SeaBright Insurance Holdings Reports Second Quarter and Six-Month 2008 Results

SeaBright Insurance Holdings, Inc. (Nasdaq: SEAB) today announced results for the second quarter and six-months ended June 30, 2008. Net income for the quarter was $6.4 million or $0.30 per fully diluted share compared to $10.2 million or $0.49 per fully diluted share in the year-earlier period. For the second quarter, total revenue increased 1.9% to $61.8 million compared to $60.7 million for the same period in 2007. For the second quarter of 2008, premiums earned increased 1.7% to $55.7 million compared to $54.8 million for the same period in 2007. During the second quarter 2008, the Company incurred a non-recurring charge of approximately $1.0 million, or $0.03 per diluted share, related to the accelerated vesting of stock options and restricted stock held by our former chief financial officer, who passed away unexpectedly in April. Also in the second quarter, net realized losses included a pre-tax charge of $1.9 million, or $0.06 per diluted share, related to other-than-temporary impairments of the Company’s investments in preferred stock issued by Fannie Mae and Freddie Mac. John Pasqualetto, SeaBright’s Chairman, President and Chief Executive Officer, said, "The second quarter was a very challenging quarter, encompassing the combination of increasingly competitive pricing and the negative impact on premium growth driven by the general economic slowdown. In the quarter, we did encounter more competitors willing to price business at rates we deem inadequate. Consistent with our dedication to make an underwriting profit, we chose to walk away from under priced business. Experience has taught us that long-term success is predicated on strong underwriting discipline, exceptional customer service and a specialized product mix. SeaBright remains committed to these tenets and is confident that we are well positioned to operate successfully throughout the cycle.” The net loss ratio for the second quarter of 2008 was 57.0% compared to 52.4% in the same period of 2007. During the second quarter 2008, on a pre-tax basis, the Company recognized approximately $7.9 million in favorable development of prior years’ loss reserve estimates to reflect a continuation of deflation trends in the paid loss data for recent accident years. During the second quarter of 2007, on a pre-tax basis, the Company recognized $7.8 million in favorable development of prior years' loss reserve estimates. Total underwriting expenses for the second quarter 2008 were $17.7 million compared to $14.7 million in the prior year period. The net underwriting expense ratio for the first quarter was 31.6% compared to 26.8% in the same period in 2007. The increase in the underwriting expense ratio over the same period in 2007 is primarily the result of increased production expenses to support our geographic expansion and entry into additional workers’ compensation niches, and the charge related to the accelerated vesting of stock options and restricted stock held by our former chief financial officer. The net combined ratio for the second quarter of 2008 was 88.6% compared to 79.2 % for the same period in 2007. Net investment income for the second quarter of 2008 was $5.6 million compared to $4.9 million for the same period in 2007 as the Company’s investment portfolio grew 19.8% or $89.2 million to $539.8 million at June 30, 2008 from $450.6 million at June 30, 2007. At June 30, 2008, SeaBright had 1,032 customers, an increase of 25.2% compared to the same period in 2007. At June 30, 2008, the average premium size per customer was approximately $267,000 compared to approximately $294,000 at June 30, 2007, a reflection of SeaBright’s continued geographic diversification of its business and lower premium rates related to the decline in loss costs. For the six months ended June 30, 2008, net income was $17.3 million or $0.82 per diluted share compared to $20.3 million or $0.97 per diluted share in the same period in 2007. Total revenue for the period increased 9.0% to $125.9 million compared to $115.5 million for the same period in 2007. For the six months ended June 30, 2008, net premiums earned increased 8.7% to $112.4 million compared to $103.4 million for the comparable period in 2007. The net loss ratio was 54.9% for the six months ended June 30, 2008 compared to 52.3% in the same period in 2007. For the six months ended June 30, 2008, on a pre-tax basis, the Company recognized $15.9 million in favorable development of prior years’ loss reserve estimates, compared to $15.0 million recognized in the same period of 2007. Total underwriting expenses for the six months ended June 30, 2008 were $33.3 million compared to $27.3 million in the prior year period and the net underwriting expense ratio was 29.6% compared to 26.4% in the same period in 2007. For the six months ended June 30, 2008, the net combined ratio was 84.5% compared to 78.7% for the same period in 2007. At June 30, 2008, the Company’s investment portfolio totaled $539.8 million and had an overall credit rating of AA. The Company regularly reviews its investment portfolio for other than temporary impairment declines in fair value considering, among other things, the underlying credit quality of any insured or uninsured bonds. As of June 30, 2008, the overall credit quality of our $276.0 million fixed income municipal portfolio (including secondary insurance) stood at AA/AA-. With secondary insurance removed, the average rating of the municipal portfolio would be AA-. As of June 30, 2008, the Company had $205.5 million in insured municipal bonds with a weighted average credit rating of AA/AA-. The underlying rating of the insured bonds was AA-. The Company also had $70.5 million in uninsured municipal bonds with a weighted average credit rating of AA/AA-. At June 30, 2008, the Company had $2.8 million invested in collateralized mortgage obligations, $2.2 million in adjustable rate mortgages, $13.1 million in asset backed securities, none of which were sub prime, and $8.0 million in preferred stock and $9.8 million in debt securities issued by Fannie Mae and Freddie Mac. About SeaBright Insurance Holdings, Inc. SeaBright Insurance Holdings, Inc. is an insurance holding company whose wholly owned subsidiary, SeaBright Insurance Company, operates as a specialty underwriter of multi-jurisdictional workers’ compensation insurance. SeaBright Insurance Company distributes its maritime, alternative dispute resolution and state act products through selected independent insurance brokers and through its in-house wholesale broker affiliate, PointSure Insurance Services. SeaBright Insurance Company provides workers' compensation coverage to employers in selected regions nationwide. To learn more about SeaBright Insurance Company and SeaBright Insurance Holdings, Inc., visit our website at www.sbic.com. Conference Call The Company will host a conference call on Tuesday, July 22, 2008 at 4:30 p.m. Eastern Time featuring remarks by John G. Pasqualetto, President and CEO, Richard J. Gergasko, Executive Vice President - Operations, and M. Philip Romney, Vice President, Finance and Principal Accounting Officer. The conference call is available via webcast on the Company’s website and can be accessed by visiting http://investor.sbic.com. Once there, select "Webcasts and Presentations” on the left side of the page. The dial-in number for the conference call is (877) 419-6603. Please call at least five minutes before the scheduled start time. Cautionary Statement Some of the statements contained in this press release are "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as "may,” "will,” "should,” "expect,” "plan,” "intend,” "anticipate,” "believe,” "estimate,” "predict,” "potential” or "continue,” the negative of these terms or other terminology. Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could affect the Company's actual results include, among others, the fact that our loss reserves are based on estimates and may be inadequate to cover our actual losses; the uncertain effects of emerging claim and coverage issues on our business; the geographic concentration of our business; an inability to obtain or collect on our reinsurance protection; a downgrade in the A.M Best rating of our insurance subsidiary; the impact of extensive regulation of the insurance industry and legislative and regulatory changes; a failure to realize our investment objectives; the effects of intense competition; the loss of one or more principal employees; the inability to acquire additional capital on favorable terms; a failure of independent insurance brokers to adequately market our products; the loss of our rights to fee income and protective arrangements that were established in connection with the acquisition of our business; and the effects of acts of terrorism or war. More information about these and other factors that potentially could affect our financial results is included in our 2007 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on March 17, 2008, and in our other public filings filed with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance upon these forward-looking statements, which speak only as of the date of this release. The Company undertakes no obligation to update any forward-looking statements. Set forth in the tables below are summary results of operations for the three and six month periods ended June 30, 2008 and 2007 as well as selected balance sheet data as of June 30, 2008 and December 31, 2007. The following information is preliminary and unaudited and is subject to change until final results are publicly distributed upon the filing of the Company’s quarterly report on Form 10-Q. The Company currently expects to file its unaudited condensed consolidated financial statements with the U.S. Securities and Exchange Commission as part of its quarterly report on Form 10-Q in a timely fashion on or before August 11, 2008. SEABRIGHT INSURANCE HOLDINGS, INC. AND SUBSIDIARIES   CONDENSED CONSOLIDATED BALANCE SHEETS     June 30, 2008   December 31, 2007 (Unaudited) (Audited) (in thousands) ASSETS   Fixed income securities available-for-sale, at fair value $ 489,292 $ 474,756 Equity securities available-for-sale, at fair value 12,747 11,193 Preferred stock available-for-sale, at fair value 8,281 8,488 Cash and cash equivalents 29,470 20,292 Accrued investment income 5,491 5,055 Premiums receivable, net of allowance 10,791 9,223 Deferred premiums 162,147 150,066 Service income receivable 228 436 Reinsurance recoverables 15,718 14,210 Receivable under adverse development cover 2,533 2,533 Prepaid reinsurance 1,812 1,820 Property and equipment, net 4,539 1,707 Deferred income taxes, net 20,862 16,488 Deferred policy acquisition costs, net 22,310 19,832 Intangible assets, net 1,228 1,233 Goodwill 2,881 2,881 Other assets   19,286     15,356 Total assets $ 809,616   $ 755,569   LIABILITIES AND STOCKHOLDERS’ EQUITY   Liabilities: Unpaid loss and loss adjustment expense $ 263,708 $ 250,085 Unearned premiums 155,477 147,033 Reinsurance funds withheld and balances payable 1,377 220 Premiums payable 4,876 4,136 Accrued expenses and other liabilities 62,063 47,789 Surplus notes   12,000     12,000 Total liabilities   499,501     461,263   Commitments and contingencies   Stockholders’ equity: Series A preferred stock, $0.01 par value; 750,000 shares authorized; no shares issued and outstanding - - Undesignated preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, $0.01 par value; 75,000,000 shares authorized; issued and outstanding – 21,222,703 shares at June 30, 2008 and 20,831,102 shares at December 31, 2007   212   208 Paid-in capital 197,282 194,023 Accumulated other comprehensive income/(loss) (3,100 ) 1,638 Retained earnings   115,721     98,437 Total stockholders’ equity   310,115     294,306 Total liabilities and stockholders’ equity $ 809,616   $ 755,569 SEABRIGHT INSURANCE HOLDINGS, INC. AND SUBSIDIARIES   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)       Three Months Ended June 30, Six Months Ended June 30,   2008     2007     2008     2007   (dollars in thousands, except income per share amounts) Revenue: (1) Premiums earned $ 55,685 $ 54,757 $ 112,407 $ 103,388 Claims service income 424 343 830 899 Other service income 82 25 99 49 Net investment income 5,557 4,854 11,281 9,612 Net realized loss (2,012 ) (8 ) (2,129 ) (60 ) Other income   2,043     685     3,451     1,642     61,779     60,656     125,939     115,530   Losses and expenses: Loss and loss adjustment expenses 32,156 29,012 62,565 54,930 Underwriting, acquisition and insurance expenses 17,678 14,692 33,324 27,323 Interest expense 210 284 461 565 Other expenses   2,367     1,652     4,353     3,203     52,411     45,640     100,703     86,021   Income before taxes   9,368     15,016     25,236     29,509     Income tax expense (benefit): Current 3,354 5,692 9,665 10,166 Deferred   (417 )   (879 )   (1,713 )   (933 )   2,937     4,813     7,952     9,233   Net income $ 6,431   $ 10,203   $ 17,284   $ 20,276     Basic earnings per share $ 0.31 $ 0.50 $ 0.85 $ 1.00 Diluted earnings per share $ 0.30 $ 0.49 $ 0.82 $ 0.97   Weighted average basic shares outstanding 20,456,084 20,338,526 20,408,153 20,329,662 Weighted average diluted shares outstanding 21,174,566 20,960,268 21,080,929 20,913,518   Net loss ratio (2) 57.0 % 52.4 % 54.9 % 52.3 % Net underwriting expense ratio (3)   31.6 %   26.8 %   29.6 %   26.4 % Net combined ratio (4)   88.6 %   79.2 %   84.5 %   78.7 %   (1) Gross and net premiums written for the periods indicated were as follows:   Three Months Ended June 30, Six Months Ended June 30,   2008     2007     2008     2007   (in thousands) Gross premiums written $ 66,254 $ 67,559 $ 129,821 $ 127,485 Net premiums written 63,006 63,645 123,349 119,905   (2) The net loss ratio is calculated by dividing loss and loss adjustment expenses for the period less claims service income by the net premiums earned for the period.   (3) The net underwriting expense ratio is calculated by dividing underwriting, acquisition and insurance expenses for the period less other service income by the net premiums earned for the period.   (4) The net combined ratio is the sum of the net loss ratio and the net underwriting expense ratio.