No___
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON D.C. 20549
_________________
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN SAFETY INSURANCE HOLDINGS, LTD.
(Exact name of Registrant as specified in its charter)
Bermuda Not Applicable (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.)44 Church Street
P.O. Box HM2064
Hamilton HM HX, Bermuda
(Address, zip code of principal executive offices)
(441) 296-8560
(Registrant’s telephone number, including area code)
_________________
Indicate by check mark whether
Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.Yes No___
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes___ No
The aggregate number of shares outstanding of Registrant’s common stock, $.01 par value, on May 4, 2005 was 6,738,115.
AMERICAN SAFETY INSURANCE HOLDINGS, LTD.
FORM 10-Q
TABLE OF CONTENTS
FORM 10-Q
PART I - FINANCIAL INFORMATION 1
Item 1. Consolidated Financial Statements 1
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 18
Item 3. Quantitative and Qualitative Disclosures About Market Risks 26
Item 4. Controls and Procedures 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits 28
SIGNATURES 29
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
American Safety Insurance Holdings, Ltd. and Subsidiaries
Consolidated Balance Sheets
December 31, March 31,
2004 2005
(Unaudited)
Assets
Investments:
Fixed maturity securities available for sale, at fair $286,057,489 $ 313,123,027
value
Common stock, at fair value 15,081,360 18,594,586
Investment in real estate, at cost 2,005,440 490,788
Short-term investments 25,898,131 8,233,865
Total investments 329,042,420 340,442,266
Cash and cash equivalents 24,843,736 25,285,911
Restricted cash 144,500 -
Accrued investment income 3,308,463 3,076,224
Premiums receivable 21,093,810 26,534,375
Ceded unearned premium 25,454,691 32,264,186
Reinsurance recoverable 145,524,068 147,497,227
Deferred income taxes 9,080,990 10,338,226
Deferred policy acquisition costs 11,559,188 11,167,067
Property, plant and equipment 3,900,473 3,950,743
Other assets 10,207,637 8,826,035
Total assets $ 584,159,976 $609,382,260
December 31, March 31,
2004 2005
(Unaudited)
Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment expenses $ 321,623,730 $ 336,842,713
Unearned premiums 93,798,378 102,757,164
Reinsurance on paid losses and loss adjustment expenses 6,486,149 2,382,317
Ceded premiums payable 11,852,028 16,986,704
Escrow deposits 144,500 -
Accounts payable and accrued expenses 15,370,443 14,834,825
Loan payable 13,019,489 12,636,616
Securities payable - 812,244
Funds held 8,334,794 7,932,281
Minority interest 4,750,782 5,136,279
Total liabilities 475,380,293 500,321,143
Shareholders' equity:
Preferred stock, $0.01 par value; authorized 5,000,000
shares; no shares issued and outstanding - -
Common stock, $0.01 par value; authorized 15,000,000
shares; issued and outstanding at December 31, 2004,
6,781,721 and March 31, 2005, 6,798,255 shares 67,817 67,983
Additional paid-in capital 51,067,506 51,202,206
Retained earnings 55,800,942 59,447,285
Accumulated other comprehensive income, net 1,843,418 (1,656,357)
Total shareholders' equity 108,779,683 109,061,117
Total liabilities and shareholders' equity $ 584,159,976 $609,382,260
See accompanying notes to consolidated financial statements (unaudited).
American Safety Insurance Holdings, Ltd. and Subsidiaries
Consolidated Statements
of Earnings
(unaudited)
Three Months Ended
March 31,
2004 2005
Revenues:
Direct premiums earned $53,972,080 $ 55,245,400
Assumed premiums earned 1,452,353 6,662
Ceded premiums earned (21,305,696) (20,631,451)
Net premiums earned 34,118,737 34,620,611
Net investment income 2,071,112 3,156,381
Net realized gains 25,411 52,232
Real estate income 13,952,154 2,309,000
Other income 31,113 1,949
Total revenues 50,198,527 40,140,173
Expenses:
Losses and loss adjustment expenses 22,359,442 20,781,044
Acquisition expenses 6,610,218 7,126,379
Payroll and related expenses 2,623,376 2,966,986
Real estate expenses 11,493,835 2,264,529
Other expenses 2,096,542 2,505,319
Minority interest 174,111 587,898
Expense due to rescission 29,574 10,868
Total expenses 45,387,098 36,243,023
Earnings before income taxes 4,811,429 3,897,150
Income taxes 1,161,610 250,807
Net earnings $ 3,649,819 $ 3,646,343
Net earnings per share:
Basic $ 0.53 $ 0.54
Diluted $ 0.49 $ 0.50
Average number of shares outstanding
Basic 6,916,099 6,791,476
Diluted 7,408,663 7,265,523
See accompanying notes to consolidated financial statements (unaudited).
American Safety Insurance Holdings, Ltd. and Subsidiaries
Consolidated Statements of Cash Flow
(unaudited)
Three Months Ended
March 31,
2004 2005
Cash flow from operating activities:
Net earnings $3,649,819 $ 3,646,343
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Realized gains on investments (25,411) (52,232)
Depreciation expense 210,703 218,597
Amortization of deferred acquisition costs, net (105,645) 392,121
Amortization of premium 436,860 611,941
Change in:
Accrued investment and interest income (21,291) 232,239
Premiums receivable (787,796) (5,440,565)
Reinsurance recoverable, payable and ceded unearned
premiums (7,231,541) (12,886,486)
Funds held (92,045) (402,513)
Deferred income taxes (525,481) (324,115)
Unpaid losses and loss adjustment expenses 20,004,316 15,218,983
Unearned premiums 3,930,026 8,958,786
Ceded premiums payable 7,223,722 5,134,676
Accounts payable and accrued expenses (4,264,202) (535,618)
Deferred revenue (18,027) -
Other, net 216,999 3,071,437
Net cash provided by operating activities 22,601,006 17,843,594
Cash flow from investing activities:
Purchases of fixed maturities (11,855,739) (42,342,488)
Purchases of equity securities (2,572,107) (4,835,288)
Proceeds from sale of fixed maturities 5,904,931 10,311,929
Proceeds from sale of equity investments 79,606 802,383
Decrease (increase) in short-term investments (19,936,030) 17,664,266
Decrease notes receivable 1,435,000 -
Decrease in real estate investment 5,576,910 1,514,652
Purchase of fixed assets, net (563,410) (268,867)
Net cash used in investing activities (21,930,839) (17,153,413)
Cash flow from financing activities:
Proceeds from issuance of common stock 72,220 134,867
Repayment of loan payable (665,076) (382,873)
Repayment of escrow deposits (1,281,160) (144,500)
Withdrawals of restricted cash 61,858 144,500
Net cash used in financing activities (1,812,158) (248,006)
Net increase in cash and cash equivalents (1,141,991) 442,175
Cash and cash equivalents at beginning of period 32,153,379 24,843,736
Cash and cash equivalents at end of period $31,011,388 $25,285,911
Supplemental disclosure of cash flow information:
Income taxes paid $ 1,228,270 $ 264,810
Interest paid $ 340,213 $ 248,067
See accompanying notes to consolidated financial statements (unaudited).
American Safety Insurance Holdings, Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Earnings
(unaudited)
Three Months Ended
March 31,
2004 2005
Net earnings $ 3,649,819 $ 3,646,343
Other comprehensive earnings before income taxes:
Unrealized gains (losses) on securities
available-for-sale, net of minority interest of
$90,279 and $(212,671) for 2004 and 2005, 3,242,572 (4,660,086)
respectively
Unrealized gains (losses) on hedging transaction (288,803) 280,785
Reclassification adjustment for realized gains
included in net earnings (25,411) (52,232)
Total other comprehensive earnings (loss) before 2,928,358 (4,431,533)
taxes
Income tax expense (benefit) related to items of
other comprehensive income, net of minority
interest of $0 and $(1,363) for March 31, 2004 and 645,498 (931,758)
2005 respectively.
Other comprehensive earnings (loss) net of income 2,282,860 (3,499,775)
taxes
Total comprehensive earnings $5,932,679 $ 146,568
See accompanying notes to consolidated financial statements (unaudited).
American Safety Insurance Holdings, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2005
(unaudited)
Note 1 — Basis of Presentation
The accompanying unaudited interim consolidated financial statements of American Safety Insurance Holdings, Ltd. (“American Safety”), its subsidiaries and American Safety Risk Retention Group, Inc. (American Safety RRG), a non-subsidiary risk retention group affiliate (collectively, the “Company”) are prepared in accordance with accounting principles generally accepted in the United States of America and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the interim period presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, based on the best information available, in recording transactions resulting from business operations. The balance sheet amounts that involve a greater extent of accounting estimates and actuarial determinations subject to future changes are the Company’s liabilities for unpaid losses and loss adjustment expenses. As additional information becomes available (or actual amounts are determinable), the recorded estimates may be revised and reflected in operating results. While management believes that the liability for unpaid losses and loss adjustment expenses is adequate to cover the ultimate liability, such estimates may be more or less than the amounts actually paid when claims are settled.
The results of operations for the three months ended March 31, 2005 may not be indicative of the results that may be expected for the fiscal year ending December 31, 2005. These unaudited interim consolidated financial statements and notes should be read in conjunction with the financial statements and notes included in the audited consolidated financial statements on Form 10-K of American Safety and its subsidiaries for the fiscal year ended December 31, 2004.
The unaudited interim consolidated financial statements include the accounts of American Safety, each of its subsidiaries and American Safety RRG. All significant intercompany balances have been eliminated. Certain items from prior periods have been reclassified to conform to the 2005 presentation.
Note 2 — Accounting Pronouncements
During the last two years, the Financial Accounting Standard Board (FASB) has issued a number of accounting pronouncements with various effective dates.
In December 2002, FASB Statement No. 148, Accounting for Stock-Based Compensation Transition and Disclosure. This pronouncement does not have a material effect on our financial statements.
In December 2004, the FASB issued a revised version of SFAS 123, SFAS 123 (R) which finalizes the accounting for stock options. The Company plans to adopt SFAS 123 (R) in the first quarter of 2006 and does not expect the adoption to have a material effect on earnings.
Note 3 — Nature of Operations
The following is a description of certain risks facing the Company:
Legal/Regulatory Risk is the risk that changes in the legal or regulatory environment in which an insurer operates will create additional expenses not anticipated by the Company in pricing its products beyond those recorded in the financial statements. Regulatory initiatives designed to reduce insurer profits or otherwise affecting the industry in which the Company operates as well as new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the Company beyond those recorded in the financial statements. The Company attempts to mitigate this risk by writing insurance business in several states, thereby spreading this risk over a large geographic area.
Potential Risk of United States Taxation of Bermuda Operations. Under current Bermuda law, American Safety is not required to pay any taxes in Bermuda on either income or capital gains. American Safety has received an undertaking from the Minister of Finance in Bermuda that will exempt American Safety from taxation until the year 2016 in the event of any such taxes being imposed. The Company, exclusive of its United States subsidiaries, does not consider itself to be engaged in a trade or business in the United States and accordingly does not expect to be subject to direct United States income taxation. The Company’s U.S. subsidiaries are subject to taxation in the United States.
Whether a foreign corporation is engaged in a United States trade or business or is carrying on an insurance business in the United States depends upon the level of activities conducted in the United States. If the activities of a foreign company are “continuous, regular, and considerable,” the foreign company will be deemed to be engaged in a United States trade or business. Due to the fact that American Safety will maintain and continue to maintain an office in Bermuda and American Safety and its Bermuda insurance subsidiary’s business is reinsuring contracts via treaty reinsurance agreements, which are all signed outside of the United States, American Safety does not consider itself to be engaged in a trade or business in the United States and, accordingly, does not expect to be subject to United States income taxes. This position is consistent with the position taken by various other entities that have the same operational structure as American Safety.
However, because the Internal Revenue Code of 1986, as amended, Treasury Regulations and court decisions do not definitively identify activities that constitute being engaged in a United States trade or business, and because of the factual nature of the determination, there can be no assurance that the Internal Revenue Service will not contend that American Safety or its Bermuda insurance subsidiary are engaged in a United States trade or business. In general, if American Safety or its Bermuda insurance subsidiary are considered to be engaged in a United States trade or business, it would be subject to (i) United States Federal income tax on its taxable income that is effectively connected with a United States trade or business at graduated rates and (ii) the 30 percent branch profits tax on its effectively connected earnings and profits deemed repatriated from the United States.
Credit Risk is the risk that issuers of securities owned by the Company or secured notes receivable will default or that other parties, including reinsurers that have obligations to the insurer, may not pay or perform. The Company attempts to mitigate this risk by adhering to a conservative investment strategy, by obtaining sufficient collateral for secured note obligations and by maintaining sound reinsurance, credit and collection policies.
Interest Rate Risk is the risk that interest rates may change and cause a decrease in the value of an insurer’s investments. The Company attempts to mitigate this risk by attempting to match the maturities of its assets with the expected payouts of its liabilities.
The Company’s fixed maturity holdings are invested predominantly in high quality corporate, government and municipal bonds with relatively short durations. The fixed maturity portfolio is exposed to interest rate fluctuations; as interest rates rise, their fair values decline and as interest rates fall, their fair values rise. The changes in the fair market value of the fixed maturity portfolio are presented as a component of shareholders’ equity in accumulated other comprehensive income, net of taxes.
We work to manage the impact of interest rate fluctuations on our fixed maturity portfolio. The effective duration of the fixed maturity portfolio is managed with consideration given to the estimated payout timing of our liabilities. We have investment policies which limit the maximum duration and maturity of individual securities within the portfolio and set target levels for average duration and maturity of the entire portfolio.
Note 4 — Investments
The amortized cost and estimated fair values of the Company’s investments at December 31, 2004 and March 31, 2005 are as follows:
Gross Gross
Amortized unrealized unrealized Estimated
Cost gains losses fair value
December 31, 2004:
Securities available for sale:
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $65,887,315 $800,811 $ 467,383 $66,220,743
States of the U.S. and political
subdivisions of the states 31,067,197 425,269 168,348 31,324,118
Corporate securities 90,742,305 1,618,821 650,822 91,710,304
Mortgage-backed securities 97,243,632 306,453 747,761 96,802,324
Total fixed maturities $ 284,940,449 $ 3,151,354 $ 2,034,314 286,057,489
Common Stock $ 14,001,929 $ 1,455,131 $ 375,700 $ 15,081,360
March 31, 2005:
Securities available for sale:
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $67,559,999 $500,586 $ 1,074,052 $ 66,986,533
States of the U.S. and political
subdivisions of the states 37,349,894 144,999 464,457 37,030,436
Corporate securities 96,351,260 766,529 1,415,602 95,702,187
Mortgage-backed securities 115,150,144 120,292 1,866,565 113,403,871
Total fixed maturities $ 316,411,297 $ 1,532,406 $ 4,820,676 $313,123,027
Common stock $ 18,034,833 $ 1,240,149 $ 680,396 $ 18,594,586
Note 5 — Segment Information
The Company initially segregates its business into the following segments: Real Estate and Insurance Operations. The Insurance Operations segment is further classified into three reportable segments: Environmental, Excess and Surplus Lines (E&S) and Program Business.
Real estate consists of the Harbour Village project in Ponce Inlet, Florida, as discussed in Note 6. In our Insurance Operations segment, Environmental writes insurance coverages for the environmental remediation industry. E&S lines provides commercial casualty insurance coverages, generally in the area of construction and products liability. Program business facilitates the offering of insurance to homogeneous niche groups of risks.
The Company measures the Real Estate and Insurance Operations segments using net earnings, total assets and total equity. The reportable Insurance Operations segments are measured by multiple premium indicators, incurred losses and loss adjustment expenses and acquisition expenses. Assets are not allocated to the reportable Insurance Operations segments. The following table presents key financial data by segment for the three months ended March 31, 2004 and March 31, 2005 (in thousands):
March 31, Real Insurance
2004 Estate Other Total
Environmental E&S Programs Other
Gross premiums written - $9,159 $27,897 $21,248 $1,050 - $ 59,354
Net premiums written - 7,072 23,787 3,074 624 - 34,557
Net premiums earned - 6,916 19,841 4,698 2,664 - 34,119
Losses and loss adjustment
expenses - 2,864 13,235 3,053 3,207 - 22,359
Acquisition expenses - 1,806 4,272 152 380 - 6,610
Underwriting profit (loss) - $2,246 $2,334 $1,493 $(923) - $ 5,150
Income tax expense (benefit)$ 937 $ 228 $ (3) $ 1,162
Net earnings (loss) 1,521 2,111 18 3,650
Assets 46,515 511,417 229 558,161
Equity 13,598 87,901 (151) 101,348
March 31, Real Insurance
2005 Estate Other Total
Environmental E&S Programs Other
Gross premiums written - $13,594 $27,053 $23,060 $504 - $ 64,211
Net premiums written - 10,967 22,185 3,403 215 - 36,770
Net premiums earned - 8,745 21,104 4,398 374 - 34,621
Losses and loss adjustment
expenses - 4,809 12,888 2,453 631 - 20,781
Acquisition expenses - 2,393 4,546 140 47 - 7,126
Underwriting profit (loss) - $1,543 $3,670 $1,805 $(304) - $ 6,714
Income tax expense (benefit) $ 16 $ 222 $ 13 $ 251
Net earnings (loss) 28 3,604 14 3,646
Assets 3,439 605,940 3 609,382
Equity 2,575 106,585 (99) 109,061
The Company conducts business in the following geographic segments: the United States and Bermuda. Significant differences exist in the regulatory environment in each country. Those differences include laws regarding the types of investments, capital requirements, and solvency monitoring, pricing and corporate taxation, among other things. The following provides key measurable information about the geographic segments for the three months ended March 31, 2004 and March 31, 2005 (in thousands):
March 31, 2004 United States Bermuda Total
Income tax $ 1,162 $ - $ 1,162
Net earnings 2,079 1,571 3,650
Assets 452,998 105,163 558,161
Equity $ 53,786 $ 47,562 $ 101,348
March 31, 2005 United States Bermuda Total
Income tax $ 251 $ - $ 251
Net earnings 1,593 2,053 3,646
Assets 471,346 138,036 609,382
Equity $ 55,927 $ 53,134 $ 109,061
Note 6 — Investment in Real Estate
The Company’s investment in the development of the Harbour Village Golf and Yacht Club (“Harbour Village”) project is comprised of 173 acres of property in Ponce Inlet, Florida that was acquired through foreclosure on April 13, 1999. At the date of foreclosure, the Company evaluated the carrying value of its investment in real estate by comparing the fair value of the foreclosed collateral to the book value of the underlying loan and accrued interest. As the book value of the loan and accrued interest was less than the fair value of the collateral, no loss was recognized on foreclosure and the basis of real estate.
As of December 31, 2004 and March 31, 2005, the investment in real estate for the Harbour Village project is as follows (in thousands):
December 31, 2004 March 31, 2005
Land $ 79 $ 19
Capitalized overhead, interest and taxes
116 28
Work in process 1,810 444
Total $2,005 $ 491
During the quarter ended March 31, 2005, the Company closed 6 condominium units and no boat slips at Harbour Village, and during the quarter ended March 31, 2004, the Company closed 36 condominium units and 1 boat slip. The Company recognizes revenue when title to each individual unit or boat slip passes to the purchaser. When title passes, the Company uses a percentage of completion method, based on actual costs to total estimated costs (including allocated common costs) to recognize revenue. The difference between total sales price and the revenue recognized is set up as deferred revenue and will be recognized as the additional costs of each building are incurred. At the end of March 31, 2005 the Harbour Village project was substantially complete and the Company had only two units left to close. These two units are expected to close in the second quarter of 2005.
Note 7 — Income Taxes
Total income tax expense for the periods ended March 31, 2004 and 2005, were allocated as follows:
Three Months Ended
March 31,
2004 2005
Tax expense benefit) attributable to
Income from continuing
operations $ 1,161,610 $ 250,807
Change in unrealized gains
(losses) on hedging
transactions (98,193) 95,467
Change in unrealized gains
(losses) on available for
sale securities 743,691 (1,028,588)
Total $ 1,807,108 $ (682,314)
U.S. Federal and state income tax expense (benefit) from continuing operations consists of the following components:
Current Deferred Total
Three Months Ended
March 31, 2004 $1,583,029 $(421,419) $1,161,610
March 31, 2005 $ 574,926 $(324,119) $ 250,807
The state income tax expense (benefit) aggregated $174,659 and $42,226 for the three months ended March 31, 2004 and 2005, respectively and is included in the current provision.
Income tax expense (benefit) for the periods ended March 31, 2004 and 2005 differed from the amount computed by applying the U.S. Federal income tax rate of 34% to earnings before Federal income taxes as a result of the following:
Three Months Ended
March 31,
2004 2005
Expected income tax expense $1,635,886 $1,325,031
Foreign earned income not
subject to U.S. taxation (534,464) (698,292)
Valuation allowance - (554,515)
State taxes and other 60,188 178,583
$1,161,610 $ 250,807
Deferred income taxes are based upon temporary differences between the financial statement and tax bases of assets and liabilities. The following deferred taxes are recorded:
December 31, March 31,
2004 2005
Deferred tax assets:
Loss reserve discounting $7,565,625 $ 7,764,493
Unearned premium reserves 3,145,646 3,250,654
Unrealized loss on securities - 645,059
Difference between tax and GAAP basis of Harbour Village
project. 366,348 -
Difference between tax and GAAP method at Harbour Village
project 146,738 -
Warranty reserve 282,556 190,515
NOL Carryforward 88,443 -
Other 611,443 322,451
Gross deferred tax assets 12,206,799 12,173,172
Valuation allowance (554,515) -
Gross deferred tax assets after valuation allowance 11,652,284 12,173,172
Deferred tax liabilities:
Deferred acquisition costs 2,033,536 1,834,946
Unrealized gains on securities 288,062 -
Other 249,696 -
Gross Deferred tax liabilities 2,571,294 1,834,946
Net deferred tax asset $9,080,990 $10,338,226
Deferred tax liabilities:
We believe it is more likely than not that we will realize the full benefit of our deferred tax assets described herein; therefore, a valuation allowance has not been established against these assets. However, given the historical loss position of American Safety RRG, it previously established a 100% valuation allowance on its deferred tax assets totaling $554,515 at December 31, 2004. In the first quarter of 2005, RRG included as a reduction to income tax expense this valuation allowance as RRG’s judgment about the realizability of the deferred tax assets changed due to RRG’s profitability. This reduction in income tax expense was offset by an increase in minority interest expense and had no overall effect on the earnings or shareholders’ equity of the Company.
Note 8 — Goodwill and Intangibles
Goodwill and indefinite-lived intangible assets are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have an indefinite life are to be amortized over their useful lives (but with no maximum life). The recorded indefinite-lived intangibles at December 31, 2004 and March 31, 2005 were $1,467,000.
In accordance with the disclosure requirements of SFAS No. 142 there were no effects of goodwill on the net earnings for the three months ended March 31, 2004 and 2005.
Note 9 — Employee Stock Options
The Company applied the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for the plan. No compensation expense is reflected in net earnings as all options granted under the plan have an exercise price equal to the market value of the underlying common stock on the date of grant. The majority of the options in the plan vest over a three year period. The following table illustrates the effect on net earnings and earnings per share, assuming we had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
Three Months Ending
March 31,
2004 2005
(In thousands, except per share amounts)
Net earnings:
As reported $ 3,650 $ 3,646
Effect of stock options (209) (487)
Pro forma net earnings $ 3,441 $ 3,159
Net earnings per share
Basic as reported $ 0.53 $ 0.54
Basic - pro forma $ 0.50 $ 0.47
Diluted - as reported $ 0.49 $ 0.50
Diluted - pro forma $ 0.46 $ 0.43
Note10 Loans Payable
Trust Preferred Offerings
In 2003 American Safety Capital and American Safety Capital II, both non-consolidated, wholly-owned subsidiaries of the Company, issued $8 million and $5 million, respectively, of variable rate 30-year trust preferred securities. The proceeds are being used to support the growth of the Company’s insurance business, to repay short term debt and for general corporate purposes. The securities require interest payments on a quarterly basis calculated at a floating rate of LIBOR + 4.2% and LIBOR + 3.95% for American Safety Capital and American Safety Capital II, respectively. The securities can be redeemed by the Company commencing in five years from date of issue.
The underlying debt obligations between the Company and American Safety Capital and American Safety Capital II expose the Company to variability in interest payments due to changes in interest rates. Management entered into an interest rate swap for each trust preferred offering to manage that variability. Under each interest rate swap, the Company receives variable interest payments and makes fixed interest rate payments to the applicable capital trust entity, thereby creating fixed rate long-term debt. The overall effective fixed rate expense as a result of this hedge is 7.1% and 7.6% for American Safety Capital and American Safety Capital II, respectively, over the first five years of the obligation.
Interest expense for the three months ended March 31, 2004 and March 31, 2005 includes no gains or losses from the interest rate swaps. Changes in fair value of the interest rate swaps designated as hedging instruments of the variability of cash flow associated with a floating rate, long-term debt obligation is reported in accumulated other comprehensive income. The gross unrealized gains and (losses) on the interest rate swaps at December 31, 2004 and March 31, 2005 were $192,589 and $339,015 for American Safety Capital Trust and $14,724 and $119,635 for American Safety Capital Trust II, respectively. The interest rate swaps are 100% effective at March 31, 2005.
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
The information in the following discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto included elsewhere in this report. All amounts and percentages are rounded.
Earnings from insurance operations increased by 71% to $3.6 million from $2.1 million for the first quarter of 2004. Net earnings for the quarter ended March 31, 2005 were $3.6 million, or $0.50 per diluted share, compared to $3.6 million, or $0.49 per diluted share, for the same period of 2004. The Company’s net earnings are detailed as follows:
Quarter ended Quarter ended
March 31, 2004 March 31, 2005
Insurance Operations $2,110,829 $ 3,604,917
Real Estate Operations 1,521,118 27,737
Other, including realized gains and
(losses) 17,873 13,689
Net Earnings $3,649,820 $ 3,646,343
The increase in insurance earnings for the quarter was due to strong underwriting results combined with increased investment income. The underwriting results for the quarter were driven by an improved loss ratio, which decreased to 60% from 66% in the first quarter of 2004. The Company experienced no adverse reserve development in the first quarter of 2005. The decrease in real estate earnings for the quarter was due to the substantial completion of the Harbour Village project at the end of 2004.
Total revenues for the first quarter of 2005 decreased 20% to $40 million as compared to the same quarter of 2004 due to a decrease in real estate revenues. For the quarter, revenue from insurance operations increased by 4% to $38 million from $36 million for the first quarter of 2004. Net premiums earned for the first quarter of 2005 increased 1.5% to $35 million from the same quarter of 2004 due to increases in earned premium in the Company’s core lines of business. Net investment income increased 52% to $3.2 million from $2.1 million in the first quarter of 2004 as a result of increased invested assets and an increase in the investment yield to 3.8% from 3.4%. Net cash flow generated from operations decreased to $18 million for the quarter compared to $23 million in the same quarter of 2004 due to an increase in paid losses.
The Company’s book value per share remained unchanged at $16.04 compared to December 31, 2004 as a result of an unrealized loss on the Company’s investment portfolio due to rising interest rates.
The following table sets forth the Company’s consolidated revenues (in thousands):
Quarter Ended March 31,
2004
to
2004 2005 2005
Net premiums written:
Environmental $ 7,072 $ 10,967 55.1%
Excess and Surplus 23,787 22,185 (6.7)
Programs 3,074 3,403 10.7
Other 624 215 (65.5)
Total net premiums
written $34,557 $36,770 6.4%
Net premiums earned:
Environmental $ 6,916 $ 8,745 26.4%
Excess and Surplus 19,841 21,104 6.4
Programs 4,698 4,398 (6.4)
Other 2,664 374 (86.0)
Total net premiums earned 34,119 34,621 1.5
Net investment income 2,071 3,156 52.4
Net realized gains 25 52 108.0
Real estate income 13,952 2,309 (83.5)
Other income 32 2 (93.8)
Total Revenues $50,199 $40,140 (20.0)%
The following table sets forth the components of our GAAP combined ratio for the period indicated:
Quarter ended March 31,
2004 2005
Insurance operations
Loss & loss adjustment expense ratio 65.5% 60.0%
Expense ratio 32.3 34.5
Combined ratio 97.8% 94.5%
Net Premiums Earned
Environmental. Net earned premiums increased to $8.7 million for the first three months of 2005 as compared to $6.9 million for the same period of 2004. Net written premiums increased to $10.9 million for the first three months of 2005 as compared to $7.1 million for the same period of 2004. While the Company expects growth in 2005, the growth experienced in the first quarter is not indicative of what is anticipated for the year. Most of the growth in this segment for the first quarter was attributable to increased production in the Company’s Prostar online rating and quoting system, in addition to premium production in the Company’s regional office in Denver, Colorado. The Company has experienced a slight decline in premium rates over 2004 due to increased competition and the overall change in pricing conditions in the market place. Despite the changing market conditions, the Company is comfortable with its plan to grow this segment.
Excess and Surplus. Net earned premiums increased to $21.1 million for the first three months of 2005 as compared to $19.8 million for the same period of 2004. Net written premiums decreased to $22.2 million for the first three months of 2005 as compared to $23.8 million for the same period of 2004. Thus far in 2005, premium rates have leveled and in some cases have declined due to less business being shifted out of the standard markets and a softening of pricing in the market place. This change in market conditions has resulted in a reduction in the volume of new business and renewal rates from 2004 levels. Despite the changing market, the Company has maintained its disciplined underwriting approach and consistent policy terms and conditions. Construction risks make up a majority of the book of business written by this segment and the insurance market for residential construction risks continue to be one of the hardest market segments. The Company believes this segment of the market offers some modest growth opportunities. The Company’s objective is to maintain its underwriting and pricing discipline and continue to monitor pricing conditions on an individual risk basis.
Programs. Net earned premiums decreased to $4.4 million for the first three months of 2005 as compared to $4.7 million for the same period of 2004. Net written premiums increased to $3.4 million for the first three months of 2005 as compared to $3.1 million for the same period of 2004. Net written premiums increased due to the addition of three new programs in the second half of 2004 and the continued growth in the Company’s pest control program. Net earned premiums decreased due to a decrease in the Company’s commercial auto liability program and lawyers liability program offset by an increase in the pest control program and the addition of the three new programs. It is not unusual for the Company to experience premium variances due to seasonal fluctuations on individual programs and the time it takes a program to become fully operational, coupled with the run-off of expiring programs. The Company continued its growth of fully funded polices in 2005, where the Company acts as the policy issuing carrier and the insured collateralizes the policy aggregate limit. Fee income earned in the first three months of 2005 was $160,000 as compared to $30,000 for the same period of 2004. The Company foresees combined growth opportunities for this product in the health care, residential construction and product manufacturing areas.
Other. Net earned premiums decreased to $0.3 million for the first three months of 2005 as compared to $2.7 million for the same period of 2004. Net written premiums decreased to $0.2 million for the first three months of 2005 as compared to $0.6 million for the same period of 2004. Net earned and net written premiums decreased as the Company’s assumed liability program and workers´ compensation business were put in run-off in 2004. This decrease was coupled with an increase in the Company’s surety business. The surety business grew as it was offered as a supporting product line to the environmental segment.
Net Investment Income
Net investment income increased to $3.2 million for the first three months of 2005 as compared to $2.1 million for the same period of 2004 due to higher levels of invested assets generated primarily by positive cash flows from operations and an increased investment yield. Average invested assets increased to $333.5 million for the first three months of 2005 as compared to $244.4 million for the same period of 2004. The pre-tax and after tax yields were 3.8% and 3.1% compared to 3.4% and 2.7% for the first three months of 2005 and 2004, respectively. The increase in yield is consistent with the overall market rate increases.
Net Realized Gains
Net realized gains increased to $52,000 for the first three months of 2005 as compared to $25,000 for the same period of 2004. Sales of investments are generally the result of implementing investment strategies to maximize investment income.
Real Estate Income
Real estate revenue decreased to $2.3 million for the first three months of 2005 as compared to $14.0 million for the same period of 2004 due to decreased closings of units. During the quarter the Company closed 6 units compared to 36 units in the same period ended in 2004. At the end of 2004 the Harbour Village project was substantially complete as most units are sold and closed. The Company does not expect to engage in any further real estate activities in the future. The earnings and funds generated from Harbour Village are being redeployed into the Company’s insurance operations.
Loss and Loss Adjustment Expense Ratio
The Company’s loss ratio decreased by 5.5 percentage to 60.0% for the first three month of 2005 as compared 65.5 % for the same period of 2004. The decrease was attributable to the Company experiencing no adverse loss development for the first three months of 2005 compared to $2.8 million in adverse loss development for the same period of 2004.
Acquisition Expenses
Acquisition expenses are amounts that are paid to agents and brokers for the production of premium for the Company offset in part by the ceding commissions we retain from our reinsurers. For our program business, fees are typically earned through ceding commissions and have the effect of lowering our acquisition expenses. Acquisition expenses also include amounts paid for premium taxes to the states where we do business on an admitted basis. Acquisition expenses were $7.1 million for the first three months of 2005 as compared to $6.6 million for the same period of 2004. Acquisition expenses as a function of net earned premiums were 20% at March 31, 2005, and 19% at March 31, 2004.
Real Estate Expenses
Real estate expenses decreased to $2.3 million for the first three months of 2005 as compared to $11.5 million for the same period of 2004 due to decreased closings of units. During the quarter the Company closed 6 units compared to 36 units in the same period ended in 2004.
Minority Interest Expense
Minority interest expense is associated with our non-subsidiary affiliate, American Safety RRG. In the past, given the historical loss position of American Safety RRG, a valuation allowance on it net deferred tax assets had been established. In the first quarter of 2005, RRG included in income the reduction of this valuation allowance (totaling $554,515) as RRG’s judgment about the realizability of its’ deferred tax assets changed due to RRG’s profitability. As a result minority interest for the first three months of 2005 increased to $588,000 as compared to $174,000 for the same period of 2004.
Payroll and Other Expenses
Payroll and other expenses were $5.5 million for the first three months of 2005 as compared to $4.7 million for the same period of 2004. The change is primarily due to an increase in staff count, and expenses associated with the Sarbanes-Oxley implementation.
Income taxes
The effective tax rate excluding the effects of RRG described above were 18% for the first three months of 2005 as compared to 21% for the same period of 2004. The decrease in effective tax rate was due to a decrease in real estate earnings.
Operations by Geographic Segment
Net Income. Net income from the Company’s Bermuda operations increased to $2.1 million for the first three months of 2005 as compared to $1.6 million for the same period of 2004. This increase is primarily from an increase in assumed business from the Company’s U.S insurance companies. Net income from U.S. operations decreased to $1.6 million for the first thee months of 2005 as compared to $2.1 million for the same period of 2004. This decrease is due to a decrease in real estate income as the Harbour Village project was substantially complete at the end of 2004.
Liquidity and Capital Resources
The Company meets its cash requirements and finances its growth principally through cash flows generated from operations. Since 2000 the Company has operated in a hardening market with increased insurance premium rates for general liability coverages and increased fees for program business opportunities. During 2004, the Company began to experience a leveling of premium rates due to entrance of new insurance competitors and overall market conditions. The Company’s primary sources of short-term cash flow are premium writings and investment income. Short-term cash requirements relate to claims payments, reinsurance premiums, commissions, salaries, employee benefits, real estate development expenses, and other operating expenses. Due to the uncertainty regarding the timing and amount of settlements of unpaid claims, the Company’s future liquidity requirements may vary; therefore, the Company has structured its investment portfolio maturities to allow for variations in those factors. The Company believes its current cash flows are sufficient for the short-term needs of its business and its invested assets are sufficient for the long-term needs of its insurance business.
Net cash provided from operations was $17.8 million for the quarter ended March 31, 2005, and $23.0 million for the quarter ended March 31, 2004. This decrease was caused by increased loss payments, which increased to $11.7 million from $6.2 million in the same period of 2004.
The estimated completion cost for the remainder of Harbour Village is approximately $1.6 million and represents amounts needed to construct a beach club. Management believes that cash on hand will meet the remaining liquidity needs of Harbour Village.
The Company’s ability to pay future dividends to shareholders will depend, to a significant degree, on the ability of its subsidiaries to generate earnings from which to pay dividends. The jurisdictions in which the Company and its insurance and reinsurance subsidiaries are domiciled place limitations on the amount of dividends or other distributions payable by insurance companies in order to protect the solvency of insurers. Given the Company’s growth and the capital requirements associated with that growth, the Company does not anticipate paying dividends on the common shares in the near future.
Income Taxes
American Safety is incorporated under the laws of Bermuda and, under current Bermuda law, is not obligated to pay any taxes in Bermuda based upon income or capital gains. American Safety has received an undertaking from the Minister of Finance in Bermuda pursuant to the provisions of The Exempted Undertakings Tax Protection Act 1966, which exempts American Safety and its shareholders, other than shareholders ordinarily resident in Bermuda, from any Bermuda taxes computed on profits, income or any capital asset, gain or appreciation, or any tax in the nature of estate, duty or inheritance until March 28, 2016. The Company, exclusive of its United States subsidiaries, does not consider itself to be engaged in a trade or business in the United States and accordingly does not expect to be subject to direct United States income taxation. The Company’s U.S. subsidiaries are subject to taxation in the United States.
Impact of Inflation
Property and casualty insurance premiums are established before the amounts of losses and loss adjustment expenses are known and therefore before the extent by which inflation may affect such expenses is known. Consequently, the Company attempts, in establishing its premiums, to anticipate the potential impact of inflation. However, for competitive and regulatory reasons, the Company may be limited in raising its premiums consistent with anticipated inflation, in which event the Company, rather than its insureds, would absorb inflation costs. Inflation also affects the rate of investment return on the Company’s investment portfolio with a corresponding effect on the Company’s investment income.
Combined Ratio
The combined ratio of an insurance company measures only the underwriting results of insurance operations and not the profitability of the overall company. Our reported combined ratio for our insurance operations may not provide an accurate indication of our overall profitability for instance, depending on our mix of business, the combined ratio may fluctuate from time to time and may not reflect the overall profitability of our insurance operations.
Reserves
Certain of our insurance policies and reinsurance assumed, including general and pollution liability policies covering environmental remediation, excess and surplus, and workers’ compensation risks, may be subject to claims brought years after an incident has occurred or the policy period has ended. We are required to maintain reserves to cover the unpaid portion of our ultimate liability for losses and loss adjustment expenses with respect to (i)reported claims and (ii)incurred but not reported claims. A full actuarial analysis is performed to provide this estimate of all unpaid loss and loss adjustment expense obligations of the Company under the terms of its contracts and agreements. In evaluating whether the reserves make a reasonable provision for unpaid loss and loss adjustment expense, it is necessary to project future loss and loss adjustment expense payments. It is certain that the actual future losses and loss adjustment expenses will not develop exactly as projected and may, in fact, vary significantly from the projections. If, the net loss reserves were to increase by 5% this would reduce pre-tax income by $9.7 million. If, the net loss reserves were to decrease by 5% this would increase pre-tax income by $9.7 million.
With respect to reported claims, case reserves are established on a case-by-case basis. The reserve amounts on each reported claim are determined by taking into account the circumstances surrounding each claim and policy provisions relating to the type of loss. Loss reserves are reviewed on a regular basis, and as new information becomes available, appropriate adjustments are made to reserves.
In establishing product line IBNR reserves, several methods are employed in determining ultimate losses: the expected loss ratio method; the Bornhuetter-Ferguson method based on expected loss ratios, paid losses and reported losses; and the loss development method based on paid and reported losses. The first method uses industry expected losses adjusted for our experience while the last method relies on industry payment and reporting patterns to develop our actual losses. The Bornhuetter-Ferguson method is a combination of the other two methods, using expected loss ratios to produce expected losses, then applying loss payment and reporting patterns to the expected losses to produce the expected IBNR. We review the ultimate projections from all three methods and, based on the merits of each method, determine our estimated ultimate losses.
However, the establishment of appropriate loss reserves is an inherently uncertain process, and there can be no assurance that such ultimate payments will not materially exceed our reserves.
Forward Looking Statements
This report contains forward-looking statements within the meaning of United States’ securities laws that are intended to be covered by the safe harbors created thereby. Such statements reflect the Company’s current views with respect to future events and financial performance, including insurance market conditions, future insurance claims and losses, and completion and profitability of the Harbour Village real estate project, as presented in the Company’s consolidated financial statements. In addition, all statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that the Company expects or anticipates will or may occur in the future constitute forward-looking statements.
Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially, and are subject to change based on various insurance industry factors, including, without limitation, competitive conditions in the insurance industry, levels of new and renewal insurance business, developments in loss trends, adequacy and changes in loss reserves and actuarial assumptions, timing or collectibility of reinsurance receivables, market acceptance of new coverages and enhancements, changes in reinsurance costs and availability, potential adverse decisions in litigation and arbitration proceedings (including the outcome of the Principal Management acquisition rescission litigation), and changes in levels of general business activity and economic conditions. With respect to the development of the Harbour Village project, such forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially, and are subject to change, based on various real estate development industry factors, including risks inherent in real estate development and new construction, and litigation.
Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could over time prove to be inaccurate and therefore, there can be no assurance that the forward-looking statements included in this Report will themselves prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. The Company expressly disclaims any obligation to update any forward-looking statements except as required by law.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
The Company’s market risk has not changed materially since December 31, 2004.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report, concluded that, as of such date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company (including consolidated subsidiaries) would be made known to them.
Changes in Internal Control
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation described above that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The Company, through its subsidiaries, is routinely a party to pending or threatened litigation or arbitration disputes in the normal course of or related to its business. Based upon information presently available, in view of legal and other defenses available to the Company’s subsidiaries, management does not believe that any pending or threatened litigation or arbitration disputes will have any material adverse effect on the Company’s financial condition or operating results, except for the following matters.
Acquisition Rescission Litigation. In April 2000, we filed a lawsuit in the U.S. District Court for the Northern District of Georgia for damages and, alternatively, to rescind the stock purchase of a Michigan insurance agency and two related insurance companies specializing in insurance program business based upon the seller’s breach of the representations and warranties made in the definitive agreements concerning the business affairs and financial condition of the acquired companies. The defendants filed several motions for summary judgment opposing our claims. In September 2002, the Court entered an order granting the defendant’s motions for summary judgment. However, the Court did not rule that the representations and warranties of the defendant in the definitive agreements were correct. The Court also granted our motions on various counterclaims. We filed a motion for reconsideration with respect to the Court’s order which the Court denied in November 2002. In August 2003, we filed a motion requesting the Court certify its previous order granting the defendant’s motion for summary judgment as final so that we could appeal the adverse rulings, however the Court denied our motion in December 2003. In 2004 the Company accrued $1.4 million of additional expense as a result of an adverse ruling in March 2005. It is anticipated that the remaining issues (i.e. disposition of escrowed shares and defendant’s claim for attorney’s fees) in the case will be determined by the Court, without a trial, in 2005. Thereafter, we will have the right to appeal all adverse prior rulings in the case.
Assumed Reinsurance Litigation. The Company is a defendant in four lawsuits arising from certain reinsurance agreements, for the years 2002 and 2003, with an automobile warranty insurer which is now in liquidation. The insurer provided coverage to dealerships and other providers who sold extended automobile warranty contracts to consumer purchasers. In these lawsuits, the consumer purchasers and automobile dealers have alleged various theories of liability against the Company. The Company believes it has several valid defenses and intends to vigorously contest these lawsuits.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.Item 3. Defaults Upon Senior Securities
Not applicable.Item 4. Submission of Matters to a Vote of Security Holders
NoneItem 5. Other Information
None.Item 6. Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description
11 Computation of Earnings Per Share
31.1 Certification Pursuant to § 302 of the Sarbanes-Oxley Act of
2002
31.2 Certification Pursuant to § 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification Pursuant to § 906 of the Sarbanes-Oxley Act of
2002
32.2 Certification Pursuant to § 906 of the Sarbanes-Oxley Act of
2002
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 13th day of May 2005.
American Safety Insurance Holdings, Ltd.
By: /s/ Stephen R. Crim
Stephen R. Crim
President and Chief Executive Officer
By: /s/ Steven B. Mathis
Steven B. Mathis
Chief Financial Officer
(Principal Financial Officer)
Exhibit 11
American Safety Insurance Holdings, Ltd. and subsidiaries
Computation of Earnings Per Share
Three Months Ended
March 31, March 31,
2004 2005
Basic:
Earnings available to common
shareholders........................ $3,649,819 $3,646,343
Weighted average common shares
outstanding......................... 6,916,099 6,791,476
Basic earnings per common shares ... $ 0.53 $ 0.54
Diluted:
Earnings available to common
shareholders.......................... $ 3,649,819 $ 3,646,343
Weighted average common shares
outstanding............................ 6,916,099 6,791,476
Weighted average common shares
equivalents associated with options.... 492,564 474,047
Total weighted average common
shares................................. 7,408,663 7,265,523
Diluted earnings per common
shares.............................. $ 0.49 $ 0.50
Exhibit 31.1
Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002
I, Stephen R. Crim certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Safety Insurance Holdings, Ltd.;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this Report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting;
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal controls over financial reporting.
Date: May 13, 2005 /s/ Stephen R. Crim
Stephen R. Crim
Chief Executive Officer
American Safety Insurance Holdings, Ltd.
Exhibit 31.2
Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002
I, Steven B. Mathis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Safety Insurance Holdings, Ltd.;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this Report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting;
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal controls over financial reporting.
Date: May 13, 2005 /s/ Steven B. Mathis
Steven B. Mathis
Chief Financial Officer
American Safety Insurance Holdings, Ltd.
Exhibit 32.1
Certification Pursuant to §906 of the
Sarbanes-Oxley Act of 2002
The undersigned, as the Chief Executive Officer of American Safety Insurance Group, Ltd., certifies
that, to the best of his knowledge and belief, the Quarterly Report on Form 10-Q for the period ended March 31,
2005, which accompanies this certification fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of American Safety Insurance Group, Ltd. at
the dates and for the periods indicated. The foregoing certification is made pursuant to§906 of the
Sarbanes-Oxley Act of 2003 (18 U.S.C. §1350) and shall not be relied upon for any other purpose.
Date: May 13, 2005 /s/ Stephen R. Crim
Stephen R. Crim
Chief Executive Officer
A signed original of this written statement required by § 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by § 906, has been provided to American Safety Insurance Holdings, Ltd. and will be retained by American Safety Insurance Holdings, Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.
The information in this Exhibit 32.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
Certification Pursuant to § 906 of the
Sarbanes-Oxley Act of 2002
The undersigned, as the Chief Financial Officer of American Safety Insurance Group, Ltd., certifies
that, to the best of his knowledge and belief, the Quarterly Report on Form 10-Q for the period ended March 31,
2005, which accompanies this certification fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of American Safety Insurance Group, Ltd. at
the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the
Sarbanes-Oxley Act of 2003 (18 U.S.C. §1350) and shall not be relied upon for any other purpose.
Date: May 13, 2005 /s/ Steven B. Mathis
Steven B. Mathis
Chief Financial Officer
A signed original of this written statement required by § 906, or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of
this written statement required by § 906, has been provided to American Safety Insurance Holdings, Ltd. and will
be retained by American Safety Insurance Holdings, Ltd. and furnished to the Securities and Exchange Commission
or its staff upon request.
The information in this Exhibit 32.1 shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.