Exhibit 99.1
MEADOWBROOK INSURANCE GROUP, INC.
(NYSE - MIG)
(NYSE - MIG)
| CONTACT: | Karen M. Spaun, SVP & Chief Financial Officer, (248) 204-8178 Holly Moltane, Controller – GAAP Financial Reporting, (248) 204-8590 |
MEADOWBROOK INSURANCE GROUP, INC.
REPORTS SECOND QUARTER RESULTS
REPORTS SECOND QUARTER RESULTS
•Net Operating Income of $0.21 per diluted share
•Net Income of $0.20 per diluted share
•Combined Ratio of 92.7%
•Gross Written Premium up 66.3%
•Book Value per share of $8.31
•Net Income of $0.20 per diluted share
•Combined Ratio of 92.7%
•Gross Written Premium up 66.3%
•Book Value per share of $8.31
SOUTHFIELD, MICHIGAN
August 3, 2009
August 3, 2009
Second Quarter 2009 Highlights and Overview:
| • | Net operating income, a non-GAAP measure, increased 39.8% to $11.9 million, or $0.21 per diluted share on 57.5 million shares, in the second quarter of 2009 compared to $8.5 million, or $0.23 per diluted share on 37.1 million shares, in the second quarter of 2008. | ||
| • | Net income increased 38.0% to $11.6 million, or $0.20 per diluted share, in the second quarter of 2009 compared to $8.4 million, or $0.23 per diluted share for the second quarter of 2008. | ||
| • | Combined ratio was 92.7% in the second quarter of 2009, compared to 90.5% for the second quarter of 2008. | ||
| • | Book value per share increased to $8.31 per share compared to $7.98 per share at March 31, 2009 and $7.64 per share at December 31, 2008. |
Meadowbrook Insurance Group, Inc. (NYSE: MIG) reported that second quarter net operating income, a non-GAAP measure, grew by 39.8% to $11.9 million or $0.21 per diluted share, compared to $8.5 million or $0.23 per diluted share in the second quarter of 2008. Net income increased by 38.0% to $11.6 million, or $0.20 per diluted share in the second quarter of 2009, compared to $8.4 million, or $0.23 per diluted share in the second quarter of 2008. Second quarter 2009 net income included after-tax realized losses of $287,000, or approximately $0.01 per diluted share, due to other than temporary impairments on investments in certain asset-backed securities, corporate bonds and preferred stocks.
The second quarter 2009 GAAP combined ratio was 92.7%, compared to 90.5% for the second quarter of 2008. The loss ratio for the second quarter of 2009 was 59.4%, compared to 61.2% for the second quarter of 2008. The second quarter 2009 loss ratio includes 5.0 percentage points of favorable prior year reserve development, compared to 3.5 percentage points of favorable prior year reserve development in the second quarter of 2008. The expense ratio for the second quarter of 2009 was 33.3%, compared to 29.3% in the second quarter of 2008. The increase in the expense ratio is due primarily to higher commission levels and
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internal costs associated with our excess and surplus lines operations and a planned for reduction in reinsurance ceding commissions due to restructuring of those agreements.
Second quarter 2009 gross written premium increased 66.3% to $156.9 million, compared to $94.4 million in the second quarter of 2008.
As expected, net commission and fee revenue for the second quarter of 2009 was down to $8.4 million compared to $9.6 million in the second quarter of 2008. Additionally, there was a pre-tax loss, excluding amortization, on fee-for-service business of $378,000 compared to $1.7 million of pre-tax income, excluding amortization in the second quarter of 2008.
Commenting on the results, Meadowbrook President and Chief Executive Officer Robert S. Cubbin stated: “Throughout the first half of 2009 we have focused on price adequacy and selective growth with strict adherence to underwriting discipline, and as a result, our performance in the second quarter and first half of the year has positioned us to achieve results at the high end of the range we previously set of $46 million to $52 million of net operating income. This generates operating EPS at the high end of the range of $0.80 to $0.90 per share. Growth in gross written premium was 66.3% for the quarter, and we continue to be optimistic about our prospects for revenue growth. We will continue to be selective in our approach to premium growth, as our markets have remained competitive. In certain classes of business, rate decreases that we saw in the recent past are moderating, but in our opinion the market is stabilizing, not hardening. We are pleased with our combined ratio results for the second quarter, which includes favorable development on prior year accident year loss reserves in our workers’ compensation, general liability and auto liability lines. We expected that the revenue and income from our commission and fee-for-service business would decline in 2009 because a fee-based client decided to assume the administration of the program in-house. Also, management fees and commissions based on premium have declined because of the competitive market and poor economic conditions.”
Commenting on the integration progress of the ProCentury merger, Mr. Cubbin stated, “A year after the merger, it is gratifying to see that the opportunities we contemplated during due diligence are coming to fruition and producing real results. We have moved past the hypotheses and rationale for the merger and we are working from a largely integrated back office, product and distribution platform. We are leveraging fixed costs, we have created reinsurance purchasing efficiencies and we can cite specific examples of revenue enhancing initiatives that would not have otherwise been possible. We have expanded the size, expertise and scope of our organization, and because we have distinct capabilities in both the admitted and surplus lines markets, we have unique tools to manage through cycles: during softer cycles we can lean on the stability of our admitted and program business, and we have the flexibility in our surplus lines business to act quickly and opportunistically when the market firms.”
Year to Date June 30, 2009 Overview
Net operating income for the six months ended June 30, 2009 increased 81.1% to $28.3 million, or $0.49 per diluted share on 57.5 million shares, compared to $15.6 million, or $0.42 per diluted share on 37.1 million shares for the same period in 2008. Net income for the first half of 2009 increased 62.5% to $25.2 million or $0.44 per share compared to $15.5 million or $0.42 per share for the same period in 2008. Our 2009 year to date results include $3.1 million of other than temporary impairment charges on our investment portfolio. For the first six months of 2009, pre-tax fee-for-service income, excluding amortization, declined by 71.4% to $1.2 million from $4.2 million for the six months ended June 30, 2008.
The year to date GAAP combined ratio for 2009 improved to 90.2% compared to 92.1% for the year to date period ended June 30, 2008. The loss ratio for the six months ended June 30, 2009 improved to 58.7% compared to 61.5% for the same period in 2008. The expense ratio for the six months ended June 30, 2009 was 31.5% compared to 30.6% for same period in 2008. The year to date 2009 combined ratio includes 5.7 points of favorable prior year development compared to 3.9 points of favorable prior year development for year to date 2008.
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Other Matters
Shareholders’ Equity:
At June 30, 2009, shareholders’ equity was $477.4 million, or $8.31 per common share compared to $438.2 million, or $7.64 per common share, at December 31, 2008. Common shares outstanding at June 30, 2009 were 57,447,707 compared to 37,021,032 at June 30, 2008. The increase in outstanding shares is primarily due to the issuance of 21.1 million shares, or $122.7 million of new equity in conjunction with the ProCentury merger on July 31, 2008.
At June 30, 2009, shareholders’ equity was $477.4 million, or $8.31 per common share compared to $438.2 million, or $7.64 per common share, at December 31, 2008. Common shares outstanding at June 30, 2009 were 57,447,707 compared to 37,021,032 at June 30, 2008. The increase in outstanding shares is primarily due to the issuance of 21.1 million shares, or $122.7 million of new equity in conjunction with the ProCentury merger on July 31, 2008.
At June 30, 2009, our debt-to-equity ratio was 28.6% compared to 32.2% at December 31, 2008. Our debt to equity ratio excluding debentures was 11.6% at June 30, 2009 compared to 13.8% at December 31, 2008.
Dividend and Share Repurchases:
On July 31, 2009, our Board of Directors declared a quarterly dividend of $0.02 per share payable on August 31, 2009 to shareholders of record as of August 14, 2009.
On July 31, 2009, our Board of Directors declared a quarterly dividend of $0.02 per share payable on August 31, 2009 to shareholders of record as of August 14, 2009.
We did not repurchase any shares during the second quarter of 2009. As of June 30, 2009, we have available up to 2,200,000 shares remaining under the share repurchase authorization.
Investment Portfolio:
At June 30, 2009 our pre-tax book yield was 4.6% compared to 4.3% at June 30, 2008. The duration of the portfolio was 4.1 years at June 30, 2009, compared to 4.5 years at December 31, 2008 and 3.9 years at June 30, 2008. The average pre-tax book yield on new purchases during the second quarter of 2009 was 5.1%.
At June 30, 2009 our pre-tax book yield was 4.6% compared to 4.3% at June 30, 2008. The duration of the portfolio was 4.1 years at June 30, 2009, compared to 4.5 years at December 31, 2008 and 3.9 years at June 30, 2008. The average pre-tax book yield on new purchases during the second quarter of 2009 was 5.1%.
Net investment income for the second quarter of 2009 was $12.4 million, up from $6.9 million in the second quarter of 2008. For the six months ended June 30, 2009 net investment income was $24.7 million compared to $14.1 million for the same periods in 2008. The increases in net investment income for the quarter and year to date periods are primarily related to investment income from the Century Insurance portfolio.
A- (Excellent) A.M. Best Rating Affirmed:
On June 24, 2009, A.M. Best Company affirmed the financial strength rating of A- (Excellent) for Meadowbrook Insurance Group and its pooled members. The rating reflects Meadowbrook’s sustained operating profitability, its supportive capitalization and management’s expertise in both the specialty program business and alternative risk market.
On June 24, 2009, A.M. Best Company affirmed the financial strength rating of A- (Excellent) for Meadowbrook Insurance Group and its pooled members. The rating reflects Meadowbrook’s sustained operating profitability, its supportive capitalization and management’s expertise in both the specialty program business and alternative risk market.
2009 Expectations
We anticipate continued growth throughout the year, and while the level of rate decreases has moderated, we continue to operate in a very competitive market and difficult economic environment. Therefore, we now believe a better estimate of full year gross written premium to be between $695.0 million and $715.0 million. Our outlook for net operating income has not changed, and we continue to expect net operating income at the higher end of a range of $46.0 million to $52.0 million, or $0.80 to $0.90 per share. Commenting on the 2009 outlook, Mr. Cubbin stated: “We expect to continue to grow profitably, and maintaining price adequacy requires us to grow selectively. A competitive insurance market and a poor economy have created downward pressure on revenue growth. Therefore, we now anticipate gross written premium in a range of $695.0 million to $715.0 million. We continue to expect that the higher end of our range of net operating income is achievable.”
Conference Call
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Meadowbrook’s 2009 second quarter and year to date results will be discussed by management in more detail on Tuesday, August 4, 2009 at 9:00 a.m. Eastern Time.
To listen to the call, please dial 1-877-407-0782 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 Tuesday August 11, 2009 by dialing 1-877-660-6853 and referring to conference ID 327551 and account number 286. The webcast will be archived and available for replay through Friday, December 4, 2009.
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.
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EARNINGS RELEASE | PAGE 5 | |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED BALANCE SHEET INFORMATION
UNAUDITED BALANCE SHEET INFORMATION
| JUNE 30, | DECEMBER 31, | |||||||
| (In Thousands, Except Per Share Data) | 2009 | 2008 | ||||||
BALANCE SHEET DATA | ||||||||
ASSETS | ||||||||
| Cash and invested assets | $ | 1,142,511 | $ | 1,085,648 | ||||
| Premium & agents balances | 136,213 | 117,675 | ||||||
| Reinsurance recoverable | 267,890 | 268,703 | ||||||
| Deferred policy acquisition costs | 59,027 | 56,454 | ||||||
| Prepaid reinsurance premiums | 28,829 | 31,885 | ||||||
| Goodwill | 119,092 | 119,028 | ||||||
| Other assets | 124,527 | 134,523 | ||||||
Total Assets | $ | 1,878,089 | $ | 1,813,916 | ||||
LIABILITIES | ||||||||
| Loss and loss adjustment expense reserves | $ | 902,406 | $ | 885,697 | ||||
| Unearned premium reserves | 290,891 | 282,086 | ||||||
| Debt | 55,500 | 60,250 | ||||||
| Debentures | 80,930 | 80,930 | ||||||
| Other liabilities | 70,920 | 66,783 | ||||||
Total Liabilities | 1,400,647 | 1,375,746 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
| Common stockholders’ equity | 477,442 | 438,170 | ||||||
Total Liabilities & Stockholders’ Equity | $ | 1,878,089 | $ | 1,813,916 | ||||
Book value per common share | $ | 8.31 | $ | 7.64 | ||||
Book value per common share excluding unrealized gain/loss, net of deferred taxes | $ | 8.10 | $ | 7.70 | ||||
EARNINGS RELEASE | PAGE 6 | |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
UNAUDITED INCOME STATEMENT INFORMATION
| (In Thousands, Except | FOR THE QUARTER | FOR THE SIX MONTHS | ||||||||||||||
| Share & Per Share Data) | ENDED JUNE 30, | ENDED JUNE 30, | ||||||||||||||
| SUMMARY DATA | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Gross written premiums | $ | 156,891 | $ | 94,370 | $ | 316,882 | $ | 184,838 | ||||||||
| Net written premiums | 134,524 | 76,071 | 268,040 | 147,470 | ||||||||||||
REVENUES | ||||||||||||||||
| Net earned premiums | $ | 127,140 | $ | 77,031 | $ | 256,178 | $ | 143,053 | ||||||||
| Net commissions and fees | 8,396 | 9,632 | 18,633 | 21,663 | ||||||||||||
| Net investment income | 12,397 | 6,917 | 24,739 | 14,065 | ||||||||||||
| Net realized losses | (958 | ) | (146 | ) | (2,950 | ) | (177 | ) | ||||||||
Total Revenues | 146,975 | 93,434 | 296,600 | 178,604 | ||||||||||||
EXPENSES | ||||||||||||||||
Net losses & loss adjustment expenses(1) | 70,464 | 43,542 | 140,251 | 81,203 | ||||||||||||
| Salaries & employee benefits | 19,945 | 14,143 | 39,772 | 26,898 | ||||||||||||
| Interest expense | 2,659 | 1,254 | 5,441 | 2,565 | ||||||||||||
Policy acquisition and other underwriting expenses(1) | 27,139 | 12,716 | 51,108 | 25,863 | ||||||||||||
| Amortization expense | 1,420 | 1,563 | 2,928 | 3,114 | ||||||||||||
| Other administrative expenses | 9,917 | 7,961 | 20,310 | 16,793 | ||||||||||||
Total Expenses | 131,544 | 81,179 | 259,810 | 156,436 | ||||||||||||
INCOME BEFORE INCOME TAXES AND EQUITY EARNINGS | 15,431 | 12,255 | 36,790 | 22,168 | ||||||||||||
| Income tax expense | 3,827 | 3,879 | 11,701 | 6,790 | ||||||||||||
| Equity earnings of affiliates | 41 | 61 | 96 | 117 | ||||||||||||
NET INCOME | $ | 11,645 | $ | 8,437 | $ | 25,185 | $ | 15,495 | ||||||||
NET OPERATING INCOME(2) | $ | 11,932 | $ | 8,532 | $ | 28,269 | $ | 15,610 | ||||||||
| Amortization expense | 1,420 | 1,563 | 2,928 | 3,114 | ||||||||||||
NET OPERATING INCOME, excluding amortization expense(3) | $ | 13,352 | $ | 10,095 | $ | 31,197 | $ | 18,724 | ||||||||
Diluted earnings per common share | ||||||||||||||||
Net income | $ | 0.20 | $ | 0.23 | $ | 0.44 | $ | 0.42 | ||||||||
| Net operating income | $ | 0.21 | $ | 0.23 | $ | 0.49 | $ | 0.42 | ||||||||
| Net operating income, excluding amortization expense | $ | 0.23 | $ | 0.27 | $ | 0.54 | $ | 0.50 | ||||||||
Diluted weighted average common shares outstanding | 57,516,750 | 37,126,911 | 57,481,241 | 37,126,782 | ||||||||||||
GAAP ratios: | ||||||||||||||||
| Loss & LAE ratio | 59.4 | % | 61.2 | % | 58.7 | % | 61.5 | % | ||||||||
| Other underwriting expense ratio | 33.3 | % | 29.3 | % | 31.5 | % | 30.6 | % | ||||||||
| GAAP combined ratio | 92.7 | % | 90.5 | % | 90.2 | % | 92.1 | % | ||||||||
| (1) | Both the loss and loss adjustment and expense ratios are calculated based upon the unconsolidated insurance company operations. The following supplemental information sets forth the intercompany fees, which are eliminated upon consolidation. |
| (2) | 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). |
| (3) | While net operating income, excluding amortization expense, is a non-GAAP disclosure, management believes this information is beneficial to reviewing the financial statements. Management believes this information is beneficial as amortization expense reflects an interim non-cash charge and in the long-term cash earnings will reflect GAAP earnings as we complete the amortization periods associated with current acquisitions. Net operating income, excluding amortization expense, is net income less realized gains (losses) net of taxes associated with such gains (losses) and less amortization expense. |
EARNINGS RELEASE | PAGE 7 | |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED UNCONSOLIDATED GAAP DATA
UNAUDITED UNCONSOLIDATED GAAP DATA
| FOR THE QUARTER | FOR THE SIX MONTHS | |||||||||||||||
| ENDED JUNE 30, | ENDED JUNE 30, | |||||||||||||||
| (In Thousands) | ||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Unconsolidated GAAP data - Ratio Calculation Table: | ||||||||||||||||
| Net earned premiums | $ | 127,140 | $ | 77,031 | $ | 256,178 | $ | 143,053 | ||||||||
Consolidated net loss and LAE(1) | $ | 70,464 | $ | 43,542 | $ | 140,251 | $ | 81,203 | ||||||||
| Intercompany claim fees | 4,995 | 3,629 | 10,103 | 6,735 | ||||||||||||
| Unconsolidated net loss and LAE | $ | 75,459 | $ | 47,171 | $ | 150,354 | $ | 87,938 | ||||||||
| GAAP loss and LAE ratio | 59.4 | % | 61.2 | % | 58.7 | % | 61.5 | % | ||||||||
Consolidated policy acquisition and other underwriting expenses(1) | $ | 27,139 | $ | 12,716 | $ | 51,108 | $ | 25,863 | ||||||||
| Intercompany administrative and other underwriting fees | 15,201 | 9,832 | 29,567 | 17,920 | ||||||||||||
| Unconsolidated policy acquisition and other underwriting expenses | $ | 42,340 | $ | 22,548 | $ | 80,675 | $ | 43,783 | ||||||||
| GAAP other underwriting expense ratio | 33.3 | % | 29.3 | % | 31.5 | % | 30.6 | % | ||||||||
| GAAP combined ratio | 92.7 | % | 90.5 | % | 90.2 | % | 92.1 | % | ||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Unconsolidated GAAP data - Gross Commissions and Fees: | ||||||||||||||||
| Managed programs: | ||||||||||||||||
| Management fees | $ | 3,821 | $ | 4,174 | $ | 9,099 | $ | 10,206 | ||||||||
| Claims fees | 2,006 | 2,305 | 3,972 | 4,485 | ||||||||||||
| Loss control fees | 520 | 625 | 1,009 | 1,135 | ||||||||||||
| Reinsurance brokerage | 90 | 98 | 155 | 394 | ||||||||||||
| Total managed programs | 6,437 | 7,202 | 14,235 | 16,220 | ||||||||||||
| Agency commissions | 2,171 | 2,681 | 4,965 | 6,009 | ||||||||||||
| Intersegment revenue | (212 | ) | (251 | ) | (567 | ) | (566 | ) | ||||||||
| Net commissions and fees | 8,396 | 9,632 | 18,633 | 21,663 | ||||||||||||
| Intercompany commissions and fees | 20,196 | 13,461 | 39,670 | 24,655 | ||||||||||||
| Gross commissions and fees | $ | 28,592 | $ | 23,093 | $ | 58,303 | $ | 46,318 | ||||||||
| Fee-for-service pre-tax income, excluding amortization | $ | (378 | ) | $ | 1,708 | $ | 1,213 | $ | 4,246 | |||||||
| Pre-tax margin on fee-for-service income | -1.3 | % | 7.4 | % | 2.1 | % | 9.2 | % | ||||||||
| (1) | Both the loss and loss adjustment and expense ratios are calculated based upon the unconsolidated insurance company operations. The above table sets forth the intercompany fees, which are eliminated in consolidation. The GAAP combined ratio is the sum of the GAAP loss and loss adjustment expense ratio and the GAAP expense ratio. The GAAP loss and loss adjustment expense ratio is the unconsolidated net loss and loss adjustment expense in relation to net earned premium. The GAAP expense ratio is the unconsolidated policy acquisition and other underwriting expenses in relation to net earned premium. |
EARNINGS RELEASE | PAGE 8 | |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED ADJUSTED GAAP EXPENSE RATIO SUMMARY
UNAUDITED ADJUSTED GAAP EXPENSE RATIO SUMMARY
| FOR THE QUARTER | FOR THE SIX MONTHS | |||||||||||||||
| ENDED JUNE 30, | ENDED JUNE 30, | |||||||||||||||
| (In Thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Net earned premiums | $ | 127,140 | $ | 77,031 | $ | 256,178 | $ | 143,053 | ||||||||
| Less: Unconsolidated net loss and LAE | 75,459 | 47,171 | 150,354 | 87,938 | ||||||||||||
| Unconsolidated policy acquisition and other underwriting expenses | 42,340 | 22,548 | 80,675 | 43,783 | ||||||||||||
| Underwriting income | $ | 9,341 | $ | 7,312 | $ | 25,149 | $ | 11,332 | ||||||||
| GAAP combined ratio as reported | 92.7 | % | 90.5 | % | 90.2 | % | 92.1 | % | ||||||||
| Specialty risk management operations pre-tax income | $ | 20,875 | $ | 15,617 | $ | 48,286 | $ | 28,529 | ||||||||
| Less: Underwriting income | 9,341 | 7,312 | 25,149 | 11,332 | ||||||||||||
| Net investment income and capital losses | 11,439 | 6,771 | 21,789 | 13,888 | ||||||||||||
| Fee-based operations pre-tax income | 95 | 1,534 | 1,348 | 3,309 | ||||||||||||
| Agency operations pre-tax (loss) income | (473 | ) | 174 | (135 | ) | 937 | ||||||||||
| Total fee-for-service pre-tax income | $ | (378 | ) | $ | 1,708 | $ | 1,213 | $ | 4,246 | |||||||
| GAAP expense ratio as reported | 33.3 | % | 29.3 | % | 31.5 | % | 30.6 | % | ||||||||
| Adjustment to include pre-tax income from total fee-for-service income (1) | -0.3 | % | 2.2 | % | 0.5 | % | 3.0 | % | ||||||||
| GAAP expense ratio as adjusted (2) | 33.6 | % | 27.1 | % | 31.0 | % | 27.6 | % | ||||||||
| GAAP loss and LAE ratio as reported | 59.4 | % | 61.2 | % | 58.7 | % | 61.5 | % | ||||||||
| GAAP combined ratio as adjusted | 93.0 | % | 88.3 | % | 89.7 | % | 89.1 | % | ||||||||
Reconciliation of consolidated pre-tax income: | ||||||||||||||||
| Specialty risk management operations pre-tax income: | ||||||||||||||||
| Fee-based operations pre-tax income | $ | 95 | $ | 1,534 | $ | 1,348 | $ | 3,309 | ||||||||
| Underwriting income | 9,341 | 7,312 | 25,149 | 11,332 | ||||||||||||
| Net investment income and capital losses | 11,439 | 6,771 | 21,789 | 13,888 | ||||||||||||
| Total specialty risk management operations pre-tax income | 20,875 | 15,617 | 48,286 | 28,529 | ||||||||||||
| Agency operations pre-tax (loss) income | (473 | ) | 174 | (135 | ) | 937 | ||||||||||
| Less: Holding company expenses | 892 | 719 | 2,992 | 1,619 | ||||||||||||
| Interest expense | 2,659 | 1,254 | 5,441 | 2,565 | ||||||||||||
| Amortization expense | 1,420 | 1,563 | 2,928 | 3,114 | ||||||||||||
| Consolidated pre-tax income | $ | 15,431 | $ | 12,255 | $ | 36,790 | $ | 22,168 | ||||||||
(1) Adjustment to include pre-tax income from total fee-for-service income is calculated by dividing total fee-for-service income by net earned premiums.
(2) While the adjusted GAAP expense ratio is a non-GAAP disclosure, management believes this information is beneficial to reviewing the financial statements. The adjusted GAAP expense ratio is the GAAP expense ratio, as reported, less the adjustment to include pre-tax income from total fee-for-service income. Management believes this information is beneficial as our GAAP expense ratio includes the impact of the margin associated with our fee-based operations. If the profit margin from our fee-for-service business is recognized as an offset to our underwriting expense, a more realistic picture of our operating efficiency emerges.
EARNINGS RELEASE | PAGE 9 | |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION
| (In Thousands, Except | ||||||||||||||||||||||||||||||||||||
| Share & Per Share Data) | 2006A | 2007A | Q108A | Q208A | Q308A | Q408A | 2008A | Q109A | Q209A | |||||||||||||||||||||||||||
SUMMARY DATA | ||||||||||||||||||||||||||||||||||||
| Gross written premiums | $ | 330,872 | $ | 346,451 | $ | 90,468 | $ | 94,370 | $ | 134,418 | $ | 138,427 | $ | 457,683 | $ | 159,991 | $ | 156,891 | ||||||||||||||||||
| Net written premiums | 262,668 | 280,211 | 71,399 | 76,071 | 112,465 | 115,259 | 375,194 | 133,516 | 134,524 | |||||||||||||||||||||||||||
INCOME STATEMENT | ||||||||||||||||||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||||||||||||||
| Net earned premiums | $ | 254,920 | $ | 268,197 | $ | 66,022 | $ | 77,031 | $ | 104,243 | $ | 122,425 | $ | 369,721 | $ | 129,038 | $ | 127,140 | ||||||||||||||||||
| Commissions and fees (net) | 41,172 | 45,988 | 12,031 | 9,632 | 12,309 | 8,932 | 42,904 | 10,237 | 8,396 | |||||||||||||||||||||||||||
| Net investment income | 22,075 | 26,400 | 7,148 | 6,917 | 10,622 | 11,937 | 36,624 | 12,342 | 12,397 | |||||||||||||||||||||||||||
| Net realized gains (losses) | 69 | 150 | (31 | ) | (146 | ) | (7,290 | ) | (3,955 | ) | (11,422 | ) | (1,992 | ) | (958 | ) | ||||||||||||||||||||
Total Revenues | 318,236 | 340,735 | 85,170 | 93,434 | 119,884 | 139,339 | 437,827 | 149,625 | 146,975 | |||||||||||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||||||||||||||
| Net losses & loss adjustment expenses | 146,293 | 150,969 | 37,661 | 43,542 | 63,932 | 67,750 | 212,885 | 69,787 | 70,464 | |||||||||||||||||||||||||||
| Policy acquisition and other underwriting expenses | 50,479 | 53,717 | 13,147 | 12,716 | 19,470 | 23,961 | 69,294 | 23,969 | 27,139 | |||||||||||||||||||||||||||
| Other administrative expenses | 28,824 | 32,269 | 8,832 | 7,960 | 8,055 | 10,153 | 35,000 | 10,393 | 9,917 | |||||||||||||||||||||||||||
| Salaries & employee benefits | 54,569 | 56,433 | 12,755 | 14,143 | 17,056 | 18,908 | 62,862 | 19,827 | 19,945 | |||||||||||||||||||||||||||
| Amortization expense | 590 | 1,930 | 1,551 | 1,563 | 1,531 | 1,665 | 6,310 | 1,508 | 1,420 | |||||||||||||||||||||||||||
| Interest expense | 5,976 | 6,030 | 1,311 | 1,254 | 2,333 | 2,783 | 7,681 | 2,782 | 2,659 | |||||||||||||||||||||||||||
Total Expenses | 286,731 | 301,348 | 75,257 | 81,178 | 112,377 | 125,220 | 394,032 | 128,266 | 131,544 | |||||||||||||||||||||||||||
INCOME BEFORE TAXES AND EQUITY EARNINGS | 31,505 | 39,387 | 9,913 | 12,256 | 7,507 | 14,119 | 43,795 | 21,359 | 15,431 | |||||||||||||||||||||||||||
| Income tax expense | 9,599 | 11,726 | 2,911 | 3,879 | 3,338 | 6,539 | 16,667 | 7,874 | 3,827 | |||||||||||||||||||||||||||
| Equity earnings of affiliates | 128 | 331 | 56 | 61 | 26 | 126 | 269 | 55 | 41 | |||||||||||||||||||||||||||
NET INCOME | $ | 22,034 | $ | 27,992 | $ | 7,058 | $ | 8,438 | $ | 4,195 | $ | 7,706 | $ | 27,397 | $ | 13,540 | $ | 11,645 | ||||||||||||||||||
| Net realized capital gain (loss), net of tax | 45 | 97 | (20 | ) | (95 | ) | (6,743 | ) | (4,562 | ) | (11,420 | ) | (2,797 | ) | (287 | ) | ||||||||||||||||||||
| OPERATING INCOME | $ | 21,989 | $ | 27,895 | $ | 7,078 | $ | 8,533 | $ | 10,938 | $ | 12,268 | $ | 38,817 | $ | 16,337 | $ | 11,932 | ||||||||||||||||||
| Amortization expense | 590 | 1,930 | 1,551 | 1,563 | 1,531 | 1,665 | 6,310 | 1,508 | 1,420 | |||||||||||||||||||||||||||
| OPERATING INCOME, excluding amortization expense | $ | 22,579 | $ | 29,825 | $ | 8,629 | $ | 10,096 | $ | 12,469 | $ | 13,933 | $ | 45,127 | $ | 17,845 | $ | 13,352 | ||||||||||||||||||
| Weighted average common shares outstanding | 29,566,141 | 33,101,965 | 37,103,270 | 37,126,911 | 47,595,572 | 57,780,625 | 44,995,712 | 57,410,327 | 57,516,750 | |||||||||||||||||||||||||||
| Shares O/S at end of the period | 29,107,818 | 36,996,287 | 37,021,032 | 37,021,032 | 57,644,022 | 57,341,989 | 57,341,989 | 57,447,707 | 57,447,707 | |||||||||||||||||||||||||||
PER SHARE DATA (Diluted) Net income | $ | 0.75 | $ | 0.85 | $ | 0.19 | $ | 0.23 | $ | 0.09 | $ | 0.13 | $ | 0.61 | $ | 0.24 | $ | 0.20 | ||||||||||||||||||
| Net realized gain (loss), net of tax | $ | 0.01 | $ | 0.01 | $ | — | $ | — | $ | (0.14 | ) | $ | (0.08 | ) | $ | (0.25 | ) | $ | (0.04 | ) | $ | (0.01 | ) | |||||||||||||
| Operating income | $ | 0.74 | $ | 0.84 | $ | 0.19 | $ | 0.23 | $ | 0.23 | $ | 0.21 | $ | 0.86 | $ | 0.28 | $ | 0.21 | ||||||||||||||||||
| Operating income, excluding amortization expense | $ | 0.76 | $ | 0.90 | $ | 0.23 | $ | 0.27 | $ | 0.26 | $ | 0.24 | $ | 1.00 | $ | 0.31 | $ | 0.23 | ||||||||||||||||||
OPERATING RATIO ANALYSIS | ||||||||||||||||||||||||||||||||||||
| GAAP Loss & LAE ratio | 62.3 | % | 61.2 | % | 61.7 | % | 61.2 | % | 65.7 | % | 59.5 | % | 62.0 | % | 58.0 | % | 59.4 | % | ||||||||||||||||||
| GAAP Expense ratio | 34.5 | % | 34.2 | % | 32.2 | % | 29.3 | % | 31.0 | % | 32.3 | % | 31.3 | % | 29.7 | % | 33.3 | % | ||||||||||||||||||
GAAP Combined ratio | 96.8 | % | 95.4 | % | 93.9 | % | 90.5 | % | 96.7 | % | 91.8 | % | 93.3 | % | 87.7 | % | 92.7 | % | ||||||||||||||||||
Unconsolidated GAAP data - Ratio Calculation Table: | ||||||||||||||||||||||||||||||||||||
| Net earned premiums | $ | 254,920 | $ | 268,197 | $ | 66,022 | $ | 77,031 | $ | 104,243 | $ | 122,425 | $ | 369,721 | $ | 129,038 | $ | 127,140 | ||||||||||||||||||
| Consolidated net loss and LAE | $ | 146,293 | $ | 150,969 | $ | 37,661 | $ | 43,542 | $ | 63,932 | $ | 67,750 | $ | 212,885 | $ | 69,787 | $ | 70,464 | ||||||||||||||||||
| Intercompany claim fees | 12,553 | 13,058 | 3,106 | 3,629 | 4,508 | 5,053 | 16,296 | 5,108 | 4,995 | |||||||||||||||||||||||||||
| Unconsolidated net loss and LAE | $ | 158,846 | $ | 164,027 | $ | 40,767 | $ | 47,171 | $ | 68,440 | $ | 72,803 | $ | 229,181 | $ | 74,895 | $ | 75,459 | ||||||||||||||||||
GAAP Net loss and LAE ratio | 62.3 | % | 61.2 | % | 61.7 | % | 61.2 | % | 65.7 | % | 59.5 | % | 62.0 | % | 58.0 | % | 59.4 | % | ||||||||||||||||||
| Consolidated Policy acquisition and other underwriting expenses | $ | 50,479 | $ | 53,717 | $ | 13,147 | $ | 12,716 | $ | 19,537 | $ | 23,949 | $ | 69,349 | $ | 23,969 | $ | 27,139 | ||||||||||||||||||
| Intercompany administrative and other underwriting fees | 37,442 | 37,890 | 8,088 | 9,832 | 12,821 | 15,630 | 46,371 | 14,366 | 15,201 | |||||||||||||||||||||||||||
| Unconsolidated policy acquisition and other underwriting expenses | $ | 87,921 | $ | 91,607 | $ | 21,235 | $ | 22,548 | $ | 32,358 | $ | 39,579 | $ | 115,720 | $ | 38,335 | $ | 42,340 | ||||||||||||||||||
GAAP Expense ratio | 34.5 | % | 34.2 | % | 32.2 | % | 29.3 | % | 31.0 | % | 32.3 | % | 31.3 | % | 29.7 | % | 33.3 | % | ||||||||||||||||||
GAAP Combined Ratio | 96.8 | % | 95.4 | % | 93.9 | % | 90.5 | % | 96.7 | % | 91.8 | % | 93.3 | % | 87.7 | % | 92.7 | % | ||||||||||||||||||
Unconsolidated Commissions & Fees | ||||||||||||||||||||||||||||||||||||
| Managed programs: | ||||||||||||||||||||||||||||||||||||
| Management fees | $ | 18,714 | $ | 23,963 | $ | 6,032 | $ | 4,174 | $ | 6,972 | $ | 3,990 | $ | 21,168 | $ | 5,278 | $ | 3,821 | ||||||||||||||||||
| Claims fees | 8,776 | 9,025 | 2,180 | 2,305 | 2,304 | 2,090 | 8,879 | 1,966 | 2,006 | |||||||||||||||||||||||||||
| Loss control fees | 2,216 | 2,151 | 510 | 625 | 467 | 467 | 2,069 | 489 | 520 | |||||||||||||||||||||||||||
| Reinsurance brokerage | 735 | 929 | 296 | 98 | 177 | 157 | 728 | 65 | 90 | |||||||||||||||||||||||||||
| Total managed programs | 30,441 | $ | 36,068 | 9,018 | 7,202 | 9,920 | 6,704 | $ | 32,844 | 7,798 | 6,437 | |||||||||||||||||||||||||
| Agency commissions | 12,285 | 11,316 | 3,328 | 2,681 | 2,630 | 2,425 | 11,064 | 2,794 | 2,171 | |||||||||||||||||||||||||||
| Intersegment commissions and fees | (1,554 | ) | (1,396 | ) | (315 | ) | (251 | ) | (241 | ) | (197 | ) | (1,004 | ) | (355 | ) | (212 | ) | ||||||||||||||||||
| Net Commissions and fees | 41,172 | 45,988 | 12,031 | 9,632 | 12,309 | 8,932 | 42,904 | 10,237 | 8,396 | |||||||||||||||||||||||||||
| Intercompany commissions and fees | 49,995 | 50,948 | 11,194 | 13,461 | 17,329 | 20,683 | 62,667 | 19,474 | 20,196 | |||||||||||||||||||||||||||
| Gross commissions and fees | $ | 91,167 | $ | 96,936 | $ | 23,225 | $ | 23,093 | $ | 29,638 | $ | 29,615 | $ | 105,571 | $ | 29,711 | $ | 28,592 | ||||||||||||||||||