SeaBright Holdings, Inc.(SBX) reported first quarter 2012 net income of 38 cents per share, in sharp contrast to an operating loss of 1 cent per share in the prior-year quarter. The reversal was primarily attributable to net realized gains of $8.0 million in the reported quarter compared with a meager $0.3 million gain in the comparable year-ago quarter.
Total revenue increased 14.9% year over year to $73.3 million, led by higher premium earned and significantly higher net realized gains.
Net premiums earned increased 4.2% year over year to $59.1 million.
Net investment income was $5.0 million, down 7.4% year over year, due to low yield on investment portfolio.
The net loss ratio for the first quarter of 2012 was 72.9% compared with 75.7% in the year-ago period.
Total underwriting, acquisition and insurance expenses for the first quarter 2012 were $16.9 million, down 11.1% year over year. The net underwriting expense ratio for the first quarter of 2012 was 28.6%, down 490 basis points year over year.
Net combined ratio, measuring underwriting profitability, was 101.5%, up 770 basis points year over year. However, a combined ratio above 100% reflects that the insurer is paying more in claims and expenses per unit than premium earned.
The company also announced a quarterly dividend of 5 cents per share, payable on July 13, 2012.
SeaBright has suffered due to the economic slowdown in the U.S. and the overall challenging business climate in the recent years. Management is, however, responding to the current trends by actively managing its business. It is reducing its exposure to business and areas, which are no longer viable. This includes its California construction business. On the other hand, the company is increasing its exposure to other targeted businesses such as health care and manufacturing and expanding geographically in states, which are under penetrated.
The company is also increasing its distribution network with brokers and licensed program managers specializing in the company’s product offerings. Apart from these, the company is focusing on the development of scalable technology and increasing profitability.
Though these actions will eventually facilitate earnings growth, we do not expect any material changes in the near term until the economy recovers from the slump.
SeaBright currently retains a Zacks # 2 Rank, which translates into a short-term ‘Buy’ rating. However, we are maintaining our long-term “Underperform” recommendation on the shares. It competes with AMERISAFE, Inc.(AMSF), Employers Holdings Inc. (EIG) and Aflac Inc. (AFL).
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