Exhibit 99.1
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 | | | | Eastern Insurance Holdings, Inc. Eastern Alliance Insurance Company Allied Eastern Indemnity Company Eastern Advantage Assurance Company Eastern Life & Health Insurance Company Employers Alliance, Inc. |
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DATE: February 14, 2008 | | FINANCIAL CONTACT: |
| | Kevin Shook, Treasurer and Chief Financial Officer |
| | (717) 735-1660 |
| | kshook@eains.com |
FOR IMMEDIATE RELEASE
EASTERN INSURANCE HOLDINGS, INC.
ANNOUNCES 4TH QUARTER 2007 RESULTS
Lancaster, Pa., February 14, 2008 – Eastern Insurance Holdings, Inc. (“EIHI”) (NASDAQ: EIHI) today reported earnings for the three months ended December 31, 2007. EIHI reported net income of $7.7 million, or $0.76 per diluted share, for the fourth quarter of 2007, compared to net income of $4.5 million, or $0.41 per diluted share, for the same period in 2006.
Highlights for the fourth quarter include:
| | • | | Consolidated revenue for the fourth quarter of 2007 was $38.1 million, compared to $34.1 million for the same period in 2006; |
| | • | | Net premiums earned increased to $34.3 million in the fourth quarter of 2007 from $29.1 million during the same period in 2006; |
| | • | | Favorable loss reserve development on prior accident years of $3.9 million ($2.5 million after-tax) was recorded in the workers’ compensation insurance segment for the three months ended December 31, 2007 compared to $1.5 million ($943,000 after-tax) for the same period in 2006; |
| | • | | After-tax intangible asset amortization expense of $282,000 was recorded for the three months ended December 31, 2007, compared to $500,000 for the fourth quarter of 2006; |
| | • | | After-tax net realized gains decreased to $417,000 for the three months ended December 31, 2007 from $749,000 for the same period in 2006; |
| | • | | For the three months ended December 31, 2007, net income was favorably impacted by a tax-related purchase accounting adjustment of $836,000 compared to no such adjustment for the same period in 2006; and |
| | • | | For the three months ended December 31, 2006, net income was negatively impacted by after-tax purchase accounting adjustments of $810,000 compared to negligible 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 December 31, 2007 and 2006 consisted of the following:
The Eastern Alliance Insurance Building· 25 Race Avenue· P.O. Box 83777· Lancaster, PA 17608-3777
888.654.7100· Fax 717.399.3781· www.easterninsuranceholdings.com· www.eains.com· www.elhins.com
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
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February 14, 2008 | | Page 2 of 8 |
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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 | | 105,981 | | | 31,129 |
Weighted average restricted stock shares | | 38,213 | | | — |
Weighted average treasury shares purchased | | (951,811 | ) | | — |
Stock warrants | | 306,099 | | | 306,099 |
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Total | | 10,102,030 | | | 10,940,776 |
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“The fourth quarter was an exceptionally strong finish to 2007 for EIHI,” said Bruce M. Eckert, Chief Executive Officer. “Our consolidated combined ratio was 75.5 percent for the three months ended December 31, 2007, including combined ratios of 51.3 percent and 86.8 percent in our two largest operating segments, workers’ compensation insurance and group benefits insurance, respectively. We remain active in pursuing opportunities to allocate our excess capital through strategic acquisitions, organic geographic expansion and product cross-selling initiatives.”
Eckert added, “2008 will likely present continuing challenges for our operating segments as competition for business intensifies in our underwriting territories. We will continue to focus on individual account underwriting and adhering to our underwriting principles as a means of profitably growing our books of business in 2008.”
Segment Operating Results
Workers’ Compensation Insurance
EIHI’s workers’ compensation insurance segment reported net income of $5.9 million for the fourth quarter of 2007, compared to $4.1 million for the same period in 2006. Highlights for the fourth quarter include:
| | • | | Net premiums earned increased to $15.4 million for the fourth quarter of 2007, compared with $14.2 million, before purchase accounting adjustments, for the fourth quarter of 2006, an increase of 8.5 percent; |
| | • | | The combined ratio was 51.3 percent for the fourth quarter of 2007, compared to 66.7 percent for the same period last year. For the three months ended December 31, 2007, favorable loss reserve development on prior accident years of $3.9 million decreased the combined ratio by 25.2 percentage points, compared to favorable loss reserve development on prior accident years of $1.5 million in the fourth quarter of 2006, which decreased the 2006 combined ratio by 11.8 percentage points. The calendar year loss and LAE ratio was 35.5 percent for the three months ended December 31, 2007 compared to 54.7 percent for the same period in 2006; |
| | • | | The expense ratio was 14.5 percent for the three months ended December 31, 2007 compared to 11.5 percent for the same period in 2006; |
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
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February 14, 2008 | | Page 3 of 8 |
| | • | | Net investment income was $1.3 million for the fourth quarter of 2007, compared to $1.1 million for the same period in 2006; and |
| | • | | After-tax purchase accounting charges were $834,000 for the three months ended December 31, 2006 compared to negligible 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 $1.6 million for the three months ended December 31, 2007 compared to $1.5 million for the same period in 2006. Highlights for the fourth quarter include:
| | • | | Net premiums earned were $9.3 million for the fourth quarter of 2007, compared to $8.2 million for the fourth quarter of 2006; |
| | • | | The combined ratio was 86.8 percent for the fourth quarter of 2007, compared to 91.4 percent for the same period last year. The decrease in the combined ratio from 2006 to 2007 primarily reflects a lower expense ratio partially offset by a higher loss and LAE ratio. The calendar year loss and LAE ratio was 59.9 percent for the three months ended December 31, 2007 compared to 56.5 percent for the same period in 2006; |
| | • | | The expense ratio was 26.9 percent for the three months ended December 31, 2007 compared to 34.9 percent for the same period in 2006. The decrease in the expense ratio is due primarily to expense reduction initiatives and a gain of $384,000, which reduced the expense ratio by 4.1 points, related to the group benefit insurance segment’s defined benefit pension plan; and |
| | • | | Net investment income was $874,000 for the fourth quarter of 2007 compared to $973,000 for the fourth quarter of 2006. |
Specialty Reinsurance
EIHI’s specialty reinsurance segment reported net income of $271,000 for the fourth quarter of 2007 compared to a net loss of $893,000 for the same period last year. Highlights for the fourth quarter include:
| | • | | Reinsurance premiums earned were $3.7 million for the fourth quarter of 2007 compared to $2.9 million for the same period in 2006; |
| | • | | The combined ratio was 106.6 percent for the fourth quarter of 2007, compared to 169.8 percent for the same period last year. The combined ratio in the fourth quarter |
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
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February 14, 2008 | | Page 4 of 8 |
| | of 2006 includes purchase accounting charges for the three months ended December 31, 2006 that increased the combined ratio by 28.0 points. Further adding to the combined ratio in the fourth quarter of 2006 was an increase in the loss and LAE ratio due to an increase in reported claims from the ceding company; and |
| | • | | For the three months ended December 31, 2006, net income was negatively impacted by after-tax purchase accounting adjustments of $267,000 compared to negligible purchase accounting adjustments for the same period in 2007. |
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.” Effective January 1, 2008, EIHI’s participation percentage in the reinsurance treaty was decreased from 25 percent to 15 percent.
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 $119,000 for the three months ended December 31, 2007 compared to a net loss of $169,000 for the same period in 2006. The decrease in the net loss from 2006 to 2007 primarily reflects the aforementioned tax-related purchase accounting adjustment of $836,000, partially offset by stock compensation charges incurred in 2007 due to the adoption of the Eastern Insurance Holdings, Inc. 2006 Stock Incentive Plan on December 18, 2006 and the subsequent grant of awards and options on January 3, 2007 and Sarbanes-Oxley implementation fees incurred in 2007.
Financial Condition
Total assets were $385.5 million as of December 31, 2007. Shareholders’ equity was $177.8 million as of December 31, 2007. During the fourth quarter, the Company repurchased 147,564 common shares at a total cost of $2.4 million, representing a weighted average price of $16.01 per share. As of December 31, 2007, EIHI’s book value per share and fully diluted book value per share were $16.81 and $16.27, respectively. Outstanding shares used to calculate book value per share and fully diluted book value per share were 10,580,858 and 11,521,145, respectively, as of December 31, 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 634,188 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, February 15, 2008 to review the Company’s 2007 fourth 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
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February 14, 2008 | | Page 5 of 8 |
Live Call
800-860-2442 (Domestic)
412-858-4600 (International)
A replay of the conference call will be available through February 22, 2008, at 877-344-7529 (domestic) and 412-317-0088 (international). The replay passcode number is 415907. 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 December 31, 2007 and 2006 and unaudited results of operations for the three months and years ended December 31, 2007 and 2006.
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
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February 14, 2008 | | Page 6 of 8 |
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share data)
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| | | December 31,
2007 | | | December 31,
2006 | |
ASSETS | | | | | | | | |
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Investments: | | | | | | | | |
Fixed income securities, at estimated fair value (amortized cost, $200,793; $201,226) | | $ | 205,785 | | | $ | 204,444 | |
Convertible bonds, at estimated fair value (amortized cost, $14,242; $–) | | | 15,478 | | | | — | |
Equity securities, at estimated fair value (cost, $19,578; $17,027) | | | 20,541 | | | | 18,219 | |
Equity call options, at estimated fair value (cost, $–; $2,230) | | | — | | | | 3,318 | |
Other long-term investments | | | 11,317 | | | | 11,604 | |
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Total investments | | | 253,121 | | | | 237,585 | |
Cash and cash equivalents | | | 45,940 | | | | 50,703 | |
Accrued investment income | | | 2,290 | | | | 2,236 | |
Premiums receivable (net of allowance, $558; $558) | | | 26,846 | | | | 23,225 | |
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses | | | 26,303 | | | | 27,525 | |
Deferred acquisition costs | | | 6,257 | | | | 4,501 | |
Deferred income taxes, net | | | 1,229 | | | | 2,696 | |
Federal income taxes recoverable | | | 846 | | | | — | |
Intangible assets | | | 6,372 | | | | 8,110 | |
Goodwill | | | 7,992 | | | | 5,140 | |
Other assets | | | 8,322 | | | | 6,485 | |
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Total assets | | $ | 385,518 | | | $ | 368,206 | |
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LIABILITIES | | | | | | | | |
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Reserves for unpaid losses and loss adjustment expenses | | $ | 129,788 | | | $ | 126,467 | |
Unearned premium reserves | | | 39,826 | | | | 34,600 | |
Advance premium | | | 1,380 | | | | 1,755 | |
Accounts payable and accrued expenses | | | 8,422 | | | | 7,785 | |
Ceded reinsurance balances payable | | | 6,762 | | | | 5,623 | |
Benefit plan liabilities | | | 334 | | | | 324 | |
Segregated portfolio cell dividend payable | | | 13,168 | | | | 7,962 | |
Federal income taxes payable | | | — | | | | 1,902 | |
Junior subordinated debentures | | | 8,007 | | | | 8,044 | |
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Total liabilities | | | 207,687 | | | | 194,462 | |
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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 – 10,581,038 and 11,351,048, respectively | | | — | | | | — | |
Unearned ESOP compensation | | | (6,354 | ) | | | (7,101 | ) |
Additional paid in capital | | | 110,166 | | | | 108,502 | |
Treasury stock, at cost (1,016,685 shares) | | | (15,589 | ) | | | — | |
Retained earnings | | | 86,363 | | | | 69,483 | |
Accumulated other comprehensive income, net | | | 3,245 | | | | 2,860 | |
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Total shareholders’ equity | | | 177,831 | | | | 173,744 | |
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Total liabilities and shareholders’ equity | | $ | 385,518 | | | $ | 368,206 | |
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Eastern Insurance Holdings, Inc. Quarterly Earnings Release
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February 14, 2008 | | Page 7 of 8 |
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
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| | | Three Months Ended | | Year Ended |
| | | December 31,
2007 | | December 31,
2006 | | December 31,
2007 | | December 31,
2006 |
Revenue: | | | | | | | | | | | | |
Net premiums earned | | $ | 34,269 | | $ | 29,060 | | $ | 129,495 | | $ | 74,919 |
Net investment income | | | 3,101 | | | 3,761 | | | 12,428 | | | 8,992 |
Net realized investment gains | | | 567 | | | 1,125 | | | 2,888 | | | 2,757 |
Other revenue | | | 166 | | | 111 | | | 683 | | | 313 |
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Total revenue | | | 38,103 | | | 34,057 | | | 145,494 | | | 86,981 |
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Expenses: | | | | | | | | | | | | |
Losses and loss adjustment expenses incurred | | | 15,620 | | | 18,093 | | | 73,588 | | | 47,913 |
Acquisition and other underwriting expenses | | | 3,809 | | | 2,085 | | | 17,056 | | | 7,241 |
Other expenses | | | 5,805 | | | 5,224 | | | 21,801 | | | 14,390 |
Amortization of intangible assets | | | 435 | | | 500 | | | 1,738 | | | 1,088 |
Policyholder dividends | | | 194 | | | 55 | | | 543 | | | 239 |
Segregated portfolio dividend expense | | | 2,250 | | | 1,244 | | | 4,423 | | | 2,890 |
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Total expenses | | | 28,113 | | | 27,201 | | | 119,149 | | | 73,761 |
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Income before income taxes | | | 9,990 | | | 6,856 | | | 26,345 | | | 13,220 |
Income tax expense | | | 2,333 | | | 2,332 | | | 7,662 | | | 4,942 |
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Net income | | $ | 7,657 | | $ | 4,524 | | $ | 18,683 | | $ | 8,278 |
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Earnings per share (EPS): | | | | | | | | | | | | |
Basic shares outstanding | | | 9,757,718 | | | 10,634,677 | | | 10,264,369 | | | 10,623,182 |
Basis EPS1 | | $ | 0.78 | | $ | 0.43 | | $ | 1.82 | | $ | 0.67 |
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Diluted shares outstanding | | | 10,102,030 | | | 10,940,776 | | | 10,604,349 | | | 10,929,281 |
Diluted EPS1 | | $ | 0.76 | | $ | 0.41 | | $ | 1.76 | | $ | 0.65 |
1 | Basic earnings per share and diluted earnings per share for the year ended December 31, 2006 are computed using net income for the period from June 16, 2006 to December 31, 2006 of $7.1 million. |
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
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February 14, 2008 | | Page 8 of 8 |
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.
