Attached files
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| 8-K/A - FORM 8-K/A - Eastern Insurance Holdings, Inc. | d8ka.htm |
EXHIBIT 99.1
PRO FORMA FINANCIAL STATEMENTS
On December 9, 2010, Eastern Insurance Holdings, Inc. (“EIHI”) announced the sale of Eastern Atlantic RE (“Atlantic RE”) to an investor group advised by Dowling Advisors, Inc. (“Dowling”). Atlantic RE is a Cayman Islands reinsurance company and was part of EIHI’s run-off specialty reinsurance segment. Under the terms of the sale, Dowling purchased 100% of the outstanding stock of Atlantic RE for $2.3 million of cash. EIHI’s estimated after-tax loss as a result of the sale is $14.5 million, which includes estimated transaction expenses of $500,000 and an estimated contingent profit commission of $3.0 million. The estimated contingent profit commission is based on the adequacy of the run-off specialty reinsurance segment’s reserves for losses and loss adjustment expenses as of September 30, 2010, compared to a predetermined targeted reserve for losses and loss adjustment expenses.
The following Unaudited Pro Forma Balance Sheet and Statements of Operations give effect to the disposition of Atlantic RE. These pro forma presentations have been prepared utilizing historical financial statements and notes thereto, as well as pro forma adjustments as described in the Notes to the Unaudited Pro Forma Financial Statements.
The Unaudited Pro Forma Balance Sheet as of September 30, 2010 assumes the sale was consummated as of the balance sheet date.
The Unaudited Pro Forma Statements of Operations for the nine months ended September 30, 2010 and 2009 and for the years ended December 31, 2009, 2008 and 2007 include the results of continuing operations of EIHI assuming the sale occurred on January 1, 2007. The sale has been accounted for as a discontinued operation.
The Unaudited Pro Forma Balance Sheet and Statements of Operations are presented for illustrative purposes only and do not purport to represent what the EIHI’s results of operations or financial position would have been had the sale occurred on the dates indicated or the results of operations or financial position which may be obtained in the future. Such pro forma financial statements are qualified in their entirety by reference to, and should be read in conjunction with, the historical audited consolidated financial statements of EIHI. The pro forma financial statements should also be read in conjunction with the accompanying notes thereto.
Eastern Insurance Holdings, Inc.
Proforma Consolidated Balance Sheet - Sale of Eastern Atlantic RE
September 30, 2010
(Unaudited, dollars in thousands)
| EIHI Consolidated (a) |
Eastern Atlantic RE (b) |
Adjustments | EIHI Pro Forma |
|||||||||||||
| Assets |
||||||||||||||||
| Investments |
$ | 229,230 | $ | (51,380 | ) | $ | — | $ | 177,850 | |||||||
| Cash and cash equivalents |
47,625 | — | 2,300 | (c) | 49,925 | |||||||||||
| Accrued investment income |
1,530 | — | — | 1,530 | ||||||||||||
| Premiums receivable |
40,032 | 3,111 | — | 43,143 | ||||||||||||
| Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses |
13,000 | — | — | 13,000 | ||||||||||||
| Deferred acquisition costs |
8,099 | — | — | 8,099 | ||||||||||||
| Deferred income taxes, net |
333 | — | — | 333 | ||||||||||||
| Federal income taxes recoverable |
1,395 | — | — | 1,395 | ||||||||||||
| Intangible assets |
6,484 | — | — | 6,484 | ||||||||||||
| Goodwill |
10,752 | — | — | 10,752 | ||||||||||||
| Other assets |
10,207 | — | 3,018 | (d) | 13,225 | |||||||||||
| Total assets |
$ | 368,687 | $ | (48,269 | ) | $ | 5,318 | $ | 325,736 | |||||||
| Liabilities |
||||||||||||||||
| Reserves for unpaid losses and loss adjustment expenses |
123,342 | (28,922 | ) | — | $ | 94,420 | ||||||||||
| Unearned premium reserves |
59,024 | — | — | 59,024 | ||||||||||||
| Advance premium |
77 | — | — | 77 | ||||||||||||
| Accounts payable and accrued expenses |
11,850 | — | 500 | (e) | 12,350 | |||||||||||
| Ceded reinsurance balances payable |
7,312 | — | — | 7,312 | ||||||||||||
| Segregated portfolio cell dividend payable |
13,156 | — | — | 13,156 | ||||||||||||
| Loan payable |
1,518 | — | — | 1,518 | ||||||||||||
| Total liabilities |
216,279 | (28,922 | ) | 500 | 187,857 | |||||||||||
| Shareholder’s Equity |
||||||||||||||||
| Series A preferred stock |
— | — | — | — | ||||||||||||
| Common capital stock |
— | — | — | — | ||||||||||||
| Unearned ESOP compensation |
(4,300 | ) | — | — | (4,300 | ) | ||||||||||
| Additional paid-in capital |
114,103 | (27,069 | ) | — | 87,034 | |||||||||||
| Treasury stock |
(37,889 | ) | — | — | (37,889 | ) | ||||||||||
| Retained earnings |
73,756 | 7,722 | 6,502 | 87,980 | ||||||||||||
| Accumulated other comprehensive income, net |
6,738 | — | (1,684 | ) (f) | 5,054 | |||||||||||
| Total shareholder’s equity |
152,408 | (19,347 | ) | 4,818 | 137,879 | |||||||||||
| Total liabilities and shareholder’s equity |
$ | 368,687 | $ | (48,269 | ) | $ | 5,318 | $ | 325,736 | |||||||
Eastern Insurance Holdings, Inc.
Proforma Statement of Operations - Sale of Eastern Atlantic RE
For the Nine Months Ended September 30, 2010
(Unaudited, dollars in thousands, except share and per share data)
| EIHI Consolidated (a) |
Run-Off Specialty Reinsurance (g) |
EIHI Pro Forma | ||||||||||
| Revenue |
||||||||||||
| Net premiums earned |
$ | 80,041 | $ | 1 | $ | 80,040 | ||||||
| Net investment income |
3,515 | 998 | 2,517 | |||||||||
| Change in equity interest in limited partnerships |
520 | — | 520 | |||||||||
| Net realized investment gains |
2,747 | 1,155 | 1,592 | |||||||||
| Other revenue |
434 | — | 434 | |||||||||
| Total revenue |
87,257 | 2,154 | 85,103 | |||||||||
| Expenses |
||||||||||||
| Losses and loss adjustment expenses incurred |
57,747 | 2,307 | 55,440 | |||||||||
| Acquisition and other underwriting expenses |
9,101 | — | 9,101 | |||||||||
| Other expenses |
16,252 | 212 | 16,040 | |||||||||
| Amortization of intangibles |
963 | — | 963 | |||||||||
| Policyholder dividend expense |
732 | — | 732 | |||||||||
| Segregated portfolio dividend expense |
(618 | ) | — | (618 | ) | |||||||
| Total expenses |
84,177 | 2,519 | 81,658 | |||||||||
| Income before income taxes |
3,080 | (365 | ) | 3,445 | ||||||||
| Income tax expense |
1,127 | (2 | ) | 1,129 | ||||||||
| Net income |
$ | 1,953 | $ | (363 | ) | $ | 2,316 | |||||
| Earnings per share data: |
||||||||||||
| Basic earnings per share |
0.22 | 0.26 | ||||||||||
| Diluted earnings per share |
0.22 | 0.26 | ||||||||||
| Basic shares outstanding |
8,797,417 | 8,797,417 | ||||||||||
| Diluted shares outstanding |
8,854,580 | 8,854,580 | ||||||||||
Eastern Insurance Holdings, Inc.
Proforma Statement of Operations - Sale of Eastern Atlantic RE
For the Nine Months Ended September 30, 2009
(Unaudited, dollars in thousands, except share and per share data)
| EIHI Consolidated (a) |
Run-Off Specialty Reinsurance (g) |
EIHI Pro Forma | ||||||||||
| Revenue |
||||||||||||
| Net premiums earned |
$ | 74,094 | $ | 1,137 | $ | 72,957 | ||||||
| Net investment income |
4,373 | 686 | 3,687 | |||||||||
| Change in equity interest in limited partnerships |
681 | — | 681 | |||||||||
| Net realized investment gains |
(2,321 | ) | (1,431 | ) | (890 | ) | ||||||
| Other revenue |
569 | — | 569 | |||||||||
| Total revenue |
77,396 | 392 | 77,004 | |||||||||
| Expenses |
||||||||||||
| Losses and loss adjustment expenses incurred |
45,385 | 778 | 44,607 | |||||||||
| Acquisition and other underwriting expenses |
9,300 | 341 | 8,959 | |||||||||
| Other expenses |
15,247 | 212 | 15,035 | |||||||||
| Amortization of intangibles |
1,299 | — | 1,299 | |||||||||
| Policyholder dividend expense |
241 | — | 241 | |||||||||
| Segregated portfolio dividend expense |
434 | — | 434 | |||||||||
| Total expenses |
71,906 | 1,331 | 70,575 | |||||||||
| Income before income taxes |
5,490 | (939 | ) | 6,429 | ||||||||
| Income tax expense |
2,078 | (4 | ) | 2,082 | ||||||||
| Net income |
$ | 3,412 | $ | (935 | ) | $ | 4,347 | |||||
| Earnings per share data: |
||||||||||||
| Basic earnings per share |
0.38 | 0.47 | ||||||||||
| Diluted earnings per share |
0.37 | 0.47 | ||||||||||
| Basic shares outstanding |
8,963,740 | 8,963,740 | ||||||||||
| Diluted shares outstanding |
9,047,750 | 9,047,750 | ||||||||||
Eastern Insurance Holdings, Inc.
Proforma Statement of Operations - Sale of Eastern Atlantic RE
For the Year Ended December 31, 2009
(Unaudited, dollars in thousands, except share and per share data)
| EIHI Consolidated (a) |
Run-Off Specialty Reinsurance (g) |
EIHI Pro Forma | ||||||||||
| Revenue |
||||||||||||
| Net premiums earned |
$ | 99,049 | $ | 1,133 | $ | 97,916 | ||||||
| Net investment income |
5,507 | 1,054 | 4,453 | |||||||||
| Change in equity interest in limited partnerships |
1,066 | — | 1,066 | |||||||||
| Net realized investment gains |
(2,069 | ) | (1,230 | ) | (839 | ) | ||||||
| Other revenue |
643 | — | 643 | |||||||||
| Total revenue |
104,196 | 957 | 103,239 | |||||||||
| Expenses |
||||||||||||
| Losses and loss adjustment expenses incurred |
59,616 | 850 | 58,766 | |||||||||
| Acquisition and other underwriting expenses |
12,794 | 542 | 12,252 | |||||||||
| Other expenses |
20,619 | 233 | 20,386 | |||||||||
| Amortization of intangibles |
1,732 | — | 1,732 | |||||||||
| Policyholder dividend expense |
432 | — | 432 | |||||||||
| Segregated portfolio dividend expense |
1,238 | — | 1,238 | |||||||||
| Total expenses |
96,431 | 1,625 | 94,806 | |||||||||
| Income before income taxes |
7,765 | (668 | ) | 8,433 | ||||||||
| Income tax expense |
2,497 | (5 | ) | 2,502 | ||||||||
| Net income |
$ | 5,268 | $ | (663 | ) | $ | 5,931 | |||||
| Earnings per share data: |
||||||||||||
| Basic earnings per share |
0.57 | 0.64 | ||||||||||
| Diluted earnings per share |
0.57 | 0.64 | ||||||||||
| Basic shares outstanding |
8,984,644 | 8,984,644 | ||||||||||
| Diluted shares outstanding |
9,051,701 | 9,051,701 | ||||||||||
Eastern Insurance Holdings, Inc.
Proforma Statement of Operations - Sale of Eastern Atlantic RE
For the Year Ended December 31, 2008
(Unaudited, dollars in thousands, except share and per share data)
| EIHI Consolidated (a) |
Run-Off
Specialty Reinsurance (g) |
EIHI Pro Forma | ||||||||||
| Revenue |
||||||||||||
| Net premiums earned |
$ | 99,084 | $ | 9,682 | $ | 89,402 | ||||||
| Net investment income |
7,053 | 1,343 | 5,710 | |||||||||
| Change in equity interest in limited partnerships |
(3,540 | ) | — | (3,540 | ) | |||||||
| Net realized investment gains |
(5,751 | ) | (440 | ) | (5,311 | ) | ||||||
| Other revenue |
853 | — | 853 | |||||||||
| Total revenue |
97,699 | 10,585 | 87,114 | |||||||||
| Expenses |
||||||||||||
| Losses and loss adjustment expenses incurred |
74,744 | 25,027 | 49,717 | |||||||||
| Acquisition and other underwriting expenses |
13,316 | 2,903 | 10,413 | |||||||||
| Other expenses |
20,140 | 246 | 19,894 | |||||||||
| Amortization of intangibles |
1,373 | — | 1,373 | |||||||||
| Policyholder dividend expense |
551 | — | 551 | |||||||||
| Segregated portfolio dividend expense |
2,155 | — | 2,155 | |||||||||
| Total expenses |
112,279 | 28,176 | 84,103 | |||||||||
| Income before income taxes |
(14,580 | ) | (17,591 | ) | 3,011 | |||||||
| Income tax expense |
1,972 | 1,018 | 954 | |||||||||
| Net income |
$ | (16,552 | ) | $ | (18,609 | ) | $ | 2,057 | ||||
| Earnings per share data: |
||||||||||||
| Basic earnings per share |
(1.81 | ) | 0.27 | |||||||||
| Diluted earnings per share |
(1.81 | ) | 0.26 | |||||||||
| Basic shares outstanding |
8,954,098 | 8,954,098 | ||||||||||
| Diluted shares outstanding |
8,954,098 | 9,289,638 | ||||||||||
Eastern Insurance Holdings, Inc.
Proforma Statement of Operations - Sale of Eastern Atlantic RE
For the Year Ended December 31, 2007
(Unaudited, dollars in thousands, except share and per share data)
| EIHI Consolidated (a) |
Run-Off Specialty Reinsurance (g) |
EIHI Pro Forma | ||||||||||
| Revenue |
||||||||||||
| Net premiums earned |
$ | 93,632 | $ | 14,452 | $ | 79,180 | ||||||
| Net investment income |
8,392 | 1,298 | 7,094 | |||||||||
| Change in equity interest in limited partnerships |
798 | — | 798 | |||||||||
| Net realized investment gains |
1,357 | 7 | 1,350 | |||||||||
| Other revenue |
683 | — | 683 | |||||||||
| Total revenue |
104,862 | 15,757 | 89,105 | |||||||||
| Expenses |
||||||||||||
| Losses and loss adjustment expenses incurred |
50,335 | 13,050 | 37,285 | |||||||||
| Acquisition and other underwriting expenses |
11,500 | 3,932 | 7,568 | |||||||||
| Other expenses |
17,228 | 241 | 16,987 | |||||||||
| Amortization of intangibles |
1,738 | — | 1,738 | |||||||||
| Policyholder dividend expense |
543 | — | 543 | |||||||||
| Segregated portfolio dividend expense |
4,423 | — | 4,423 | |||||||||
| Total expenses |
85,767 | 17,223 | 68,544 | |||||||||
| Income before income taxes |
19,095 | (1,466 | ) | 20,561 | ||||||||
| Income tax expense |
5,514 | (889 | ) | 6,403 | ||||||||
| Net income |
$ | 13,581 | $ | (577 | ) | $ | 14,158 | |||||
| Earnings per share data: |
||||||||||||
| Basic earnings per share |
1.28 | 1.34 | ||||||||||
| Diluted earnings per share |
1.24 | 1.29 | ||||||||||
| Basic shares outstanding |
10,264,369 | 10,264,369 | ||||||||||
| Diluted shares outstanding |
10,604,349 | 10,604,349 | ||||||||||
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS (dollars in thousands)
| (a) | These columns represent the historical consolidated statements of operations and consolidated balance sheet of EIHI as appropriate. The historical consolidated statements of operations reflect the results of EIHI’s continuing operations for the periods presented. The results of the group benefits insurance segment, which was sold by EIHI in June 2010, is reflected in EIHI’s historical consolidated statements of operations as discontinued operations. The historical consolidated statements of operations presented herein reflect continuing operations and, therefore, do not include the results of the group benefits insurance segment. |
| (b) | This column reflects the removal of the assets and liabilities that were transferred from Eastern Re, Ltd. SPC to Eastern Atlantic RE. The $3,111 reinsurance balance payable was paid subsequent to September 30, 2010, but prior to closing. |
| (c) | Represents cash consideration paid to EIHI for Eastern Atlantic RE. |
| (d) | Represents estimated contingent profit commission based on the adequacy of the September 30, 2010 loss and loss adjustment expense reserves. Under the terms of the sale agreement, EIHI will be paid a contingent commission if the loss and loss adjustment expense reserves transferred to Eastern Atlantic RE are adequate to cover the cost of the underlying claims. The determination as to whether an amount is due EIHI will occur at the earlier of 1) the extinguishment of all liabilities under the reinsurance agreements 2) ten years from the date of closing, or 3) commutation of the reinsurance agreements. |
| (e) | Represents accrual for estimated transaction expenses. |
| (f) | Represents adjustment to accumulated other comprehensive income as a result of the liquidation of the Eastern Re, Ltd. SPC investment portfolio to fund the transfer of cash to Eastern Atlantic RE. |
| (g) | These columns reflect the removal of the run-off specialty reinsurance segment from the EIHI historical consolidated statement of operations. Certain revenue and expense items were not eliminated from the historical consolidated statement of operations because these items will continue to be part of EIHI’s operations. These items include the change in equity interest in limited partnerships, other revenue, and certain operating expenses included in other expenses. The only operating expense that was eliminated from the historical consolidated statement of operations were the fees related to letters of credit held by Eastern Re, Ltd. SPC under the terms of the reinsurance agreement with the unaffiliated ceding company. |