Exhibit 99.1
MEADOWBROOK INSURANCE GROUP, INC.
(NYSE — MIG)
| | | |
CONTACT: | | Karen M. Spaun, SVP & Chief Financial Officer, (248) 204-8178 Holly Moltane, Director of External Financial Reporting, (248) 204-8590 |
MEADOWBROOK INSURANCE GROUP, INC.
REPORTS FIRST QUARTER NET INCOME UP 23.1%
•Net income of $6.9 million
•Earnings per diluted share of $0.23
•GAAP combined ratio 96.3%
SOUTHFIELD, MICHIGAN
April 30, 2007
First Quarter Overview:
Meadowbrook Insurance Group, Inc. (NYSE: MIG) reported $6.9 million in net income, or $0.23 per diluted share, for the quarter ended March 31, 2007. This is an increase of 23.1%, from net income of $5.6 million, or $0.19 per diluted share in 2006.
Highlights included:
| | • | | Quarterly earnings per diluted share increased to $0.23, compared to $0.19 in 2006. |
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| | • | | Annualized return on beginning equity was 13.7%. |
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| | • | | Book value per share increased to $7.02. |
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| | • | | GAAP combined ratio of 96.3%. |
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| | • | | A.M. Best Upgrade to “A-“ (Excellent). |
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| | • | | Acquisition of U.S. Specialty Underwriters, Inc. on April 16, 2007. |
Commenting on the results, Meadowbrook President and Chief Executive Officer, Robert S. Cubbin stated: “We continue to achieve favorable results due to our commitment to a strong underwriting discipline, controls over pricing, and adherence to our corporate underwriting guidelines. These results are further augmented by our ongoing focus on process improvements through technology and training. We remain committed to increasing return on equity by maintaining underwriting profitability and by growing our fee-based operations.”
First Quarter Results:
As noted above, net income for the quarter was $6.9 million, or $0.23 per diluted share, compared to net income of $5.6 million, or $0.19 per diluted share in 2006.
Revenues:
Revenues for the quarter ended March 31, 2007, increased 4.1%, or $3.3 million, to $82.9 million, compared to $79.6 million in 2006.
Net earned premiums increased $2.1 million, or 3.3%, to $65.2 million for the quarter, up from $63.1 million in 2006. This increase is the result of selective growth consistent with our corporate underwriting guidelines and our controls over price adequacy, and higher per loss retentions in our reinsurance treaties. Partially offsetting this increase was a reduction in residual market premiums that are assigned to us as a result of a decrease in the estimate of the overall size of the residual market.
Net commissions and fees increased in the quarter by 2.3%, to $11.6 million. This increase reflects growth in fees from our entry into the self-insured workers’ compensation market in Nevada, organic growth within existing programs, and profit sharing payments received. These increases were partially offset by lower commissions due to rate reductions on policy renewals in our retail agency division.
Net investment income increased by 17.5%, to $6.2 million for the quarter ended March 31, 2007. Average invested assets increased $76.3 million to $540.3 million. The increase in average invested assets reflects cash flow from continued favorable underwriting results and an incremental and anticipated increase in the duration of our reserves. There was a slight improvement in the average investment yield to 4.56% for the quarter ended March 31, 2007. The current pre-tax book yield was 4.36% and current after-tax book yield was 3.34%, compared to 3.15% for the comparable period in 2006. The duration of the investment portfolio was 4.0 years.
Gross written premiums were relatively flat at $89.5 million, compared to $89.0 million in the first quarter of 2006. Growth in our existing underwritten business grew by 5.4%, or $4.5 million. This growth included business from new programs implemented in 2006. This measure of growth excludes the reduction in residual market premiums as stated above.
Expenses:
Incurred losses were $36.6 million for the quarter ended March 31, 2007, down from $37.0 million in 2006. The loss and loss adjustment expense ratio for the quarter improved 2.4 percentage points to 61.3%, from 63.7% in 2006. This improvement primarily reflects the overall improved results within the workers’ compensation and professional liability lines of business, partially offset by less favorable results within the general liability and auto liability lines of business. The loss and loss adjustment expense ratio includes a prior year reserve release of $2.2 million, or 0.7% of $302.7 million of overall reserves at December 31, 2006. Mr. Cubbin stated: “We remain consistent and disciplined in our claims handling and reserve setting and believe our current business has been underwritten with attractive underwriting margins. These reserve releases are a direct result of favorable trends on loss settlements and lower frequency of loss.”
Policy acquisition and other underwriting expenses increased to $13.6 million for the quarter ended March 31, 2007, from $11.4 million in 2006. The GAAP expense ratio increased 2.5 percentage points to 35.0% this quarter, from 32.5% in 2006. The increase in our expense ratio is primarily due to a decrease in premiums and the consequent decrease in net fees received from one specific program in which we take limited risk. These fees are recorded as a ceding commission and, accordingly, offset the gross expense ratio; with a decrease in premium volume the ceding commission is lower. In addition, the expense ratio for the first quarter of 2006 reflected a reduction in insurance related assessments.
The GAAP combined ratio for the quarter was 96.3%, compared to 96.2% in 2006.
Salaries and employee benefits for the quarter ended March 31, 2007, increased slightly to $13.5 million, from $13.4 million in 2006. This increase primarily reflects a slight increase in staffing levels in comparison
to 2006, partially offset by a decrease in variable compensation. The decrease in variable compensation reflects the increase in our targeted return on equity in the plan.
Other administrative expenses decreased $421,000, or 5.3%, to $7.5 million, from $7.9 million for the comparable period in 2006. This decrease is primarily related to a decrease in policyholder dividends. In addition, there were various decreases in other general operating expenses in comparison to 2006.
Interest expense for the three months ended March 31, 2007, increased slightly to $1.5 million, from $1.4 million for the comparable period in 2006.
Other Matters:
Shareholders’ Equity:
Shareholders’ equity increased to $207.4 million, or $7.02 per common share, at March 31, 2007, compared to $201.7 million, or $6.93 per common share, at December 31, 2006. This $0.09 per share increase in book value reflects our quarterly earnings, offset by the increase in our shares outstanding as a result of the additional shares issued in conjunction with the payout of our long-term incentive plan for the 2004-2006 plan years. This award was paid in a combination of cash and stock. The expense associated with the long-term incentive plan was previously recorded in our income statement and in the diluted earnings per share. The calculation of book value is based upon actual shares outstanding as of the balance sheet date, as opposed to diluted weighted average shares outstanding. Accordingly, the dilution on the book value per common stock is only recognized upon the actual issuance of the shares. The investment portfolio is invested 99.7% in investment grade fixed income securities. We continue to invest in securities with minimum credit risk.
At March 31, 2007, our debt-to-equity ratio was 32.0%, compared to 31.2% at December 31, 2006. Excluding the interest only, 30-year debentures, the debt-to-equity ratio would be 5.0% at March 31, 2007, compared to 3.5% at December 31, 2006.
Statutory Surplus:
Statutory surplus increased to $168.5 million at March 31, 2007, from $165.1 million at December 31, 2006. The increase in statutory surplus was primarily due to statutory net income.
Income Taxes:
The effective federal tax rate for the quarter ended March 31, 2007 was 29.1%, compared to 31.2% in 2006. This decrease is the result of a shift towards increasing investments in tax-exempt securities. Our effective tax rate differs from the 35% statutory rate, primarily due to interest income from tax-exempt securities.
A.M. Best Upgrade:
As previously announced on April 3, 2007, A.M. Best Company raised the financial strength rating of our insurance company subsidiaries to “A-“ (Excellent). Commenting on the upgrade, Mr. Cubbin stated: “We have worked diligently towards achieving this upgrade and are very pleased with this decision. This upgrade validates our commitment to creating value through excellent underwriting and consistent operating performance and positions us to attract additional solid underwriting prospects. This upgrade also should result in systematic cost savings over the next twelve months as we recognize a reduction in fees associated with the shift of currently fronted business to our insurance company subsidiaries.”
Recent Acquisition:
As previously announced on April 17, 2007, Meadowbrook, Inc., acquired U.S. Specialty Underwriters, Inc. (“USSU”) for a purchase price of $23.0 million. USSU is a specialty program manager that produces fee based income by underwriting excess workers’ compensation coverage. USSU focuses on self-insureds within the healthcare industry and public schools. This acquisition provides future growth opportunity to fee-based operations. The growth within our fee-based operating cash flows will provide available capital to contribute to our insurance subsidiaries for future premium growth, select acquisitions, or other capital strategies. We anticipate annualized growth of 30% in our non-regulated earnings, before interest, taxes, depreciation and amortization as a result of this acquisition.
About Meadowbrook Insurance Group
A leader in the alternative risk market, Meadowbrook is a program-based risk management company, specializing in alternative risk management solutions for agents, brokers, 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 collectibility 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.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED BALANCE SHEET INFORMATION
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| | | MARCH 31, | | | DECEMBER 31, | |
| (In Thousands, Except Per Share Data) | | 2007 | | | 2006 | |
BALANCE SHEET DATA | | | | | | | | |
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ASSETS | | | | | | | | |
| Cash and invested assets | | $ | 553,015 | | | $ | 527,600 | |
| Premium & agents balances | | | 95,119 | | | | 85,578 | |
| Reinsurance recoverable | | | 206,364 | | | | 202,679 | |
| Deferred policy acquisition costs | | | 29,613 | | | | 27,902 | |
| Prepaid reinsurance premiums | | | 21,611 | | | | 20,425 | |
| Goodwill | | | 31,502 | | | | 31,502 | |
| Other assets | | | 72,128 | | | | 73,314 | |
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Total Assets | | $ | 1,009,352 | | | $ | 969,000 | |
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LIABILITIES | | | | | | | | |
| Loss and loss adjustment expense reserves | | $ | 514,833 | | | $ | 501,077 | |
| Unearned premium reserves | | | 152,528 | | | | 144,575 | |
| Debt | | | 10,400 | | | | 7,000 | |
| Debentures | | | 55,930 | | | | 55,930 | |
| Other liabilities | | | 68,282 | | | | 58,725 | |
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Total Liabilities | | | 801,973 | | | | 767,307 | |
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STOCKHOLDERS’ EQUITY | | | | | | | | |
| Common stockholders’ equity | | | 207,379 | | | | 201,693 | |
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Total Liabilities & Stockholders’ Equity | | $ | 1,009,352 | | | $ | 969,000 | |
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Book value per common share | | $ | 7.02 | | | $ | 6.93 | |
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Book value per common share excluding unrealized loss on available for sale securities, net of deferred taxes | | $ | 7.04 | | | $ | 6.96 | |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
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| | | FOR THE QUARTER | |
| (In Thousands, Except | | ENDED MARCH 31, | |
| Share & Per Share Data) | | 2007 | | | 2006 | |
SUMMARY DATA | | | | | | | | |
| Gross written premiums | | $ | 89,504 | | | $ | 89,010 | |
| Net written premiums | | | 71,972 | | | | 69,381 | |
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REVENUES | | | | | | | | |
| Net earned premiums | | $ | 65,204 | | | $ | 63,124 | |
| Commissions and fees (net) | | | 11,551 | | | | 11,289 | |
| Net investment income | | | 6,156 | | | | 5,239 | |
| Net realized losses | | | (6 | ) | | | (7 | ) |
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Total Revenues | | | 82,905 | | | | 79,645 | |
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EXPENSES | | | | | | | | |
Net losses & loss adjustment expenses(1) | | | 36,646 | | | | 37,043 | |
| Salaries & employee benefits | | | 13,532 | | | | 13,368 | |
| Interest expense | | | 1,488 | | | | 1,388 | |
Policy acquisition and other underwriting expenses(1) | | | 13,643 | | | | 11,424 | |
| Other administrative expenses | | | 7,537 | | | | 7,959 | |
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Total Expenses | | | 72,846 | | | | 71,182 | |
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INCOME BEFORE INCOME TAXES AND EQUITY EARNINGS | | | 10,059 | | | | 8,463 | |
| Income tax expense | | | 3,149 | | | | 2,847 | |
| Equity earnings of affiliates | | | 13 | | | | 9 | |
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NET INCOME | | $ | 6,923 | | | $ | 5,625 | |
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NET OPERATING INCOME(2) | | $ | 6,927 | | | $ | 5,629 | |
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Diluted earnings per common share | | | | | | | | |
| Net income | | $ | 0.23 | | | $ | 0.19 | |
| Net operating income | | $ | 0.23 | | | $ | 0.19 | |
Diluted weighted average common shares outstanding | | | 29,465,807 | | | | 29,452,693 | |
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GAAP ratios: | | | | | | | | |
| Loss & LAE ratio | | | 61.3 | % | | | 63.7 | % |
| Other underwriting expense ratio | | | 35.0 | % | | | 32.5 | % |
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| GAAP combined ratio | | | 96.3 | % | | | 96.2 | % |
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| (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. |
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| (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). |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
SUPPLEMENTAL INFORMATION
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| | | FOR THE QUARTER | |
| | | ENDED MARCH 31, | |
| (In Thousands) | | 2007 | | | 2006 | |
Unconsolidated GAAP data — Ratio Calculation Table: | | | | | | | | |
| Net earned premiums | | $ | 65,204 | | | $ | 63,124 | |
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Consolidated net loss and LAE(1) | | $ | 36,646 | | | $ | 37,043 | |
| Intercompany claim fees | | | 3,295 | | | | 3,158 | |
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| Unconsolidated net loss and LAE | | $ | 39,941 | | | $ | 40,201 | |
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| GAAP loss and LAE ratio | | | 61.3 | % | | | 63.7 | % |
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Consolidated policy acquisition and other underwriting expenses(1) | | $ | 13,643 | | | $ | 11,424 | |
| Intercompany administrative and other underwriting fees | | | 9,152 | | | | 9,117 | |
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| Unconsolidated policy acquisition and other underwriting expenses | | $ | 22,795 | | | $ | 20,541 | |
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| GAAP other underwriting expense ratio | | | 35.0 | % | | | 32.5 | % |
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| GAAP combined ratio | | | 96.3 | % | | | 96.2 | % |
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| | | 2007 | | | 2006 | |
Unconsolidated GAAP data — Gross Commissions and Fees: | | | | | | | | |
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| Managed programs: | | | | | | | | |
| Management fees | | $ | 4,875 | | | $ | 4,531 | |
| Claims fees | | | 2,204 | | | | 2,100 | |
| Loss control fees | | | 599 | | | | 538 | |
| Reinsurance brokerage | | | 333 | | | | 418 | |
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| Total managed programs | | | 8,011 | | | | 7,587 | |
| Agency commissions | | | 3,885 | | | | 4,261 | |
| Intersegment revenue | | | (345 | ) | | | (559 | ) |
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| Net commissions and fees | | | 11,551 | | | | 11,289 | |
| Intercompany commissions and fees | | | 12,447 | | | | 12,275 | |
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| Gross commissions and fees | | $ | 23,998 | | | $ | 23,564 | |
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| (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. |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
| | | | | | | | | |
| | | FOR THE QUARTER | |
| | | ENDED MARCH 31, | |
| (In Thousands) | | 2007 | | | 2006 | |
SUMMARY DATA | | | | | | | | |
| Net Income | | $ | 6,923 | | | $ | 5,625 | |
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| Insurance Company Subsidiaries | | | | | | | | |
| Net Income | | $ | 5,616 | | | $ | 4,583 | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | 441 | | | | 334 | |
| Changes in operating assets and liabilities | | | 11,283 | | | | 7,956 | |
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| Total adjustments | | | 11,724 | | | | 8,290 | |
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| Net cash provided by operating activities | | $ | 17,340 | | | $ | 12,873 | |
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| Fee-based Subsidiaries | | | | | | | | |
| Net income | | $ | 1,307 | | | $ | 1,042 | |
| Depreciation | | | 737 | | | | 543 | |
| Amortization | | | 144 | | | | 165 | |
| Interest | | | 1,488 | | | | 1,388 | |
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Net income, excluding interest, depreciation, and amortization (1) | | $ | 3,676 | | | $ | 3,138 | |
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| Adjustments to reconcile net income to net cash provided by operating activities | | | 1,573 | | | | 577 | |
| Changes in operating assets and liabilities | | | (3,068 | ) | | | (1,420 | ) |
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| Total adjustments | | | (1,495 | ) | | | (843 | ) |
| Depreciation | | | (737 | ) | | | (543 | ) |
| Amortization | | | (144 | ) | | | (165 | ) |
| Interest | | | (1,488 | ) | | | (1,388 | ) |
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| Net cash (used in) provided by operating activities | | $ | (188 | ) | | $ | 199 | |
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| Consolidated total adjustments | | | 10,229 | | | | 7,447 | |
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| Consolidated net cash provided by operating activities | | $ | 17,152 | | | $ | 13,072 | |
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| (1) | | While net income, excluding interest, depreciation, and amortization, is a non-GAAP disclosure, management believes this information is beneficial to reviewing the financial statements. |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In Thousands, Except |
| Share & Per Share Data) | | 2004A | | | 2005A | | | Q106A | | Q206A | | Q306A | | Q406A | | | 2006A | | | Q107A |
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SUMMARY DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross written premiums | | $ | 313,493 | | | | $ | 332,209 | | | | $ | 89,010 | | | $ | 74,261 | | | $ | 85,827 | | | $ | 81,774 | | | | $ | 330,872 | | | | $ | 89,504 | |
| Net written premiums | | | 233,961 | | | | | 258,134 | | | | | 69,381 | | | | 59,205 | | | | 68,905 | | | | 65,177 | | | | | 262,668 | | | | | 71,972 | |
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INCOME STATEMENT | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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REVENUES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net earned premiums | | $ | 214,493 | | | | $ | 249,959 | | | | $ | 63,124 | | | $ | 64,514 | | | $ | 63,688 | | | $ | 63,594 | | | | $ | 254,920 | | | | $ | 65,204 | |
| Commissions and fees (net) | | | 40,535 | | | | | 35,916 | | | | | 11,289 | | | | 10,698 | | | | 9,612 | | | | 9,573 | | | | | 41,172 | | | | | 11,551 | |
| Net investment income | | | 14,911 | | | | | 17,975 | | | | | 5,239 | | | | 5,380 | | | | 5,584 | | | | 5,872 | | | | | 22,075 | | | | | 6,156 | |
| Net realized gains (losses) | | | 339 | | | | | 167 | | | | | (7 | ) | | | 25 | | | | 28 | | | | 23 | | | | | 69 | | | | | (6 | ) |
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Total Revenues | | | 270,278 | | | | | 304,017 | | | | | 79,645 | | | | 80,617 | | | | 78,912 | | | | 79,062 | | | | | 318,236 | | | | | 82,905 | |
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EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net losses & loss adjustment expenses | | | 135,938 | | | | | 151,542 | | | | | 37,043 | | | | 37,146 | | | | 36,129 | | | | 35,975 | | | | | 146,293 | | | | | 36,646 | |
| Policy acquisition and other underwriting expenses | | | 33,424 | | | | | 44,439 | | | | | 11,424 | | | | 13,180 | | | | 13,059 | | | | 12,816 | | | | | 50,479 | | | | | 13,643 | |
| Other administrative expenses | | | 25,964 | | | | | 27,183 | | | | | 7,959 | | | | 7,275 | | | | 6,908 | | | | 7,272 | | | | | 29,414 | | | | | 7,537 | |
| Salaries & employee benefits | | | 52,297 | | | | | 51,331 | | | | | 13,368 | | | | 13,846 | | | | 14,183 | | | | 13,172 | | | | | 54,569 | | | | | 13,532 | |
| Interest expense | | | 2,281 | | | | | 3,856 | | | | | 1,388 | | | | 1,499 | | | | 1,558 | | | | 1,531 | | | | | 5,976 | | | | | 1,488 | |
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Total Expenses | | | 249,904 | | | | | 278,351 | | | | | 71,182 | | | | 72,946 | | | | 71,837 | | | | 70,766 | | | | | 286,731 | | | | | 72,846 | |
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INCOME BEFORE TAXES AND EQUITY EARNINGS | | | 20,374 | | | | | 25,666 | | | | | 8,463 | | | | 7,671 | | | | 7,075 | | | | 8,296 | | | | | 31,505 | | | | | 10,059 | |
| Income tax expense | | | 6,352 | | | | | 7,757 | | | | | 2,847 | | | | 2,312 | | | | 2,056 | | | | 2,384 | | | | | 9,599 | | | | | 3,149 | |
| Equity earnings of affiliates | | | 39 | | | | | 1 | | | | | 9 | | | | 16 | | | | 74 | | | | 29 | | | | | 128 | | | | | 13 | |
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NET INCOME | | $ | 14,061 | | | | $ | 17,910 | | | | $ | 5,625 | | | $ | 5,375 | | | $ | 5,093 | | | $ | 5,941 | | | | $ | 22,034 | | | | $ | 6,923 | |
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| Net realized capital gain (loss), net of tax | | | 224 | | | | | 109 | | | | | (4 | ) | | | 16 | | | | 18 | | | | 15 | | | | | 45 | | | | | (4 | ) |
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OPERATING INCOME | | $ | 13,837 | | | | $ | 17,801 | | | | $ | 5,629 | | | $ | 5,359 | | | $ | 5,075 | | | $ | 5,926 | | | | $ | 21,989 | | | | $ | 6,927 | |
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| Weighted average common shares outstanding | | | 29,420,508 | | | | | 29,653,067 | | | | | 29,452,693 | | | | 29,571,925 | | | | 29,498,596 | | | | 29,656,475 | | | | | 29,566,141 | | | | | 29,465,807 | |
| Shares O/S at end of the period | | | 29,074,832 | | | | | 28,672,009 | | | | | 28,814,544 | | | | 28,833,616 | | | | 29,048,146 | | | | 29,107,818 | | | | | 29,107,818 | | | | | 29,539,236 | |
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PER SHARE DATA (Diluted) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 0.48 | | | | $ | 0.60 | | | | $ | 0.19 | | | $ | 0.18 | | | $ | 0.17 | | | $ | 0.20 | | | | $ | 0.75 | | | | $ | 0.23 | |
| Net realized gain (loss), net of tax | | $ | 0.01 | | | | $ | — | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | $ | 0.01 | | | | $ | — | |
| Operating income | | $ | 0.47 | | | | $ | 0.60 | | | | $ | 0.19 | | | $ | 0.18 | | | $ | 0.17 | | | $ | 0.20 | | | | $ | 0.74 | | | | $ | 0.23 | |
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OPERATING RATIO ANALYSIS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| GAAP Loss & LAE ratio | | | 67.9 | % | | | | 65.2 | % | | | | 63.7 | % | | | 62.4 | % | | | 61.7 | % | | | 61.5 | % | | | | 62.3 | % | | | | 61.3 | % |
| GAAP Expense ratio | | | 33.5 | % | | | | 33.5 | % | | | | 32.5 | % | | | 34.8 | % | | | 35.5 | % | | | 35.1 | % | | | | 34.5 | % | | | | 35.0 | % |
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GAAP Combined ratio | | | 101.4 | % | | | | 98.7 | % | | | | 96.2 | % | | | 97.2 | % | | | 97.2 | % | | | 96.6 | % | | | | 96.8 | % | | | | 96.3 | % |
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Unconsolidated GAAP data — Ratio Calculation Table: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Net earned premiums | | $ | 214,493 | | | | $ | 249,959 | | | | $ | 63,124 | | | $ | 64,514 | | | $ | 63,688 | | | $ | 63,594 | | | | $ | 254,920 | | | | $ | 65,204 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated net loss and LAE | | $ | 135,938 | | | | $ | 151,542 | | | | $ | 37,043 | | | $ | 37,146 | | | $ | 36,129 | | | $ | 35,975 | | | | $ | 146,293 | | | | $ | 36,646 | |
| Intercompany claim fees | | | 9,691 | | | | | 11,523 | | | | | 3,158 | | | | 3,115 | | | | 3,145 | | | | 3,135 | | | | | 12,553 | | | | | 3,295 | |
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| Unconsolidated net loss and LAE | | $ | 145,629 | | | | $ | 163,065 | | | | $ | 40,201 | | | $ | 40,261 | | | $ | 39,274 | | | $ | 39,110 | | | | $ | 158,846 | | | | $ | 39,941 | |
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GAAP Net loss and LAE ratio | | | 67.9 | % | | | | 65.2 | % | | | | 63.7 | % | | | 62.4 | % | | | 61.7 | % | | | 61.5 | % | | | | 62.3 | % | | | | 61.3 | % |
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| Consolidated Policy acquisition and other underwriting expenses | | $ | 33,424 | | | | $ | 44,439 | | | | $ | 11,424 | | | $ | 13,180 | | | $ | 13,059 | | | $ | 12,816 | | | | $ | 50,479 | | | | $ | 13,643 | |
| Intercompany administrative and other underwriting fees | | | 38,359 | | | | | 39,231 | | | | | 9,117 | | | | 9,291 | | | | 9,522 | | | | 9,512 | | | | | 37,442 | | | | | 9,152 | |
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| Unconsolidated policy acquisition and other underwriting expenses | | $ | 71,783 | | | | $ | 83,670 | | | | $ | 20,541 | | | $ | 22,471 | | | $ | 22,581 | | | $ | 22,328 | | | | $ | 87,921 | | | | $ | 22,795 | |
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GAAP Expense ratio | | | 33.5 | % | | | | 33.5 | % | | | | 32.5 | % | | | 34.8 | % | | | 35.5 | % | | | 35.1 | % | | | | 34.5 | % | | | | 35.0 | % |
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GAAP Combined Ratio | | | 101.4 | % | | | | 98.7 | % | | | | 96.2 | % | | | 97.2 | % | | | 97.2 | % | | | 96.6 | % | | | | 96.8 | % | | | | 96.3 | % |
Unconsolidated Commissions & Fees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Managed programs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Management fees | | $ | 16,253 | | | | $ | 16,741 | | �� | | $ | 4,531 | | | $ | 5,090 | | | | 4,699 | | | | 4,394 | | | | $ | 18,714 | | | | $ | 4,875 | |
| Claims fees | | | 13,207 | | | | | 7,113 | | | | | 2,100 | | | | 2,351 | | | | 2,295 | | | | 2,030 | | | | | 8,776 | | | | | 2,204 | |
| Loss control fees | | | 2,174 | | | | | 2,260 | | | | | 538 | | | | 593 | | | | 552 | | | | 533 | | | | | 2,216 | | | | | 599 | |
| Reinsurance brokerage | | | 420 | | | | | 660 | | | | | 418 | | | | 143 | | | | 79 | | | | 95 | | | | | 735 | | | | | 333 | |
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| Total managed programs | | | 32,054 | | | | | 26,774 | | | | | 7,587 | | | | 8,177 | | | | 7,625 | | | | 7,052 | | | | | 30,441 | | | | | 8,011 | |
| Agency commissions | | | 9,805 | | | | | 11,304 | | | | | 4,261 | | | | 2,878 | | | | 2,401 | | | | 2,745 | | | | | 12,285 | | | | | 3,885 | |
| Intersegment commissions and fees | | | (1,324 | ) | | | | (2,162 | ) | | | | (559 | ) | | | (357 | ) | | | (414 | ) | | | (224 | ) | | | | (1,554 | ) | | | | (345 | ) |
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| Net Commissions and fees | | | 40,535 | | | | | 35,916 | | | | | 11,289 | | | | 10,698 | | | | 9,612 | | | | 9,573 | | | | | 41,172 | | | | | 11,551 | |
| Intercompany commissions and fees | | | 48,050 | | | | | 50,754 | | | | | 12,275 | | | | 12,406 | | | | 12,667 | | | | 12,647 | | | | | 49,995 | | | | | 12,447 | |
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| Gross commissions and fees | | $ | 88,585 | | | | $ | 86,670 | | | | $ | 23,564 | | | $ | 23,104 | | | $ | 22,279 | | | $ | 22,220 | | | | $ | 91,167 | | | | $ | 23,998 | |
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MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
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| (In Thousands) | | 2004A | | | 2005A | | | Q106A | | | Q206A | | | Q306A | | | Q406A | | | 2006A | | | Q107A |
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SUMMARY DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income | | $ | 14,061 | | | | $ | 17,910 | | | | $ | 5,625 | | | | $ | 5,375 | | | | $ | 5,093 | | | | $ | 5,941 | | | | $ | 22,034 | | | | $ | 6,923 | |
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| Insurance Company Subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income | | $ | 6,973 | | | | $ | 13,508 | | | | $ | 4,583 | | | | $ | 4,952 | | | | $ | 4,966 | | | | $ | 5,211 | | | | $ | 19,712 | | | | $ | 5,616 | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | 6,866 | | | | | 3,003 | | | | | 334 | | | | | 723 | | | | | 1,383 | | | | | 593 | | | | | 3,033 | | | | | 441 | |
| Changes in operating assets and liabilities | | | 48,270 | | | | | 59,784 | | | | | 7,956 | | | | | 740 | | | | | 17,596 | | | | | 20,623 | | | | | 46,915 | | | | | 11,283 | |
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| Total adjustments | | | 55,136 | | | | | 62,787 | | | | | 8,290 | | | | | 1,463 | | | | | 18,979 | | | | | 21,216 | | | | | 49,948 | | | | | 11,724 | |
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| Net cash provided by operating activities | | $ | 62,109 | | | | $ | 76,295 | | | | $ | 12,873 | | | | $ | 6,415 | | | | $ | 23,945 | | | | $ | 26,427 | | | | $ | 69,660 | | | | $ | 17,340 | |
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| Fee-based Subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 7,088 | | | | $ | 4,402 | | | | $ | 1,042 | | | | $ | 423 | | | | $ | 127 | | | | $ | 730 | | | | $ | 2,322 | | | | $ | 1,307 | |
| Depreciation | | | 1,591 | | | | | 2,277 | | | | | 543 | | | | | 578 | | | | | 640 | | | | | 792 | | | | | 2,553 | | | | | 737 | |
| Amortization | | | 376 | | | | | 373 | | | | | 165 | | | | | 142 | | | | | 141 | | | | | 142 | | | | | 590 | | | | | 144 | |
| Interest | | | 2,535 | | | | | 3,856 | | | | | 1,388 | | | | | 1,499 | | | | | 1,558 | | | | | 1,531 | | | | | 5,976 | | | | | 1,488 | |
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Net income, excluding interest, depreciation, and amortization | | $ | 11,590 | | | | $ | 10,908 | | | | $ | 3,138 | | | | $ | 2,642 | | | | $ | 2,466 | | | | $ | 3,195 | | | | $ | 11,441 | | | | $ | 3,676 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | (1,063 | ) | | | | 4,444 | | | | | 577 | | | | | 1,052 | | | | | 203 | | | | | 1,329 | | | | | 3,161 | | | | | 1,573 | |
| Changes in operating assets and liabilities | | | 2,540 | | | | | (3,194 | ) | | | | (1,420 | ) | | | | (3,913 | ) | | | | 1,652 | | | | | 2,829 | | | | | (852 | ) | | | | (3,068 | ) |
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| Total adjustments | | | 1,477 | | | | | 1,250 | | | | | (843 | ) | | | | (2,861 | ) | | | | 1,855 | | | | | 4,158 | | | | | 2,309 | | | | | (1,495 | ) |
| Depreciation | | | (1,591 | ) | | | | (2,277 | ) | | | | (543 | ) | | | | (578 | ) | | | | (640 | ) | | | | (792 | ) | | | | (2,553 | ) | | | | (737 | ) |
| Amortization | | | (376 | ) | | | | (373 | ) | | | | (165 | ) | | | | (142 | ) | | | | (141 | ) | | | | (142 | ) | | | | (590 | ) | | | | (144 | ) |
| Interest | | | (2,535 | ) | | | | (3,856 | ) | | | | (1,388 | ) | | | | (1,499 | ) | | | | (1,558 | ) | | | | (1,531 | ) | | | | (5,976 | ) | | | | (1,488 | ) |
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| Net cash provided by (used in )operating activities | | $ | 8,565 | | | | $ | 5,652 | | | | $ | 199 | | | | $ | (2,438 | ) | | | $ | 1,982 | | | | $ | 4,888 | | | | $ | 4,631 | | | | $ | (188 | ) |
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| Consolidated total adjustments | | | 56,613 | | | | | 64,037 | | | | | 7,447 | | | | | (1,398 | ) | | | | 20,834 | | | | | 25,374 | | | | | 52,257 | | | | | 10,229 | |
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| Consolidated net cash provided by operating activities | | $ | 70,674 | | | | $ | 81,947 | | | | $ | 13,072 | | | | $ | 3,977 | | | | $ | 25,927 | | | | $ | 31,315 | | | | $ | 74,291 | | | | $ | 17,152 | |
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