ESG Re Limited Reports First Quarter 2003 Results.Business Editors HAMILTON Hamilton, city, Bermuda Hamilton, city (1990 est. pop. 3,100), capital of Bermuda, on Bermuda Island. It is a port at the head of Great Sound, a huge lagoon and deepwater harbor protected by coral reefs. , Bermuda--(BUSINESS WIRE)--May 14, 2003 ESG ESG Enterprise Strategy Group (Veritas) ESG Emergency Shelter Grant (Florida, USA) ESG Expeditionary Strike Group ESG Electronic Service Guide (used in DVB) Re Limited (ESREF.PK) today reported its financial results for the quarter ended March 31, 2003. The Company reported an overall loss of $1.8 million for the quarter compared against a budgeted loss of $1.7 million. The underwriting profit Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. for the quarter amounted to $2.5 million which was $1.9 million less than expected. Of this, $3.9 million was due to a write down of estimated premium income for the North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. business which was partially offset by improved claims experience and selected commutations. Investment income was $1.0 million, which was in excess of budget target. Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. were on budget at $6.4 million, despite adverse movement in the Euro for the quarter. The quarter resulted in an overall net loss of $0.16 per share. In assessing the first quarter, Alasdair Davis, CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , stated that "The completion of the reaudit of 2001 and the audit of 2002 took considerable time and attention during the quarter. Until we were able to publish our audited financials, we were significantly handicapped in our ability to produce new business. In the second quarter we have been able to direct our full attention to building new business and effectively managing the business already on the books. We intend to remain in this business. Clean audited accounts allowed us to restart To resume computer operation after a planned or unplanned termination. See boot, warm boot and checkpoint/restart. the new business process and focus on our clients". Looking forward, Mr. Davis continued by saying that "Our clients and prospects see that ESG is sufficiently capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. with solid bond assets writing business in which we are experienced and that we understand. We have already acquired a new North American client who will be coming on board mid-year and will bring in an estimated $20 million in premium income." Our full report for the quarter ended March 31, 2003 will be available on our website (www.esg-world.com) later today. Comparative Results For the three months ended March 31, 2003, we had a net loss of $1.8 million compared to a net loss of $5.5 million for the first quarter of 2002. The net loss per share for the three months ended March 31, 2003 was $0.16 compared with a net loss per share of $0.47 for the first quarter 2002. The net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the three months ended March 31, 2003, which excludes realized investment gains, was $0.23 per share. Net operating loss for the three months ended March 31, 2002, which excludes realized investment losses was $0.38 per share. Premiums For the three months ended March 31, 2003, we had negative gross written premiums of $12.0 million and negative net written premiums of $8.0 million due to the write down of $29.9 million in estimated premium income on our North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. business. Excluding these premium write downs, our gross written premiums for the quarter ended March 31, 2003 amounted to $17.9 million compared to $29.9 million for the quarter ended March 31, 2002. Revenues Total revenues for the three months ended March 31, 2003 were $18.2 million, consisting of net premiums earned of $16.1 million, net investment income of $1.0 million, net realized investment gains of $0.8 million and management fee revenue of $0.4 million. For the three months ended March 31, 2002, total revenues were $40.2 million, consisting of net premiums earned of $38.9 million, net investment income of $1.8 million, realized investment losses of $1.1 million and management fee revenue of $0.5 million. Expenses For the three months ended March 31, 2003, expenses were $20.0 million, consisting of $7.4 million of losses and loss expenses, $6.2 million of acquisition costs and $6.4 million of operating expenses. Total expenses for the three months ended March 31, 2002 were $45.7 million, consisting of $25.3 million of losses and loss expenses, $13.2 million of acquisition costs, and $7.2 million of operating expenses. The decrease in operating expenses for the three months ended March 31, 2003, as compared to the same three month period in 2002 is primarily due to foreign exchange gains of $0.6 million arising in the first three months of the year. During the first quarter 2003, there was adverse movement in the Euro against the US dollar. While we continue to follow a foreign exchange hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. strategy and policy designed to minimize In a graphical environment, to hide an application that is currently displayed on screen. For example, in Windows and Mac, the application's window is removed from the screen and represented by an icon on the Windows Taskbar. In the Mac, the icon is placed in the Dock. See Win Minimize windows. the impact of currency rate fluctuations on our statement of operations See Income statement. , it is possible that continued strengthening of the Euro against the US dollar could have an adverse impact on budgeted operating expenses for the year. Book Value At March 31, 2003, total assets were $330.4 million and shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. was $43.1 million or $3.89 per common share. At December December: see month. 31, 2002, total assets were $396.9 million and shareholders' equity was $46.7 million, or $4.20 per common share. Operating Ratios Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: ESG Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. The loss and acquisition expense ratios for the three months ended March 31, 2003 and 2002, were 79.2% and 103.2%, respectively. The combined ratio for the three months ended March 31, 2003 was 113.9%, compared to 117.0% for the three months ended March 31, 2002. The operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. ratio for the first quarter 2003 was 34.7%, compared to 13.8% for the first quarter 2002. ESG Direct The loss and acquisition expense ratios for the three months ended March 31, 2003 and 2002, were 91.2% and 70.9% respectively. The combined ratio for the three months ended March 31, 2003 was 136.8%, compared to 118.6% for the three months ended March 31, 2002. The operating expenses ratio for the first quarter 2003 was 45.6%, compared to 47.7% for the first quarter 2002. Further Information Questions concerning these results should be submitted via email to investor.relations@esg-world.com. Responses will be posted on the Company's website at www.esg-world.com. ESG Re Ltd provides medical, personal accident, credit life, disability and special risks re-insurance RE-INSURANCE, mar. contr. An insurance made by a former insurer, his executors, administrators, or assigns, to protect himself and his estate from a risk to which they were liable by the first insurance. 2. It differs from a double insurance (q.v. to insurers and selected re-insurers on a worldwide basis. The company distinguishes itself from its competition by offering re-insurance products and services that help its ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. clients to manage their risks more effectively. ESG provides solutions to specific underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. problems, actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin support, product design and loss prevention. ESG is building on its reinsurance expertise by developing its direct marketing business. ESG will deliver innovative business opportunities and client focused solutions to its affinity The relationship that a person has to the blood relatives of a spouse by virtue of the marriage. The doctrine of affinity developed from a Maxim of Canon Law that a Husband and Wife were made one by their marriage. There are three types of affinity. partners using distribution methods such as direct mail, telemarketing telemarketing, the practice of selling goods or services to customers by means of the telephone or of surveying consumer preferences in telephone conversations. and bancassurance Bancassurance A French term referring to the selling of insurance through a bank's established distribution channels. Notes: The result is a bank that can offer banking, insurance, lending, and investment products to a customer. . Uncertainties related to forward looking statements: Certain statements and information included in this Press Release constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. , and Section 21E of the Securities Exchange Act of 1934 as amended. These statements express our intentions, strategies, or predictions for the future. Forward looking statements in this Press Release include, among other things, statements regarding: (1) estimated premium income to be generated by new business in North America and, (2) strengthening of the Euro against the US dollar. These forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of ESG to be materially different from any future results, performance or achievements expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by the forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . These factors include, among other things: the economic recession, volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the in the insurance industry, inadequate loss reserves, medical cost increases, credit risks, loss of key clients, direct marketing risks, competition, competitive pricing practices, credit rating downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. , loss of key employees, interest rate fluctuations, investment risks, foreign currency exchange risks, inflation, legislative and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. changes, tax exposure, litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. risks, and cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. changes in the market. A further discussion of factors that could affect ESG's results is included in reports filed by ESG with the Securities and Exchange Commission prior to deregistration deregistration removal of right to practice by local registering body, usually as a disciplinary measure because of professional misconduct, possibly because of inability to perform because of psychiatric problem. and in the company's published Annual Report for 2002 and Management Report for the three months ended March 31, 2003 ESG Re Limited Condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. Consolidated Balance Sheets consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. (U.S. dollars in thousands except share and per share data)
March 31, December
2003 31,
(unaudited) 2002
--------------------
U.S. dollars in
thousands except
shares and share
data
ASSETS
Investments $72,056 $82,325
Cash and cash equivalents 26,567 13,653
Other investments 4,093 7,446
--------------------
Total investments and cash 102,716 103,424
Accrued investment income 977 826
Management fees receivable 468 697
Reinsurance balances receivable 144,935 180,173
Reinsurance recoverable on incurred losses 13,988 36,685
Funds retained by ceding companies 29,345 27,661
Prepaid reinsurance premiums 246 26
Deferred acquisition costs 27,869 35,723
Fair value of Foreign currency forward contracts -- 1,796
Other assets 8,294 8,567
Cash and cash equivalents held in a fiduciary
capacity 1,570 1,320
--------------------
TOTAL ASSETS $330,408 $396,898
--------------------
LIABILITIES
Unpaid losses and loss expenses $132,800 $162,676
Unearned premiums 54,593 78,371
Acquisition costs payable 25,413 37,065
Reinsurance balances payable 59,950 51,434
Fair value of foreign currency forward contracts 473 --
Payable for Securities purchased 2,308 4,367
Accrued expenses, accounts payable, and other
liabilities 10,153 14,991
Fiduciary liabilities 1,570 1,320
--------------------
Total liabilities 287,260 350,224
--------------------
SHAREHOLDERS' EQUITY
Common shares, par value $1 per share; 100,000,000
shares authorized; 11,100,678 shares issued and
outstanding for 2003 and 11,100,678 shares issued
and outstanding for 2002 11,101 11,101
Additional paid-in capital 208,756 208,721
Foreign currency translation adjustments (2,437) (2,305)
Unrealized gains/(losses) on securities 1,617 3,255
--------------------
Accumulated other comprehensive income (820) 950
--------------------
Retained deficit (175,889)(174,098)
--------------------
Total shareholders' equity 43,148 46,674
--------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $330,408 $396,898
--------------------
ESG RE LIMITED Condensed Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Statements of Operations (U.S. dollars in thousands except share and per share data) (Unaudited)
Three Months Ended
March 31, March 31,
2003 2002 (as
restated)
------------------------
REVENUES
Net premiums written $(7,978) $25,907
Change in unearned premiums 24,089 13,031
------------------------
Net premiums earned 16,111 38,938
Management fee revenue 362 507
Net investment income 970 1,848
Net realized investment gain (loss) 798 (1,077)
------------------------
18,241 40,216
------------------------
EXPENSES
Losses and loss expenses 7,422 25,286
Acquisition costs 6,166 13,214
Administrative expenses 6,444 7,245
------------------------
20,032 45,745
------------------------
NET LOSS BEFORE TAXES (1,791) (5,529)
Income tax expense -- --
------------------------
NET LOSS AFTER TAXES $(1,791) $(5,529)
========================
PER SHARE DATA
Basic net loss per share $(0.16) $(0.47)
Diluted net loss per share $(0.16) $(0.47)
========================
Weighted average shares outstanding
Basic 11,100,678 11,831,068
Diluted 11,100,678 11,831,068
========================
ESG RE LIMITED Product Mix (Gross Written Premium) ESG Reinsurance Segment The distribution of gross premiums written When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called gross premiums written. , by line of business after excluding the write down of estimated premiums in the quarter ended March 31, 2003, for the three months ended March 31, 2003 and 2002 and for the year ended December 31, 2002 was as follows:
Three months Three months Year ended
ended ended December 31,
March 31, March 31, 2002 2002
2003
----------------------------------------------------------------------
Medical 0.0% 60.3% 82.5%
Personal Accident 67.5% 38.3% 15.9%
Credit 26.0% (1.0)% (1.4)%
Life 2.0% 1.1% 0.7%
Other 4.5% 1.3% 2.3%
-------------------------------------------------------
Total 100.0% 100.0 % 100.0 %
----------------------------------------------------------------------
ESG Direct Segment The distribution of gross premiums written by line of business for the three months ended March 31, 2003 and 2002 and for the year ended December 31, 2002 was as follows:
Three months Three months Year ended
ended ended December 31, 2002
March 31, 2003 March 31, 2002
----------------------------------------------------------------------
Personal Accident 57.8% 85.1% 83.3%
Credit 42.2% 14.9% 16.7%
----------------------------------------------------------------------
Total 100.0% 100.0% 100.0%
----------------------------------------------------------------------
Geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. Mix (Gross Written Premium) The distribution of gross premiums written, by geographic region, after excluding the write down of estimated premiums in the quarter ended March 31, 2003, for the three months ended March 31, 2003 and 2002 and for the year ended December 31, 2002 was as follows: ESG Reinsurance
Three months ended Three months ended Year ended
March 31, 2003 March 31, 2002 December 31, 2002
----------------------------------------------------------------------
Western Europe 76.8% 18.4% 4.2%
North America 0.6% 62.1% 62.4%
Latin America 16.1% 17.5% 4.9%
Asia 6.5% 0.1% -
Other 0.0% 1.9% 28.5%
----------------------------------------------------------------------
Total 100.0% 100.0 % 100.0 %
----------------------------------------------------------------------
ESG Direct
Three months ended Three months ended Year ended
March 31, 2003 March 31, 2002 December 31, 2002
----------------------------------------------------------------------
Western Europe 42.2% 14.9% 16.7%
Asia 57.8% 85.1% 83.3%
----------------------------------------------------------------------
Total 100.0 % 100.0% 100.0 %
----------------------------------------------------------------------
Historic Development of the Portfolio; Technical Result by Business Segment by Underwriting Year The technical profit by business segment underwriting year for the financial years ended December 31, 1998 through 2002 and for the quarter ended March 31, 2003 are as follows; Reinsurance Segment
Technical Results ($'m) Underwriting Year
Financial Year ended 1997 1998 1999 2000 2001 2002 2003 Total
----------------------------------------------
1998 n/a 10.8 - - - - - 10.8
1999 n/a (11.2) (5.0) - - - - (16.2)
2000 n/a (18.1) (6.6) (6.8) - - - (31.5)
2001 n/a 0.3 (7.9) 3.5 2.1 - - (2.0)
2002 (1.7) (9.3)(12.8) 0.2 1.9 4.6 - (17.1)
2003 0.0 2.3 1.0 (0.3)(1.8) 0.5 0.2 1.9
----------------------------------------------
Total (1.7) (25.2)(31.3) (3.4) 2.2 5.1 0.2 (54.1)
Direct Segment
Technical Results ($'m) Underwriting Year
Financial Year ended 1999 2000 2001 2002 2003 Total
----------------------------------------------
1999 0.0 - - - - -
2000 0.2 2.1 - - - 2.3
2001 0.1 0.3 4.4 - - 4.8
2002 (0.2) 0.3 0.5 0.1 - 0.7
2003 0.0 (0.1) (0.7) 0.3 1.1 0.6
----------------------------------------------
Total 0.1 2.6 4.2 0.4 1.1 8.4
Loss & Acquisition Ratios by Underwriting Year The loss and acquisition cost ratios by underwriting year for the financial years ended December 31, 1998 through 2002 and for the quarter ended March 31, 2003 are as follows:
L&A Ratio (%) Underwriting Year
1998 1999 2000 2001 2002 2003
-----------------------------------------
L&A at 31 Dec. 1998 89% - - - - -
L&A at 31 Dec. 1999 102% 102% - - - -
L&A at 31 Dec. 2000 110% 105% 104% - - -
L&A at 31 Dec. 2001 112% 107% 100% 76% - -
L&A at 31 Dec. 2002 119% 112% 101% 88% 72% -
L&A at 31 Mar 2003 118% 112% 101% 90% 75% 66%
Loss & Acquisition Ratios by Business Segment by Underwriting Year The loss and acquisition cost ratios by business segment by underwriting year for the financial years ended December 31, 1998 through 2002 and for the quarter ended March 31, 2003 are as follows; Reinsurance Segment
L&A Ratio (%) Underwriting Year
1998 1999 2000 2001 2002 2003
-------------------------------------------
L&A at 31 Dec. 1998 89% - - - - -
L&A at 31 Dec. 1999 102% 102% - - - -
L&A at 31 Dec. 2000 110% 104% 107% - - -
L&A at 31 Dec. 2001 112% 107% 102% 92% - -
L&A at 31 Dec. 2002 119% 112% 102% 95% 90% -
L&A at 31 Mar. 2003 118% 112% 102% 97% 90% 93%
Direct Segment
L&A Ratio (%) Underwriting Year
1999 2000 2001 2002 2003
-------------------------------------------
L&A at 31 Dec. 1999 86% - - - -
L&A at 31 Dec. 2000 46% 58% - - -
L&A at 31 Dec. 2001 42% 53% 74% - -
L&A at 31 Dec. 2002 37% 43% 52% 49% -
L&A at 31 Mar. 2003 37% 44% 53% 49% 65%
ESG RE LIMITED Reinsurance Operating Ratios (Net Earned Premium Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. ) The key operating ratios for the Reinsurance Segment for the three months ended March 31, 2003 and 2002 are as follows;
Three months ended Personal
March 31, 2003 Medical Accident Credit Life Other Total
----------------------------------------------------------------------
Loss ratio 409.4% (16.1)% n/m 63.4% 98.8% 52.0%
Acquisition expense ratio (55.5)% 44.5% n/m 11.9% 8.3% 27.2%
----------------------------------------------------------------------
Loss and Acquisition
Expense Ratio 353.9% 28.4% n/m 75.3% 107.1% 79.2%
----------------------------------------------------------------------
Operating expense ratio 34.7%
------
Combined ratio 113.9%
======
Three months ended Personal
March 31, 2002 Medical Accident Credit Life Other Total
----------------------------------------------------------------------
Loss Ratio 77.0% 60.7% 35.2% n/m 16.0% 73.5%
Acquisition expense Ratio 28.2% 33.1% 37.5% n/m 31.8% 29.7%
----------------------------------------------------------------------
Loss and Acquisition
Expense Ratio 105.2% 93.8% 72.7% n/m 47.8% 103.2%
----------------------------------------------------------------------
Operating expense Ratio 13.8%
-------
Combined Ratio 117.0%
=======
ESG RE LIMITED Direct Marketing Operating Ratios (Net Earned Premium) The key operating ratios for the Direct Marketing segment for the three months ended March 31, 2003 and 2002 are as follows;
Three months ended Personal
March 31, 2003 Accident Credit Total
----------------------------------------------------------------------
Loss Ratio 32.4% 117.3% 38.2%
Acquisition expense Ratio 55.4% 19.7% 53.0%
----------------------------------------------------------------------
Loss and Acquisition
Expense Ratio 87.8% 137.0% 91.2%
----------------------------------------------------------------------
Operating expense Ratio 45.6%
-----------
Combined Ratio 136.8%
===========
Three months ended Personal
March 31, 2002 Accident Credit Total
----------------------------------------------------------------------
Loss Ratio 9.4% 12.4% 9.6%
Acquisition expense Ratio 61.8% 54.3% 61.3%
----------------------------------------------------------------------
Loss and Acquisition
Expense Ratio 71.2% 66.7% 70.9%
----------------------------------------------------------------------
Operating expense Ratio 47.7%
-------------
Combined Ratio 118.6%
=============
ESG RE LIMITED Fixed Maturity Investment Portfolio at March 31, 2003
Average
U.S. dollars in thousands Fair Duration Market Credit
Value (Years) Yield Rating
----------------------------------------------------------------------
Corporate securities 7,989 1.7 2.5% AAA
U.S. treasury securities and
obligations of U.S. government AAA
corporations and agencies 27,929 1.6 1.4%
Mortgage & Asset backed securities 5,729 1.6 7.4% AAA
Obligations of states and political
subdivisions 7,674 2.0 3.6% AAA
Foreign currency debt securities 22,735 3.3 4.2% AAA
----------------------------------------------------------------------
Total 72,056 2.1 3.1%
----------------------------------------------------------------------
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