,864             $ 482,947                               Table 2 Majestic Capital, Ltd. Unaudited Consolidated Statements of Operations                                         Three months ended

June 30,

      Six months ended

June 30,

            2010     2009       2010     2009 (Dollars in thousands, except per share amounts)   Written premiums Direct premiums written $ 22,470 $ 38,841 $ 51,018 $ 78,798 Assumed premiums written 1,961 1,668 2,073 1,718 Ceded premiums written             (12,816 )       (17,056 )         (27,715 )       (34,281 ) Net premiums written             11,615         23,453           25,376         46,235     Revenues Net premiums earned $ 10,895 $ 22,567 $ 24,533 $ 43,709 Fee-based income 374 1,061 644 2,734 Net investment income 2,351 2,512 4,788 5,288 Net realized gains             916         271           1,290         744   Total revenues             14,536         26,411           31,255         52,475     Expenses Losses and loss adjustment expenses 9,279 17,804 23,737 34,888 Underwriting and acquisition expenses 7,987 7,341 15,456 18,111 General and administrative expenses 1,292 3,971 3,361 12,670 Interest expense             1,153         886           2,244         1,786   Total expenses             19,711         30,002           44,798         67,455     Loss from continuing operations before income taxes (5,175 ) (3,591 ) (13,543 ) (14,980 ) Tax benefit from continuing operations             (1,230 )       (1,495 )         (1,895 )       (4,700 ) Loss from continuing operations             (3,945 )       (2,096 )         (11,648 )       (10,280 )                                   Loss from discontinued operations             (121 )       (280 )         (296 )       (484 )   Net Loss           $ (4,066 )     $ (2,376 )       $ (11,944 )     $ (10,764 )   Loss per share from continuing operations Basic ($0.23 ) ($0.12 ) ($0.68 ) ($0.61 ) Diluted ($0.23 ) ($0.12 ) ($0.68 ) ($0.61 ) Loss per share from discontinued operations Basic ($0.01 ) ($0.02 ) ($0.02 ) ($0.03 ) Diluted ($0.01 ) ($0.02 ) ($0.02 ) ($0.03 ) Net loss per share Basic ($0.24 ) ($0.14 ) ($0.70 ) ($0.64 ) Diluted ($0.24 ) ($0.14 ) ($0.70 ) ($0.64 ) Weighted average shares outstanding Basic 17,001 16,775 16,958 16,697 Diluted 17,001 16,775 16,958 16,697                         Table 3 Majestic Capital, Ltd. Unaudited Consolidated Statements of Cash Flow Six Months Ended June 30,                                       2010           2009 (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (11,944 ) $ (10,764 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 369 402 Amortization of unearned compensation, restricted stock 274 869 Amortization of premiums and discounts on available-for-sale investments 877 794 Net realized gains on sale of available-for-sale investments (1,290 ) (866 ) Other-than-temporary impairment losses on available-for-sale investments - 122 Write off of uncollectible premiums receivable 555 717 Deferred income taxes (1,906 ) (2,728 ) Changes in: Accrued interest receivable (193 ) (29 ) Premiums receivable, net 1,087 3,829 Reinsurance recoverable and prepaid reinsurance (8,006 ) (22,489 ) Accounts receivable, net 38 (950 ) Deferred policy acquisition costs 84 (64 ) Current income taxes, net 1,762 (2,702 ) Prepaid expenses 1,095 (491 ) Other assets 5 (13 ) Reserve for losses and loss adjustment expenses (193 ) 26,382 Reinsurance payable 7,482 (5,913 ) Unearned premiums (1,810 ) 642 Other liabilities             (13,826 )             5,348   Net cash used in operating activities             (25,540 )             (7,904 )   CASH FLOWS FROM INVESTING ACTIVITIES Purchases of available-for-sale investments (81,684 ) (126,488 ) Proceeds from sales of available-for-sale investments 91,550 53,415 Proceeds from maturities of available-for-sale investments 37,094 83,123 Net purchases, sales and maturities of short-term investments 1,240 (9,078 ) (Increase) decrease in receivable for securities sold (54,826 ) 27 Increase in payable for investments purchased 10,400 8,193 Purchases of fixed assets (18 ) (114 ) Disposals of fixed assets             5               39   Net cash provided by investing activities             3,761               9,117     CASH FLOWS FROM FINANCING ACTIVITIES Change in restricted cash and cash equivalents 1,781 (1,489 ) Repayments under long-term debt 1 76 Retirement of common shares - share-based compensation             (7 )             (11 ) Net cash provided by (used in) financing activities             1,775               (1,424 ) Net decrease in cash (20,004 ) (211 ) Cash and cash equivalents Beginning             44,087               28,044   Ending           $ 24,083             $ 27,833                                       Table 4 Majestic Capital, Ltd. Premiums by State   Three months ended Six months ended June 30, June 30, 2010 2009 2010 2009 (Dollars in thousands)   Direct Written Premiums California $ 17,073 $ 26,131 $ 38,154 $ 51,112 New York/New Jersey 4,509 10,878 10,519 23,665 Other   888         1,832     2,345         4,021   22,470         38,841     51,018         78,798   Assumed Written Premiums California $ 1,678 $ - $ 1,677 $ - New York/New Jersey 129 1,679 232 1,688 Other   154         (11 )   164         30   1,961         1,668     2,073         1,718   Net Earned Premiums California $ 7,802 $ 14,465 $ 17,039 $ 27,194 New York/New Jersey 2,567 7,132 6,288 14,280 Other   526         970     1,206         2,235 $ 10,895       $ 22,567   $ 24,533       $ 43,709                                     Table 5   Majestic Capital, Ltd. Insurance Operations Data   Three months ended Six months ended June 30, June 30, 2010 2009 2010 2009 (Dollars in thousands)   Net premiums earned $ 10,895 $ 22,567 $ 24,533 $ 43,709   Current accident year losses and ALAE 8,867 17,598 19,459 32,527 Current accident year ULAE   1,678           1,351     4,076           2,331   Current year losses and loss adjustment expenses 10,545 18,949 23,535 34,858 Prior year losses and loss adjustment expenses   (1,266 )         (1,145 )   202           30   Losses and loss adjustment expenses 9,279 17,804 23,737 34,888   Underwriting and acquisition expenses 7,987 7,341 15,456 18,111                     Underwriting loss $ (6,371 )       $ (2,578 ) $ (14,660 )       $ (9,290 )   Current Accident Year Loss and ALAE Ratio (1) 82 % 78 % 79 % 75 % Current Accident Year ULAE Loss Ratio (2)   15 %         6 %   17 %         5 % Current Accident Year Loss Ratio (3) 97 % 84 % 96 % 80 % Prior Accident Year Loss Ratio (4)   (12 %)         (5 %)   1 %         0 % Total Loss Ratio (5) 85 % 79 % 97 % 80 %   Expense Ratio (6) 73 % 33 % 63 % 41 %                     Combined Ratio (7)   158 %         112 %   160 %         121 %   (1) The current accident year loss and allocated loss adjustment expenses (ALAE) ratio is calculated by dividing the sum of losses and ALAE by net premiums earned.   (2) The current accident year unallocated loss adjustment expenses (ULAE) ratio is calculated by dividing ULAE by net premiums earned.   (3) The current accident year loss ratio is the sum of the current accident year loss and ALAE ratio and the current accident year ULAE ratio.   (4) The prior accident year loss ratio is calculated by dividing the prior accident year losses and loss adjustment expenses by net premiums earned.   (5) The total loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned.  

(6) The expense ratio is calculated by dividing underwriting and acquisition expenses for the period by net premiums earned.

  (7) The combined ratio is the sum of the loss ratio and the expense ratio.