Darwin Professional Underwriters, Inc. Reports First Quarter Net Income of $5.2 Million and Gross Premiums of $74 Million
Net income increases 87% and gross premiums increase 24% over the comparable year-earlier results.
FARMINGTON, Conn., April 26 /PRNewswire-FirstCall/ — Darwin Professional Underwriters, Inc. (“Darwin,” the “Company,” or “Our”) DR today announced its financial results for the first quarter ended March 31, 2007. Highlights include:
Gross premiums written for the first quarter are $74.3 million. First quarter gross premiums written are 24.0% ahead of our gross premiums for the same period a year ago. Net premiums written for the quarter of $48.9 million are up 33.0% over the first quarter of 2006.
— Net earnings of $5.2 million for the quarter ended March 31, 2007 represent an 87.2% increase over the $2.8 million for the quarter ended March 31, 2006.
— Overall, the combined ratio is 92.8% for the first quarter 2007, which compares favorably to the first quarter 2006 combined ratio of 96.6%. The combined ratio improvement is primarily driven by a decrease in the loss ratio (6.9% improvement to 63.7%) and is partially offset by a higher expense ratio (3.1% increase to 29.1%) for the quarter. The first quarter loss ratio improvement includes approximately $0.8 million in favorable loss reserve development ($0.5 million, net of tax) stemming from the 2004 accident year, as well as a decrease of $0.4 million ($0.2 million, net of tax) in ceded premiums earned due to the corresponding changes in the underlying variable-rated reinsurance in-force during the 2004 accident year. The increase in the expense ratio is driven by a higher commission expense due to a change in the mix of our business and higher commissions paid to external brokers.
— Earnings per diluted share for the three months ended March 31, 2007 are $0.31 compared to $0.17 per share for the same period in 2006.
— Annualized return on average equity is 9.5% for the three months ended March 31, 2007, while shareholders’ equity grew $5.7 million, or 2.6% during the three months, from $217.9 million at December 31, 2006 to $223.6 million at March 31, 2007. Book value per share grew 2.3% to $13.08 at March 31, 2007 from $12.78 at December 31, 2006.
For the quarter ended March 31, 2007, the break-down of gross premiums written by business line is as follows: medical malpractice liability, $22.7 million; errors and omissions (“E&O”) liability, $42.8 million; and directors and officers (“D&O”) liability, $8.8 million.
Stephen Sills, Darwin’s president and chief executive officer, commented, “Our business remains very competitive but we are proud to have achieved favorable operating results. Our focus in distinct niches within the specialty lines market has allowed us to produce excellent growth and operating results in the first quarter of 2007. Darwin’s strategy has been to distinguish ourselves with great service, add value to our clients through product innovation, and to provide risk management services wherever possible. In addition, we have raised our commission rates for new business accounts in 2007 to reward our key producers for continuing to grow with Darwin. We estimate this, along with our focus on smaller accounts, which generally have higher commissions, will increase our gross commission expense by approximately 2% in 2007. We are also pleased to report that we have renewed our two major reinsurance programs at favorable terms and have been able to increase the ceding commission we receive on business subject to these treaties, while taking more risk at lower levels. At the same time, we have eliminated the swing-rated aspects of the treaties, which we believe will dampen volatility. The increase in ceding commissions should mitigate our anticipated increase in commission expense going forward.
“Darwin recorded a significant increase in net income and gross premiums written over the first quarter of 2006 and demonstrated our continued commitment to underwriting profitability with a first quarter combined ratio of 92.8 percent. With significant expertise across all of our lines, we believe we’re well positioned to take advantage of the continued opportunities we see in specialty insurance.
“Darwin has achieved many milestones this past year and recently was the first issuer to transition from the NYSE Arca to the NYSE. Our existing ticker symbol, DR, will remain unchanged. Additionally, Darwin was recently voted one of the top 25 best places to work in Connecticut by the Hartford Business Journal, placing eighth in the medium company category.”
Darwin executives will hold a conference call to discuss this press release tomorrow morning, April 27, 2007, at 9:00 a.m. Eastern time. The live webcast of Darwin’s earnings conference call, as well as our financial supplement, can be accessed through Darwin’s web site at http://investor.darwinpro.com. Analysts and investors interested in participating in the live conference call may dial in to 866-700-6293 (International callers may dial 617-213-8835) and enter passcode 21954694
The webcast version of the conference call will be archived on Darwin’s web site following the date of the event. A telephonic replay of the earnings conference call will be available shortly after the conclusion of the call on April 27, 2007. To access the telephonic replay, domestic callers may dial 888-286-8010 (International callers may dial 617-801-6888) and enter passcode 93990590. The telephonic replay will be available until May 4, 2007.
Certain matters discussed in this release are forward-looking statements. Such statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include the accuracy of assumptions underlying the Company’s outlook and other risks described in the Company’s filings with the Securities and Exchange Commission (“SEC”), including the Company’s Annual Report on Form 10-K for 2006 and Form 10-Q for first quarter 2007. These forward-looking statements represent the Company’s judgment as of the date of this release. The Company disclaims any intent or obligation to update these forward-looking statements.
About Darwin Professional Underwriters, Inc.
Darwin is a specialty insurance group based in Farmington, Connecticut. The company is focused on the specialty liability insurance market and underwrites D&O liability insurance for public and private companies, E&O liability insurance, and medical malpractice liability insurance. Darwin member companies include Darwin Professional Underwriters, Inc., Darwin National Assurance Company (“DNA”), and Darwin Select Insurance Company (“Darwin Select”). DNA and Darwin Select have earned a financial strength rating of “A- (Excellent)” from A.M. Best Company. Darwin is traded on the New York Stock Exchange under the ticker symbol, “DR.” For more information about Darwin, visit www.darwinpro.com.
Additional information concerning Darwin, its finances, and business operations can be found in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 which will be filed with the SEC. Darwin Professional Underwriters, Inc. and Subsidiaries Selected Consolidated Statements of Operations Data Three Months Ended March 31, 2007 and March 31, 2006
(Dollars in thousands, except per share amounts) Three Months Ended March 31, 2007 2006 (Unaudited)
Gross premiums written $74,278 $59,884
Net premiums written $48,942 $36,788
Revenues: Net premiums earned $39,997 $27,304 Net investment income 5,239 3,360 Net realized investment losses — (10) Total revenues 45,236 30,654
Costs and expenses: Losses and loss adjustment expenses 25,470 19,264 Commissions and brokerage expenses 5,180 2,632 Other underwriting, acquisition and operating expenses 6,485 4,479 Other expenses 577 159 Total costs and expenses 37,712 26,534
Earnings before income taxes 7,524 4,120 Income tax expense 2,304 1,332 Net earnings $5,220 $2,788
Basic earnings per share: Net earnings per share $0.32 $– Weighted average shares outstanding 16,126,882 —
Diluted earnings per share: Net earnings per share $0.31 $0.17 Weighted average shares outstanding 17,074,730 16,355,625
Combined ratio: Loss ratio 63.7% 70.6% Expense ratio 29.1% 26.0% Combined ratio 92.8% 96.6% Darwin Professional Underwriters, Inc. and Subsidiaries Selected Consolidated Balance Sheets Data March 31, 2007 and December 31, 2006
(Dollars in thousands, except per share amounts) March 31, December 31, 2007 2006 (Unaudited)
Available for sale securities, at fair value: Fixed maturity securities (amortized cost: 2007, $367,765; 2006, $328,201) $369,565 $329,846 Short-term investments, at cost which approximates fair value 98,043 69,537 Total investments 467,608 399,383
Cash 5,110 26,873
Premiums receivable (net of allowance
for doubtful accounts of $75 as of
March 31, 2007 and December 31, 2006) 22,294 31,094
Reinsurance recoverable on paid and
unpaid losses 109,141 96,371
Ceded unearned reinsurance premiums 47,570 44,742
Deferred insurance acquisition costs 14,159 12,724
Property and equipment at cost,
less accumulated depreciation 2,021 1,895
Intangible assets 7,306 7,306
Net deferred income tax asset 9,929 8,720
Other assets 7,353 6,156 Total assets $692,491 $635,264
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Loss and loss adjustment expense reserves $292,673 $263,549
Unearned premium reserves 135,568 123,796
Reinsurance payable 25,413 21,385
Due to brokers for unsettled trades 5,938 —
Current income taxes payable 3,296 865
Accrued expenses and other liabilities 6,043 7,819 Total liabilities 468,931 417,414
Common stock; $0.01 par value; authorized
50,000,000 shares; issued and outstanding
17,085,313 shares at March 31, 2007 and
17,047,222 shares at December 31, 2006 171 170
Additional paid-in capital 203,484 203,095
Retained earnings 18,770 13,548
Accumulated other comprehensive income 1,135 1,037 Total stockholders’ equity 223,560 217,850 Total liabilities and stockholders’ equity $692,491 $635,264 March 31, December 31, 2007 2006
Book value per common share: Book value per common share $ 13.08 $12.78 Tangible book value per common share $ 12.66 $12.35
Net income return on average equity(1) 9.5% 7.7%