ProSight Specialty Insurance Reports Full Year 2018 Results

PR Newswire

MORRISTOWN, N.J., Feb. 19, 2019 /PRNewswire/ -- ProSight, a leader in differentiated specialty insurance, today reported strong financial results for the full year ended December 31, 2018.

ProSight reported net income from continuing operations of $53.7 million, $8.80 per diluted share for year ended December 31, 2018, compared to a net loss from continuing operations of $6.9 million, ($1.19) per diluted share for year ended December 31, 2017.

Adjusted operating income ⁽¹⁾ was $55.3 million, $9.05 per diluted share for year ended December 31, 2018, compared to $14.0 million, $2.41 per diluted share for year ended December 31, 2017.

Highlights for the full year 2018 included:

Net income from continuing operations of $53.7 million, increased by $60.6 million compared to 2017.
Adjusted operating income ⁽¹⁾ of $55.3 million, increased by 295.0% compared to 2017.
Underwriting income ⁽²⁾ of $24.4 million, resulting in a combined ratio of 96.7%, a reduction of 3.0 percentage points when compared to 2017.
54.6% increase in net investment income to $56.0 million compared to 2017 of $36.2 million.
7.0% growth in gross written premiums to $895.1 million compared to 2017 of $836.3 million.
Favorable prior period development of $5.0 million.
Consistently low impact from catastrophes in 2018, similar to 2017.
14.5% adjusted operating return on equity.

ProSight CEO Joe Beneducci said, "Our 2018 results represented another strong installment for our long-term strategy as we continued to diversify our insurance solutions and delivered greater value for our customers. We will not take this progress for granted as we realize that we have much more to do as we continue to build a truly unique experience for our customers."

Results of Operations
Gross written premiums were $895.1 million for the year ended December 31, 2018, compared to $836.3 million for the year ended December 31, 2017, an increase of 7.0%. The increase in gross written premiums during 2018 compared to 2017 was due to growth in the Construction, Transportation, and Consumer Services customer segments.

Underwriting income ⁽²⁾ was $24.4 million for the year ended December 31, 2018, compared to $2.2 million for the year ended December 31, 2017, an increase of $22.2 million. The increase resulted in an improved combined ratio of 96.7% for the year ended December 31, 2018, compared to 99.7% for the year ended December 31, 2017. The improvement in combined ratio was due to a decrease in the loss and LAE ratio of 5.1 percentage points and partially offset by the increase in the expense ratio of 2.1 percentage points due to non-recurring expense items including the benefit of litigation recoveries in 2017 and cost of additional short-term incentive compensation expense in 2018.

Loss and LAE Ratio Results
The loss and LAE ratio was 59.5% for the year ended December 31, 2018, compared to 64.6% for the year ended December 31, 2017. For the year ended December 31, 2018, ProSight incurred favorable prior period development of $5.0 million as compared to unfavorable development of $20.3 million for the year ended December 31, 2017. Total gross catastrophe losses from major 2018 events: the California wildfires, Hurricane Florence and Hurricane Michael of $3.9 million. This is similar to total gross catastrophe losses from major 2017 events – the California wildfires, Hurricanes Harvey, Irma and Maria – of $6.0 million.

Investment Results
Net investment income increased by 54.6% to $56.0 million for the year ended December 31, 2018, from $36.2 million for the year ended December 31, 2017, primarily due to the increase in average invested assets to $1.7 billion from $1.5 billion as of December 31, 2018 and 2017, respectively, and an investment portfolio gross return of 3.4% as of December 31, 2018, compared to 2.5% as of December 31, 2017.

Other
At December 31, 2018, total stockholders' equity was $389.8 million and tangible stockholders' equity was $364.2 million, compared to total stockholders' equity of $376.0 million and tangible stockholders' equity of $350.4 million at December 31, 2017. The increase in both total and tangible stockholders' equity was primarily due to net income earned for the year ended December 31, 2018 of $53.7 million, and partially offset by the increase in unrealized losses of $42.7 million related to available-for-sale securities, net of taxes, due to rising interest rates and widening credit spreads during 2018.

Mr. Beneducci added, "The continued investment in our proprietary technology platform is proving to be a key market advantage for ProSight. In 2018, we expanded our platform into new customer segments as we improved our speed, efficiency and profitability. These are all very valuable developments for our customers."

Non-GAAP Financial Measures
Underwriting income
Underwriting income is a non-GAAP financial measure that management believes is useful in evaluating ProSight's underwriting performance without regard to investment income. Underwriting income represents the pre-tax profitability of insurance operations and is derived by subtracting losses and LAE and underwriting, acquisition and insurance expenses from net earned premiums. ProSight uses underwriting income as an internal performance measure in the management of operations because management believes it gives users of ProSight's financial information useful insight into the results of operations and our underlying business performance. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may calculate underwriting income differently.

Net income for the years ended December 31, 2018 and 2017, reconciles to underwriting income as follows:

($ in thousands)	2018	2017

Net income (loss)	$ 53,729	$ (6,905)
Income tax expense (benefit)	13,389	38,233
Income (loss) before taxes	$ 67,118	$ 31,328
Net investment income	(55,971)	(36,196)
Net investment gains (losses)	(1,557)	4,204
Interest and other expense, net	11,704	11,272
Underwriting income (loss)	$ 24,409	$ 2,201

Adjusted operating income
Adjusted operating income is a non-GAAP financial measure that ProSight uses as an internal performance measure in the management of operations because management believes it gives management and other users of ProSight's financial information useful insight into the results of operations and underlying business performance, by excluding items that are not part of the underlying profitability drivers or likely to re-occur in the foreseeable future. Adjusted operating income should not be considered in isolation or viewed as a substitute for net income calculated in accordance with GAAP. Other companies may calculate adjusted operating income differently.

Adjusted operating income for the years ended December 31, 2018 and 2017, reconciles to net income as follows:


($ in thousands)	2018	2017

Net income (loss)	$ 53,729	$ (6,905)
Income tax expense (benefit)	13,389	38,233
Income (loss) before taxes	67,118	31,328
Net investment gains (losses)	(1,557)	4,204
Adjusted operating income (loss) before taxes	68,675	27,124
Income tax expense (benefit)	13,389	38,233
Effect on TCJA income tax expense (benefit)	—	25,100
Adjusted operating income tax expense (benefit)	13,389	13,133
Adjusted operating income (loss)	$ 55,286	$ 13,991

Supplemental Information

Selected Consolidated Financial Data
The selected consolidated financial data as of December 31, 2018 is derived from the unaudited consolidated financial statements and the accompanying notes. The selected consolidated financial data as of December 31, 2017 is derived from the audited consolidated financial statements and the accompanying notes.

The following tables summarize the effect of the whole account quota share (WAQS) on underwriting income for the years ended December 31, 2018 and 2017. During 2017, ProSight entered into two large whole account quota share reinsurance agreements with third party reinsurers to facilitate return of the business from a former Lloyd's syndicate.

	Year Ended December 31, 2018			Year Ended December 31, 2017
($ in thousands)	Including WAQS	Effect of WAQS	Excluding WAQS	Including WAQS	Effect of WAQS	Excluding WAQS
Gross written premiums	$895,112	$ —	$895,112	$836,334	$ —	$836,334
Ceded written premiums	(45,038)	58,858	(103,896)	(276,048)	(160,779)	(115,269)
Net written premiums	$850,074	$58,858	$791,216	$560,286	$(160,779)	$721,065
Net retention (3)	95.0%	—	88.4%	67.0%	—	86.2%
Net earned premiums	$730,785	$(14,560)	$745,345	$609,785	$(87,362)	$697,147
Losses and loss adjustment expenses	434,830	(9,513)	444,343	393,741	(51,897)	445,638
Underwriting, acquisition and insurance expenses	271,547	(3,955)	275,502	213,843	(29,560)	243,403
Underwriting income (loss) (2)	$24,409	$(1,091)	$25,500	$2,201	$(5,905)	$8,106
Loss and LAE ratio	59.5%	65.3%		64.6%	59.4%
Expense Ratio	37.2%	27.2%		35.1%	33.8%
Combined Ratio	96.7%	92.5%		99.7%	93.2%
Adjusted loss and LAE ratio (4)	—	—	59.6%	—	—	63.9%
Adjusted expense ratio (4)	—	—	37.0%	—	—	34.9%
Adjusted combined ratio (4)	—	—	96.6%	—	—	98.8%

The selected balance sheet information excludes specific assets and liabilities related to our discontinued operations. The assets and liabilities of the discontinued operations are only included in total assets, total liabilities and total stockholders' equity.

	At December 31,
	2018	2017
	($ in thousands)
Balance sheet data:
Total cash and investments	$ 1,830,290	$ 1,632,629
Premiums and other receivables, net	201,409	184,334
Reinsurance receivables paid and unpaid, net	197,161	218,376
Goodwill and net Intangible assets	29,219	29,249
Total assets	$ 2,577,606	$ 2,416,747

Unpaid losses and LAE	$ 1,396,812	$ 1,258,237
Reserve for unearned premiums	435,933	395,432
Notes payable, net of debt issuance costs	182,355	164,016
Total liabilities	$ 2,187,776	$ 2,040,763
Total stockholders' equity	$ 389,830	$ 375,983


Tangible book value per share (5)	$ 60.56	$ 58.42

(1). Adjusted operating income is a non-GAAP financial measure. See discussion of "Non-GAAP Financial Measures".

(2). Underwriting income is a non-GAAP financial measure. See discussion of "Non-GAAP Financial Measures".

(3). The ratio of net written premiums to GWP.

(4). Adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. The Company defines

adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio as the corresponding ratio (calculated in accordance with GAAP)

excluding the effects of the WAQS. The Company uses these adjusted ratios as internal performance measures in the management of the

operations as it gives management and users of the Company's financial information useful insight into the results of operations and the

underlying business performance. The adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio should not be viewed as

substitutes for the loss and LAE ratio, expense ratio and combined ratio, respectively.

(5). Book value per share is total common stockholders' equity divided by the number of common shared outstanding. Tangible book value per

share is total common stockholders' equity excluding the after-tax value of goodwill and other intangible assets divided by the number of

common shared outstanding.

About ProSight Specialty Insurance
ProSight Specialty Insurance is an innovative property and casualty insurance company that designs solutions to help customers solve their business problems. Each solution is targeted to enhance customers' operating performance. ProSight focuses on select niche industries, deploying differentiated underwriting and claims expertise and then works exclusively with specialized distributors to deliver value. ProSight is fueled by a cultural desire to succeed at uncommon challenges, making the business performance of its customers a top priority. The underwriting members of the ProSight Specialty Insurance (ProSight) group, New York Marine and General Insurance Company, Southwest Marine and General Insurance Company, and Gotham Insurance Company are rated "A-" (Excellent) by A.M. Best. Based in Morristown, NJ, ProSight has regional offices in Los Angeles, CA, Petaluma, CA, Alpharetta, GA and New York, NY. More information about ProSight and its member insurers can be found at www.prosightspecialty.com.

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