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 FOURTH QUARTER AND FULL YEAR 2009 RESULTS
REPORTS FOURTH QUARTER AND FULL YEAR 2009 RESULTS
•Fourth quarter net operating income up 10.5% to $13.6 million, or $0.24 per diluted share
•Full year net operating income up 37.9% to $53.5 million, or $0.93 per diluted share
•Fourth quarter net income up 113.4% to $16.4 million, or $0.29 per diluted share
•Full year net income up 92.2% to $52.7 million, or $0.92 per diluted share
•Combined ratio of 94.3% for the fourth quarter and 92.6% for the year
•Gross written premium up 32.1% in the fourth quarter and 50.5% for the year
•Book value per share of $9.06, up 18.6% for the year
SOUTHFIELD, MICHIGAN
February 16, 2010
February 16, 2010
Fourth Quarter 2009 Highlights and Overview:
| • | Net operating income, a non-GAAP measure, increased 10.5% to $13.6 million, or $0.24 per diluted share, in the fourth quarter of 2009 compared to $12.3 million, or $0.21 per diluted share, in the fourth quarter of 2008. | ||
| • | Net income increased $8.7 million to $16.4 million, or $0.29 per diluted share, in the fourth quarter of 2009 compared to $7.7 million, or $0.13 per diluted share for the fourth quarter of 2008. | ||
| • | The combined ratio was 94.3% in the fourth quarter of 2009, compared to 91.8% for the fourth quarter of 2008. | ||
| • | Gross written premium increased by $44.4 million to $182.8 million in the fourth quarter of 2009 compared to $138.4 million in the fourth quarter of 2008. | ||
| • | Book value per share increased by 18.6% year to date to $9.06 per share compared to $7.64 per share at December 31, 2008. Unrealized gains, net of tax, increased book value by $0.52 per share since December 31, 2008. | ||
| • | We repurchased 1.6 million shares during the quarter and our Board of Directors authorized the repurchase of up to another 5.0 million shares, pursuant to a newly adopted share repurchase plan. |
Full Year 2009 Highlights and Overview:
| • | 2009 net operating income, a non-GAAP measure, increased 37.9% to $53.5 million, or $0.93 per diluted share, compared to $38.8 million, or $0.86 per diluted share, in 2008. |
| PRESS RELEASE | PAGE 2 | |
| • | 2009 net income increased 92.2% to $52.7 million, or $0.92 per diluted share, compared to $27.4 million, or $0.61 per diluted share in 2008. | ||
| • | The 2009 combined ratio improved to 92.6% compared to 93.3% in 2008. | ||
| • | The 2009 accident year combined ratio, a non-GAAP measure, was 97.9%, relatively unchanged compared to an accident year combined ratio of 97.8% in 2008. | ||
| • | Gross written premiums for 2009 grew by 50.5% to $688.7 million compared to $457.7 million in 2008. |
Meadowbrook Insurance Group, Inc. (NYSE: MIG) reported that fourth quarter net operating income, a non-GAAP measure, grew by 10.5% to $13.6 million, or $0.24 per diluted share, compared to $12.3 million, or $0.21 per diluted share, in the fourth quarter of 2008. Net income increased $8.7 million to $16.4 million, or $0.29 per diluted share in the fourth quarter of 2009 compared to $7.7 million, or $0.13 per diluted share, in the fourth quarter of 2008. Fourth quarter 2009 net income includes net after-tax realized gains of $2.9 million related to the sale of certain investment securities. This compares to after-tax realized losses of $4.6 million in the fourth quarter of 2008 related to other than temporary impairments of certain preferred stocks, corporate bonds, asset-backed and mortgage-backed securities.
The fourth quarter 2009 GAAP combined ratio was 94.3%, compared to 91.8% for the fourth quarter of 2008. The loss ratio for the fourth quarter of 2009 was 60.6% compared to 59.5% for the fourth quarter of 2008. The fourth quarter 2009 loss ratio includes 5.3 percentage points of favorable prior year reserve development, compared to 4.5 percentage points of favorable prior year reserve development in the fourth quarter of 2008. Pre-tax favorable development on prior year accident reserves was $7.8 million in the fourth quarter of 2009 compared to $5.5 million in the fourth quarter of 2008. The expense ratio for the fourth quarter of 2009 was 33.7% compared to 32.3% for the fourth quarter of 2008.
Fourth quarter 2009 gross written premium increased 32.1% to $182.8 million compared to $138.4 million in the fourth quarter of 2008. The increase in gross written premium in the fourth quarter of 2009 was primarily due to programs initiated in 2008 and 2009.
Net commission and fee revenue for the fourth quarter of 2009 declined 4.9% to $8.5 million compared to $8.9 million in the fourth quarter of 2008. The decline was primarily the result of lower premium volume due to mandatory rate reductions and competition. Additionally, a program for which we previously provided policy administration services decided to perform those functions in-house.
Equity earnings of affiliates, net of tax, was $874,000 for the fourth quarter of 2009. This is related to a 2009 minority investment we made in an insurance company and related agency.
Commenting on the results, Meadowbrook President and Chief Executive Officer Robert S. Cubbin stated: “We are very pleased with our results for the year. Gross written premiums increased by more than 50%, net operating EPS of $0.93 per share exceeded our range of expectations and, in a competitive market, our accident year combined ratio held steady at 97.9%. In 2009, we integrated Century and continue to implement and recognize additional synergies. With a return on average equity of 11.2% in 2009, we are back on track for sustainable, double digit return on average equity results.”
“We continue to work from a strong capital and liquidity position and our investment portfolio remains conservatively positioned. During the fourth quarter of 2009, we repurchased 1.6 million shares. Our Board authorized the repurchase of up to another 5 million shares, pursuant to a newly adopted share repurchase plan.”
Full Year 2009 Overview
| PRESS RELEASE | PAGE 3 | |
Net operating income for the year ended December 31, 2009 increased 37.9% to $53.5 million, or $0.93 per diluted share, compared to $38.8 million, or $0.86 per diluted share in 2008. 2009 net income increased 92.2% to $52.7 million or $0.92 per share compared to $27.4 million or $0.61 per share in 2008. Our results for 2009 include $3.5 million of other than temporary impairment charges in our investment portfolio, compared to other than temporary impairment charges of $11.7 million in 2008. Offsetting the impairment charges in 2009 were $3.6 million in pre-tax realized gains recognized in the fourth quarter related to the sale of certain investment securities.
In 2009, gross written premiums increased $231.0 million, or 50.5%, to $688.7 million compared to $457.7 million in 2008. The increase is due to a full year of Century Insurance Group premiums, the further maturation of programs initiated in 2008 and new programs implemented in 2009. Excluding Century Insurance Group premiums, gross written premiums grew approximately 24% in 2009 compared to 2008.
Our year to date GAAP combined ratio for 2009 improved slightly to 92.6% compared to 93.3% for 2008. The loss ratio for 2009 was 60.7% compared to 62.0% for 2008. The expense ratio for 2009 was 31.9% compared to 31.3% for 2008. The 2009 combined ratio includes 0.7 points of extraordinary storm losses in the Midwest, and the 2008 combined ratio includes 2.3 points related to catastrophic storm losses from Hurricanes Gustav and Ike. Additionally, the 2009 combined ratio includes 5.3 points of favorable prior year development compared to 4.5 points of favorable prior year development in 2008. This continued favorable development is primarily attributable to our history of disciplined underwriting, controls over pricing, long-term loyal partners and strong claims management.
Other Matters
Shareholders’ Equity:
At December 31, 2009, shareholders’ equity was $502.9 million, or $9.06 per common share compared to $438.2 million, or $7.64 per common share, at December 31, 2008. The increase in shareholders’ equity is due primarily to net income of $52.7 million and unrealized gains, net of deferred taxes of $29.1 million, partially offset by dividend payments of $5.2 million and share repurchases of $13.9 million.
The 18.6% increase in book value per share includes unrealized gains, net of tax of $0.52 per share since December 31, 2008.
At December 31, 2009, our debt-to-equity ratio was 26.0% compared to 32.2% at December 31, 2008. Our debt to equity ratio excluding debentures was 9.9% at December 31, 2009 compared to 13.8% at December 31, 2008.
Dividend and Share Repurchases:
On February 12, 2010, our Board of Directors declared a quarterly dividend of $0.03 per share payable on April 5, 2010 to shareholders of record as of March 19, 2010.
We repurchased 1.6 million shares during the fourth quarter of 2009 at an average cost of $7.08 per share. For the year, we repurchased 1.9 million shares at an average cost of $7.18 per share. On February 12, 2010, our Board of Directors authorized the repurchase of up to another 5.0 million shares, pursuant to a newly adopted share repurchase plan. The expiration of the new share repurchase plan is February 2012.
Investment Portfolio:
At December 31, 2009, our pre-tax book yield was 4.4%, and our average reinvestment yield for 2009 was 4.7%. The duration of the portfolio was 4.4 years at December 31, 2009, compared to 4.5 years at December 31, 2008.
Net investment income for the fourth quarter of 2009 was $12.9 million, up from $11.9 million in the fourth
| PRESS RELEASE | PAGE 4 | |
quarter of 2008. For the year, 2009 net investment income was $50.4 million compared to $36.6 million for 2008. The increase in net investment income is primarily related to investment income from the Century Insurance portfolio.
2010 Expectations
For 2010, we expect net operating income to be in a range of $48.5 million to $54.5 million. We expect gross written premium in a range of $790 million to $815 million, and the combined ratio should be in a range of 95.5% to 96.5%. Achieving results within these ranges would result in net operating income in a range of $0.85 to $0.95 per share.
Commenting on the 2010 outlook, Mr. Cubbin stated: “We are working from a position of strength going into 2010. We expect programs implemented in 2008 to further mature, and we anticipate growth from the regional workers’ compensation initiatives we launched in 2009. We anticipate the market will remain competitive in 2010, and could look a lot like the second half of 2009—still competitive, but stabilizing. We have opportunities to grow profitably with adequate pricing, and we continue to work on implementing additional revenue enhancing synergies with Century.”
Conference Call
Meadowbrook’s 2009 fourth quarter and full year results will be discussed by management in more detail on Wednesday, February 17, 2010 at 9:00 a.m. Eastern Time.
To listen to the call, please dial 1-877-407-8035 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, February 23, 2010 by dialing 1-877-660-6853 and referring to conference ID 343345 and account number 286. The webcast will be archived and available for replay through Monday, May 17, 2010.
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.
| EARNINGS RELEASE | PAGE 5 | |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED BALANCE SHEET INFORMATION
UNAUDITED BALANCE SHEET INFORMATION
| DECEMBER 31, | DECEMBER 31, | |||||||
| (In Thousands, Except Per Share Data) | 2009 | 2008 | ||||||
BALANCE SHEET DATA | ||||||||
ASSETS | ||||||||
| Cash and invested assets | $ | 1,203,215 | $ | 1,085,648 | ||||
| Premium & agents balances | 155,327 | 117,675 | ||||||
| Reinsurance recoverable | 274,525 | 268,703 | ||||||
| Deferred policy acquisition costs | 68,787 | 56,454 | ||||||
| Prepaid reinsurance premiums | 35,298 | 31,885 | ||||||
| Goodwill | 118,842 | 119,028 | ||||||
| Other assets | 133,822 | 134,523 | ||||||
Total Assets | $ | 1,989,816 | $ | 1,813,916 | ||||
LIABILITIES | ||||||||
| Loss and loss adjustment expense reserves | $ | 949,177 | $ | 885,697 | ||||
| Unearned premium reserves | 325,915 | 282,086 | ||||||
| Debt | 49,875 | 60,250 | ||||||
| Debentures | 80,930 | 80,930 | ||||||
| Other liabilities | 81,038 | 66,783 | ||||||
Total Liabilities | 1,486,935 | 1,375,746 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
| Common stockholders’ equity | 502,881 | 438,170 | ||||||
Total Liabilities & Stockholders’ Equity | $ | 1,989,816 | $ | 1,813,916 | ||||
Book value per common share | $ | 9.06 | $ | 7.64 | ||||
Book value per common share excluding unrealized gain/loss, net of deferred taxes | $ | 8.59 | $ | 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
| FOR THE QUARTER | FOR THE TWELVE MONTHS | |||||||||||||||
| (In Thousands, Except | ENDED DECEMBER 31, | ENDED DECEMBER 31, | ||||||||||||||
| Share & Per Share Data) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
SUMMARY DATA | ||||||||||||||||
| Gross written premiums | $ | 182,820 | $ | 138,427 | $ | 688,687 | $ | 457,683 | ||||||||
| Net written premiums | 153,273 | 115,259 | 580,018 | 375,194 | ||||||||||||
REVENUES | ||||||||||||||||
| Net earned premiums | $ | 146,025 | $ | 122,425 | $ | 539,602 | $ | 369,721 | ||||||||
| Net commissions and fees | 8,495 | 8,932 | 37,881 | 42,904 | ||||||||||||
| Net investment income | 12,863 | 11,937 | 50,366 | 36,624 | ||||||||||||
| Net realized gains (losses) | 3,467 | (3,955 | ) | (225 | ) | (11,422 | ) | |||||||||
Total Revenues | 170,850 | 139,339 | 627,624 | 437,827 | ||||||||||||
EXPENSES | ||||||||||||||||
Net losses & loss adjustment expenses(1) | 83,283 | 67,750 | 307,087 | 212,885 | ||||||||||||
| Salaries & employee benefits | 21,522 | 18,908 | 80,923 | 62,862 | ||||||||||||
| Interest expense | 2,535 | 2,783 | 10,596 | 7,681 | ||||||||||||
Policy acquisition and other underwriting expenses(1) | 30,783 | 23,961 | 110,715 | 69,294 | ||||||||||||
| Amortization expense | 1,431 | 1,665 | 5,781 | 6,310 | ||||||||||||
| Other administrative expenses | 10,090 | 10,153 | 39,413 | 35,000 | ||||||||||||
Total Expenses | 149,644 | 125,220 | 554,515 | 394,032 | ||||||||||||
INCOME BEFORE INCOME TAXES AND EQUITY EARNINGS OF AFFILIATES AND UNCONSOLIDATED SUBSIDIARIES | 21,206 | 14,119 | 73,109 | 43,795 | ||||||||||||
| Income tax expense | 5,473 | 6,539 | 21,321 | 16,667 | ||||||||||||
| Equity earnings of affiliates, net of tax | 874 | — | 874 | — | ||||||||||||
| Equity earnings of unconsolidated subsidiaries, net of tax | (161 | ) | 126 | (12 | ) | 269 | ||||||||||
NET INCOME | $ | 16,446 | $ | 7,706 | $ | 52,650 | $ | 27,397 | ||||||||
| Less: Net realized gains (losses), net of tax | 2,888 | (4,562 | ) | (865 | ) | (11,420 | ) | |||||||||
NET OPERATING INCOME(2) | $ | 13,558 | $ | 12,268 | $ | 53,515 | $ | 38,817 | ||||||||
| Amortization expense | 1,431 | 1,665 | 5,781 | 6,310 | ||||||||||||
NET OPERATING INCOME, excluding amortization expense(3) | $ | 14,989 | $ | 13,933 | $ | 59,296 | $ | 45,127 | ||||||||
Diluted earnings per common share | ||||||||||||||||
Net income | $ | 0.29 | $ | 0.13 | $ | 0.92 | $ | 0.61 | ||||||||
| Net operating income | $ | 0.24 | $ | 0.21 | $ | 0.93 | $ | 0.86 | ||||||||
| Net operating income, excluding amortization expense | $ | 0.26 | $ | 0.24 | $ | 1.03 | $ | 1.00 | ||||||||
Diluted weighted average common shares outstanding | 56,884,403 | 57,780,625 | 57,413,391 | 44,995,712 | ||||||||||||
GAAP ratios: | ||||||||||||||||
| Loss & LAE ratio | 60.6 | % | 59.5 | % | 60.7 | % | 62.0 | % | ||||||||
| Other underwriting expense ratio | 33.7 | % | 32.3 | % | 31.9 | % | 31.3 | % | ||||||||
| GAAP combined ratio | 94.3 | % | 91.8 | % | 92.6 | % | 93.3 | % | ||||||||
| (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 TWELVE MONTHS | |||||||||||||||
| ENDED DECEMBER 31, | ENDED DECEMBER 31, | |||||||||||||||
| (In Thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Unconsolidated GAAP data — Ratio Calculation Table: | ||||||||||||||||
| Net earned premiums | $ | 146,025 | $ | 122,425 | $ | 539,602 | $ | 369,721 | ||||||||
Consolidated net loss and LAE(1) | $ | 83,283 | $ | 67,750 | $ | 307,087 | $ | 212,885 | ||||||||
| Intercompany claim fees | 5,187 | 5,053 | 20,339 | 16,296 | ||||||||||||
| Unconsolidated net loss and LAE | $ | 88,470 | $ | 72,803 | $ | 327,426 | $ | 229,181 | ||||||||
| GAAP loss and LAE ratio | 60.6 | % | 59.5 | % | 60.7 | % | 62.0 | % | ||||||||
Consolidated policy acquisition and other underwriting expenses(1) | $ | 30,783 | $ | 23,949 | $ | 110,715 | $ | 69,349 | ||||||||
| Intercompany administrative and other underwriting fees | 18,427 | 15,630 | 61,422 | 46,371 | ||||||||||||
| Unconsolidated policy acquisition and other underwriting expenses | $ | 49,210 | $ | 39,579 | $ | 172,137 | $ | 115,720 | ||||||||
| GAAP other underwriting expense ratio | 33.7 | % | 32.3 | % | 31.9 | % | 31.3 | % | ||||||||
| GAAP combined ratio | 94.3 | % | 91.8 | % | 92.6 | % | 93.3 | % | ||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Unconsolidated GAAP data — Gross Commissions and Fees: | ||||||||||||||||
| Managed programs: | ||||||||||||||||
| Management fees | $ | 3,659 | $ | 3,990 | $ | 18,901 | $ | 21,168 | ||||||||
| Claims fees | 1,654 | 2,090 | 7,428 | 8,879 | ||||||||||||
| Loss control fees | 473 | 467 | 1,975 | 2,069 | ||||||||||||
| Reinsurance brokerage | 443 | 157 | 931 | 728 | ||||||||||||
| Total managed programs | 6,229 | 6,704 | 29,235 | 32,844 | ||||||||||||
| Agency commissions | 2,565 | 2,425 | 9,561 | 11,064 | ||||||||||||
| Intersegment revenue | (299 | ) | (197 | ) | (915 | ) | (1,004 | ) | ||||||||
| Net commissions and fees | 8,495 | 8,932 | 37,881 | 42,904 | ||||||||||||
| Intercompany commissions and fees | 23,614 | 20,683 | 81,761 | 62,667 | ||||||||||||
| Gross commissions and fees | $ | 32,109 | $ | 29,615 | $ | 119,642 | $ | 105,571 | ||||||||
| Fee-for-service pre-tax income, excluding amortization | $ | 2,093 | $ | 1,528 | $ | 4,812 | $ | 11,245 | ||||||||
| Pre-tax margin on fee-for-service income | 6.5 | % | 5.2 | % | 4.0 | % | 10.7 | % | ||||||||
| (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 TWELVE MONTHS | |||||||||||||||
| ENDED DECEMBER 31, | ENDED DECEMBER 31, | |||||||||||||||
| (In Thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Net earned premiums | $ | 146,025 | $ | 122,425 | $ | 539,602 | $ | 369,721 | ||||||||
| Less: Unconsolidated net loss and LAE | 88,470 | 72,803 | 327,426 | 229,181 | ||||||||||||
| Unconsolidated policy acquisition and other underwriting expenses | 49,210 | 39,579 | 172,137 | 115,720 | ||||||||||||
| Underwriting income | $ | 8,345 | $ | 10,043 | $ | 40,039 | $ | 24,820 | ||||||||
| GAAP combined ratio as reported | 94.3 | % | 91.8 | % | 92.6 | % | 93.3 | % | ||||||||
| Specialty insurance operations pre-tax income | $ | 28,559 | $ | 19,739 | $ | 97,346 | $ | 60,125 | ||||||||
| Less: Underwriting income | 8,345 | 10,043 | 40,039 | 24,820 | ||||||||||||
| Net investment income and capital losses | 16,330 | 7,982 | 50,141 | 25,202 | ||||||||||||
| Equity earnings of affiliates (1) | 1,344 | 0 | 1,344 | 0 | ||||||||||||
| Fee-based operations pre-tax income | 2,540 | 1,714 | 5,822 | 10,103 | ||||||||||||
| Agency operations pre-tax (loss) income | (447 | ) | (186 | ) | (1,010 | ) | 1,142 | |||||||||
| Total fee-for-service pre-tax income | $ | 2,093 | $ | 1,528 | $ | 4,812 | $ | 11,245 | ||||||||
| GAAP expense ratio as reported | 33.7 | % | 32.3 | % | 31.9 | % | 31.3 | % | ||||||||
| Adjustment to include pre-tax income from total fee-for-service income (2) | 1.4 | % | 1.2 | % | 0.9 | % | 3.0 | % | ||||||||
| GAAP expense ratio as adjusted (3) | 32.3 | % | 31.1 | % | 31.0 | % | 28.3 | % | ||||||||
| GAAP loss and LAE ratio as reported | 60.6 | % | 59.5 | % | 60.7 | % | 62.0 | % | ||||||||
| GAAP combined ratio as adjusted | 92.9 | % | 90.6 | % | 91.7 | % | 90.3 | % | ||||||||
Reconciliation of consolidated pre-tax income: | ||||||||||||||||
| Specialty insurance operations pre-tax income: | ||||||||||||||||
| Fee-based operations pre-tax income | $ | 2,540 | $ | 1,714 | $ | 5,822 | $ | 10,103 | ||||||||
| Underwriting income | 8,345 | 10,043 | 40,039 | 24,820 | ||||||||||||
| Net investment income and capital losses | 16,330 | 7,982 | 50,141 | 25,202 | ||||||||||||
| Equity earnings of affiliates (1) | 1,344 | 0 | 1,344 | 0 | ||||||||||||
| Total specialty insurance operations pre-tax income | 28,559 | 19,739 | 97,346 | 60,125 | ||||||||||||
| Agency operations pre-tax (loss) income | (447 | ) | (186 | ) | (1,010 | ) | 1,142 | |||||||||
| Less: Holding company expenses | 1,596 | 986 | 5,506 | 3,481 | ||||||||||||
| Interest expense | 2,535 | 2,783 | 10,596 | 7,681 | ||||||||||||
| Amortization expense | 1,431 | 1,665 | 5,781 | 6,310 | ||||||||||||
| Equity earnings of affiliates (1) | 1,344 | 0 | 1,344 | 0 | ||||||||||||
| Consolidated pre-tax income | $ | 21,206 | $ | 14,119 | $ | 73,109 | $ | 43,795 | ||||||||
| (1) | For segment reporting purposes, equity earnings of affiliates is shown gross of tax. Equity earnings of affiliates relates to the Company’s proportionate share of its investment in an insurance company, which management considers to be consistent with its specialty insurance operations and, therefore, have included the respective earnings of this affiliate within this segment. | |
| (2) | 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. | |
| (3) | 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
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION
UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION
| (In Thousands, Except Share & Per Share Data) | 2006A | 2007A | Q108A | Q208A | Q308A | Q408A | 2008A | Q109A | Q209A | Q309A | Q409A | 2009A | ||||||||||||||||||||||||||||||||||||
SUMMARY DATA | ||||||||||||||||||||||||||||||||||||||||||||||||
| Gross written premiums | $ | 330,872 | $ | 346,451 | $ | 90,468 | $ | 94,370 | $ | 134,418 | $ | 138,427 | $ | 457,683 | $ | 159,991 | $ | 156,891 | $ | 188,985 | $ | 182,820 | $ | 688,687 | ||||||||||||||||||||||||
| Net written premiums | 262,668 | 280,211 | 71,399 | 76,071 | 112,465 | 115,259 | 375,194 | 133,516 | 134,524 | 158,705 | 153,273 | 580,018 | ||||||||||||||||||||||||||||||||||||
INCOME STATEMENT | ||||||||||||||||||||||||||||||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net earned premiums | $ | 254,920 | $ | 268,197 | $ | 66,022 | $ | 77,031 | $ | 104,243 | $ | 122,425 | $ | 369,721 | $ | 129,038 | $ | 127,140 | $ | 137,399 | $ | 146,025 | $ | 539,602 | ||||||||||||||||||||||||
| Commissions and fees (net) | 41,172 | 45,988 | 12,031 | 9,632 | 12,309 | 8,932 | 42,904 | 10,237 | 8,396 | 10,753 | 8,495 | 37,881 | ||||||||||||||||||||||||||||||||||||
| Net investment income | 22,075 | 26,400 | 7,148 | 6,917 | 10,622 | 11,937 | 36,624 | 12,342 | 12,397 | 12,764 | 12,863 | 50,366 | ||||||||||||||||||||||||||||||||||||
| Net realized gains (losses) | 69 | 150 | (31 | ) | (146 | ) | (7,290 | ) | (3,955 | ) | (11,422 | ) | (1,992 | ) | (958 | ) | (742 | ) | 3,467 | (225 | ) | |||||||||||||||||||||||||||
Total Revenues | 318,236 | 340,735 | 85,170 | 93,434 | 119,884 | 139,339 | 437,827 | 149,625 | 146,975 | 160,174 | 170,850 | 627,624 | ||||||||||||||||||||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net losses & loss adjustment expenses | 146,293 | 150,969 | 37,661 | 43,542 | 63,932 | 67,750 | 212,885 | 69,787 | 70,464 | 83,553 | 83,283 | 307,087 | ||||||||||||||||||||||||||||||||||||
| Policy acquisition and other underwriting expenses | 50,479 | 53,717 | 13,147 | 12,716 | 19,470 | 23,961 | 69,294 | 23,969 | 27,139 | 28,824 | 30,783 | 110,715 | ||||||||||||||||||||||||||||||||||||
| Other administrative expenses | 28,824 | 32,269 | 8,832 | 7,960 | 8,055 | 10,153 | 35,000 | 10,393 | 9,917 | 9,013 | 10,090 | 39,413 | ||||||||||||||||||||||||||||||||||||
| Salaries & employee benefits | 54,569 | 56,433 | 12,755 | 14,143 | 17,056 | 18,908 | 62,862 | 19,827 | 19,945 | 19,629 | 21,522 | 80,923 | ||||||||||||||||||||||||||||||||||||
| Amortization expense | 590 | 1,930 | 1,551 | 1,563 | 1,531 | 1,665 | 6,310 | 1,508 | 1,420 | 1,422 | 1,431 | 5,781 | ||||||||||||||||||||||||||||||||||||
| Interest expense | 5,976 | 6,030 | 1,311 | 1,254 | 2,333 | 2,783 | 7,681 | 2,782 | 2,659 | 2,620 | 2,535 | 10,596 | ||||||||||||||||||||||||||||||||||||
Total Expenses | 286,731 | 301,348 | 75,257 | 81,178 | 112,377 | 125,220 | 394,032 | 128,266 | 131,544 | 145,061 | 149,644 | 554,515 | ||||||||||||||||||||||||||||||||||||
INCOME BEFORE TAXES AND EQUITY EARNINGS | 31,505 | 39,387 | 9,913 | 12,256 | 7,507 | 14,119 | 43,795 | 21,359 | 15,431 | 15,113 | 21,206 | 73,109 | ||||||||||||||||||||||||||||||||||||
| Income tax expense | 9,599 | 11,726 | 2,911 | 3,879 | 3,338 | 6,539 | 16,667 | 7,869 | 3,823 | 4,156 | 5,473 | 21,321 | ||||||||||||||||||||||||||||||||||||
| Equity earnings of affiliates, net of tax | — | — | — | — | — | — | — | — | — | — | 874 | 874 | ||||||||||||||||||||||||||||||||||||
| Equity earnings of unconsolidated subsidiaries, net of tax | 128 | 331 | 56 | 61 | 26 | 126 | 269 | 50 | 37 | 62 | (161 | ) | (12 | ) | ||||||||||||||||||||||||||||||||||
NET INCOME | $ | 22,034 | $ | 27,992 | $ | 7,058 | $ | 8,438 | $ | 4,195 | $ | 7,706 | $ | 27,397 | $ | 13,540 | $ | 11,645 | $ | 11,019 | $ | 16,446 | $ | 52,650 | ||||||||||||||||||||||||
| Net realized capital gain (loss), net of tax | 45 | 97 | (20 | ) | (95 | ) | (6,743 | ) | (4,562 | ) | (11,420 | ) | (2,797 | ) | (287 | ) | (669 | ) | 2,888 | (865 | ) | |||||||||||||||||||||||||||
| OPERATING INCOME | $ | 21,989 | $ | 27,895 | $ | 7,078 | $ | 8,533 | $ | 10,938 | $ | 12,268 | $ | 38,817 | $ | 16,337 | $ | 11,932 | $ | 11,688 | $ | 13,558 | $ | 53,515 | ||||||||||||||||||||||||
| Amortization expense | 590 | 1,930 | 1,551 | 1,563 | 1,531 | 1,665 | 6,310 | 1,508 | 1,420 | 1,422 | 1,431 | 5,781 | ||||||||||||||||||||||||||||||||||||
| OPERATING INCOME, excluding amortization expense | $ | 22,579 | $ | 29,825 | $ | 8,629 | $ | 10,096 | $ | 12,469 | $ | 13,933 | $ | 45,127 | $ | 17,845 | $ | 13,352 | $ | 13,110 | $ | 14,989 | $ | 59,296 | ||||||||||||||||||||||||
| 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 | 57,563,263 | 56,884,403 | 57,413,391 | ||||||||||||||||||||||||||||||||||||
| 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 | 57,147,872 | 55,519,970 | 55,519,970 | ||||||||||||||||||||||||||||||||||||
PER SHARE DATA (Diluted) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 0.75 | $ | 0.85 | $ | 0.19 | $ | 0.23 | $ | 0.09 | $ | 0.13 | $ | 0.61 | $ | 0.24 | $ | 0.20 | $ | 0.19 | $ | 0.29 | $ | 0.92 | ||||||||||||||||||||||||
| Net realized gain (loss), net of tax | $ | 0.01 | $ | 0.01 | $ | — | $ | — | $ | (0.14 | ) | $ | (0.08 | ) | $ | (0.25 | ) | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | 0.05 | $ | (0.01 | ) | |||||||||||||||||
| Operating income | $ | 0.74 | $ | 0.84 | $ | 0.19 | $ | 0.23 | $ | 0.23 | $ | 0.21 | $ | 0.86 | $ | 0.28 | $ | 0.21 | $ | 0.20 | $ | 0.24 | $ | 0.93 | ||||||||||||||||||||||||
| Operating income, excluding amortization expense | $ | 0.76 | $ | 0.90 | $ | 0.23 | $ | 0.27 | $ | 0.26 | $ | 0.24 | $ | 1.00 | $ | 0.31 | $ | 0.23 | $ | 0.23 | $ | 0.26 | $ | 1.03 | ||||||||||||||||||||||||
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 | % | 64.5 | % | 60.6 | % | 60.7 | % | ||||||||||||||||||||||||
| GAAP Expense ratio | 34.5 | % | 34.2 | % | 32.2 | % | 29.3 | % | 31.0 | % | 32.3 | % | 31.3 | % | 29.7 | % | 33.3 | % | 30.8 | % | 33.7 | % | 31.9 | % | ||||||||||||||||||||||||
GAAP Combined ratio | 96.8 | % | 95.4 | % | 93.9 | % | 90.5 | % | 96.7 | % | 91.8 | % | 93.3 | % | 87.7 | % | 92.7 | % | 95.3 | % | 94.3 | % | 92.6 | % | ||||||||||||||||||||||||
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 | $ | 137,399 | $ | 146,025 | $ | 539,602 | ||||||||||||||||||||||||
| Consolidated net loss and LAE | $ | 146,293 | $ | 150,969 | $ | 37,661 | $ | 43,542 | $ | 63,932 | $ | 67,750 | $ | 212,885 | $ | 69,787 | $ | 70,464 | $ | 83,553 | $ | 83,283 | $ | 307,087 | ||||||||||||||||||||||||
| Intercompany claim fees | 12,553 | 13,058 | 3,106 | 3,629 | 4,508 | 5,053 | 16,296 | 5,108 | 4,995 | 5,049 | 5,187 | 20,339 | ||||||||||||||||||||||||||||||||||||
| Unconsolidated net loss and LAE | $ | 158,846 | $ | 164,027 | $ | 40,767 | $ | 47,171 | $ | 68,440 | $ | 72,803 | $ | 229,181 | $ | 74,895 | $ | 75,459 | $ | 88,602 | $ | 88,470 | $ | 327,426 | ||||||||||||||||||||||||
GAAP Net loss and LAE ratio | 62.3 | % | 61.2 | % | 61.7 | % | 61.2 | % | 65.7 | % | 59.5 | % | 62.0 | % | 58.0 | % | 59.4 | % | 64.5 | % | 60.6 | % | 60.7 | % | ||||||||||||||||||||||||
| 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 | $ | 28,824 | $ | 30,783 | $ | 110,715 | ||||||||||||||||||||||||
| Intercompany administrative and other underwriting fees | 37,442 | 37,890 | 8,088 | 9,832 | 12,821 | 15,630 | 46,371 | 14,366 | 15,201 | 13,428 | 18,427 | 61,422 | ||||||||||||||||||||||||||||||||||||
| 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 | $ | 42,252 | $ | 49,210 | $ | 172,137 | ||||||||||||||||||||||||
GAAP Expense ratio | 34.5 | % | 34.2 | % | 32.2 | % | 29.3 | % | 31.0 | % | 32.3 | % | 31.3 | % | 29.7 | % | 33.3 | % | 30.8 | % | 33.7 | % | 31.9 | % | ||||||||||||||||||||||||
GAAP Combined Ratio | 96.8 | % | 95.4 | % | 93.9 | % | 90.5 | % | 96.7 | % | 91.8 | % | 93.3 | % | 87.7 | % | 92.7 | % | 95.3 | % | 94.3 | % | 92.6 | % | ||||||||||||||||||||||||
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 | $ | 6,142 | $ | 3,659 | $ | 18,901 | ||||||||||||||||||||||||
| Claims fees | 8,776 | 9,025 | 2,180 | 2,305 | 2,304 | 2,090 | 8,879 | 1,966 | 2,006 | 1,802 | 1,654 | 7,428 | ||||||||||||||||||||||||||||||||||||
| Loss control fees | 2,216 | 2,151 | 510 | 625 | 467 | 467 | 2,069 | 489 | 520 | 493 | 473 | 1,975 | ||||||||||||||||||||||||||||||||||||
| Reinsurance brokerage | 735 | 929 | 296 | 98 | 177 | 157 | 728 | 65 | 90 | 333 | 443 | 931 | ||||||||||||||||||||||||||||||||||||
| Total managed programs | 30,441 | $ | 36,068 | 9,018 | 7,202 | 9,920 | 6,704 | $ | 32,844 | 7,798 | 6,437 | 8,770 | 6,229 | $ | 29,235 | |||||||||||||||||||||||||||||||||
| Agency commissions | 12,285 | 11,316 | 3,328 | 2,681 | 2,630 | 2,425 | 11,064 | 2,794 | 2,171 | 2,031 | 2,565 | 9,561 | ||||||||||||||||||||||||||||||||||||
| Intersegment commissions and fees | (1,554 | ) | (1,396 | ) | (315 | ) | (251 | ) | (241 | ) | (197 | ) | (1,004 | ) | (355 | ) | (212 | ) | (48 | ) | (299 | ) | (915 | ) | ||||||||||||||||||||||||
| Net Commissions and fees | 41,172 | 45,988 | 12,031 | 9,632 | 12,309 | 8,932 | 42,904 | 10,237 | 8,396 | 10,753 | 8,495 | 37,881 | ||||||||||||||||||||||||||||||||||||
| Intercompany commissions and fees | 49,995 | 50,948 | 11,194 | 13,461 | 17,329 | 20,683 | 62,667 | 19,474 | 20,196 | 18,477 | 23,614 | 81,761 | ||||||||||||||||||||||||||||||||||||
| Gross commissions and fees | $ | 91,167 | $ | 96,936 | $ | 23,225 | $ | 23,093 | $ | 29,638 | $ | 29,615 | $ | 105,571 | $ | 29,711 | $ | 28,592 | $ | 29,230 | $ | 32,109 | $ | 119,642 | ||||||||||||||||||||||||