EXHIBIT 99.1
| Eastern Insurance Holdings, Inc. Eastern Alliance Insurance Company Allied Eastern Indemnity Company Eastern Life & Health Insurance Company Employers Alliance, Inc. |
DATE: | November 8, 2007 | FINANCIAL CONTACT: | ||
| Kevin Shook, Treasurer and CFO | ||||
| (717) 735-1660 | ||||
| kshook@eains.com |
FOR IMMEDIATE RELEASE
EASTERN INSURANCE HOLDINGS, INC.
ANNOUNCES THIRD QUARTER 2007 RESULTS
Lancaster, Pa., November 8, 2007 – Eastern Insurance Holdings, Inc. (“EIHI”) (NASDAQ: EIHI) today reported earnings for the three months ended September 30, 2007. EIHI reported net income of $3.6 million, or $0.34 per diluted share, for the third quarter of 2007, compared to net income of $2.3 million, or $0.21 per diluted share, for the same period in 2006.
Highlights for the third quarter include:
| • | Consolidated revenue for the third quarter of 2007 was $38.9 million, compared to $30.5 million for the same period in 2006; |
| • | Net premiums earned increased to $34.3 million in the third quarter of 2007 from $26.7 million during the same period in 2006; |
| • | Favorable loss reserve development on prior accident years of $2.3 million ($1.5 million after-tax) was recorded in the workers’ compensation insurance segment for the three months ended September 30, 2007 compared to $600,000 ($390,000 after-tax) for the same period in 2006; |
| • | Unfavorable loss reserve development on prior accident years of $4.1 million ($2.6 million after-tax) was recorded in the specialty reinsurance segment for the three months ended September 30, 2007; |
| • | After-tax intangible asset amortization expense of $434,000 was recorded for the three months ended September 30, 2007, compared to $511,000 for the third quarter of 2006; |
| • | After-tax net realized gains decreased to $391,000 for the three months ended September 30, 2007 from $572,000 for the same period in 2006; and |
| • | For the three months ended September 30, 2006, net income was negatively impacted by after-tax purchase accounting adjustments of $1.2 million compared to no purchase accounting adjustments for the same period in 2007. |
Weighted average fully diluted shares considered outstanding used to calculate diluted earnings per share for the three months ended September 30, 2007 and 2006 consisted of the following:
The Eastern Alliance Insurance Building·25 Race Avenue·P.O. Box 83777·Lancaster, PA 17608-3777
1.888.654.7100·Fax 717.399.3781·www.easterninsuranceholdings.com·www.eains.com·www.elhins.com
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 8, 2007
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| 2007 | 2006 | ||||
Shares from stock offering, net of ESOP shares | 6,727,500 | 6,727,500 | |||
Shares issued to EHC shareholders | 3,876,048 | 3,876,048 | |||
Weighted average ESOP shares | 87,140 | 12,288 | |||
Weighted average restricted stock shares | 30,187 | — | |||
Weighted average treasury shares purchased | (585,484 | ) | — | ||
Stock warrants | 306,099 | 306,099 | |||
Total | 10,441,490 | 10,921,935 | |||
“Exceptionally strong results in our workers’ compensation insurance and group benefit insurance segments were partially offset by disappointing results in our specialty reinsurance segment, which experienced a substantial increase in the amount of prior period reported losses and loss adjustment expenses from the ceding company during the third quarter,” said Bruce Eckert, Chief Executive Officer. “Our combined ratio for the three months ended September 30, 2007 in our workers’ compensation insurance and group benefit insurance segments were 63.3 percent and 96.6 percent, respectively, and our consolidated combined ratio was 95.0 percent in spite of the combined ratio in our specialty reinsurance segment of 181.8 percent.”
Eckert added, “We continue to explore and pursue opportunities to deploy our excess capital through strategic acquisitions, organic geographic expansion and product cross-selling initiatives.”
Segment Operating Results
Workers’ Compensation Insurance
EIHI’s workers’ compensation insurance segment reported net income of $4.9 million for the third quarter of 2007, compared to $1.1 million for the same period in 2006. Highlights for the third quarter include:
| • | Net premiums earned increased to $15.2 million for the third quarter of 2007, compared with $10.7 million for the third quarter of 2006, an increase of 42.1 percent; |
| • | The combined ratio was 63.3 percent for the third quarter of 2007, compared to 91.7 percent for the same period last year. The combined ratio, before purchase accounting adjustments, was 78.5 percent for the three months ended September 30, 2006. For the three months ended September 30, 2007, favorable loss reserve development on prior accident years of $2.3 million decreased the combined ratio by 14.8 percentage points and a decrease in the 2007 year-to-date accident period loss ratio from 62.0 percent to 60.0 percent during the third quarter of 2007 decreased the combined ratio by a further 5.4 percentage points, compared to favorable loss reserve development on prior accident years of $600,000 in the third quarter of 2006, which decreased the 2006 combined ratio by 5.6 percentage points. The combined ratio, before purchase accounting adjustments, favorable loss reserve development and the |
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 8, 2007
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decrease in the 2007 accident year loss ratio during the third quarter, was 83.5 percent and 84.1 percent for the three months ended September 30, 2007 and 2006, respectively; |
| • | The expense ratio was 22.2 percent for the three months ended September 30, 2007 compared to 19.2 percent for the same period in 2006; |
| • | Net investment income was $1.1 million for the third quarter of 2007, compared to $956,000 for the same period of 2006; and |
| • | After-tax purchase accounting charges were $1.3 million for the three months ended September 30, 2006 compared to no purchase accounting charges for the same period in 2007. |
Segregated Portfolio Cell Reinsurance
The segregated portfolio cell reinsurance segment has thirteen total programs. As previously reported, two of the programs are currently in run-off.
Group Benefits Insurance
EIHI’s group benefits insurance segment reported net income of $1.2 million for the three months ended September 30, 2007 compared to $1.0 million for the same period in 2006. Highlights for the third quarter include:
| • | Net premiums earned were $9.1 million for the third quarter of 2007, compared to $8.3 million for the third quarter of 2006; |
| • | The combined ratio was 96.6 percent for the third quarter of 2007, compared to 94.1 percent for the same period last year. The increase in the combined ratio for the third quarter of 2007 primarily reflects a higher loss and LAE ratio partially offset by a decrease in the expense ratio. The calendar year loss and LAE ratio was 68.1 percent for the three months ended September 30, 2007 compared to 60.6 percent for the same period in 2006; |
| • | The expense ratio was 28.5 percent for the three months ended September 30, 2007 compared to 33.5 percent for the same period in 2006. The decrease in the expense ratio is due primarily to continued expense reduction initiatives; |
| • | Net investment income was $795,000 for the third quarter of 2007 compared to $790,000 for the third quarter of 2006; and |
| • | Net realized gains were $422,000 for the third quarter of 2007 compared to $367,000 for the third quarter of 2006. |
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 8, 2007
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Specialty Reinsurance
EIHI’s specialty reinsurance segment reported a net loss of $1.5 million for the third quarter of 2007, compared to net income of $323,000 for the same period last year. Highlights for the third quarter include:
| • | Reinsurance premiums earned were $3.9 million for the third quarter of 2007 compared to $2.3 million for the same period in 2006; |
| • | The combined ratio was 181.8 percent for the third quarter of 2007, compared to 100.6 percent for the same period last year. For the three months ended September 30, 2007, unfavorable loss reserve development on prior accident years of $4.1 million increased the combined ratio by 103.9 percentage points. Business in the specialty reinsurance segment is assumed through participation in a reinsurance treaty with an unaffiliated ceding company related to an underground storage tank insurance program, referred to as “EnviroGuard,” and a non-hazardous waste transportation product, referred to as “EIA Liability.” The majority of the increase in prior period reported losses relate to severity claims from the EIA Liability product; and |
| • | For the three months ended September 30, 2006, net income was negatively impacted by after-tax purchase accounting adjustments of $379,000 compared to no purchase accounting adjustments for the same period in 2007. |
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 $1.1 million for the three months ended September 30, 2007, compared to $151,000 for the same period in 2006.
Financial Condition
Total assets were $393.2 million as of September 30, 2007. Shareholders’ equity was $172.1 million as of September 30, 2007. During the quarter, the Company repurchased 591,918 common shares at a total cost of $9.1 million, representing a weighted average price of $15.33 per share. As of September 30, 2007, EIHI’s book value per share and fully diluted book value per share were $16.04 and $15.57, respectively. Outstanding shares used to calculate book value per share and fully diluted book value per share were 10,728,422 and 11,668,709, respectively, as of September 30, 2007. The basic book value per share calculation includes the impact of restricted stock awards of 246,675 shares. The fully diluted book value per share calculation includes the additional impact of warrants to purchase 306,099 common shares, which have an exercise price of $1.63 per share and stock options to purchase 630,264 common shares, which have a weighted average exercise price of $14.37.
Conference Call with Investors
EIHI will hold a conference call with investors beginning at 10:00 a.m. Eastern Time on Friday, November 9, 2007 to review the Company’s 2007 third quarter results. The conference call will be available via a live webcast accessed through the Investor Relations section of www.easterninsuranceholdings.com. The dial-in numbers for the conference call are as follows:
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 8, 2007
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Live Call
877-407-0782 (Domestic)
201-689-8567 (International)
A replay of the conference call will be available through November 23, 2007, at 877-660-6853 (domestic) and 201-612-7415 (international). The account number for playback is 286 and the conference number is 259671. An online archive of the webcast will be available on the Investor Relations section of www.easterninsuranceholdings.com.
Consolidated Financial Results
Set forth in the tables below are the unaudited consolidated balance sheets as of September 30, 2007 and December 31, 2006 and unaudited results of operations for the three and nine months ended September 30, 2007 and 2006.
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 8, 2007
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EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share data)
September 30, 2007 | December 31, 2006 | |||||
ASSETS | ||||||
Investments: | ||||||
Fixed income securities, at estimated fair value (amortized cost, $206,510; $201,226) | $ | 208,729 | $ | 204,444 | ||
Convertible bonds, at estimated fair value (amortized cost, $13,265; $—) | 14,989 | — | ||||
Equity securities, at estimated fair value (cost, $18,517; $17,027) | 19,934 | 18,219 | ||||
Equity call options, at estimated fair value (cost, $—; $2,230) | — | 3,318 | ||||
Other long-term investments | 10,975 | 11,604 | ||||
Total investments | 254,627 | 237,585 | ||||
Cash and cash equivalents | 41,296 | 50,703 | ||||
Accrued investment income | 2,299 | 2,236 | ||||
Premiums receivable (net of allowance, $558; $558) | 34,952 | 23,225 | ||||
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses | 27,395 | 27,525 | ||||
Deferred acquisition costs | 7,457 | 4,501 | ||||
Deferred income taxes, net | 4,038 | 2,696 | ||||
Federal income taxes recoverable | 1,148 | — | ||||
Intangible assets | 6,806 | 8,110 | ||||
Goodwill | 5,140 | 5,140 | ||||
Other assets | 8,004 | 6,485 | ||||
Total assets | $ | 393,162 | $ | 368,206 | ||
LIABILITIES | ||||||
Reserves for unpaid losses and loss adjustment expenses | $ | 133,910 | $ | 126,467 | ||
Unearned premium reserves | 50,041 | 34,600 | ||||
Advance premium | 1,312 | 1,755 | ||||
Accounts payable and accrued expenses | 9,761 | 7,785 | ||||
Ceded reinsurance balances payable | 7,026 | 5,623 | ||||
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 8, 2007
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September 30, 2007 | December 31, 2006 | |||||||
Benefit plan liabilities | 288 | 324 | ||||||
Segregated portfolio cell dividend payable | 10,693 | 7,962 | ||||||
Federal income taxes payable | — | 1,902 | ||||||
Junior subordinated debentures | 8,007 | 8,044 | ||||||
Total liabilities | $ | 221,038 | $ | 194,462 | ||||
Commitments and contingencies (Note 11) | ||||||||
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—11,597,723 and 11,351,048, respectively; outstanding—10,728,422 and 11,351,048, respectively | — | — | ||||||
Unearned ESOP compensation | (6,539 | ) | (7,101 | ) | ||||
Additional paid in capital | 109,727 | 108,502 | ||||||
Treasury stock, at cost (869,301 shares) | (13,226 | ) | — | |||||
Retained earnings | 79,754 | 69,483 | ||||||
Accumulated other comprehensive income, net | 2,408 | 2,860 | ||||||
Total shareholders’ equity | 172,124 | 173,744 | ||||||
Total liabilities and shareholders’ equity | $ | 393,162 | $ | 368,206 | ||||
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 8, 2007
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EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||
Revenue: | ||||||||||||
Net premiums earned | $ | 34,264 | $ | 26,678 | $ | 95,226 | $ | 45,859 | ||||
Net investment income | 3,882 | 2,974 | 10,100 | 5,269 | ||||||||
Net realized investment gains | 590 | 711 | 2,321 | 1,632 | ||||||||
Other revenue | 179 | 179 | 517 | 202 | ||||||||
Total revenue | 38,915 | 30,542 | 108,164 | 52,962 | ||||||||
Expenses: | ||||||||||||
Losses and loss adjustment expenses incurred | 21,459 | 17,432 | 57,968 | 29,820 | ||||||||
Acquisition and other underwriting expenses | 4,097 | 1,709 | 11,266 | 4,141 | ||||||||
Other expenses | 6,452 | 5,241 | 17,977 | 10,223 | ||||||||
Amortization of intangible assets | 434 | 511 | 1,303 | 588 | ||||||||
Policyholder dividends | 95 | 113 | 349 | 184 | ||||||||
Segregated portfolio dividend expense | 1,554 | 1,521 | 2,946 | 1,646 | ||||||||
Total expenses | 34,091 | 26,527 | 91,809 | 46,602 | ||||||||
Income before income taxes | 4,824 | 4,015 | 16,355 | 6,360 | ||||||||
Income tax expense | 1,263 | 1,713 | 5,329 | 2,611 | ||||||||
Net income | $ | 3,561 | $ | 2,302 | $ | 11,026 | $ | 3,749 | ||||
Earnings per share (EPS): | ||||||||||||
Basic shares outstanding | 10,105,204 | 10,615,836 | 10,435,468 | 10,614,402 | ||||||||
Basis EPS1 | $ | 0.35 | $ | 0.22 | $ | 1.06 | $ | 0.25 | ||||
Diluted shares outstanding | 10,441,490 | 10,921,935 | 10,765,095 | 10,920,501 | ||||||||
Diluted EPS1 | $ | 0.34 | $ | 0.21 | $ | 1.02 | $ | 0.24 | ||||
1 | Basic earnings per share and diluted earnings per share for the nine months ended September 30, 2006 are computed using net income for the period from June 17, 2006 to September 30, 2006 of $2.6 million. |
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 8, 2007
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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. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of these terms or other 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. 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; the geographic concentration of 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 investment objectives; the effects of intense competition; the loss of one or more principal employees; the inability to acquire additional capital on favorable terms; a failure of independent insurance brokers to adequately market our products; and the effects of acts of terrorism or war. More information about these and other factors that potentially could affect our financial results is included in our Form 10-K, filed with the U.S. Securities and Exchange Commission and in our other public 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.