American Safety '07 Growth Forecast Flattens

A dramatic jump in net investment income propelled American Safety Insurance Holdings, Ltd.'s second-quarter bottom line to a 57 percent increase, but the soft market prompted deep cuts in the top line, executives said.

The Bermuda-based holding company for specialty insurance operations reported second-quarter net income of $7.3 million, or 66 cents per share, compared with $4.6 million, or 62 cents per share, for the same period last year.

Net investment income rose 58 percent to $7.5 million, up from $4.7 million for the same period last year.

The second quarter's overall combined ratio ticked down slightly to 94.4 compared with 95.2 last year.

While gross written premiums declined 6 percent to $57.9 million, net written premiums grew 7 percent to $44.5 million and net earned premiums jumped 12 percent to $39.4. The net premium gains reflect a strategy to retain more business, the company said, noting that the net-to-gross premium ratio is now about 77 percent compared with 68 percent last year.

During an analyst's conference call this morning, Stephen Crim, president and chief executive officer, said the soft market and the company's focus on exercising underwriting discipline--most clearly seen in the company's 50 percent loss of its western states construction book--prompted a revised growth forecast for the year.

In February, the company set growth targets for the year of 8 percent for gross premium written and 16 percent for net premium written. However, Mr. Crim said the company's revised forecast now contemplates flat gross premiums and a 5-to-8 percent increase in net written premiums for the year.

As the market softens, he said his company will follow a three-pronged strategy to achieve profitable growth going forward. This will involve focusing on product and geographic diversification efforts, growing recently developed products (in property, excess liability, reinsurance and nonconstruction segments), and growing in select areas of the company's core business. He said the surety line and the alternative risk transfer segments are among the existing core businesses being targeted for future growth.

During the quarter, he said continued diversification of the product portfolio beyond prior core products of western states construction and environmental liability was exemplified by the addition of an excess-and-surplus lines property underwriting team during the quarter. This introduced short-tailed business to the overall mix of business, which is predominately longer-tailed business (has a long period between initial claim notice and ultimate settlement).

With a focus on excess and surplus lines risks outside of fire-exposed areas prone to natural catastrophes, the carrier expects to put $1.5 million of property premiums on the books this year, according to Joseph Scollo, chief operating officer.

Other E&S businesses launched in recent years as part of the company's diversification strategy--excess liability, nonconstruction and eastern U.S. construction products--together with assumed reinsurance business being written out of Bermuda, added $18 million of premium, representing 31 percent of total gross premiums written for the quarter, Mr. Crim noted.

During the second quarter, E&S gross premiums fell 18 percent overall to $34 million and premiums in the alternative markets/specialty programs division fell 25 percent to $15 million.

Within the E&S segment, gross premiums for construction fell 30 percent to $16.9 million, while environmental gross written premiums decreased 17 percent to $11.8 million.

The Bermuda reinsurance operation added roughly $9 million of assumed premiums in the quarter.