Published: August 01, 2011
Meadowbrook Insurance Group, Inc. Reports Second Quarter Operating Income of $8.5 Million
SOUTHFIELD, Mich., Aug. 1, 2011 /PRNewswire/ --
-- Net operating income of $8.5 million, or $0.16 per diluted share
-- Results include higher than normal after-tax storm losses of $4.1
million, or $0.08 per diluted share, as previously announced
-- Accident quarter combined ratio of 100.8%
-- Higher than normal storm activity added 3.5 percentage points, as
previously announced
-- Gross written premium increased 12% to $212.7 million
-- Book value per share increased 5.4% to $10.84 as compared to December
31, 2010
-- Board of Directors declared quarterly dividend of $0.04 per share
Second Quarter Overview:
Meadowbrook Insurance Group, Inc. (NYSE: MIG) reported second quarter 2011 net operating income of $8.5 million, or $0.16 per diluted share, compared to $12.6 million, or $0.23 per diluted share, for the same period last year. Net operating income is a non-GAAP measure the Company defines as net income excluding after-tax realized gains and losses. The current quarter net operating income reflects higher than normal after-tax storm losses of $4.1 million, or $0.08 per diluted share, incurred in 2011.
The accident quarter combined ratio, a non-GAAP measure that excludes the impact of any adverse or favorable development on prior year loss reserves, was 100.8% in 2011 and includes 3.5 percentage points of higher than normal storm losses. Excluding the higher than normal storm losses, the accident quarter combined ratio was 97.3% in 2011. The current accident quarter combined ratio reflects positive impacts of underwriting and pricing actions taken in the prior 12 months.
Commenting on the quarter, Meadowbrook President and Chief Executive Officer Robert S. Cubbin stated: "While we are generally pleased with our second quarter performance we were negatively impacted by widespread storm activity that was exceptionally high. Excluding the higher than average storm losses, our accident year combined ratio improved as compared to prior year and we continued to achieve profitable growth despite the competitive market. We have also been able to achieve premium growth through rate increases, while maintaining high retention rates. These achievements underscore our commitment to pricing adequacy and adherence to disciplined underwriting standards. Looking ahead, we believe our balanced business model positions us well to continue to deliver predictable earnings across the market cycle and we are optimistic about our future prospects."
Mr. Cubbin also commented on the unusual frequency of second quarter storm activity: "Our underwriting approach to property exposures focuses on spread of risks, avoiding those areas most frequently exposed to severe weather and maintaining a low catastrophe reinsurance retention level. None of the storms this quarter were severe enough to trigger our catastrophe reinsurance program as no single event resulted in losses greater than $2.4 million. That said, the frequency of storm losses was very high, with 12 ISO designated storms occurring during the quarter. The cumulative effect of the storms led to this greater than usual loss for us in the quarter. Our relatively lower than industry exposure to property catastrophes reduced our potential for even greater losses despite the significant number of severe storms that devastated many parts of the country."
Gross written premium increased $22.9 million, to $212.7 million from $189.8 million in the prior year. The increase reflects the maturation of programs initiated in recent years and rate increases that were achieved during the quarter.
Net losses and loss adjustment expenses of $121.4 million increased $22.2 million from $99.2 million in 2010. The GAAP loss and LAE ratio was 66.9% in 2011 and 61.0% in 2010.
Policy acquisition and other underwriting expenses increased $5.1 million to $62.5 million from $57.4 million in 2010. The Company's expense ratio was 34.4% compared to 35.2% in the prior year.
Net investment income grew $0.3 million to $13.8 million from $13.5 million in 2010.
Net commissions and fees increased $0.8 million to $7.9 million from $7.1 million in the prior year. The change was driven primarily by increased net commission revenue generated by the Company's Michigan agencies.
General corporate expenses decreased $2.0 million from a $1.3 million expense in 2010 to a benefit of $0.7 million in 2011. The current year amount reflects a reduction in the accrual for variable compensation, as compared to accruing a provision for variable compensation in 2010.
Six-months Ended June 30, 2011 Overview:
Net operating income for the six-months ended June 30, 2011 was $23.0 million, or $0.43 per diluted share, compared to $29.4 million, or $0.54 per diluted share, in the prior year.
The accident year-to-date combined ratio, a non-GAAP measure that excludes the impact of any adverse or favorable development on prior year loss reserves, improved to 99.0% in 2011 compared to 99.5% in 2010. The improved accident year-to-date combined ratio reflects underwriting and pricing actions taken in the prior 12 months.
Gross written premium increased $40.6 million, to $437.6 million from $397.0 million in the prior year. The increase reflects the maturation of programs initiated in recent years, rate increases that were achieved during the year and the conversion of an existing fee-based program into an insured program where the Company now assumes risk.
Net losses and loss adjustment expenses of $226.7 million increased $40.0 million from $186.7 million in 2010. The GAAP loss and LAE ratio was 64.4% in 2011 and 59.4% in 2010.
Policy acquisition and other underwriting expenses increased $10.7 million to $119.9 million from $109.2 million in 2010. The Company's expense ratio was 34.0% compared to 34.8% in the prior year.
Net investment income grew $0.8 million to $27.3 million from $26.5 million in 2010.
Net commissions and fees decreased $0.7 million to $16.3 million from $17.0 million in the prior year. The decrease was primarily driven by the conversion of fee-business into an insured program. Excluding the conversion, net commissions and fees were up slightly in 2011 compared to 2010.
General corporate expenses decreased $2.6 million to $0.6 million compared to $3.2 million in 2010.
Other Matters:
Dividend Declared And Share Repurchases
During the second quarter of 2011, the Board of Directors declared a dividend of $0.04 per share. In addition, the Company repurchased 400,000 shares at an average price of $9.76 per share during the second quarter.
Conference Call
Meadowbrook's 2011 second quarter results will be discussed by management in more detail on Tuesday, August 2, 2011 at 9:00 a.m. EDT.
To listen to the call please dial 1-877-407-8035 approximately five minutes prior to the start of the call and ask for the Meadowbrook conference call. Additionally, the conference call will be broadcast live over the internet and can be accessed by all interested parties via the investor relations section of our website at www.meadowbrook.com or www.investorcalendar.com.
For those who cannot listen to the live conference call, a replay of the call will be available through August 17, 2011 by dialing 1-877-660-6853 and referring to account number 286 and conference ID 375399. The webcast will be archived and available for replay through November 2, 2011.
About Meadowbrook Insurance Group
Meadowbrook Insurance Group, Inc., based in Southfield, Michigan, is a leader in the specialty program management market. Meadowbrook includes several agencies, claims and loss prevention facilities, self-insured management organizations and seven property and casualty insurance underwriting companies, including one in Bermuda. Meadowbrook has twenty-six locations in the United States. Meadowbrook is a risk management organization, specializing in specialty risk management solutions for agents, professional and trade associations, and small to medium-sized insureds. Meadowbrook Insurance Group, Inc. common shares are listed on the New York Stock Exchange under the symbol "MIG". For further information, please visit Meadowbrook's corporate web site at www.meadowbrook.com.
Certain statements made by Meadowbrook Insurance Group, Inc. in this release may constitute forward-looking statements including, but not limited to, those statements that include the words "believes," "expects," "anticipates," "estimates," or similar expressions. Please refer to the Company's most recent 10-K, 10-Q, and other Securities and Exchange Commission filings for more information on risk factors. Actual results could differ materially. These forward-looking statements involve risks and uncertainties including, but not limited to the following: the frequency and severity of claims; uncertainties inherent in reserve estimates; catastrophic events; a change in the demand for, pricing of, availability or collectability of reinsurance; increased rate pressure on premiums; obtainment of certain rate increases in current market conditions; investment rate of return; changes in and adherence to insurance regulation; actions taken by regulators, rating agencies or lenders; obtainment of certain processing efficiencies; changing rates of inflation; and general economic conditions. Meadowbrook is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED BALANCE SHEET INFORMATION
JUNE 30, DECEMBER 31,
(In Thousands, Except Per Share Data) 2011 2010
------------------------------------- ---- ----
BALANCE SHEET DATA
ASSETS
Cash and invested assets $1,404,779 $1,345,257
Premium and agents balances 195,500 169,865
Reinsurance recoverable 305,967 294,196
Deferred policy acquisition
costs 84,833 78,755
Prepaid reinsurance premiums 28,500 28,208
Goodwill 118,842 118,842
Other assets 142,585 142,518
Total Assets $2,281,006 $2,177,641
========== ==========
LIABILITIES
Loss and loss adjustment
expense reserves $1,125,216 $1,065,056
Unearned premium reserves 379,842 352,585
Debt 31,250 37,750
Debentures 80,930 80,930
Other liabilities 90,732 94,219
Total Liabilities 1,707,970 1,630,540
STOCKHOLDERS' EQUITY
Common stockholders' equity 573,036 547,101
Total Liabilities & Stockholders'
Equity $2,281,006 $2,177,641
========== ==========
Book value per common share $10.84 $10.28
Book value per common share excluding
unrealized gain/loss, net of deferred
taxes $9.99 $9.61
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
FOR THE THREE
(In Thousands, Except MONTHS
Share & Per Share Data) ENDED JUNE 30,
----------------------- --------------
SUMMARY DATA 2011 2010
------------ ---- ----
Gross written premiums $212,672 $189,821
Net written premiums 185,777 161,275
REVENUES
Net earned premiums $181,470 $162,760
Net commissions and fees 7,897 7,135
Net investment income 13,765 13,454
Net realized gains 1,094 292
Total Revenues 204,226 183,641
EXPENSES
Net losses and loss adjustment expenses 121,403 99,212
Policy acquisition and other underwriting
expenses 62,450 57,370
General selling and administrative expenses 5,631 5,321
General corporate expenses (719) 1,269
Amortization expense 1,206 1,121
Interest expense 2,082 2,411
Total Expenses 192,053 166,704
INCOME BEFORE INCOME TAXES AND EQUITY
EARNINGS OF AFFILIATES AND UNCONSOLIDATED
SUBSIDIARIES 12,173 16,937
Income tax expense 2,408 4,738
Equity earnings of affiliates, net of tax 173 644
Equity earnings of unconsolidated
subsidiaries, net of tax 1 18
--- ---
NET INCOME $9,939 $12,861
====== =======
Less: Net realized gains (losses), net of
tax 1,399 239
NET OPERATING INCOME (1) $8,540 $12,622
====== =======
Diluted earnings per common share
Net income $0.19 $0.24
Net operating income $0.16 $0.23
Diluted weighted average common shares
outstanding 53,248,573 54,268,668
GAAP ratios:
Loss & LAE ratio 66.9% 61.0%
Other underwriting expense ratio 34.4% 35.2%
---- ----
GAAP combined ratio 101.3% 96.2%
===== ====
(In Thousands, Except FOR THE SIX MONTHS
Share & Per Share Data) ENDED JUNE 30,
----------------------- --------------
SUMMARY DATA 2011 2010
------------ ---- ----
Gross written premiums $437,618 $396,994
Net written premiums 379,093 340,051
REVENUES
Net earned premiums $352,128 $314,201
Net commissions and fees 16,335 17,003
Net investment income 27,337 26,483
Net realized gains 1,906 158
Total Revenues 397,706 357,845
EXPENSES
Net losses and loss adjustment expenses 226,665 186,692
Policy acquisition and other underwriting
expenses 119,888 109,249
General selling and administrative expenses 11,875 11,227
General corporate expenses 636 3,246
Amortization expense 2,438 2,522
Interest expense 4,254 4,854
----- -----
Total Expenses 365,756 317,790
INCOME BEFORE INCOME TAXES AND EQUITY
EARNINGS OF AFFILIATES AND UNCONSOLIDATED
SUBSIDIARIES 31,950 40,055
Income tax expense 8,119 12,396
Equity earnings of affiliates, net of tax 1,246 1,166
Equity earnings of unconsolidated
subsidiaries, net of tax (22) 470
--- ---
NET INCOME $25,055 $29,295
======= =======
Less: Net realized gains (losses), net of
tax 2,031 (148)
NET OPERATING INCOME (1) $23,024 $29,443
======= =======
Diluted earnings per common share
Net income $0.47 $0.53
Net operating income $0.43 $0.54
Diluted weighted average common shares
outstanding 53,323,802 54,887,561
GAAP ratios:
Loss & LAE ratio 64.4% 59.4%
Other underwriting expense ratio 34.0% 34.8%
---- ----
GAAP combined ratio 98.4% 94.2%
==== ====
(1) While net operating income is a non-GAAP disclosure, management
believes this information is beneficial to reviewing the financial
statements. Net operating income is net income less realized gains
(losses) net of taxes associated with such gains (losses).
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
FOR THE THREE
(In Thousands) MONTHS
--------------
ENDED JUNE 30,
--------------
2011 2010
---- ----
Net earned premium $181,470 $162,760
Net losses & loss adjustment expenses (1) 121,403 99,212
Policy acquisition and other underwriting
expenses 62,450 57,370
------ ------
Profit (loss) from net earned premium (2,383) 6,178
Net investment income 13,765 13,454
------ ------
Profit from insurance operations 11,382 19,632
Net commissions and fees $7,897 $7,135
General selling & administrative expenses 5,631 5,321
----- -----
Profit from net commissions & fees 2,266 1,814
General corporate expense $(719) $1,269
Amortization expense 1,206 1,121
Interest expense 2,082 2,411
----- -----
Other expenses 2,569 4,801
Profit from insurance operations $11,382 $19,632
Profit from net commissions & fees 2,266 1,814
Other expenses (2,569) (4,801)
Net capital gains 1,094 292
----- ---
Pretax income $12,173 $16,937
Key ratios:
GAAP combined ratio 101.3% 96.2%
Accident year combined ratio (2) 100.8% 100.3%
FOR THE SIX
(In Thousands) MONTHS
--------------
ENDED JUNE 30,
--------------
2011 2010
---- ----
Net earned premium $352,128 $314,201
Net losses & loss adjustment expenses (1) 226,665 186,692
Policy acquisition and other underwriting
expenses 119,888 109,249
------- -------
Profit (loss) from net earned premium 5,575 18,260
Net investment income 27,337 26,483
------ ------
Profit from insurance operations 32,912 44,743
Net commissions and fees $16,335 $17,003
General selling & administrative expenses 11,875 11,227
------ ------
Profit from net commissions & fees 4,460 5,776
General corporate expense $636 $3,246
Amortization expense 2,438 2,522
Interest expense 4,254 4,854
----- -----
Other expenses 7,328 10,622
Profit from insurance operations $32,912 $44,743
Profit from net commissions & fees 4,460 5,776
Other expenses (7,328) (10,622)
Net capital gains 1,906 158
----- ---
Pretax income $31,950 $40,055
Key ratios:
GAAP combined ratio 98.4% 94.2%
Accident year combined ratio (2) 99.0% 99.5%
(1) The three months ended June 30, 2011 and 2010 include unfavorable
development of $(864) and favorable development of $6,762,
respectively. The six months ended June 30, 2011 and 2010 include
favorable development of $2,367 and $16,469, respectively.
(2) The accident year combined ratio is the sum of the expense ratio
and accident year loss ratio. The accident year loss ratio measures
loss and LAE occurring in a particular year, regardless of when they
are reported and does not take into consideration changes in
estimates in loss reserves from prior accident years.
SOURCE Meadowbrook Insurance Group, Inc.
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