Published: August 04, 2011
Eastern Insurance Holdings, Inc. Announces Second Quarter 2011 Results
LANCASTER, Pa., Aug. 4, 2011 /PRNewswire/ -- Eastern Insurance Holdings, Inc. ("EIHI" or the "Company") (NASDAQ: EIHI) today reported net income for the three months ended June 30, 2011 of $2.0 million, or $0.25 per diluted share, compared to a net loss of $1.4 million, or $0.16 per diluted share, for the same period in 2010. Included in EIHI's 2010 net loss was a loss from discontinued operations of $1.7 million, or $0.19 per diluted share. EIHI's diluted book value per share and tangible diluted book value per share were $15.51 and $13.93, respectively, as of June 30, 2011 compared to $14.88 and $13.38, respectively, as of December 31, 2010.
"Our favorable results were driven by solid growth in workers' compensation insurance direct written premiums, positive audit premium, strong premium renewal retention, renewal rate increases and a reduction in our expense ratio," said Michael L. Boguski, President and Chief Executive Officer. "Workers' compensation insurance direct written premium increased by 23.7 percent to $32.9 million for the three months ended June 30, 2011 compared to $26.6 million for the same period in 2010, driven primarily by growth in each of our Mid-Atlantic, Southeast and Midwest regional offices and in all of our product lines. During the second quarter of 2011, the Company recorded additional audit premium of $331,000 compared to return audit premium to customers of $810,000 for the same period in 2010, an increase of $1.1 million. Our premium renewal retention rate was 88.1 percent for 2011 compared to 87.0 percent for 2010, an increase of 1.1 percentage points. We secured renewal rate increases of 1.2 percent for the three months ended June 30, 2011 compared to renewal rate decreases of 2.1 percent for the same period in 2010, an increase of 3.3 percentage points. I was particularly pleased with our second quarter workers' compensation insurance segment and consolidated combined ratios of 90.4 percent and 95.4 percent, respectively, and our consolidated expense ratio of 29.8 percent for the second quarter of 2011 compared to 31.1 percent for the same period in 2010. The reduction in the consolidated expense ratio is primarily attributable to our growth in net earned premium, prudent expense management strategies, and an increase in Alternative Markets fee-based revenue, which is recorded as a reduction to underwriting expenses."
Boguski continued, "Our diluted book value per share increased to $15.51 per share during the second quarter of 2011 driven by favorable workers' compensation insurance operating results, and share repurchases of 212,341 shares at a weighted average price of $13.15."
Boguski concluded, "I continue to be pleased with our progress on our 2011 strategic plan, including the opening of our new Richmond, Virginia office and selective agency appointments in Kentucky, New Jersey and Michigan, all of which will support the Company's organic growth strategy. 'ParallelPay,' the Company's pay-as-you-go initiative, continues to post impressive production results at favorable loss ratios. ParallelPay's direct written premium was $4.5 million for the second quarter of 2011 compared to $3.7 million for the same period in 2010 and direct written premium since inception of this product grew to $34.6 million."
Net income (loss) and diluted earnings per share for the three months ended June 30, 2011 and 2010 consisted of the following (in thousands):
2011 2010
---- ----
Net Net
Income Diluted Income Diluted
(Loss) Earnings (Loss) Earnings
------- Per Share ------- Per Share
--------- ---------
Workers' compensation
insurance $2,870 $0.36 $1,374 $0.15
Corporate and other (880) (0.11) (1,095) (0.12)
---- ----- ------ -----
Income from continuing
operations 1,990 0.25 279 0.03
Discontinued operations(1) - - (1,728) (0.19)
--- --- ------ -----
Net income/loss $1,990 $0.25 $(1,449) $(0.16)
====== ===== ======= ======
(1) Discontinued operations include EIHI's former group benefits
insurance and run-off specialty reinsurance segments.
Weighted average fully diluted shares considered outstanding used to calculate diluted earnings per share for the three months ended June 30, 2011 and 2010 were 7,988,561 and 9,048,929, respectively.
Consolidated highlights for the second quarter include:
-- Revenue from continuing operations for the second quarter of 2011
increased to $34.3 million compared to $25.9 million for the same period
in 2010. Net premiums earned from continuing operations were $32.2
million for the second quarter of 2011 compared to $25.9 million for the
same period in 2010. The increase in revenue and net premiums earned is
due primarily to an increase in direct written premium production.
-- Net investment income from continuing operations was $908,000 ($641,000
after-tax) for the three months ended June 30, 2011, compared to
$730,000 ($530,000 after-tax) for the same period in 2010.
-- The change in equity interest in limited partnerships from continuing
operations increased $100,000 to income of $95,000 ($69,000 after-tax)
for the three months ended June 30, 2011, compared to a loss of $5,000
($14,000 after-tax) for the same period in 2010.
-- Net realized investment gains from continuing operations, excluding the
segregated portfolio cell reinsurance segment, were $945,000 ($631,000
after-tax) for the three months ended June 30, 2011 compared to net
realized investment losses, excluding the segregated portfolio cell
reinsurance segment, of $839,000 ($545,000 after-tax) for the same
period in 2010, including after-tax net realized investment losses in
EIHI's convertible bond investment portfolio of $392,000 and $803,000
for the three months ended June 30, 2011 and 2010, respectively. The
Company accounts for changes in the estimated fair value of its
convertible bond portfolio as a realized gain or loss.
Segment Operating Results
Workers' Compensation Insurance
EIHI's workers' compensation insurance segment reported net income of $2.9 million for the second quarter of 2011, compared to $1.4 million for the second quarter of 2010. Highlights for the second quarter include:
-- Direct written premiums increased to $32.9 million for the three months
ended June 30, 2011, compared to $26.6 million for the same period in
2010, an increase of 23.7 percent. Direct written premium includes
premium ceded to the segregated portfolio cell reinsurance segment of
$7.5 million and $6.2 million for the three months ended June 30, 2011
and 2010, respectively.
-- Audit premium, which results from an examination of the policyholders'
payroll and other records, resulted in the recording of additional
premium to the Company which increased net premiums earned by $331,000
for the three months ended June 30, 2011 compared to return premium to
policyholders which decreased net premiums earned by $810,000 for the
same period in 2010.
-- The combined ratio was 90.4 percent for the second quarter of 2011,
compared to 89.6 percent for the same period last year.
-- The calendar period loss and LAE ratio was 66.5 percent and 65.9 percent
for the three months ended June 30, 2011 and 2010, respectively. The
calendar period loss and LAE ratio was impacted by additional audit
premium to the Company of $331,000 for the three months ended June 30,
2011, which decreased the 2011 loss and LAE ratio by 0.9 points compared
to return audit premium to policyholders of $810,000 for the same period
in 2010, which increased the 2010 loss and LAE ratio by 2.5 points.
There was no loss reserve development recorded on prior accident years
in the workers' compensation insurance segment for the three months
ended June 30, 2011 and 2010.
-- The expense ratio was 22.7 percent for the three months ended June 30,
2011 compared to 22.6 percent for the same period in 2010. The 2010
expense ratio was reduced by 4.4 points due to EIHI receiving
notification in the second quarter of 2010 from the Pennsylvania
Workers' Compensation Security Fund that a 2009 assessment would not be
assessed. The 2011 expense ratio was impacted by prudent expense
management strategies, 24.6 percent growth in net premiums earned and
26.5 percent growth in Alternative Markets fee-based revenue, which is
recorded as a reduction to underwriting expenses.
Segregated Portfolio Cell Reinsurance
The segregated portfolio cell reinsurance segment has fifteen active programs. These programs produce fee-based revenue and segregated portfolio cell dividends for EIHI's other business segments. Highlights for the second quarter include:
-- Direct premium assumed from the workers' compensation insurance segment
increased to $7.5 million for the three months ended June, 2011,
compared to $6.2 million for the same period in 2010, an increase of
21.0 percent.
-- Fee-based revenue generated for EIHI's other business segments by the
segregated portfolio cell reinsurance segment was $1.2 million and
$962,000 for the three months ended June 30, 2011 and 2010,
respectively.
-- Segregated portfolio cell dividend income for programs in which EIHI has
an ownership interest was $270,000 for the three months ended June 30,
2011, compared to a segregated portfolio cell dividend loss of $174,000
for the same period in 2010.
Corporate and Other
The corporate and other segment primarily includes corporate expenses and EIHI's third party administration business. The corporate and other segment recorded a net loss of $880,000 for the three months ended June 30, 2011, compared to a net loss of $1.1 million for the three months ended June 30, 2010.
Financial Condition
Total assets were $337.4 million as of June 30, 2011. Shareholders' equity was $129.5 million as of June 30, 2011. During the second quarter of 2011, the Company repurchased 212,341 of common shares at a total cost of $2.8 million, representing a weighted average price of $13.15 per share. As of June 30, 2011, EIHI's book value per share and diluted book value per share were $15.73 and $15.51, respectively. Outstanding shares used to calculate book value per share and diluted book value per share were 8,232,770 and 9,089,958, respectively, as of June 30, 2011. The basic book value per share calculation includes the impact of restricted stock awards of 253,175 shares and warrants exercised of 180,291. The diluted book value per share calculation includes the additional dilutive impact of stock options to purchase 857,188 common shares, which have a weighted average exercise price of $13.38.
Conference Call with Investors
EIHI will hold a conference call with investors beginning at 10:00 a.m. Eastern Time on Friday, August 5, 2011 to review the Company's 2011 second quarter results. The conference call will be available via a live webcast accessed through the Investor Relations section of www.eihi.com. The dial-in numbers for the conference call are as follows:
Live Call
---------
877-317-6789 (Domestic)
412-317-6789 (International)
866-605-3852 (Canada)
A replay of the conference call will be available through August 22, 2011, at 877-344-7529 (domestic) and 412-317-0088 (international). The replay conference number for the conference call is 10001994. An online archive of the webcast will be available on the Investor Relations section of www.eihi.com.
Consolidated Financial Results
Set forth in the tables below are the unaudited consolidated balance sheets as of June 30, 2011 and December 31, 2010 and unaudited statements of income for the three and six months ended June 30, 2011 and 2010.
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share data)
June 30 December 31
2011 2010
---- ----
ASSETS
Investments:
Fixed income securities, at estimated fair
value (amortized cost, $120,890; $124,201) $124,739 $127,474
Convertible bonds, at estimated fair value
(amortized cost, $17,012; $16,481) 18,813 18,140
Equity securities, at estimated fair value
(cost, $21,159; $17,002) 25,042 20,880
Other long-term investments, at estimated fair
value (cost, $10,282; $10,271) 12,081 11,435
------ ------
Total investments 180,675 177,929
Cash and cash equivalents 46,716 45,855
Accrued investment income 1,054 1,195
Premiums receivable (net of allowance, $225;
$225) 54,769 46,402
Reinsurance recoverable on paid and unpaid
losses and loss adjustment expenses 12,462 12,285
Deferred acquisition costs 9,223 7,721
Deferred income taxes, net -- 721
Federal income taxes recoverable 1,359 918
Intangible assets 5,655 6,163
Goodwill 10,752 10,752
Other assets 14,696 12,723
------ ------
Total assets $337,361 $322,664
======== ========
LIABILITIES
Reserves for unpaid losses and loss adjustment
expenses $100,637 $95,963
Unearned premium reserves 65,157 53,485
Advance premium 421 482
Accounts payable and accrued expenses 16,258 15,707
Ceded reinsurance balances payable 9,082 7,371
Segregated portfolio cell dividend payable 14,390 13,355
Policyholder dividends payable 1,841 1,590
Deferred income taxes, net 41 --
--- ---
Total liabilities $207,827 $187,953
-------- --------
SHAREHOLDERS' EQUITY
Series A preferred stock, par value $0, auth.
shares - 5,000,000; no shares issued and
outstanding -- --
Common capital stock, par value $0, auth.
shares - 20,000,000; issued - 11,784,514 and
11,784,514; respectively; outstanding -
8,232,770 and 8,964,344, respectively -- --
Unearned ESOP compensation (3,741) (4,111)
Additional paid in capital 115,263 114,472
Treasury stock, at cost (3,551,744 and
2,820,170 shares, respectively) (50,161) (40,835)
Retained earnings 64,118 61,364
Accumulated other comprehensive income, net 4,055 3,821
----- -----
Total shareholders' equity 129,534 134,711
------- -------
Total liabilities and shareholders' equity $337,361 $322,664
======== ========
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2011 2010 2011 2010
---- ---- ---- ----
Revenue:
Net premiums
earned $32,207 $25,926 $62,085 $51,266
Net investment
income 908 730 1,934 1,777
Change in equity
interest in
limited
partnerships 95 (5) 646 254
Net realized
investment gains
(losses) 975 (862) 1,805 (50)
Other revenue 79 145 262 291
--- --- --- ---
Total revenue 34,264 25,934 66,732 53,538
------ ------ ------ ------
Expenses:
Losses and loss
adjustment
expenses incurred 20,818 18,377 40,164 35,524
Acquisition and
other
underwriting
expenses 3,308 2,541 6,726 5,825
Other expenses 6,044 5,202 11,933 10,220
Amortization of
intangible assets 254 321 508 642
Policyholder
dividends 306 223 619 408
Segregated
portfolio
dividend expense 663 (885) 1,188 (702)
--- ---- ----- ----
Total expenses 31,393 25,779 61,138 51,917
------ ------ ------ ------
Income from
continuing
operations before
income taxes 2,871 155 5,594 1,621
Income tax expense
(benefit) from
continuing
operations 881 (124) 1,722 397
--- ---- ----- ---
Net income from
continuing
operations $1,990 $279 $3,872 $1,224
------ ---- ------ ------
Discontinued
operations:
Loss from
discontinued
operations - (1,385) - (167)
Income tax expense - 343 - 604
--- --- --- ---
Net loss from
discontinued
operations - (1,728) - (771)
--- ------ --- ----
Net income (loss) $1,990 $(1,449) $3,872 $453
====== ======= ====== ====
Earnings per share
(EPS) from
continuing
operations:
Basic shares
outstanding 7,881,326 9,048,929 8,106,057 9,081,716
Basic EPS $0.25 $0.03 $0.47 $0.14
Diluted shares
outstanding 7,988,561 9,106,276 8,210,933 9,130,773
Diluted EPS $0.25 $0.03 $0.47 $0.13
Earnings per share
(EPS):
Basic shares
outstanding 7,881,326 9,048,929 8,106,057 9,081,716
Basic EPS $0.25 $(0.16) $0.47 $0.05
Diluted shares
outstanding 7,988,561 9,048,929 8,210,933 9,130,773
Diluted EPS $0.25 $(0.16) $0.47 $0.04
Cautionary Statement
Some of the statements contained in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "project," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of these terms or other similar terminology. Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. No assurance can be given that management's expectations, beliefs or projections will occur or be achieved or accomplished. Factors that could affect the Company's actual results include, among others, the fact that our loss reserves are based on estimates and may be inadequate to cover our actual losses; the uncertain effects of emerging claim and coverage issues on our business; an inability to obtain or collect on our reinsurance protection; a downgrade in the A.M. Best rating of our insurance subsidiaries; the impact of extensive regulation of the insurance industry and legislative and regulatory changes; a failure to realize our growth strategies and investment objectives; the further deterioration in the fixed income and equity security markets, the effects of intense competition; the loss of one or more principal employees; the geographic concentration of our business; the failure of independent insurance brokers to adequately market our products; and other factors described in our filings with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance upon these forward-looking statements, which speak only as of the date of this release. The Company undertakes no obligation to update any forward-looking statements.
SOURCE Eastern Insurance Holdings, Inc.
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