CPHL Castlepoint Holdings Ltd (MM)

CastlePoint Holdings, Ltd. (NASDAQ: CPHL) today reported net income of $10.5 million and diluted earnings per share of $0.27 for the second quarter of 2007. For the first six months of 2007, CastlePoint reported net income of $17.6 million and diluted earnings per share of $0.51. Key Highlights: Net premiums written for the quarter were $80.5 million, compared to $72.7 for the same period in the prior year. (Net premiums written during the second quarter of last year included $40.9 million of unearned premium reserves which was transferred from Tower. Excluding this amount, the net premiums for the second quarter of 2006 was $31.8 million.) 21% of total written premiums year-to-date were generated from clients other than Tower. Consolidated combined ratio was 93.0% for the quarter. Stockholders� equity increased by $4.1 million during the quarter. GAAP Financial Summary: Three Months Ended June 30, Six Months Ended June 30, 2007 � 2006 � 2007 � 2006 � ($ in thousands, except per share amounts) � Net premiums written $ 80,512 $ 72,742 $ 152,407 $ 72,742 Net premiums earned 54,940 20,388 101,536 20,388 Net investment income 8,088 2,905 13,879 2,905 Net realized (losses) gains on investments (25 ) 3 (19 ) 3 � Total revenues $ 63,677 $ 23,834 $ 117,631 $ 23,834 Net income/(loss) 10,518 (1,176 ) 17,589 (1,612 ) EPS � Basic $ 0.27 $ (0.04 ) $ 0.51 $ (0.13 ) EPS � Diluted $ 0.27 $ (0.04 ) $ 0.51 $ (0.13 ) Return on Average Equity 10.4 % (1.8 %) 10.2 % (2.5 %) Michael H. Lee, Chief Executive Officer of CastlePoint Holdings, Ltd. stated �Our strong second quarter operating results reflect continued profitable growth from Tower, our largest client, as well as continued growth from clients other than Tower. We are especially pleased with the favorable trends that we are seeing from our risk sharing and program business. Because our business solutions are unique and customized to meet the needs of our clients, we believe we are well positioned to take advantage of current market opportunities.� Net earned premiums increased 169.5% to $54.9 million in the second quarter of 2007 as compared to $20.4 million for the same period in 2006. Net premiums earned represented 68.2% of net premiums written for the three months ended June 30, 2007 compared to 28.0% for the same period in 2006. Net investment income increased by 178.4% to $8.1 million for the three months ended June 30, 2007, compared to $2.9 million for the same period in 2006. The yield was 5.5% for the three months ended June 30, 2007 compared to 5.0% for the prior year period. CastlePoint Re, our Bermuda based reinsurance subsidiary, assumed 40% of Tower�s brokerage business in the quarter. Net premiums written increased by 110.7% to $67.0 million for the three months ended June 30, 2007 compared to $31.8 million for the prior year period (adjusted to exclude the unearned premium reserves transferred from Tower). The combined ratio was 86.7% in the quarter as compared to 91.2% for the same prior year period. Our insurance and services segments, which consist of CastlePoint Insurance Company and CastlePoint Management recorded revenues of $2.0 million for the three months ended June 30, 2007, an increase $1.5 million from the prior year period. CastlePoint Insurance Company�s revenues represent the earned portion of the written premiums, and written premiums included $13.1 million representing 9% of Tower�s brokerage business which was assumed by CastlePoint Insurance Company and an additional $0.5 million of Tower brokerage business written on a direct basis. CastlePoint Management had $0.7 million of direct commission revenues from programs. Additional Highlights and Disclosures: Dividend Declaration CastlePoint Holdings, Ltd. Board of Directors has approved a quarterly dividend of $0.025 per share payable September 28, 2007 to stockholders of record as of September 14, 2007. 2007 Guidance For the third quarter of 2007, we project our net income to be in a range between $10.0 million and $12.0 million and diluted earnings per share to be in the range between $0.28 and $0.31 per diluted share. For the full year, we are confirming our guidance of diluted earnings per share to be between $1.10 and $1.20. 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," "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/. Insurance Segment Results of Operations (Unaudited) � Three Months Ended June 30, Six Months Ended June 30, � 2007 � 2006 � 2007 � 2006 ($ in thousands) Revenues Premiums earned Gross premiums earned $ 1,330 $ � $ 1,330 $ � Less: ceded premiums earned � � � � � � � � Net premiums earned � 1,330 � � � 1,330 � Expenses Loss and loss adjustment expenses Gross loss and loss adjustment expenses 718 � 718 � Less: ceded loss and loss adjustment expenses � � � � � � � � Net loss and loss adjustment expenses � 718 � � � 718 � Underwriting expenses Ceding commission expense 549 � 549 � Other underwriting expenses � 19 � � � 21 � � Total underwriting expenses � 568 � � � 570 � � Underwriting Profit $ 44 $ � $ 42 $ � Loss Ratios Gross 54.0% n/a 54.0% n/a Net 54.0% n/a 54.0% n/a Accident Year Loss Ratios Gross 54.0% n/a 54.0% n/a Net 54.0% n/a 54.0% n/a Underwriting Expense Ratios Gross 42.7% n/a 42.8% n/a Net 42.7% n/a 42.8% n/a Combined Ratios Gross 96.7% n/a 96.8% n/a Net 96.7% n/a 96.8% n/a Reinsurance Segment Results of Operations (Unaudited) Three Months Ended June 30, Six Months Ended June 30, � 2007 � 2006 � 2007 � 2006 ($ in thousands) Revenues Premiums earned Gross premiums earned $ 53,610 $ 20,388 $ 100,206 $ 20,388 Less: ceded premiums earned � � � � � � � � Net premiums earned � 53,610 � 20,388 � 100,206 � 20,388 Expenses Loss and loss adjustment expenses Gross loss and loss adjustment expenses 27,264 11,378 52,590 11,378 Less: ceded loss and loss adjustment expenses � � � � � � � � Net loss and loss adjustment expenses � 27,264 � 11,378 � 52,590 � 11,378 Underwriting expenses Ceding commission expense 18,348 7,119 33,705 7,119 Other underwriting expenses � 839 � 100 � 1,489 � 204 Total underwriting expenses � 19,187 � 7,219 � 35,194 � 7,323 Underwriting Profit $ 7,159 $ 1,791 $ 12,422 $ 1,687 Loss Ratios Gross 50.9% 55.8% 52.5% 55.8% Net 50.9% 55.8% 52.5% 55.8% Accident Year Loss Ratios Gross 52.2% 55.8% 52.7% 55.8% Net 52.2% 55.8% 52.7% 55.8% Underwriting Expense Ratios Gross 35.8% 35.4% 35.1% 35.9% Net 35.8% 35.4% 35.1% 35.9% Combined Ratios Gross 86.7% 91.2% 87.6% 91.7% Net 86.7% 91.2% 87.6% 91.7% Insurance Services Segment Results of Operations (Unaudited) Three Months Ended June 30, Six Months Ended June 30, � 2007 � 2006 � 2007 � 2006 ($ in thousands) Revenues Direct commission revenue from programs $ 674 $ 538 $ 2,235 $ 538 Total Revenues � 674 � 538 � 2,235 � 538 Expenses Direct commission expense from programs 492 399 1,708 399 Other insurance services expenses � 1,788 � 708 � 3,132 � 725 Total Expenses � 2,280 � 1,107 � 4,840 � 1,124 Insurance Services Loss $ (1,606) $ (569) $ (2,605) $ (586) CastlePoint Holdings, Ltd. Consolidated Balance Sheets (Unaudited) June 30, 2007 December 31, 2006 ($ in thousands, except par value and share amounts) Assets Fixed-maturity securities, available-for-sale, at fair value (amortized cost $459,499 for 2007; $293,878 for 2006) $ 456,153 $ 295,527 Equity securities, available-for-sale, at fair value (cost $25,045 for 2007; $0 for 2006) 24,125 � Short-term investments, available-for-sale, at fair value (amortized cost $0 for 2007; $51,626 for 2006) � � � 51,638 Total available-for-sale investments 480,278 347,165 Investment in Tower Group, Inc. preferred stock � 40,000 Investment in Partnerships, equity method 20,109 � Common trust securities � statutory business trusts, equity method � 3,094 � 3,094 Total investments 503,481 390,259 Cash and cash equivalents 96,687 34,784 Accrued investment income 3,783 2,211 Assumed premiums receivable (primarily with related parties) 73,907 44,930 Premiums receivable � programs 1,459 1,295 Deferred acquisition costs (primarily with related parties) 47,448 30,363 Deferred income taxes 2,972 1,089 Deferred financing fees 3,066 3,084 Funds held with reinsured companies 9,113 577 Other assets � 2,169 � 2,750 Total Assets $ 744,085 $ 511,342 Liabilities and Shareholders� Equity Liabilities Loss and loss adjustment expenses (primarily with related parties) $ 73,288 $ 34,192 Unearned premium (primarily with related parties) 137,052 86,181 Assumed losses payable (primarily with related parties) 12,447 3,496 Premiums payable-programs (primarily with related parties) 1,313 1,072 Accounts payable and accrued expenses 1,620 2,869 Payable for securities 8,608 � Other liabilities 1,492 725 Subordinated debentures � 103,094 � 103,094 Total Liabilities $ 338,914 $ 231,629 Shareholders� Equity Common shares ($0.01 par value, 100,000,000 shares authorized; 38,282,320 and 29,580,000 shares issued in 2007 and 2006) 383 296 Additional paid-in-capital 384,293 269,472 Accumulated other comprehensive net (loss) income (3,684) 1,657 Retained earnings � 24,179 � 8,288 Total Shareholders� Equity � 405,171 � 279,713 Total Liabilities and Shareholders� Equity $ 744,085 $ 511,342 CastlePoint Holdings, Ltd. Consolidated Statements of Income and Comprehensive Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2007 � 2006 2007 � 2006 ($ in thousands, except share and per share amounts) Revenues Net premiums earned (primarily with related parties ) $ 54,940 $ 20,388 $ 101,536 $ 20,388 Commission income (primarily with related parties) 674 538 2,235 538 Net investment income 8,088 2,905 13,879 2,905 Net realized investment (losses) gains � (25) � 3 � (19) � 3 Total revenues � 63,677 � 23,834 � 117,631 � 23,834 Expenses Loss and loss adjustment expenses (primarily with related parties) 27,982 11,378 53,308 11,378 Commission and other acquisition expenses (primarily with related parties) 19,389 7,517 35,962 7,517 Other operating expenses 4,379 6,115 7,715 6,551 Interest expense � 2,153 � � � 4,354 � � Total expenses � 53,903 � 25,010 � 101,339 � 25,446 Income (loss) before income taxes 9,774 (1,176) 16,292 (1,612) Income tax benefit � 744 � � � 1,297 � � Net income (loss) $ 10,518 $ (1,176) $ 17,589 $ (1,612) � Comprehensive Income (Loss) Net income (loss) $ 10,518 $ (1,176) $ 17,589 $ (1,612) Other comprehensive income: Gross unrealized investment holding losses arising during period � � (6,661) (1,338) (5,945) (1,338) Less: reclassification adjustment for (losses) gains included in net income � (25) � 3 � (19) � 3 (6,636) (1,341) (5,926) (1,341) Income tax expense related to items of other comprehensive income � 614 � � � 585 � � Total other comprehensive (loss) � (6,022) � (1,341) � (5,341) � (1,341) Comprehensive Income (loss) $ 4,496 $ (2,517) $ (12,248) $ (2,953) � Earnings (Loss) Per Share Basic earnings (loss) per common share $ 0.27 $ (0.04) $ 0.51 $ (0.13) Diluted earnings (loss) per common share $ 0.27 $ (0.04) $ 0.51 $ (0.13) � Weighted Average Common Shares Outstanding: Basic 38,277,148 28,679,167 34,349,404 12,073,604 Diluted 38,848,730 28,679,167 34,718,272 12,073,604