CastlePoint Holdings, Ltd. (NASDAQ: CPHL) today reported a net loss
of $13.2 million and basic and diluted loss per share of $0.34 for
the third quarter of 2008 as compared to third quarter 2007 net
income of $10.5 million and diluted earnings per share of $0.27.
Third quarter earnings was impacted negatively by several
extraordinary items described below: Expenses relating to the
merger with Tower Group, Inc. (�Tower�) were $9.0 million, as
previously reported. The merger with Tower was previously announced
on August 5, 2008 and is further reported in a preliminary joint
proxy statement/prospectus filed by Tower and the Registrant with
the Securities and Exchange Commission on September 30, 2008. In
anticipation of the merger we accumulated cash and cash
equivalents, which amounted to $218 million as of September 30,
2008. As a result, net investment income was reduced by
approximately $2 million in the quarter as compared to a fully
invested portfolio. Net realized investment losses were $10.5
million, which included the sale of Fannie Mae and Freddie Mac
preferred stock at a realized loss of $2.5 million and
other-than-temporary-impairment charges of $8.0 million, relating
primarily to hybrid securities and bonds of Lehman Brothers
Holdings, Inc. Deferred tax assets were reduced by $4.7 million as
a charge to income since the generation of future capital gains to
offset these losses over the next five years is not assured.
CastlePoint�s investment portfolio as of September 30, 2008 had a
fair value of $783 million including cash and cash equivalents. Our
investments are comprised of highly rated securities with an
average credit rating of AA+. The overall book yield on the
investment portfolio was 4.8% as of September 30, 2008 including
cash and cash equivalents and was 5.7% excluding cash and cash
equivalents. Book value as of September 30, 2008 was $384.7
million, which was $10.04 per share. Net premiums written were
$100.0 million in the third quarter as compared to $90.6 million in
the same period in 2007. Net earned premiums were $113.3 million in
the third quarter of 2008 which was an increase of 72.6% from $65.6
million for the same period in 2007. CastlePoint Re, our Bermuda
based reinsurance subsidiary, had a net combined ratio of 94.8% in
the third quarter as compared to 87.8% for the same period in 2007.
CastlePoint Insurance Company, our U.S. based primary insurance
company, had a net combined ratio of 92.2% in the third quarter as
compared to 110.3% for the same period in 2007. Financial Summary
($ in thousands, except per share data): � Three Months Ended Sept.
30, 2008 � Three Months Ended Sept. 30, 2007 � Nine Months Ended
Sept. 30, 2008 � Nine Months Ended Sept. 30, 2007 Net premiums
written 99,977 � 90,574 � 346,139 � 242,981 Net premiums earned
113,275 65,610 324,494 167,146 Net investment income: Net
investment income excl Partnership 9,260 8,446 26,175 22,325
Realized and unrealized gains (losses) on investment in Partnership
(1) � (54 ) � (908 ) � (3,584 ) � (908 ) Total net investment
income 9,206 7,538 22,591 21,417 � Net realized gains (losses) on
investments (10,470 ) (79 ) (11,906 ) (98 ) � Total revenues
122,783 74,736 362,299 192,367 Net income (loss) (13,151 ) 10,541
6,727 28,130 � Earnings (Loss) Per Share - Basic $ (0.34 ) $ 0.28 $
0.18 $ 0.79 Earnings (Loss) Per Share - Diluted $ (0.34 ) $ 0.27 $
0.18 $ 0.78 � Operating Income and Operating Income excluding
expenses relating to the merger with Tower (1): Operating income,
net of tax, excluding expenses relating to the merger with Tower
(2) 10,345 11,528 34,954 29,136 Reconciliation to Net Income:
Expenses relating to the merger with Tower � (9,049 ) � 0 � �
(9,382 ) � 0 � Operating Income, net of tax 1,296 11,528 25,572
29,136 Realized and unrealized gains (losses) on investment in
Partnership included in net income (1) (54 ) (908 ) (3,584 ) (908 )
Net realized gains (losses) on investments (10,469 ) (79 ) (11,906
) (98 ) Tax effect on realized and unrealized gains (losses) (3) �
(3,924 ) � 0 � � (3,355 ) � 0 � Net (Loss) Income ($13,151 ) $
10,541 $ 6,727 $ 28,130 � Earnings Per Share � Operating income
excluding expenses relating to the merger with Tower: Per Share -
Basic $ 0.27 $ 0.30 $ 0.91 $ 0.82 Per Share - Diluted $ 0.27 $ 0.30
$ 0.91 $ 0.81 � (1) Realized and unrealized gains and losses from
our investment in a limited partnership were recorded as a
component of net investment income. (2) 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 and are key internal management
performance measures. We believe this presentation enhances the
understanding of our results of operations by highlighting the
underlying profitability of our insurance business. Additionally,
operating income excluding expenses relating to the merger with
Tower is shown, since these expenses are non-recurring after the
merger is consummated. (3) Difference between tax benefit on a
pro-forma basis for operating income and actual tax expense booked.
Additional Highlights and Disclosures: Dividend Declaration
CastlePoint Holdings, Ltd. Board of Directors previously had
approved a quarterly dividend of $0.05 per share payable December
31, 2008 to stockholders of record as of December 15, 2008. 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) � � September 30, December 31, 2008 2007
($ in thousands share except per share amounts) Assets �
Fixed-maturity securities, available-for-sale, at fair value $
517,557 $ 484,972 (amortized cost $548,629 for 2008; $484,523 for
2007) Equity securities, available-for-sale, at fair value 33,665
42,402 (cost $45,970 for 2008; $44,036 for 2007) Short-term
investments, available-for-sale, at fair value (amortized cost
$10,460 for 2008; $0 for 2007) � 10,460 � � - � Total
available-for-sale investments 561,682 527,374 Investment in
Partnerships, equity method - 8,503 Common trust securities -
statutory business trusts, equity method � 4,022 � � 4,022 � Total
investments 565,704 539,899 � Cash and cash equivalents 217,511
153,632 Accrued investment income 4,900 4,064 Premiums receivable
169,150 125,597 Premiums receivable - programs 33,819 9,083 Prepaid
reinsurance premiums 9,100 3,475 Reinsurance recoverable on paid
loss & loss adjustment expense 1,544 22 Reinsurance recoverable
on unpaid loss & loss adjustment expense 5,571 315 Deferred
acquisition costs 81,615 73,073 Deferred income taxes 4,933 7,051
Deferred financing fees 3,579 3,673 Other assets � 12,476 � � 7,174
� Total Assets $ 1,109,902 � $ 927,058 � � Liabilities and
Shareholders' Equity � Liabilities Loss and loss adjustment
expenses $ 222,412 $ 121,741 Unearned premium 244,788 217,518
Losses payable 31,544 8,527 Premiums payable - programs 73,722
16,257 Accounts payable and accrued expenses 9,946 3,592 Other
liabilities 8,792 3,595 Subordinated debentures � 134,022 � �
134,022 � Total Liabilities � 725,225 � � 505,252 � � Shareholders�
Equity Common shares ($0.01 par value, 100,000,000 shares
authorized, 38,305,735 shares issued as of September 30, 2008 and
38,289,430 shares issued as of December 31, 2007) 383 383
Additional paid-in-capital 386,867 385,057 Accumulated other
comprehensive net loss (41,931 ) (1,051 ) Retained earnings �
39,357 � � 37,417 � Total Shareholders' Equity � 384,676 � �
421,806 � Total Liabilities and Shareholders' Equity $ 1,109,902 �
$ 927,058 � � CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME(Unaudited) � � � � Three Months Ended Nine Months Ended
September 30, September 30, 2008 2007 2008 2007 ($ in thousands
share except per share amounts) Revenues Net premiums earned $
113,275 $ 65,610 $ 324,494 $ 167,146 Insurance services revenue
10,771 1,667 27,121 3,902 Net investment income 9,207 7,538 22,590
21,417 Net realized loss on investments � (10,470 ) � (79 ) �
(11,906 ) � (98 ) Total Revenues � 122,783 � � 74,734 � � 362,299 �
� 192,367 � � Expenses Loss and loss adjustment expenses 65,711
34,482 180,906 87,790 Commission and other acquisition expenses
46,861 24,147 133,870 60,110 Other operating expenses 16,157 4,268
28,790 11,983 Interest expense � 2,874 � � 2,254 � � 8,543 � �
6,608 � Total Expenses � 131,603 � � 65,151 � � 352,109 � � 166,491
� � (Loss) income before income taxes (8,820 ) 9,585 10,190 25,876
� Income tax (expense) benefit (4,332 ) 956 (3,463 ) 2,254 � � � �
Net (Loss) Income $ (13,152 ) $ 10,541 � $ 6,727 � $ 28,130 � �
Comprehensive (Loss) Income Net (loss) income $ (13,152 ) $ 10,541
$ 6,727 $ 28,130 Other comprehensive income (loss): Gross
unrealized investment holding losses arising during period (34,755
) (2,032 ) (54,132 ) (7,977 ) Less: reclassification adjustment for
(losses) gains incl. in net income � (10,470 ) � 287 � � (11,906 )
� 268 � Other comprehensive loss (24,285 ) (2,319 ) (42,226 )
(8,245 ) � Income tax recovery related to items of other
comprehensive income � 75 � � 140 � � 1,345 � � 725 � Total other
comprehensive loss � (24,210 ) � (2,179 ) � (40,881 ) � (7,520 ) �
Comprehensive (Loss) Income $ (37,362 ) $ 8,362 � $ (34,154 ) $
20,610 � � � Earnings Per Share Basic earnings per common share $
(0.34 ) $ 0.28 $ 0.18 $ 0.79 Diluted earnings per common share $
(0.34 ) $ 0.27 $ 0.18 $ 0.78 � � Weighted-Average Common Shares
Outstanding: Basic 38,282,320 38,277,148 38,280,781 35,658,652
Diluted estimated 38,384,159 38,549,306 38,403,450 36,008,824 �
Reinsurance Segment Results of OperationsUnaudited � � � � � Three
Months Ended Sept. 30 Nine Months Ended Sept. 30 ($ in thousands
share except per share amounts) Revenues: 2008 2007 2008 2007
Premiums earned Gross premiums earned $ 77,475 $ 60,965 $ 235,758 $
161,171 Less: Ceded premiums earned � 7 � � - � � (27 ) � - � Net
premiums earned $ 77,482 60,965 235,731 161,171 � � Expenses: Loss
and loss adjustment expenses Gross loss and loss adjustment
expenses $ 46,535 31,485 $ 133,224 84,075 Less: Ceded loss and loss
adjustment expenses � - � � - � � - � � - � Net loss and loss
adjustment expenses $ 46,535 31,485 $ 133,224 84,075 Underwriting
expenses Ceding commissions expenses $ 25,524 $ 20,929 $ 78,989 $
54,634 Other underwriting expenses � 1,412 � � 1,125 � � 3,537 � �
2,614 � Total underwriting expenses $ 26,936 $ 22,054 $ 82,526 $
57,248 � Underwriting Profit $ 4,011 � $ 7,426 � $ 19,981 � $
19,848 � � � Loss Ratios Gross 60.1 % 51.6 % 56.5 % 52.2 % Net 60.1
% 51.6 % 56.5 % 52.2 % Underwriting Expense Ratios Gross 34.8 %
36.2 % 35.0 % 35.5 % Net 34.8 % 36.2 % 35.0 % 35.5 % Combined
Ratios Gross 94.9 % 87.8 % 91.5 % 87.7 % Net 94.9 % 87.8 % 91.5 %
87.7 % � � Key Measures Premiums Written Gross premiums written $
77,083 $ 68,975 $ 267,050 $ 207,849 Less: Ceded premiums written �
6 � � - � � (27 ) � - � Net premiums written $ 77,089 � $ 68,975 �
$ 267,023 � $ 207,849 � � Insurance Segment Results of
OperationsUnaudited � � � � � Three Months Ended Sept. 30 Nine
Months Ended Sept. 30 ($ in thousands share except per share
amounts) Revenues: 2008 2007 2008 2007 Premiums Earned Gross
premiums earned $ 50,463 $ 6,063 $ 120,364 $ 7,394 Less: Ceded
premiums earned � (14,669 ) � (1,419 ) � (31,601 ) � (1,419 ) Net
premiums earned � 35,794 � � 4,644 � � 88,763 � � 5,975 � Ceding
commission revenue 3,404 - 5,812 - � � � � - � Total � 39,198 � �
4,644 � � 94,575 � � 5,975 � � Expenses: Loss and Loss Adjustment
Expenses Gross loss and loss adjustment expenses 22,976 3,312
58,578 4,030 Less: Ceded loss and loss adjustment expenses � (3,801
) � (315 ) � (10,896 ) � (315 ) Net loss and loss adjustment
expenses 19,175 2,997 47,682 3,715 Underwriting expenses
Commissions expenses 15,533 1,997 37,426 2,546 Other underwriting
expenses � 1,705 � � 130 � � 3,637 � � 151 � Total underwriting
expenses $ 17,238 � � 2,127 � � 41,063 � � 2,697 � � Underwriting
Profit / (Loss) $ 2,785 � $ (480 ) $ 5,830 � $ (437 ) � � Loss
Ratios Gross 45.5 % 54.6 % 48.7 % 54.5 % Net 53.6 % 64.5 % 53.7 %
62.2 % Underwriting Expense Ratios Gross 34.2 % 35.1 % 34.1 % 36.5
% Net 38.6 % 45.8 % 39.7 % 45.1 % Combined Ratios Gross 79.7 % 89.7
% 82.8 % 91.0 % Net 92.2 % 110.3 % 93.4 % 107.3 % � � Key Measures
Premiums Written Gross premiums written $ 56,708 $ 28,696 $ 134,060
$ 42,228 Less: Ceded premiums written � (33,820 ) � (7,096 ) �
(54,944 ) � (7,096 ) Net premiums written � 22,888 � � 21,600 � �
79,116 � � 35,132 � � Insurance Services Segment Results of
OperationsUnaudited � � � � � Three Months Ended Sept. 30 Nine
Months Ended Sept. 30 ($ in thousands share except per share
amounts) 2008 2007 2008 2007 � Revenue Direct commission revenue
from programs $ 11,217 � $ 1,667 � $ 29,212 � $ 3,902 � Total
Revenues � 11,217 � � 1,667 � � 29,212 � � 3,902 � � Expenses
Direct commissions expense from programs 9,653 1,222 25,358 2,930
Other insurance services expenses � 2,231 � � 1,435 � � 6,234 � �
4,567 � Total Expenses � 11,884 � � 2,657 � � 31,592 � � 7,496 � �
Insurance Services Loss $ (667 ) $ (990 ) $ (2,380 ) $ (3,594 ) �
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