Farmington, Conn.-based Darwin Professional Underwriters, Inc. reported that net income increased 87 percent to $5.2 million for the first quarter of 2007, while gross premiums rose 24 percent to $74 million during the same period.
Highlights for the quarter ending March 31, 2007 include:
— Gross premiums written for the first quarter are $74.3 million. First quarter gross premiums written are 24.0 percent ahead of gross premiums for the same period a year ago. Net premiums written for the quarter of $48.9 million are up 33.0 percent over the first quarter of 2006.
— Net earnings of $5.2 million for the quarter ended March 31, 2007 represent an 87.2 percent increase over the $2.8 million for the quarter ended March 31, 2006.
— Overall, the combined ratio is 92.8% for the first quarter 2007, which compares favorably to the first quarter 2006 combined ratio of 96.6 percent. The combined ratio improvement is primarily driven by a decrease in the loss ratio (6.9% improvement to 63.7%) and is partially offset by a higher expense ratio (3.1% increase to 29.1%) for the quarter. The first quarter loss ratio improvement includes approximately $0.8 million in favorable loss reserve development ($0.5 million, net of tax) stemming from the 2004 accident year, as well as a decrease of $0.4 million ($0.2 million, net of tax) in ceded premiums earned due to the corresponding changes in the underlying variable-rated reinsurance in-force during the 2004 accident year. The increase in the expense ratio is driven by a higher commission expense due to a change in the mix of our business and higher commissions paid to external brokers.
— Earnings per diluted share for the three months ended March 31, 2007 are $0.31 compared to $0.17 per share for the same period in 2006.
— Annualized return on average equity is 9.5 percent for the three months ended March 31, 2007, while shareholders’ equity grew $5.7 million, or 2.6 percent during the three months, from $217.9 million at Dec. 31, 2006 to $223.6 million at March 31, 2007. Book value per share grew 2.3 percent to $13.08 at March 31, 2007 from $12.78 at Dec. 31, 2006.
For the quarter ended March 31, 2007, the break-down of gross premiums written by business line is as follows: medical malpractice liability, $22.7 million; errors and omissions (“E&O”) liability, $42.8 million; and directors and officers (“D&O”) liability, $8.8 million.
“Our business remains very competitive but we are proud to have achieved favorable operating results,” said Stephen Sills, Darwin’s president and chief executive officer. “Our focus in distinct niches within the specialty lines market has allowed us to produce excellent growth and operating results in the first quarter of 2007.”
Sills added that Darwin raised its commission rates for new business accounts in 2007 to reward key producers and estimates this, along with a focus on smaller accounts, which generally have higher commissions, will increase gross commission expense by approximately 2 percent in 2007.
“We are also pleased to report that we have renewed our two major reinsurance programs at favorable terms and have been able to increase the ceding commission we receive on business subject to these treaties, while taking more risk at lower levels,” Sills added. “At the same time, we have eliminated the swing-rated aspects of the treaties, which we believe will dampen volatility. The increase in ceding commissions should mitigate our anticipated increase in commission expense going forward.”
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