Exhibit 99.1
MEADOWBROOK INSURANCE GROUP, INC.
(NYSE — MIG)
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| 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 RESULTS
•Net Operating Income of $0.21 per diluted share
•Net operating income up 67.9% to $12.3 million
•Net income of $0.13 per diluted share
•Combined Ratio of 91.8%
•Gross Written Premium up 56.9%
SOUTHFIELD, MICHIGAN
February 17, 2009
Fourth Quarter Highlights and Overview:
| | • | | Net operating income, a non-GAAP measure, was $12.3 million, or $0.21 per diluted share in the fourth quarter, up from $7.3 million, or $0.20 per diluted share. |
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| | • | | Net operating income, excluding amortization expense per diluted share, a non-GAAP measure, was $0.24 compared to $0.21 per diluted share for the fourth quarter of 2007 |
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| | • | | Combined ratio improvement to 91.8% compared to 94.0% for the fourth quarter of 2007 |
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| | • | | Net income of $7.7 million, or $0.13 per diluted share |
Meadowbrook Insurance Group, Inc. (NYSE: MIG) reported net operating income, a non-GAAP measure, of $12.3 million or $0.21 per diluted share up from $7.3 million or $0.20 per diluted share in 2007. Net income was $7.7 million, or $0.13 per diluted share for the quarter ended December 31, 2008 compared to $7.3 million or $0.20 per diluted share in 2007. Fourth quarter net income includes after-tax realized losses of $4.6 million, or $0.08 per share, primarily due to the other than temporary impairment of certain preferred stocks, corporate bonds and asset-backed and mortgage-backed securities. This impairment represents less than one percent of invested assets of $1.1 billion.
The 2008 fourth quarter GAAP combined ratio was 91.8% compared to 94.0% for the fourth quarter of 2007. The loss ratio for the fourth quarter of 2008 was 59.5%, which was consistent with the fourth quarter of 2007. The expense ratio was 32.3% compared to 34.5% in 2007. The expense ratio improvement is due primarily to the reduction of insurance related assessments.
Commenting on the results, Meadowbrook President and Chief Executive Officer Robert S. Cubbin stated: “We are pleased with our net operating results for the fourth quarter, particularly our net operating income, excluding amortization of $13.9 million, or $0.24 per diluted share. The improvement in our combined ratio is due to our consistent underwriting discipline and favorable development on prior accident year loss reserves. Although we had an after-tax realized loss of $4.6 million on our investment portfolio during the fourth quarter, we continue to be conservatively positioned with a duration of 4.5 years and an average
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S&P rating of AA+ on our fixed income portfolio. For the fourth quarter, growth in gross written premium was 56.9%, which includes $42.4 million from ProCentury. We continue to work on opportunities to realize revenue enhancing synergies from the merger. We have been pleased with how well the post merger integration has developed.”
Year-to-Date Highlights and Overview:
| | • | | Net operating income of $38.8 million, or $0.86 per diluted share compared to $27.9 million, or $0.84 per diluted share for 2007 |
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| | • | | Net operating income, excluding amortization per diluted share of $1.00 compared to $0.90 per diluted share for 2007 |
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| | • | | Combined ratio improvement to 93.3% compared to 95.4% for 2007 |
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| | • | | Completed $227.2 million merger with ProCentury Corporation |
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| | • | | Completed the second half of the USSU acquisition |
Net operating income for the year ended December 31, 2008 was $38.8 million, or $0.86 per diluted share and net income was $27.4 million, or $0.61 per diluted share. Net income for the year ended December 31, 2008 includes:
| | • | | After-tax realized losses of $11.4 million, or $0.25 per diluted share, |
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| | • | | Net losses related to Hurricanes Gustav and Ike of $5.4 million or $0.12 per diluted share, and |
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| | • | | Amortization expense of $6.3 million, or $0.14 per diluted share. |
Net operating income, excluding amortization for the full year, was $45.1 million or $1.00 per diluted share.
The year ended December 31, 2008 GAAP combined ratio was 93.3%, compared to 95.4% for the same period in 2007. The loss ratio for the year ended December 31, 2008 was 62.0%, compared to 61.2% for the same period in 2007. The 2008 loss ratio includes 2.3 percentage points related to catastrophe losses. The expense ratio for the year ended December 31, 2008 was 31.3%, compared to 34.2% for the same period in 2007. The expense ratio improvement is the result of the elimination of fronting fees in 2008, our ability to leverage fixed costs across a larger premium base and the reduction of insurance related assessments.
Other Matters
ProCentury’s Results:
Meadowbrook’s results for the three months ending December 31, 2008 include three months of ProCentury’s results. This is the first full quarter we have reported combined results. Meadowbrook’s results for the twelve months ended December 31, 2008 include only five months of ProCentury’s results.
Shareholders’ Equity:
At December 31, 2008, shareholders’ equity was $438.2 million, or $7.64 per common share, compared to $301.9 million, or $8.16 per common share, at December 31, 2007. Common shares outstanding at December 31, 2008 were 57,341,989 compared to 36,996,287 at December 31, 2007. 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.
At December 31, 2008, our debt-to-equity ratio was 32.2%, compared to 18.5% at December 31, 2007. Our debt to equity ratio excluding debentures was 13.8% at December 31, 2008, compared to zero at December 31, 2007.
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Dividend and Share Repurchases:
On February 13, 2009, our Board of Directors declared a quarterly dividend of $0.02 per share payable on March 30, 2009, to shareholders of record as of March 13, 2009.
During the fourth quarter of 2008, we repurchased 300,000 shares at an average cost of $4.70 per share. The total repurchase authorization is 3,000,000 shares, and in 2008 we repurchased a total of 800,000 shares.
Investment Portfolio:
For the fourth quarter our pre-tax book yield was 4.3%, down from 4.6% in the fourth quarter of 2007. The duration of the portfolio was 4.5 years at December 31, 2008 compared to 4.3 years at December 31, 2007. The average pre-tax book yield on purchases during the fourth quarter of 2008 was 4.8%.
2009 Expectations
The range of full year 2009 guidance remains unchanged. We expect net operating income in a range of $46 million to $52 million, which consists of gross written premium in a range of $725 million to $740 million and a combined ratio in a range of 95.0% to 97.0%, which does not contemplate favorable or unfavorable development on prior year accident reserves. Commenting on the 2009 outlook Mr. Cubbin stated: “We are positioned to take advantage of price stabilization and market firming if and when it happens, and we remain focused on expense management. We have a high quality, fixed income investment portfolio that has the potential to generate investment income in a range of $49 million to $51 million in 2009. Our observations and experience over the past three months shows downward pressure on the book yield of our investment portfolio as reinvestment rates on high quality government and corporate bonds are down from prior years. Therefore, getting to the high end of our guidance range may prove to be more difficult than previously expected. If these conditions persist in the investment market, and yields remain under pressure, it is more likely that our annual earnings will be more towards the lower end of our guidance range.”
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 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.
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MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED BALANCE SHEET INFORMATION
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| | | DECEMBER 31, | | | DECEMBER 31, | |
| (In Thousands, Except Per Share Data) | | 2008 | | | 2007 | |
BALANCE SHEET DATA | | | | | | | | |
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ASSETS | | | | | | | | |
| Cash and invested assets | | $ | 1,085,648 | | | $ | 651,601 | |
| Premium & agents balances | | | 117,675 | | | | 87,341 | |
| Reinsurance recoverable | | | 268,703 | | | | 199,514 | |
| Deferred policy acquisition costs | | | 56,454 | | | | 26,926 | |
| Prepaid reinsurance premiums | | | 31,885 | | | | 17,763 | |
| Goodwill | | | 119,028 | | | | 43,497 | |
| Other assets | | | 134,523 | | | | 87,324 | |
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Total Assets | | $ | 1,813,916 | | | $ | 1,113,966 | |
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LIABILITIES | | | | | | | | |
| Loss and loss adjustment expense reserves | | $ | 885,697 | | | $ | 540,002 | |
| Unearned premium reserves | | | 282,086 | | | | 153,927 | |
| Debt | | | 60,250 | | | | — | |
| Debentures | | | 80,930 | | | | 55,930 | |
| Other liabilities | | | 66,783 | | | | 62,213 | |
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Total Liabilities | | | 1,375,746 | | | | 812,072 | |
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STOCKHOLDERS’ EQUITY | | | | | | | | |
| Common stockholders’ equity | | | 438,170 | | | | 301,894 | |
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Total Liabilities & Stockholders’ Equity | | $ | 1,813,916 | | | $ | 1,113,966 | |
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Book value per common share | | $ | 7.64 | | | $ | 8.16 | |
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Book value per common share excluding unrealized gain/loss, net of deferred taxes | | $ | 7.70 | | | $ | 8.07 | |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
| | | | | | | | | | | | | | | | | |
| | | FOR THE QUARTER | | | FOR THE TWELVE MONTHS | |
| (In Thousands, Except | | ENDED DECEMBER 31, | | | ENDED DECEMBER 31, | |
| Share & Per Share Data) | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
SUMMARY DATA | | | | | | | | | | | | | | | | |
| Gross written premiums | | $ | 138,427 | | | $ | 88,218 | | | $ | 457,683 | | | $ | 346,451 | |
| Net written premiums | | | 115,259 | | | | 69,366 | | | | 375,194 | | | | 280,211 | |
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REVENUES | | | | | | | | | | | | | | | | |
| Net earned premiums | | $ | 122,425 | | | $ | 68,465 | | | $ | 369,721 | | | $ | 268,197 | |
| Net commissions and fees | | | 8,932 | | | | 10,375 | | | | 42,904 | | | | 45,988 | |
| Net investment income | | | 11,937 | | | | 7,227 | | | | 36,624 | | | | 26,400 | |
| Net realized (losses) gains | | | (3,955 | ) | | | 36 | | | | (11,422 | ) | | | 150 | |
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Total Revenues | | | 139,339 | | | | 86,103 | | | | 437,827 | | | | 340,735 | |
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EXPENSES | | | | | | | | | | | | | | | | |
Net losses & loss adjustment expenses(1) | | | 67,750 | | | | 37,601 | | | | 212,885 | | | | 150,969 | |
| Salaries & employee benefits | | | 18,908 | | | | 14,251 | | | | 62,862 | | | | 56,433 | |
| Interest expense | | | 2,783 | | | | 1,400 | | | | 7,681 | | | | 6,030 | |
Policy acquisition and other underwriting expenses(1) | | | 23,961 | | | | 13,978 | | | | 69,294 | | | | 53,717 | |
| Amortization expense | | | 1,665 | | | | 621 | | | | 6,310 | | | | 1,930 | |
| Other administrative expenses | | | 10,153 | | | | 8,087 | | | | 35,000 | | | | 32,269 | |
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Total Expenses | | | 125,220 | | | | 75,938 | | | | 394,032 | | | | 301,348 | |
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INCOME BEFORE INCOME TAXES AND EQUITY EARNINGS | | | 14,119 | | | | 10,165 | | | | 43,795 | | | | 39,387 | |
| Income tax expense | | | 6,539 | | | | 2,897 | | | | 16,667 | | | | 11,726 | |
| Equity earnings of affiliates | | | 126 | | | | 60 | | | | 269 | | | | 331 | |
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NET INCOME | | $ | 7,706 | | | $ | 7,328 | | | $ | 27,397 | | | $ | 27,992 | |
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NET OPERATING INCOME(2) | | $ | 12,268 | | | $ | 7,305 | | | $ | 38,817 | | | $ | 27,895 | |
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| Amortization expense | | | 1,665 | | | | 621 | | | | 6,310 | | | | 1,930 | |
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NET OPERATING INCOME, excluding amortization expense(3) | | $ | 13,933 | | | $ | 7,926 | | | $ | 45,127 | | | $ | 29,825 | |
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Diluted earnings per common share | | | | | | | | | | | | | | | | |
Net income | | $ | 0.13 | | | $ | 0.20 | | | $ | 0.61 | | | $ | 0.85 | |
| Net operating income | | $ | 0.21 | | | $ | 0.20 | | | $ | 0.86 | | | $ | 0.84 | |
| Net operating income, excluding amortization expense | | $ | 0.24 | | | $ | 0.21 | | | $ | 1.00 | | | $ | 0.90 | |
Diluted weighted average common shares outstanding | | | 57,780,625 | | | | 37,074,978 | | | | 44,995,712 | | | | 33,101,965 | |
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GAAP ratios: | | | | | | | | | | | | | | | | |
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| Loss & LAE ratio | | | 59.5 | % | | | 59.5 | % | | | 62.0 | % | | | 61.2 | % |
| Other underwriting expense ratio | | | 32.3 | % | | | 34.5 | % | | | 31.3 | % | | | 34.2 | % |
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| GAAP combined ratio | | | 91.8 | % | | | 94.0 | % | | | 93.3 | % | | | 95.4 | % |
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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). |
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| (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. |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED UNCONSOLIDATED GAAP DATA
| | | | | | | | | | | | | | | | | | |
| | | FOR THE QUARTER | | | | FOR THE TWELVE MONTHS | |
| | | ENDED DECEMBER 31, | | | | ENDED DECEMBER 31, | |
| (In Thousands) | | 2008 | | | 2007 | | | | 2008 | | | 2007 | |
Unconsolidated GAAP data — Ratio Calculation Table: | | | | | | | | | | | | | | | | | |
| Net earned premiums | | $ | 122,425 | | | $ | 68,465 | | | | $ | 369,721 | | | $ | 268,197 | |
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Consolidated net loss and LAE(1) | | $ | 67,750 | | | $ | 37,601 | | | | $ | 212,885 | | | $ | 150,969 | |
| Intercompany claim fees | | | 5,053 | | | | 3,113 | | | | | 16,296 | | | | 13,058 | |
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| Unconsolidated net loss and LAE | | $ | 72,803 | | | $ | 40,714 | | | | $ | 229,181 | | | $ | 164,027 | |
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| GAAP loss and LAE ratio | | | 59.5 | % | | | 59.5 | % | | | | 62.0 | % | | | 61.2 | % |
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Consolidated policy acquisition and other underwriting expenses(1) | | $ | 23,949 | | | $ | 13,978 | | | | $ | 69,349 | | | $ | 53,717 | |
| Intercompany administrative and other underwriting fees | | | 15,630 | | | | 9,644 | | | | | 46,371 | | | | 37,890 | |
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| Unconsolidated policy acquisition and other underwriting expenses | | $ | 39,579 | | | $ | 23,622 | | | | $ | 115,720 | | | $ | 91,607 | |
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| GAAP other underwriting expense ratio | | | 32.3 | % | | | 34.5 | % | | | | 31.3 | % | | | 34.2 | % |
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| GAAP combined ratio | | | 91.8 | % | | | 94.0 | % | | | | 93.3 | % | | | 95.4 | % |
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| | | 2008 | | | 2007 | | | | 2008 | | | 2007 | |
Unconsolidated GAAP data — Gross Commissions and Fees: | | | | | | | | | | | | | | | | | |
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| Managed programs: | | | | | | | | | | | | | | | | | |
| Management fees | | $ | 3,990 | | | $ | 5,300 | | | | $ | 21,168 | | | $ | 23,963 | |
| Claims fees | | | 2,090 | | | | 2,237 | | | | | 8,879 | | | | 9,025 | |
| Loss control fees | | | 467 | | | | 519 | | | | | 2,069 | | | | 2,151 | |
| Reinsurance brokerage | | | 157 | | | | 326 | | | | | 728 | | | | 929 | |
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| Total managed programs | | | 6,704 | | | | 8,382 | | | | | 32,844 | | | | 36,068 | |
| Agency commissions | | | 2,425 | | | | 2,242 | | | | | 11,064 | | | | 11,316 | |
| Intersegment revenue | | | (197 | ) | | | (249 | ) | | | | (1,004 | ) | | | (1,396 | ) |
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| Net commissions and fees | | | 8,932 | | | | 10,375 | | | | | 42,904 | | | | 45,988 | |
| Intercompany commissions and fees | | | 20,683 | | | | 12,757 | | | | | 62,667 | | | | 50,948 | |
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| Gross commissions and fees | | $ | 29,615 | | | $ | 23,132 | | | | $ | 105,571 | | | $ | 96,936 | |
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| Fee-for-service pre-tax income, excluding amortization | | $ | 1,991 | | | $ | 1,149 | | | | $ | 12,017 | | | $ | 10,872 | |
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| Pre-tax margin on fee-for-service income | | | 6.7 | % | | | 5.0 | % | | | | 11.4 | % | | | 11.2 | % |
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| (1) | | Both the loss and loss adjustment and expense ratios are calculated based upon the unconsolidated insurance company operations. The 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 ADJUSTED GAAP EXPENSE RATIO SUMMARY
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| | | FOR THE QUARTER | | | | FOR THE TWELVE MONTHS | | |
| | | ENDED DECEMBER 31, | | | | ENDED DECEMBER 31, | | |
| (In Thousands) | | 2008 | | | 2007 | | | | 2008 | | | 2007 | | |
| Net earned premiums | | $ | 122,425 | | | $ | 68,465 | | | | $ | 369,721 | | | $ | 268,197 | | |
| Less: Unconsolidated net loss and LAE | | | 72,803 | | | | 40,714 | | | | | 229,181 | | | | 164,027 | | |
| Unconsolidated policy acquisition and other underwriting expenses | | | 39,579 | | | | 23,622 | | | | | 115,720 | | | | 91,607 | | |
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| Underwriting income | | $ | 10,043 | | | $ | 4,129 | | | | $ | 24,820 | | | $ | 12,563 | | |
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| GAAP combined ratio as reported | | | 91.8 | % | | | 94.0 | % | | | | 93.3 | % | | | 95.4 | % | |
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| Specialty risk management operations pre-tax income | | $ | 20,202 | | | $ | 12,032 | | | | $ | 60,897 | | | $ | 47,898 | | |
| Less: Underwriting income | | | 10,043 | | | | 4,129 | | | | | 24,820 | | | | 12,563 | | |
| Net investment income and capital losses | | | 7,982 | | | | 7,263 | | | | | 25,202 | | | | 26,550 | | |
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| Fee-based operations pre-tax income | | | 2,177 | | | | 640 | | | | | 10,875 | | | | 8,785 | | |
| Agency operations pre-tax income | | | (186 | ) | | | 509 | | | | | 1,142 | | | | 2,087 | | |
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| Total fee-for-service pre-tax income | | $ | 1,991 | | | $ | 1,149 | | | | $ | 12,017 | | | $ | 10,872 | | |
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| GAAP expense ratio as reported | | | 32.3 | % | | | 34.5 | % | | | | 31.3 | % | | | 34.2 | % | |
| Adjustment to include pre-tax income from total fee-for-service income (1) | | | 1.6 | % | | | 1.7 | % | | | | 3.3 | % | | | 4.1 | % | |
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| GAAP expense ratio as adjusted (2) | | | 30.7 | % | | | 32.8 | % | | | | 28.0 | % | | | 30.1 | % | |
| GAAP loss and LAE ratio as reported | | | 59.5 | % | | | 59.5 | % | | | | 62.0 | % | | | 61.2 | % | |
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| GAAP combined ratio as adjusted | | | 90.2 | % | | | 92.3 | % | | | | 90.0 | % | | | 91.3 | % | |
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Reconciliation of consolidated pre-tax income: | | | | | | | | | | | | | | | | | | |
| Specialty risk management operations pre-tax income: | | | | | | | | | | | | | | | | | | |
| Fee-based operations pre-tax income | | $ | 2,177 | | | $ | 640 | | | | $ | 10,875 | | | $ | 8,785 | | |
| Underwriting income | | | 10,043 | | | | 4,129 | | | | | 24,820 | | | | 12,563 | | |
| Net investment income and capital losses | | | 7,982 | | | | 7,263 | | | | | 25,202 | | | | 26,550 | | |
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| Total specialty risk management operations pre-tax income | | | 20,202 | | | | 12,032 | | | | | 60,897 | | | | 47,898 | | |
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| Agency operations pre-tax income | | | (186 | ) | | | 509 | | | | | 1,142 | | | | 2,087 | | |
| Less: Holding company expenses | | | 1,449 | | | | 355 | | | | | 4,253 | | | | 2,638 | | |
| Interest expense | | | 2,783 | | | | 1,400 | | | | | 7,681 | | | | 6,030 | | |
| Amortization expense | | | 1,665 | | | | 621 | | | | | 6,310 | | | | 1,930 | | |
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| Consolidated pre-tax income | | $ | 14,119 | | | $ | 10,165 | | | | $ | 43,795 | | | $ | 39,387 | | |
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| (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. |
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| 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. |
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION
(In Thousands, Except
Share & Per Share Data)
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| | | 2005A | | | 2006A | | | Q107A | | Q207A | | Q307A | | Q407A | | | 2007A | | | Q108A | | Q208A | | Q308A | | Q408A | | | 2008A |
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SUMMARY DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross written premiums | | $ | 332,209 | | | | $ | 330,872 | | | | $ | 89,504 | | | $ | 78,000 | | | $ | 90,729 | | | $ | 88,218 | | | | $ | 346,451 | | | | $ | 90,468 | | | $ | 94,370 | | | $ | 134,418 | | | $ | 138,427 | | | | $ | 457,683 | |
| Net written premiums | | | 258,134 | | | | | 262,668 | | | | | 71,972 | | | | 65,670 | | | | 73,203 | | | | 69,366 | | | | | 280,211 | | | | | 71,399 | | | | 76,071 | | | | 112,465 | | | | 115,259 | | | | | 375,194 | |
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INCOME STATEMENT | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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REVENUES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net earned premiums | | $ | 249,959 | | | | $ | 254,920 | | | | $ | 65,204 | | | $ | 67,191 | | | $ | 67,337 | | | $ | 68,465 | | | | $ | 268,197 | | | | $ | 66,022 | | | $ | 77,031 | | | $ | 104,243 | | | $ | 122,425 | | | | $ | 369,721 | |
| Commissions and fees (net) | | | 35,916 | | | | | 41,172 | | | | | 11,551 | | | | 10,743 | | | | 13,319 | | | | 10,375 | | | | | 45,988 | | | | | 12,031 | | | | 9,632 | | | | 12,309 | | | | 8,932 | | | | | 42,904 | |
| Net investment income | | | 17,975 | | | | | 22,075 | | | | | 6,156 | | | | 6,229 | | | | 6,788 | | | | 7,227 | | | | | 26,400 | | | | | 7,148 | | | | 6,917 | | | | 10,622 | | | | 11,937 | | | | | 36,624 | |
| Net realized gains (losses) | | | 167 | | | | | 69 | | | | | (6 | ) | | | 20 | | | | 100 | | | | 36 | | | | | 150 | | | | | (31 | ) | | | (146 | ) | | | (7,290 | ) | | | (3,955 | ) | | | | (11,422 | ) |
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Total Revenues | | | 304,017 | | | | | 318,236 | | | | | 82,905 | | | | 84,183 | | | | 87,544 | | | | 86,103 | | | | | 340,735 | | | | | 85,170 | | | | 93,434 | | | | 119,884 | | | | 139,339 | | | | | 437,827 | |
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EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net losses & loss adjustment expenses | | | 151,542 | | | | | 146,293 | | | | | 36,646 | | | | 39,707 | | | | 37,015 | | | | 37,601 | | | | | 150,969 | | | | | 37,661 | | | | 43,542 | | | | 63,932 | | | | 67,750 | | | | | 212,885 | |
| Policy acquisition and other underwriting expenses | | | 44,439 | | | | | 50,479 | | | | | 13,643 | | | | 13,169 | | | | 12,927 | | | | 13,978 | | | | | 53,717 | | | | | 13,147 | | | | 12,716 | | | | 19,470 | | | | 23,961 | | | | | 69,294 | |
| Other administrative expenses | | | 26,810 | | | | | 28,824 | | | | | 7,394 | | | | 7,598 | | | | 9,190 | | | | 8,087 | | | | | 32,269 | | | | | 8,832 | | | | 7,960 | | | | 8,055 | | | | 10,153 | | | | | 35,000 | |
| Salaries & employee benefits | | | 51,331 | | | | | 54,569 | | | | | 13,532 | | | | 12,900 | | | | 15,750 | | | | 14,251 | | | | | 56,433 | | | | | 12,755 | | | | 14,143 | | | | 17,056 | | | | 18,908 | | | | | 62,862 | |
| Amortization expense | | | 373 | | | | | 590 | | | | | 144 | | | | 543 | | | | 622 | | | | 621 | | | | | 1,930 | | | | | 1,551 | | | | 1,563 | | | | 1,531 | | | | 1,665 | | | | | 6,310 | |
| Interest expense | | | 3,856 | | | | | 5,976 | | | | | 1,487 | | | | 1,667 | | | | 1,476 | | | | 1,400 | | | | | 6,030 | | | | | 1,311 | | | | 1,254 | | | | 2,333 | | | | 2,783 | | | | | 7,681 | |
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Total Expenses | | | 278,351 | | | | | 286,731 | | | | | 72,846 | | | | 75,584 | | | | 76,980 | | | | 75,938 | | | | | 301,348 | | | | | 75,257 | | | | 81,178 | | | | 112,377 | | | | 125,220 | | | | | 394,032 | |
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INCOME BEFORE TAXES AND EQUITY EARNINGS | | | 25,666 | | | | | 31,505 | | | | | 10,059 | | | | 8,599 | | | | 10,564 | | | | 10,165 | | | | | 39,387 | | | | | 9,913 | | | | 12,256 | | | | 7,507 | | | | 14,119 | | | | | 43,795 | |
| Income tax expense | | | 7,757 | | | | | 9,599 | | | | | 3,149 | | | | 2,461 | | | | 3,219 | | | | 2,897 | | | | | 11,726 | | | | | 2,911 | | | | 3,879 | | | | 3,338 | | | | 6,539 | | | | | 16,667 | |
| Equity earnings of affiliates | | | 1 | | | | | 128 | | | | | 13 | | | | 48 | | | | 210 | | | | 60 | | | | | 331 | | | | | 56 | | | | 61 | | | | 26 | | | | 126 | | | | | 269 | |
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NET INCOME | | $ | 17,910 | | | | $ | 22,034 | | | | $ | 6,923 | | | $ | 6,186 | | | $ | 7,555 | | | $ | 7,328 | | | | $ | 27,992 | | | | $ | 7,058 | | | $ | 8,438 | | | $ | 4,195 | | | $ | 7,706 | | | | $ | 27,397 | |
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| Net realized capital gain (loss), net of tax | | | 109 | | | | | 45 | | | | | (4 | ) | | | 13 | | | | 65 | | | | 23 | | | | | 97 | | | | | (20 | ) | | | (95 | ) | | | (6,743 | ) | | | (4,562 | ) | | | | (11,420 | ) |
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| OPERATING INCOME | | $ | 17,801 | | | | $ | 21,989 | | | | $ | 6,927 | | | $ | 6,173 | | | $ | 7,490 | | | $ | 7,305 | | | | $ | 27,895 | | | | $ | 7,078 | | | $ | 8,533 | | | $ | 10,938 | | | $ | 12,268 | | | | $ | 38,817 | |
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| Amortization expense | | | 373 | | | | | 590 | | | | | 144 | | | | 543 | | | | 622 | | | | 621 | | | | | 1,930 | | | | | 1,551 | | | | 1,563 | | | | 1,531 | | | | 1,665 | | | | | 6,310 | |
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| OPERATING INCOME, excluding amortization expense | | $ | 18,174 | | | | $ | 22,579 | | | | $ | 7,071 | | | $ | 6,716 | | | $ | 8,112 | | | $ | 7,926 | | | | $ | 29,825 | | | | $ | 8,629 | | | $ | 10,096 | | | $ | 12,469 | | | $ | 13,933 | | | | $ | 45,127 | |
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| Weighted average common shares outstanding | | | 29,653,067 | | | | | 29,566,141 | | | | | 29,465,807 | | | | 30,350,553 | | | | 35,378,119 | | | | 37,074,978 | | | | | 33,101,965 | | | | | 37,103,270 | | | | 37,126,911 | | | | 47,595,572 | | | | 57,780,625 | | | | | 44,995,712 | |
| Shares O/S at end of the period | | | 28,672,009 | | | | | 29,107,818 | | | | | 29,539,236 | | | | 30,529,260 | | | | 36,980,070 | | | | 36,996,287 | | | | | 36,996,287 | | | | | 37,021,032 | | | | 37,021,032 | | | | 57,644,022 | | | | 57,341,989 | | | | | 57,341,989 | |
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PER SHARE DATA (Diluted) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 0.60 | | | | $ | 0.75 | | | | $ | 0.23 | | | $ | 0.20 | | | $ | 0.21 | | | $ | 0.20 | | | | $ | 0.85 | | | | $ | 0.19 | | | $ | 0.23 | | | $ | 0.09 | | | $ | 0.13 | | | | $ | 0.61 | |
| Net realized gain (loss), net of tax | | $ | — | | | | $ | 0.01 | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | $ | 0.01 | | | | $ | — | | | $ | — | | | $ | (0.14 | ) | | $ | (0.08 | ) | | | $ | (0.25 | ) |
| Operating income | | $ | 0.60 | | | | $ | 0.74 | | | | $ | 0.23 | | | $ | 0.20 | | | $ | 0.21 | | | $ | 0.20 | | | | $ | 0.84 | | | | $ | 0.19 | | | $ | 0.23 | | | $ | 0.23 | | | $ | 0.21 | | | | $ | 0.86 | |
| Operating income, excluding amortization expense | | $ | 0.61 | | | | $ | 0.76 | | | | $ | 0.24 | | | $ | 0.22 | | | $ | 0.23 | | | $ | 0.21 | | | | $ | 0.90 | | | | $ | 0.23 | | | $ | 0.27 | | | $ | 0.26 | | | $ | 0.24 | | | | $ | 1.00 | |
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OPERATING RATIO ANALYSIS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| GAAP Loss & LAE ratio | | | 65.2 | % | | | | 62.3 | % | | | | 61.3 | % | | | 64.1 | % | | | 59.9 | % | | | 59.5 | % | | | | 61.2 | % | | | | 61.7 | % | | | 61.2 | % | | | 65.7 | % | | | 59.5 | % | | | | 62.0 | % |
| GAAP Expense ratio | | | 33.5 | % | | | | 34.5 | % | | | | 35.0 | % | | | 33.3 | % | | | 33.9 | % | | | 34.5 | % | | | | 34.2 | % | | | | 32.2 | % | | | 29.3 | % | | | 31.0 | % | | | 32.3 | % | | | | 31.3 | % |
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GAAP Combined ratio | | | 98.7 | % | | | | 96.8 | % | | | | 96.3 | % | | | 97.4 | % | | | 93.8 | % | | | 94.0 | % | | | | 95.4 | % | | | | 93.9 | % | | | 90.5 | % | | | 96.7 | % | | | 91.8 | % | | | | 93.3 | % |
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Unconsolidated GAAP data — Ratio Calculation Table: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net earned premiums | | $ | 249,959 | | | | $ | 254,920 | | | | $ | 65,204 | | | $ | 67,191 | | | $ | 67,337 | | | $ | 68,465 | | | | $ | 268,197 | | | | $ | 66,022 | | | $ | 77,031 | | | $ | 104,243 | | | $ | 122,425 | | | | $ | 369,721 | |
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| Consolidated net loss and LAE | | $ | 151,542 | | | | $ | 146,293 | | | | $ | 36,646 | | | $ | 39,707 | | | $ | 37,015 | | | $ | 37,601 | | | | $ | 150,969 | | | | $ | 37,661 | | | $ | 43,542 | | | $ | 63,932 | | | $ | 67,750 | | | | $ | 212,885 | |
| Intercompany claim fees | | | 11,523 | | | | | 12,553 | | | | | 3,295 | | | | 3,353 | | | | 3,297 | | | | 3,113 | | | | | 13,058 | | | | | 3,106 | | | | 3,629 | | | | 4,508 | | | | 5,053 | | | | | 16,296 | |
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| Unconsolidated net loss and LAE | | $ | 163,065 | | | | $ | 158,846 | | | | $ | 39,941 | | | $ | 43,060 | | | $ | 40,312 | | | $ | 40,714 | | | | $ | 164,027 | | | | $ | 40,767 | | | $ | 47,171 | | | $ | 68,440 | | | $ | 72,803 | | | | $ | 229,181 | |
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GAAP Net loss and LAE ratio | | | 65.2 | % | | | | 62.3 | % | | | | 61.3 | % | | | 64.1 | % | | | 59.9 | % | | | 59.5 | % | | | | 61.2 | % | | | | 61.7 | % | | | 61.2 | % | | | 65.7 | % | | | 59.5 | % | | | | 62.0 | % |
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| Consolidated Policy acquisition and other underwriting expenses | | $ | 44,439 | | | | $ | 50,479 | | | | $ | 13,643 | | | $ | 13,169 | | | $ | 12,927 | | | $ | 13,978 | | | | $ | 53,717 | | | | $ | 13,147 | | | $ | 12,716 | | | $ | 19,537 | | | $ | 23,949 | | | | $ | 69,349 | |
| Intercompany administrative and other underwriting fees | | | 39,231 | | | | | 37,442 | | | | | 9,152 | | | | 9,178 | | | | 9,916 | | | | 9,644 | | | | | 37,890 | | | | | 8,088 | | | | 9,832 | | | | 12,821 | | | | 15,630 | | | | | 46,371 | |
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| Unconsolidated policy acquisition and other underwriting expenses | | $ | 83,670 | | | | $ | 87,921 | | | | $ | 22,795 | | | $ | 22,347 | | | $ | 22,843 | | | $ | 23,622 | | | | $ | 91,607 | | | | $ | 21,235 | | | $ | 22,548 | | | $ | 32,358 | | | $ | 39,579 | | | | $ | 115,720 | |
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GAAP Expense ratio | | | 33.5 | % | | | | 34.5 | % | | | | 35.0 | % | | | 33.3 | % | | | 33.9 | % | | | 34.5 | % | | | | 34.2 | % | | | | 32.2 | % | | | 29.3 | % | | | 31.0 | % | | | 32.3 | % | | | | 31.3 | % |
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GAAP Combined Ratio | | | 98.7 | % | | | | 96.8 | % | | | | 96.3 | % | | | 97.4 | % | | | 93.8 | % | | | 94.0 | % | | | | 95.4 | % | | | | 93.9 | % | | | 90.5 | % | | | 96.7 | % | | | 91.8 | % | | | | 93.3 | % |
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Unconsolidated Commissions & Fees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Managed programs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Management fees | | $ | 16,741 | | | | $ | 18,714 | | | | $ | 4,875 | | | $ | 5,412 | | | | 8,376 | | | | 5,300 | | | | $ | 23,963 | | | | $ | 6,032 | | | $ | 4,174 | | | $ | 6,972 | | | $ | 3,990 | | | | $ | 21,168 | |
| Claims fees | | | 7,113 | | | | | 8,776 | | | | | 2,204 | | | | 2,247 | | | | 2,337 | | | | 2,237 | | | | | 9,025 | | | | | 2,180 | | | | 2,305 | | | | 2,304 | | | | 2,090 | | | | | 8,879 | |
| Loss control fees | | | 2,260 | | | | | 2,216 | | | | | 599 | | | | 544 | | | | 489 | | | | 519 | | | | | 2,151 | | | | | 510 | | | | 625 | | | | 467 | | | | 467 | | | | | 2,069 | |
| Reinsurance brokerage | | | 660 | | | | | 735 | | | | | 333 | | | | 85 | | | | 185 | | | | 326 | | | | | 929 | | | | | 296 | | | | 98 | | | | 177 | | | | 157 | | | | | 728 | |
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| Total managed programs | | | 26,774 | | | | | 30,441 | | | | | 8,011 | | | | 8,288 | | | | 11,387 | | | | 8,382 | | | | $ | 36,068 | | | | | 9,018 | | | | 7,202 | | | | 9,920 | | | | 6,704 | | | | $ | 32,844 | |
| Agency commissions | | | 11,304 | | | | | 12,285 | | | | | 3,885 | | | | 2,860 | | | | 2,329 | | | | 2,242 | | | | | 11,316 | | | | | 3,328 | | | | 2,681 | | | | 2,630 | | | | 2,425 | | | | | 11,064 | |
| Intersegment commissions and fees | | | (2,162 | ) | | | | (1,554 | ) | | | | (345 | ) | | | (405 | ) | | | (397 | ) | | | (249 | ) | | | | (1,396 | ) | | | | (315 | ) | | | (251 | ) | | | (241 | ) | | | (197 | ) | | | | (1,004 | ) |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Commissions and fees | | | 35,916 | | | | | 41,172 | | | | | 11,551 | | | | 10,743 | | | | 13,319 | | | | 10,375 | | | | | 45,988 | | | | | 12,031 | | | | 9,632 | | | | 12,309 | | | | 8,932 | | | | | 42,904 | |
| Intercompany commissions and fees | | | 50,754 | | | | | 49,995 | | | | | 12,447 | | | | 12,531 | | | | 13,213 | | | | 12,757 | | | | | 50,948 | | | | | 11,194 | | | | 13,461 | | | | 17,329 | | | | 20,683 | | | | | 62,667 | |
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| Gross commissions and fees | | $ | 86,670 | | | | $ | 91,167 | | | | $ | 23,998 | | | $ | 23,274 | | | $ | 26,532 | | | $ | 23,132 | | | | $ | 96,936 | | | | $ | 23,225 | | | $ | 23,093 | | | $ | 29,638 | | | $ | 29,615 | | | | $ | 105,571 | |
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