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SEABRIGHT INSURANCE HOLDINGS INC Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 8, 2012 02:22PM
SEABRIGHT INSURANCE HOLDINGS INC (SBX) filed Quarterly Report for the period ended 2012-06-30.
Highlight of Business Operations:If we fail to accurately assess our future claims costs, our loss reserves may be inadequate to cover our actual losses. As discussed under “Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies, Estimates and Judgments – Unpaid Loss and Loss Adjustment Expenses” in our 2011 Annual Report on Form 10-K, there are many variables that can impact the adequacy of our loss and loss adjustment expense liabilities and we continually refine our loss reserve estimates. Quarterly, management determines what, if any, adjustments to prior accident years loss reserves are necessary after considering the results of actuarial studies performed by internal and/or consulting actuaries; the impact of recent operational initiatives on our claims costs and loss reserves; discussions with key executives in Underwriting, Claims, and other relevant functional areas; changing environmental conditions; and other factors. In response to the factors described in the preceding paragraph, we strengthened our net loss reserves for prior accident years by $28.4 million in 2011 and lowered our net reserves by $1.0 million in the first six months of 2012. We may ultimately conclude that our current estimate of loss reserves is inadequate, if the negative claim trends experienced over the last several years described above continue or worsen. Future adverse development could require us to increase our loss reserves, which could have a material adverse effect on our earnings and financial position in the periods in which such increases are made.
Net Investment Income. Net investment income was $4.4 million for the three months ended June 30, 2012 compared to $5.3 million for the same period in 2011, representing a decrease of $0.9 million, or 17.0%. Net investment income was $9.4 million for the six months ended June 30, 2012, compared to $10.7 million for the same period in 2011, representing a decrease of $1.2 million, or 11.5%. Average invested assets were $749.2 million for the three months ended June 30, 2012, an increase of $53.8 million, or 7.7%, from $695.4 million for the same period in 2011. For the six months ended June 30, 2012, average invested assets were $739.5 million, an increase of $45.2 million, or 6.5%, from $694.3 million for the same period in 2011. Our yield on average invested assets decreased from approximately 3.0% for the three months ended June 30, 2011 to approximately 2.4% for the same period in 2012, driven mainly by reduced reinvestment rates and sales of higher-yielding investment securities. For the six months ended June 30, 2012, our yield on average invested assets was 2.6% compared to approximately 3.1% for the same period in 2011.
Net Realized Gains. Net realized gains totaled $2.1 million for the three months ended June 30, 2012 compared to $0.1 million for the same period in 2011. For the six months ended June 30, 2012, net realized gains totaled $10.1 million compared to $0.4 million in the same period in 2011. The increase in net realized gains for the three months and six months ended June 30, 2012 resulted from the sale of investment securities in order to reduce exposure to interest rate risk and realize a portion of our tax loss carry forwards. The majority of proceeds from these sales were reinvested in taxable securities in a continuing effort to shorten the overall portfolio duration and reduce the municipal exposure.
Net cash provided by investing activities was $5.5 million in the six months ended June 30, 2012, compared to $9.0 million in the same period in 2011. The decrease in net cash provided by investing activities was primarily driven by lower net investment sales activity (sales and maturities, net of purchases).