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July 31, 2009
Share ThisSeaBright Holdings (SBX) reported second quarter earnings of $0.20 per share, missing our expectation of $0.27 per share and down from $0.30 last year. Total revenue increased 8.9% to $67.3 million versus $61.8 million in the year-earlier period.
Net premiums written declined 3.7% year over year to $60.6 million. This decline was brought due to increased ceded premiums. New reinsurance treaty and higher reinsurance costs led to an increase in ceded premiums.
SeaBright experienced high level of contribution from its new programs, including small maritime, alternative markets, and wrap-up, which together accounted for over 10% of in-force premium. Investment in geographic and product expansion in the prior year has also resulted in the increase in in-force customer count.
Net loss ratio was 68.2% compared to 57.0% in the same period of 2008. Seabright recognized $2.9 million of adverse development of prior years’ loss reserve estimates, compared to approximately $7.9 million of favorable development of prior years' loss reserve estimates last year. Net combined ratio was 94.9% compared to 88.6% for the same period in 2008.
A strong level of renewal retention was experienced at 85.7%, at par with the first quarter of 2009.
Net investment income was $5.7 million compared to $5.6 million for the same period in 2008. This increase was bought by positive cash flow from operations, offset by lower investment yields.
The number of customers increased 32% year over year to 1,360. The average premium size per customer was approximately $220,000 compared to approximately $267,000 last year. The average customer size has been decreasing each quarter and is now affected by changes in the economy as the company experiences declining payroll on its in-force book of business, especially in construction.
A Small Maritime unit was introduced earlier this year. It targets customers with an average annual premium of approximately $30–35,000. As this unit grows, it will have an overall positive impact on average customer size.
With declining rates in all other jurisdiction, SeaBright got an approval of 10.6% increase in insurance rates, commencing from August this year. California accounts for a major portion of in-force premiums.
At the end of the quarter, SeaBright had no direct subprime mortgage exposure in its investment portfolio. Presently, the company does not expect a material impact to its investment portfolio or financial position, as a result of the problems currently being faced by the monoline bond insurers.
Continuing weak U.S. economy will keep SeaBright’s earnings pressed. Pending further positive developments, we recommend to Hold the shares.
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