American Overseas Group Limited Announces Q1 2013 Results (Excerpt)

HAMILTON, Bermuda - 08 July, 2013 - American Overseas Group Limited (“AOG” or the “Company”; Ticker: AORE.BH; Pink Sheets: AORE.PK) today reported first quarter net loss available to common shareholders of $14.0 million, or $5.13 per diluted share. This compares to net loss available to common shareholders of $4.5 million, or $1.69 per diluted share, for the first quarter 2012.

During the first quarter of 2013, operating income, a non GAAP financial measure, was $4.2 million, or $1.53 per diluted share, compared to operating income of $0.2 million, or $0.08 per diluted share, during the first quarter of 2012.

The Company’s net loss is calculated in conformity with U.S. generally accepted accounting principles (“GAAP”). The Company also provides information regarding its operating income, a non-GAAP financial measure, because the Company’s management and Board of Directors, as well as many research analysts and investors, also evaluate financial performance on the basis of operating income, which excludes non-operating items such as realized investment gains or losses, unrealized gains or losses on credit derivatives and foreign currency gains or losses. Please refer to “Explanation of Non-GAAP Financial Measures” below for a description of operating income and for a reconciliation of operating income to net loss.

Commenting on the financial results, the Company's Chief Executive Officer, David Steel, noted that, “Our 2013 first quarter net loss was primarily the result of a $18.3 million unrealized loss within the net change in fair value of credit derivatives during the period. As noted in the past, we view operating income, which excludes unrealized gains and losses on derivatives, as a better measure of quarterly performance. Our 2013 operating income of $4.2 million was primarily driven by public finance refunding activity and by favorable loss development in our financial guaranty book related to our US residential mortgage-backed securities (“RMBS”) reinsurance contracts”.

“In the first quarter of 2013 we continued to pursue our plan to write new business in the short-tail, non-catastrophe property/casualty reinsurance markets. We believe this new business fits well with the long-tail run-off of the remaining financial guaranty portfolio. We intend to build our property/casualty book prudently as our subsidiary American Overseas Reinsurance Company Limited (“AORE”) emerges from run-off.”

Summary of Operating Results

The Company reported a net loss of $14.0 million for the quarter ended March 31, 2013.

Earned premiums in the first quarter 2013 of $6.8 million were 127% higher than the $3.0 million of earned premiums in the first quarter 2012. After eliminating property/casualty earned premiums of $3.2 million and accelerated premiums from refundings of $1.3 million, core financial guaranty earned premiums in the first quarter of 2013 were $2.3 million. This was consistent with the core financial guaranty earned premiums of $2.3 million for the comparable period of 2012 after eliminating the accelerated premiums from refundings of $0.7 million. There were no property/casualty earned premiums in the first quarter of 2012.

Net change in fair value of credit derivatives totaled a loss of $17.8 million in the first quarter of 2013, compared to a $5.8 million loss in the first quarter of 2012. Net change in fair value of credit derivatives for the first quarters of 2013 and 2012 were comprised of $0.4 million and $0.6 million of realized gains, respectively, and $18.3 million and $6.3 million of unrealized losses, respectively, on derivatives. The net unrealized loss in the first quarter 2013 was primarily attributable to (i) a decrease in the adjustment for the Company’s own non-performance risk of $31.9 million, and (ii) a decrease in gross unrealized losses on credit derivative policies of $13.6 million. The decrease in gross unrealized losses on credit derivative policies was primarily due to improvements in pricing across the majority of the Company’s portfolio. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820 - “Fair Value Measurements and Disclosures” (“ASC 820”), the Company calculates an adjustment for its own non-performance risk. The effect of ASC 820 on the Company’s derivative liabilities on its balance sheet was a reduction of approximately $37.9 million at March 31, 2013.

Net investment income for the first quarter 2013 was $1.3 million, 38% below the $2.1 million recorded in the first quarter 2012. The decrease in investment income in the first quarter 2013 was primarily due to a decrease in the book yield on the portfolio from 2.71% as of March 31, 2012 to 2.66% as of March 31, 2013 and the reduction of the size of the investment portfolio as a result of the commutation payment made to Financial Guaranty Insurance Company in the fourth quarter of 2012.

Realized gains on investments for the first quarter 2013 were $0.1 million. There were no realized gains or losses for the same period in 2012.

Losses and loss adjustment expenses were $0.9 million in the first quarter 2013, contributing to a loss ratio of 13%, compared to losses and loss adjustment expenses of $0.7 million and a loss ratio of 23% for the comparable 2012 period. The decrease in the quarter ended March 31, 2013 loss ratio was primarily attributable to favorable development on RMBS policies.

Acquisition expenses were $1.9 million in the first quarter of 2013 compared to $1.5 million for the comparable 2012 period. The increase in acquisition expenses in the quarter ended March 31, 2013 as compared to the comparable 2012 period was primarily attributable to $0.8 million of acquisition expenses related to the property/casualty business.

First quarter 2013 operating expenses of $1.3 million were $0.5 million, or 25%, below operating expenses in the first quarter of 2012. The decrease in operating expenses for the period ended March 31, 2013 as compared to the first quarter of 2012 was primarily due to a reduction in legal fees.

Balance Sheet

Total assets of $298.0 million at March 31, 2013 were $0.6 million, or 0.2%, above the level of total assets at December 31, 2012. This increase was primarily related to investment income and an increase in the recoveries of paid losses. Shareholders’ equity of $55.4 million at March 31, 2013 was $14.6 million, or 21%, below the level of shareholders' equity at December 31, 2012, primarily due to the net loss in the first quarter 2013. Book value per share was $20.5, a decrease of 22% from year-end 2012, when book value per share was $26.2. Operating book value per share and adjusted operating book value per share, both of which are non-GAAP financial measures, were $49.1 and $66.5, respectively, at March 31, 2013, an increase of 1% and a decrease of less than 1%, respectively, from year-end 2012 when operating book value per share and adjusted operating book value per share were $48.4 and $66.6, respectively. The Company provides information regarding operating book value per share and adjusted operating book value per share because the Company’s management and Board of Directors, as well as many research analysts and investors, evaluate book value on the basis of operating book value, the calculation of which includes adding back the unrealized gain or loss portion of the Company’s derivative liability, excluding the impact of credit impairments. Please refer to “Explanation of Non-GAAP Financial Measures” below for a description of operating book value per share and adjusted operating book value per share and a reconciliation of those measures to book value per share.

Subsequent Events:

On May 6, 2013, Assured Guaranty Ltd. and its subsidiaries (“Assured”) announced that they had reached a settlement with UBS AG (“UBS”) resolving their claims with respect to various U.S. residential mortgage-backed securities (“RMBS”) transactions insured by Assured, including claims relating to reimbursement for breaches of representations and warranties (“R&W”). Under the settlement, UBS is required to make an initial cash payment to Assured of $358 million. Additionally, UBS is required to reimburse Assured for a portion of all future losses on certain transactions under a collateralized loss-sharing reinsurance agreement to be put in place by the third quarter of 2013. Assured has announced that this settlement resolves all RMBS claims that Assured has asserted against UBS, including those that have been in litigation.

On June 21, 2013, Assured announced that they and Flagstar Bank have entered into a Settlement Agreement concerning Assured’s litigation against Flagstar Bank for breaches of R&W in connection with insured RMBS. The agreement follows a February 5, 2013 decision by the United States District Court for the Southern District of New York in favor of Assured. As part of the settlement, Flagstar Bank is required to make a cash payment to Assured of $105 million. Flagstar also is required to reimburse Assured in full for all future claims on certain of Assured’s insurance policies. Additionally, Flagstar Bank has agreed not to appeal the decision reached by the United States District Court for the Southern District of New York. Assured has announced that the comprehensive settlement resolves all of its RMBS claims against Flagstar Bank and releases both parties from any and all other future RMBS-related claims between the parties.

The Company has determined that a number of policies ceded to the Company by Assured would be affected by these settlements. The Company anticipates that approximately $1.5 million and $0.4 million, respectively, of its R&W credit will be reduced by initial and future cash receipts on reinsurance ceded to the Company’s subsidiary, American Overseas Reinsurance Company Limited on the UBS and Flagstar Bank policies; however, there is considerable uncertainty regarding the timing and amount of these payments and the impact on the Company’s consolidated balance sheets and statements of operations at this time. The Company expects to record the impact of these transactions in 2013.

Information About the Company

American Overseas Group Limited is a Bermuda-based holding company. Its operating subsidiary, American Overseas Reinsurance Company Ltd., has historically provided financial guaranty reinsurance for U.S. and international public finance and structured finance transactions and in 2012 commenced writing short tail non-catastrophe property/casualty reinsurance. More information can be found at www.aoreltd.com.

The Company has posted its first quarter 2013 financial results to its website at www.aoreltd.com under "Investor Information". If you are a shareholder of American Overseas Group Limited and wish to receive a hard copy of the financial statements by mail, please contact:

American Overseas Group Limited

Maiden House, 1st Floor

131 Front Street

Hamilton, HM 12

Bermuda

Attention: David Steel

Telephone: 441-296-6501

Email: info@aoreltd.com

SOURCE: American Overseas Group Limited