Exhibit 99.1
| DATE: | November 6, 2008 | FINANCIAL CONTACT: | ||
| Kevin Shook, Treasurer and CFO | ||||
| (717) 735-1660 | ||||
| kshook@eains.com |
FOR IMMEDIATE RELEASE
EASTERN INSURANCE HOLDINGS, INC.
ANNOUNCES THIRD QUARTER 2008 RESULTS
Lancaster, Pa., November 6, 2008 – Eastern Insurance Holdings, Inc. (“EIHI”) (NASDAQ: EIHI) today reported earnings for the three months ended September 30, 2008. EIHI reported a net loss of $3.1 million, or $0.35 per diluted share, for the third quarter of 2008, compared to net income of $3.6 million, or $0.34 per diluted share, for the same period in 2007. EIHI’s diluted book value per share was $15.80 as of September 30, 2008, compared to $16.27 as of December 31, 2007, a decrease of 2.9 percent.
“The core results in our workers’ compensation insurance and group benefits insurance segments continue to be strong,” said Bruce M. Eckert, Chief Executive Officer. “Our combined ratio in our workers’ compensation insurance segment was 88.7 percent for the third quarter of 2008. The group benefit insurance combined ratio was 95.7 percent with favorable loss ratio trends and an expense ratio of 30.7 percent. Our Charlotte office continues to make steady progress introducing all of our insurance products into the Southeast market. Rate pressures appear more intense in those states; however, we are pleased with our loss ratio results and are seeing steady increases in monthly submission activity from an expanding agency distribution network. Also, we are pleased with the successful close of our acquisition of Employers Security Insurance Company of Indianapolis, Indiana on September 29, 2008. We have already begun introducing the Eastern Brand into the Midwest and believe we have found a very strong platform in Employers Security from which to launch our workers’ compensation products and also eventually our ancillary group benefits insurance policies.”
Eckert added, “The Company was successful in terminating the reinsurance treaty effective July 1, 2008 that comprises the specialty reinsurance segment on a run-off basis.”
Consolidated highlights for the third quarter include:
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 6, 2008
Page 2 of 10
| • | Revenue for the third quarter of 2008 decreased $8.5 million to $29.6 million, compared to $38.1 million for the same period in 2007. The decrease in revenue is due primarily to a decrease in net investment income and an increase in net realized investment losses; |
| • | Net premiums earned decreased $1.2 million to $33.1 million in the third quarter of 2008 from $34.3 million during the same period in 2007. Despite increases in net premiums earned in workers’ compensation insurance and group benefits insurance, consolidated net premiums earned decreased 3.5 percent due primarily to the termination of the reinsurance treaty effective July 1, 2008 that comprises the specialty reinsurance segment; |
| • | Net investment income decreased $2.4 million to $755,000 for the three months ended September 30, 2008 compared to $3.1 million for the same period in 2007. The decrease in net investment income is due primarily to limited partnership losses of $1.7 million for the third quarter of 2008 compared to limited partnership gains of $60,000 in 2007 and a decrease in overall invested assets as a result of the EIHI stock repurchase program, which has utilized $19.1 million of cash since October 1, 2007. Limited partnership losses include a reduction of $1.4 million related to the recording of an other-than-temporary impairment on a limited partnership investment; |
| • | Net realized investment losses increased $5.1 million to $4.5 million ($2.5 million after-tax) for the three months ended September 30, 2008 compared to net realized investment gains of $590,000 ($369,000 after-tax) for the same period in 2007. Net realized investment losses include $2.8 million ($1.8 million after-tax) of other-than-temporary impairments on Lehman Brothers debt securities and three prime asset-backed security investments; |
| • | No favorable loss reserve development on prior accident years was recorded in the workers’ compensation insurance segment for the three months ended September 30, 2008 compared to $2.3 million ($1.5 million after-tax) for the same period in 2007; |
| • | Unfavorable loss reserve development on prior accident years of $2.3 million ($1.5 million after-tax) was recorded in the specialty reinsurance segment for the three months ended September 30, 2008 compared to $4.1 million ($2.6 million after tax for the same period in 2007); and |
| • | After-tax intangible asset amortization expense of $213,000 was recorded for the three months ended September 30, 2008, compared to $434,000 for the third quarter of 2007. |
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 6, 2008
Page 3 of 10
Weighted average fully diluted shares considered outstanding used to calculate diluted earnings per share for the three months ended September 30, 2008 and 2007 consisted of the following:
| 2008 | 2007 | |||||
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 | 162,095 | 87,140 | ||||
Weighted average restricted stock shares1 | 49,335 | 30,187 | ||||
Weighted average treasury shares purchased | (2,038,235 | ) | (585,484 | ) | ||
Stock warrants1 | — | 306,099 | ||||
Total | 8,776,743 | 10,441,490 | ||||
Segment Operating Results
Workers’ Compensation Insurance
EIHI’s workers’ compensation insurance segment reported net income of $527,000 for the third quarter of 2008 compared to $4.9 million for the third quarter of 2007. Highlights for the third quarter include:
| • | Direct written premiums increased to $26.4 million for the three months ended September 30, 2008 compared to $25.5 million for the same period in 2007, an increase of 3.5 percent; |
| • | Net premiums earned increased to $15.8 million for the third quarter of 2008, compared with $15.2 million for the third quarter of 2007, an increase of 3.9 percent; |
| • | Audit premium, which results from an examination of the policyholders’ payroll and other records, resulted in the Company recording additional premium of $1.0 million for the third quarter of 2008 compared to $1.1 million for the same period in 2007; |
| • | Net investment income was $(299,000) for the third quarter of 2008, compared to $1.1 million for the same period in 2007. The decrease in net investment income is due primarily to limited partnership losses of $1.4 million for the three months ended September 30, 2008 compared to limited partnership gains of $14,000 for the same period in 2007 and a decrease in the invested asset base driven by dividends to EIHI to fund the stock repurchase program. Limited partnership losses include a reduction of $1.4 million related to the recording of an other-than-temporary impairment on a limited partnership investment; |
| • | After-tax net realized investment losses of $475,000 were recorded for the three months ended September 30, 2008 compared to after-tax net realized investment gains of $86,000 for the same period in 2007; |
1 | Stock warrants of 306,099 and restricted stock of 44,376 were anti-dilutive to diluted earnings per share and, accordingly, were excluded from the calculation. |
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 6, 2008
Page 4 of 10
| • | The calendar year loss and LAE ratio was 59.6 percent for the three months ended September 30, 2008 compared to 40.5 percent for the same period in 2007. For the three months ended September 30, 2008, no favorable loss reserve development on prior accident years was recorded, compared to favorable loss reserve development on prior accident years of $2.3 million in the third quarter of 2007, which decreased the 2007 loss ratio by 14.7 percentage points; |
| • | The expense ratio was 27.0 percent for the three months ended September 30, 2008 compared to 22.2 percent for the same period in 2007. The increase in the expense ratio is primarily due to start-up costs associated with EIHI’s expansion into the Southeast, indirect acquisition costs associated with EIHI’s acquisition of Employers Security Holding Company and its subsidiaries and the Company’s state licensing initiatives; and |
| • | The combined ratio was 88.7 percent for the third quarter of 2008, compared to 63.3 percent for the same period last year. |
Segregated Portfolio Cell Reinsurance
The segregated portfolio cell reinsurance segment added one new program during the nine months ended September 30, 2008 and another new program effective October 1, 2008, bringing the total number of active programs to thirteen. Activity in this segment has increased despite current economic trends, largely as a result of our expansion into the Southeast and Midwest markets.
Group Benefits Insurance
EIHI’s group benefits insurance segment reported a net loss of $1.1 million for the three months ended September 30, 2008 compared to net income of $1.2 million for the same period in 2007. Highlights for the third quarter include:
| • | Net premiums earned were $9.1 million for the third quarter of 2008 and 2007; |
| • | Net investment income was $535,000 for the third quarter of 2008 compared to $795,000 for the third quarter of 2007. The decrease in net investment income is due primarily to a decrease in the invested asset base driven by dividends to EIHI to fund the stock repurchase program; |
| • | After-tax net realized investment losses of $1.9 million were recorded for the three months ended September 30, 2008 compared to after-tax net realized investment gains of $274,000 for the same period in 2007; |
| • | The calendar year loss and LAE ratio was 65.0 percent for the three months ended September 30, 2008 compared to 68.1 percent for the same period in 2007; |
| • | The expense ratio was 30.7 percent for the three months ended September 30, 2008 compared to 28.5 percent for the same period in 2007; and |
| • | The combined ratio was 95.7 percent for the third quarter of 2008, compared to 96.6 percent for the same period last year. |
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 6, 2008
Page 5 of 10
Specialty Reinsurance
EIHI’s specialty reinsurance segment reported a net loss of $1.3 million for the third quarter of 2008 compared to a net loss of $1.5 million for the same period last year. Highlights for the third quarter include:
| • | Reinsurance premiums earned were $2.1 million for the third quarter of 2008 compared to $3.9 million for the same period in 2007. The decrease in reinsurance premiums earned is due to the termination of the reinsurance treaty effective July 1, 2008 that comprises the specialty reinsurance segment; |
| • | Net investment income was $195,000 for the three months ended September 30, 2008 compared to $379,000 for the same period last year; |
| • | After-tax net realized investment losses of $171,000 were recorded for the three months ended September 30, 2008 compared to no net realized investment gains or losses for the same period in 2007; |
| • | The calendar year loss and LAE ratio was 163.9 percent for the three months ended September 30, 2008 compared to 148.2 percent for the same period in 2007. For the three months ended September 30, 2008, unfavorable loss reserve development on prior accident years of $2.3 million increased the 2008 loss ratio by 107.4 percentage points, compared to unfavorable loss reserve development on prior accident years of $4.1 million in the third quarter of 2007, which increased the 2007 loss ratio by 103.9 percentage points; and |
| • | The combined ratio was 207.9 percent for the third quarter of 2008, compared to 181.8 percent for the same period last year. |
Prior to July 1, 2008, business in the specialty reinsurance segment was 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 July 1, 2008, EIHI terminated the reinsurance treaty that comprises the specialty reinsurance segment.
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 $1.2 million for the three months ended September 30, 2008, compared to $1.1 million for the same period in 2007.
Financial Condition
Total assets were $390.6 million as of September 30, 2008. Shareholders’ equity was $156.1 million as of September 30, 2008. During the third quarter of 2008, the Company repurchased 42,377 common shares at a total cost of $646,400, representing a weighted average price of $15.25 per share. As of September 30, 2008, EIHI’s book value per share and diluted book value per share were $16.35 and $15.80, respectively. Outstanding shares used to calculate book
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 6, 2008
Page 6 of 10
value per share and diluted book value per share were 9,551,569 and 10,506,856, respectively, as of September 30, 2008. The basic book value per share calculation includes the impact of restricted stock awards of 251,675 shares. The 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 649,188 common shares, which have a weighted average exercise price of $14.36.
Conference Call with Investors
EIHI will hold a conference call with investors beginning at 10:00 a.m. Eastern Time on Friday, November 7, 2008 to review the Company’s 2008 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:
Live Call
800-860-2442 (Domestic)
412-858-4600 (International)
A replay of the conference call will be available through November 24, 2008, at 877-344-7529 (domestic) and 412-317-0088 (international). The replay passcode for the conference call is 424847. 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, 2008 and December 31, 2007 and unaudited results of operations for the three and nine months ended September 30, 2008 and 2007.
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 6, 2008
Page 7 of 10
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share data)
| September 30, 2008 | December 31, 2007 | |||||
ASSETS | ||||||
Investments: | ||||||
Fixed income securities, at estimated fair value (amortized cost, $180,714; $202,039) | $ | 179,961 | $ | 205,785 | ||
Convertible bonds, at estimated fair value (amortized cost, $14,292; $14,232) | 13,182 | 15,478 | ||||
Equity securities, at estimated fair value (cost, $27,623; $19,578) | 22,473 | 20,541 | ||||
Other long-term investments, at estimated fair value (cost, $10,637; $10,386) | 11,524 | 11,317 | ||||
Total investments | 227,140 | 253,121 | ||||
Cash and cash equivalents | 49,625 | 45,940 | ||||
Accrued investment income | 2,114 | 2,290 | ||||
Premiums receivable (net of allowance, $567; $558) | 36,813 | 26,846 | ||||
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses | 28,490 | 26,303 | ||||
Deferred acquisition costs | 6,679 | 6,257 | ||||
Deferred income taxes, net | 6,694 | 1,229 | ||||
Federal income taxes recoverable | 1,979 | 846 | ||||
Intangible assets | 9,568 | 6,372 | ||||
Goodwill | 10,908 | �� | 7,992 | |||
Other assets | 10,587 | 8,322 | ||||
Total assets | $ | 390,597 | $ | 385,518 | ||
LIABILITIES | ||||||
Reserves for unpaid losses and loss adjustment expenses | $ | 146,530 | $ | 129,788 | ||
Unearned premium reserves | 52,356 | 39,826 | ||||
Advance premium | 1,348 | 1,380 | ||||
Accounts payable and accrued expenses | 11,823 | 8,422 | ||||
Ceded reinsurance balances payable | 6,303 | 6,762 | ||||
Benefit plan liabilities | 315 | 334 | ||||
Segregated portfolio cell dividend payable | 13,357 | 13,168 | ||||
Loans payable | 2,427 | — | ||||
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 6, 2008
Page 8 of 10
| September 30, 2008 | December 31, 2007 | |||||||
Junior subordinated debentures | — | 8,007 | ||||||
Total liabilities | $ | 234,459 | $ | 207,687 | ||||
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; outstanding – 9,551,569 and 10,580,858, respectively | — | — | ||||||
Unearned ESOP compensation | (5,791 | ) | (6,354 | ) | ||||
Additional paid in capital | 111,431 | 110,166 | ||||||
Treasury stock, at cost (2,051,154 and 1,016,865 shares, respectively) | (32,308 | ) | (15,589 | ) | ||||
Retained earnings | 85,287 | 86,363 | ||||||
Accumulated other comprehensive (loss) income, net | (2,481 | ) | 3,245 | |||||
Total shareholders’ equity | 156,138 | 177,831 | ||||||
Total liabilities and shareholders’ equity | $ | 390,597 | $ | 385,518 | ||||
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 6, 2008
Page 9 of 10
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
| Three Months Ended | Nine Month Ended | |||||||||||||
| September 30, 2008 | September 30, 2007 | September 30, 2008 | September 30, 2007 | |||||||||||
Revenue: | ||||||||||||||
Net premiums earned | $ | 33,118 | $ | 34,264 | $ | 99,363 | $ | 95,226 | ||||||
Net investment income | 755 | 3,108 | 5,442 | 9,326 | ||||||||||
Net realized investment (losses) gains | (4,518 | ) | 590 | (4,213 | ) | 2,321 | ||||||||
Other revenue | 167 | 179 | 522 | 517 | ||||||||||
Total revenue | 29,522 | 38,141 | 101,114 | 107,390 | ||||||||||
Expenses: | ||||||||||||||
Losses and loss adjustment expenses incurred | 22,517 | 21,459 | 62,930 | 57,968 | ||||||||||
Acquisition and other underwriting expenses | 4,588 | 4,097 | 14,224 | 11,266 | ||||||||||
Other expenses | 6,584 | 6,452 | 19,113 | 17,977 | ||||||||||
Amortization of intangible assets | 328 | 434 | 984 | 1,303 | ||||||||||
Policyholder dividends | 325 | 95 | 253 | 349 | ||||||||||
Segregated portfolio dividend expense | 29 | 780 | 2,602 | 2,172 | ||||||||||
Total expenses | 34,371 | 33,317 | 100,106 | 91,035 | ||||||||||
(Loss) income before income taxes | (4,849 | ) | 4,824 | 1,008 | 16,355 | |||||||||
(Loss) income tax expense | (1,760 | ) | 1,263 | 20 | 5,329 | |||||||||
Net (loss) income | $ | (3,089 | ) | $ | 3,561 | $ | 988 | $ | 11,026 | |||||
Earnings per share (EPS): | ||||||||||||||
Basic shares outstanding | 8,776,743 | 10,105,204 | 9,017,853 | 10,435,468 | ||||||||||
Basis EPS | $ | (0.35 | ) | $ | 0.35 | $ | 0.11 | $ | 1.06 | |||||
Diluted shares outstanding | 8,776,743 | 10,441,490 | 9,371,896 | 10,765,095 | ||||||||||
Diluted EPS | $ | (0.35 | ) | $ | 0.34 | $ | 0.11 | $ | 1.02 | |||||
Eastern Insurance Holdings, Inc. Quarterly Earnings Release
November 6, 2008
Page 10 of 10
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,” “project,” “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, therefore 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; 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 S-1 Registration Statement, 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. This press release also does not constitute an offer to sell, or a solicitation of an offer to buy, EIHI securities. Such an offer will be made only by means of a prospectus.