Odyssey Re Holdings Corp. Reports Second Quarter 2007 Results

Odyssey Re Holdings Corp. (NYSE: ORH) today reported net income available to common shareholders of $145.5 million, or $2.02 per diluted share, for the quarter ended June 30, 2007, compared to $207.6 million, or $2.87 per diluted share, for the quarter ended June 30, 2006. Operating income after tax (1) was $66.8 million, or $0.93 per diluted share, for the second quarter of 2007, compared to $88.2 million, or $1.22 per diluted share, for the second quarter of 2006; results for the second quarter of 2006 include a one-time tax benefit of $16.5 million, or $0.23 per diluted share. Included in second quarter 2007 net income available to common shareholders were after tax net realized capital gains of $78.7 million, or $1.09 per diluted share, compared to after tax net realized capital gains of $119.6 million, or $1.65 per diluted share, for the second quarter of 2006, which included capital gains of an equity investee that were included in net investment income for that quarter. For the six months ended June 30, 2007, net income available to common shareholders was $232.1 million, or $3.22 per diluted share, compared to $358.0 million, or $4.95 per diluted share, for the comparable period of 2006. Book value per common share (2) was $30.27 at June 30, 2007, an increase of $2.35 per share, or 8.4%, compared to $27.92 at December 31, 2006. Total shareholders’ equity was $2.28 billion at June 30, 2007, an increase of $200.5 million compared to total shareholders’ equity of $2.08 billion at December 31, 2006. Highlights for the second quarter of 2007 are summarized as follows: Net income available to common shareholders of $145.5 million ($2.02 per diluted share) for the second quarter, and $232.1 million ($3.22 per diluted share) for the first half of the year; Operating earnings of $66.8 million ($0.93 per diluted share) for the second quarter, and $122.1 million ($1.70 per diluted share) for the first half of the year; Annualized return on common shareholders’ equity of 27.4% for the second quarter, and 22.2% for the first half of the year; Annualized operating return on common shareholders’ equity of 12.6% for the second quarter, and 11.7% for the first half of the year; Book value per common share of $30.27, an increase of 4.9%, or $1.41 per share, from March 31, 2007, and an 8.4% increase, or $2.35 per share, from year end 2006; Combined ratio of 93.9% for the second quarter, and 95.1% for the first half of the year. Gross premiums written for the quarter ended June 30, 2007 were $553.3 million, a decrease of 5.3% compared to $584.1 million for the quarter ended June 30, 2006. The change was attributable to a 12.4% decrease in the Company’s worldwide reinsurance business, reflecting increased competitive market conditions, which was partially offset by a 14.4% increase in the Company’s insurance business, primarily related to new business opportunities within U.S. specialty insurance. Net premiums written for the second quarter of 2007 were $505.1 million, a decrease of 7.0% compared to second quarter 2006 net premiums written of $542.8 million. The combined ratio for the second quarter of 2007 was 93.9%, compared to 95.3% for the second quarter of 2006. Results for the three months ended June 30, 2007 reflect net catastrophe losses, including net catastrophe losses from prior periods, of $13.0 million, after tax, or $0.18 per diluted share, compared to $19.8 million, or $0.27 per diluted share, for the second quarter of 2006. For the six months ended June 30, 2007 and 2006, the combined ratio was 95.1% and 93.6%, respectively. Net investment income, which for 2006 excludes realized capital gains of an equity investee included in net investment income, amounted to $84.5 million for the second quarter of 2007, compared to $92.3 million for the second quarter of 2006. Net pre-tax realized capital gains were $121.1 million for the second quarter of 2007, compared to $184.1 million for the second quarter of 2006. Included in net pre-tax realized capital gains for the second quarter of 2007 is $119.2 million related to the sale of the Company’s 13.2% ownership of Hub International Limited. The second quarter of 2006 includes realized capital gains of an equity investee included in net investment income of $103.3 million. For the three months ended June 30, 2007, net cash flow from operations was $28.6 million, an increase of 6.3% from $26.9 million for the three months ended June 30, 2006. At June 30, 2007, total investments and cash were $7.3 billion, an increase of $220.1 million, or 3.1%, over December 31, 2006. Net unrealized losses, after tax, were $37.4 million at June 30, 2007, compared to net unrealized gains, after tax, of $23.4 million at December 31, 2006. In the second quarter of 2007, OdysseyRe paid a cash dividend of $0.0625 per common share on June 29, 2007 to common shareholders of record as of June 15, 2007. (1) "Operating income” after tax is a non-generally accepted accounting principles ("GAAP”) financial measure often used by investors to evaluate performance in the insurance and reinsurance industry. Operating income after tax is equal to net income available to common shareholders, excluding net realized capital gains as reported, net realized capital gains of an equity investee included in net investment income and the loss on early extinguishment of debt. Although realized capital gains or losses are an integral part of the Company’s operations, the amount recognized during any particular period cannot be reasonably estimated and can vary significantly. Management believes that providing operating income after tax to investors is a useful supplement to GAAP information concerning the Company’s performance. A reconciliation of net income available to common shareholders to operating income after tax and related amounts per diluted common share is as follows (in millions, except per share amounts): Three months ended (unaudited) June 30, 2007 June 30, 2006 $ Per Diluted Share $ Per Diluted Share Net income available to common shareholders $ 145.5 $ 2.02 $ 207.6 $ 2.87 Less: Net realized capital gains, after tax (78.7 ) (1.09 ) (52.5 ) (0.73 ) Less: Net realized capital gains of an equity investee included in net investment income, after tax — — (67.1 ) (0.92 ) Add: Loss on early extinguishment of debt, after tax   —     —     0.2     —   Operating income, after tax $ 66.8   $ 0.93   $ 88.2   $ 1.22   Six months ended (unaudited) June 30, 2007 June 30, 2006 $ Per Diluted Share $ Per Diluted Share Net income available to common shareholders $ 232.1 $ 3.22 $ 358.0 $ 4.95 Less: Net realized capital gains, after tax (110.0 ) (1.52 ) (103.6 ) (1.43 ) Less: Net realized capital gains of an equity investee included in net investment income, after tax — — (108.6 ) (1.50 ) Add: Loss on early extinguishment of debt, after tax   —     —     0.2     —   Operating income, after tax $ 122.1   $ 1.70   $ 146.0   $ 2.02   (2) Book value per common share, a financial measure often used by investors, is calculated using common shareholders’ equity, a non-GAAP financial measure, which represents total shareholders’ equity, a GAAP financial measure, reduced by the equity attributable to our preferred stock. The common shareholders’ equity is divided by our common shares outstanding at the end of each period to derive book value per common share as reflected in the following table (in millions, except share amounts). June 30, 2007 December 31, 2006 Total shareholders’ equity $ 2,284.1 $ 2,083.6 Less: equity related to preferred stock   97.5   97.5 Total common shareholders’ equity $ 2,186.6 $ 1,986.1   Common shares outstanding   72,229,135   71,140,948 Book value per common share $ 30.27 $ 27.92 A conference call to discuss second quarter results will be held at 10:00 a.m. Eastern Daylight Saving Time on Friday, August 3, 2007. A live audio webcast of the conference call will be available on the Odyssey Re Holdings Corp. web site (www.odysseyre.com). In addition, callers not able to access the Internet may listen to the conference call by dialing (800) 289-0518 (domestic) or (913) 981-5532 (international) and asking for the OdysseyRe call. A replay of the call will be available from 12:00 p.m. Eastern Daylight Saving Time on Friday, August 3, 2007 until 11:59 p.m. Eastern Daylight Saving Time on Sunday, August 12, 2007. To access the replay, please call either (888) 203-1112 (domestic) or (719) 457-0820 (international); the passcode number is 2010436. Odyssey Re Holdings Corp. is a leading worldwide underwriter of property and casualty treaty and facultative reinsurance, as well as specialty insurance. OdysseyRe operates through its subsidiaries, Odyssey America Reinsurance Corporation, Hudson Insurance Company, Hudson Specialty Insurance Company, Clearwater Insurance Company, Newline Underwriting Management Limited, Newline Asia Services Pte. Ltd. and Newline Insurance Company Limited. The Company underwrites through offices in the United States, London, Paris, Singapore, Toronto and Latin America. Odyssey Re Holdings Corp. is listed on the New York Stock Exchange under the symbol ORH. Certain statements contained herein may constitute forward-looking statements and are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: a reduction in net income if the Company's loss reserves are insufficient; the occurrence of catastrophic events with a frequency or severity exceeding the Company’s estimates; the lowering or loss of one of the Company's financial or claims-paying ratings, including those of the Company’s subsidiaries; an inability to realize the Company's investment objectives; a decrease in the level of demand for the Company's reinsurance or insurance business, or increased competition; emerging claim and coverage issues; risks relating to ongoing investigations by U.S. government authorities; the risk that ongoing regulatory developments will disrupt the Company's business or mandate changes in industry practices that increase the Company's costs; changes in economic conditions, including interest rate, currency, equity and credit conditions; the Company's inability to access its subsidiaries' cash; loss of services of any of the Company's key employees; risks related to the Company's use of reinsurance brokers; failure of the Company's reinsurers to honor their obligations; regulatory and legislative changes; risks associated with the growth of the Company's specialty insurance business; and other factors that are described in the Company's filings with the Securities and Exchange Commission. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Visit OdysseyRe’s web site – www.odysseyre.com – for additional information about the Company. In addition, anyone may view the Company’s historical press releases and filings with the Securities and Exchange Commission, which provide additional data regarding the Company's prior quarterly and year-to-date results. This historical information may be found on OdysseyRe’s web site under "Investor Information.” Consolidated financial and segment information follows: ODYSSEY RE HOLDINGS CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)     June 30,   December 31, 2007 2006 (unaudited) ASSETS Investments and cash: Fixed income securities, available for sale, at fair value (amortized cost $4,356,884 and $3,547,656, respectively) $ 4,185,651 $ 3,501,580 Fixed income securities, held as trading securities, at fair value 238,953 - Redeemable preferred stock, at fair value (cost $1,104) 1,085 - Equity securities: Common stocks, at fair value (cost $710,155 and $576,212, respectively) 800,287 636,749 Common stocks, at equity 153,837 245,416 Short-term investments, at fair value 209,848 119,403 Cash and cash equivalents 1,200,419 2,061,796 Cash collateral 327,485 365,033 Other invested assets   168,654     136,111   Total investments and cash 7,286,219 7,066,088 Accrued investment income 70,890 50,930 Premiums receivable 501,195 475,453 Reinsurance recoverable on paid losses 64,776 59,768 Reinsurance recoverable on unpaid losses 687,784 739,019 Prepaid reinsurance premiums 58,948 50,486 Funds held by reinsureds 149,927 154,573 Deferred acquisition costs 150,532 149,886 Federal and foreign income taxes 86,313 116,920 Other assets   78,562     90,589   Total assets $ 9,135,146   $ 8,953,712     LIABILITIES Unpaid losses and loss adjustment expenses $ 5,147,561 $ 5,142,159 Unearned premiums 728,142 741,328 Reinsurance balances payable 134,960 102,711 Funds held under reinsurance contracts 78,456 96,854 Debt obligations 489,092 512,504 Obligation to return borrowed securities 116,306 119,798 Other liabilities   156,560     154,779   Total liabilities   6,851,077     6,870,133     SHAREHOLDERS’ EQUITY Preferred shares, $0.01 par value; 200,000,000 shares authorized; 2,000,000 Series A shares and 2,000,000 Series B shares issued and outstanding 40 40 Common shares, $0.01 par value; 500,000,000 shares authorized; 72,321,715 and 71,218,616 shares issued, respectively 723 712 Additional paid-in capital 1,049,957 1,029,349 Treasury shares, at cost (92,580 and 77,668 shares, respectively) (3,704 ) (2,528 ) Accumulated other comprehensive (loss) income, net of deferred income taxes (33,259 ) 25,329 Retained earnings   1,270,312     1,030,677   Total shareholders’ equity   2,284,069     2,083,579   Total liabilities and shareholders’ equity $ 9,135,146   $ 8,953,712   ODYSSEY RE HOLDINGS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)   Six Months Ended June 30, Three Months Ended June 30,   2007     2006     2007     2006     REVENUES Gross premiums written $ 1,121,510 $ 1,176,870 $ 553,296 $ 584,059 Ceded premiums written   90,240     98,051     48,246     41,240   Net premiums written 1,031,270 1,078,819 505,050 542,819 Decrease in unearned premiums   22,383     59,242     9,696     41,790   Net premiums earned 1,053,653 1,138,061 514,746 584,609 Net investment income 166,003 319,953 84,527 195,561 Net realized investment gains   169,163     159,434     121,066     80,789     Total revenues   1,388,819     1,617,448     720,339     860,959     EXPENSES Losses and loss adjustment expenses 703,393 746,345 335,879 395,983 Acquisition costs 214,848 246,808 107,026 124,429 Other underwriting expenses 83,827 72,016 40,253 36,830 Other expense, net 8,157 9,935 2,676 2,741 Interest expense 18,876 18,508 9,375 9,691 Loss on early extinguishment of debt   -     2,403     -     2,403   Total expenses   1,029,101     1,096,015     495,209     572,077     Income before income taxes   359,718     521,433     225,130     288,882     Federal and foreign income tax provision (benefit): Current 110,664 151,914 87,002 78,770 Deferred   12,770     7,482     (9,508 )   486   Total federal and foreign income tax provision   123,434     159,396     77,494     79,256       Net income 236,284 362,037 147,636 209,626   Preferred dividends   (4,184 )   (4,054 )   (2,092 )   (2,057 )   NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 232,100   $ 357,983   $ 145,544   $ 207,569     BASIC Weighted average common shares outstanding   70,806,701     68,473,794     71,147,476     68,478,035   Basic earnings per common share $ 3.28   $ 5.23   $ 2.05   $ 3.03     DILUTED Weighted average common shares outstanding   72,102,503     72,481,547     72,054,996     72,435,220   Diluted earnings per common share $ 3.22   $ 4.95   $ 2.02   $ 2.87     DIVIDENDS Dividends declared per common share $ 0.13   $ 0.06   $ 0.06   $ 0.03     COMPREHENSIVE INCOME Net income $ 236,284 $ 362,037 $ 147,636 $ 209,626 Other comprehensive loss, net of tax   (42,092 )   (145,524 )   (34,184 )   (115,384 )   Comprehensive income $ 194,192   $ 216,513   $ 113,452   $ 94,242   ODYSSEY RE HOLDINGS CORP. BUSINESS SEGMENTS (UNAUDITED) (IN THOUSANDS)   Six Months Ended Three Months Ended June 30, % June 30, % 2007 2006 Change 2007 2006 Change   GROSS PREMIUMS WRITTEN Americas $ 418,088 $ 466,411 (10.4 ) % $ 200,412 $ 233,899 (14.3 ) % EuroAsia 288,768 287,653 0.4 145,344 151,916 (4.3 ) London Market 161,614 177,234 (8.8 ) 81,324 92,458 (12.0 ) U.S. Insurance   253,040   245,572 3.0   126,216   105,786 19.3   Total $ 1,121,510 $ 1,176,870 (4.7 ) % $ 553,296 $ 584,059 (5.3 ) %   NET PREMIUMS WRITTEN Americas $ 408,646 $ 448,724 (8.9 ) % $ 196,982 $ 226,408 (13.0 ) % EuroAsia 277,049 282,730 (2.0 ) 142,277 154,124 (7.7 ) London Market 141,937 160,059 (11.3 ) 71,036 84,500 (15.9 ) U.S. Insurance   203,638   187,306 8.7   94,755   77,787 21.8   Total $ 1,031,270 $ 1,078,819 (4.4 ) % $ 505,050 $ 542,819 (7.0 ) %   NET PREMIUMS EARNED Americas $ 418,824 $ 504,717 (17.0 ) % $ 198,067 $ 262,867 (24.7 ) % EuroAsia 274,609 275,203 (0.2 ) 137,492 146,631 (6.2 ) London Market 156,171 170,881 (8.6 ) 74,988 87,705 (14.5 ) U.S. Insurance   204,049   187,260 9.0   104,199   87,406 19.2   Total $ 1,053,653 $ 1,138,061 (7.4 ) % $ 514,746 $ 584,609 (12.0 ) %     Six Months Ended Percentage Three Months Ended Percentage June 30, Point June 30, Point 2007 2006 Change 2007 2006 Change LOSSES AND LOSS ADJUSTMENT EXPENSES RATIO Americas 68.6 % 73.0 % (4.4 ) 70.3 % 75.0 % (4.7 ) EuroAsia 70.5 59.1 11.4 67.4 60.0 7.4 London Market 58.4 63.7 (5.3 ) 52.5 65.9 (13.4 ) U.S. Insurance 64.3 56.8 7.5 62.1 60.8 1.3   Total 66.8 % 65.6 % 1.2 65.3 % 67.7 % (2.4 )   ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES RATIO Americas 30.7 % 31.9 % (1.2 ) 31.2 % 30.7 % 0.5 EuroAsia 27.5 25.5 2.0 27.9 25.1 2.8 London Market 26.2 25.1 1.1 25.9 26.1 (0.2 ) U.S. Insurance 26.2 24.1 2.1 26.6 23.7 2.9   Total 28.3 % 28.0 % 0.3 28.6 % 27.6 % 1.0   COMBINED RATIO Americas 99.3 % 104.9 % (5.6 ) 101.5 % 105.7 % (4.2 ) EuroAsia 98.0 84.6 13.4 95.3 85.1 10.2 London Market 84.6 88.8 (4.2 ) 78.4 92.0 (13.6 ) U.S. Insurance 90.5 80.9 9.6 88.7 84.5 4.2   Total 95.1 % 93.6 % 1.5 93.9 % 95.3 % (1.4 )