EXHIBIT 99.1
Investor Presentation
First Quarter 2012 Update
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Forward-Looking Statements & Non-GAAP Financial
Measures
Measures
Certain statements made by Meadowbrook Insurance Group, Inc. in this presentation 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.
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.
Notes on Non-GAAP Financial Measures
(1) Net operating income is a non-GAAP measure defined as net income excluding after-tax realized
gains and losses.
gains and losses.
(2) Accident year combined ratio is a non-GAAP measure that the impact of any adverse or favorable
development on prior year loss reserves.
development on prior year loss reserves.
These non-GAAP metrics are common measurements for property and casualty insurance
companies. We believe this presentation enhances the understanding of our results by highlighting
the underlying profitability of our insurance business. Additionally, these measures are key internal
management performance standards.
companies. We believe this presentation enhances the understanding of our results by highlighting
the underlying profitability of our insurance business. Additionally, these measures are key internal
management performance standards.
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Presentation Outline
| I. | Overview of Meadowbrook |
II. The Meadowbrook Approach
III. Financial Review
IV. Key Investment Considerations
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I. Overview of Meadowbrook
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Overview of Meadowbrook
Specialty niche focused commercial insurance underwriter and insurance
administration services company
administration services company
• Founded in 1955, organized as holding company in 1985, IPO in 1995
• Headquartered in Southfield, MI with 34 locations throughout the U.S. and
Bermuda and over 1,000 employees
Bermuda and over 1,000 employees
• Platform supports both risk bearing and non-risk bearing opportunities
• Rated “A-” by A.M. Best, with statutory surplus of $381M and shareholders’
equity of $586M at 3/31/2012
equity of $586M at 3/31/2012
• Full year 2011 gross written premium of $904M
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Overview of Meadowbrook
Key Statistics
• Market Capitalization (at 5/3/2012): $433.4M
• Book Value at 3/31/2012: $585.7M
• Book Value per Share at 3/31/2012: $11.60
• Excluding unrealized gains/losses, net of deferred taxes: $10.26
• Tangible Book Value per Share: $8.53
• Price to Book (at 5/3/2012): 0.74x
• Dividend Yield (at 5/3/12): 2.3%
• Statutory Premium Leverage (TTM 3/31/12) Actual Targeted Maximum
• GWP to Statutory Surplus 2.5 to 1 2.75 to 1
• NWP to Statutory Surplus 2.1 to 1 2.25 to 1
• Debt to Equity (3/31/12): 22.3%; 8.5% excluding debentures
• Debt to Total Capital (3/31/12): 18.2%; 6.9% excluding debentures
• Insider Ownership (3/31/2012): 6.6%
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Capability Building Through Successful Acquisitions
Retail Agency Only
1955: Founded as a retail insurance agency
Core Capability Build Out
1985: Star Insurance Company
1990: Savers Property & Casualty Insurance Company
1994: American Indemnity Insurance Company
1996: Association Self Insurance Services
1997: Williamsburg National Insurance Company
Crest Financial Services
1998: Ameritrust Insurance Corporation
Florida Preferred Administrators, Inc.
1999: TPA Insurance Agency
Continued Synergistic Expansion
2007: USSU
2008: Procentury
Continued Synergistic Expansion
Strategic Staging of Acquisitions
• Meadowbrook actively reviews acquisition
prospects on a strategic basis and enters into
transactions that will increase long-term
shareholder value
prospects on a strategic basis and enters into
transactions that will increase long-term
shareholder value
• We consider a range of strategic factors when
looking at acquisitions including:
looking at acquisitions including:
– Opportunity to leverage our diverse
revenue platform, by expanding current
distribution, servicing capabilities, and
complementary product lines and
classes
revenue platform, by expanding current
distribution, servicing capabilities, and
complementary product lines and
classes
– Ability to attract talented insurance
professionals that are a good fit with
Meadowbrook culture
professionals that are a good fit with
Meadowbrook culture
– Opportunity to create “win-win” situation
by mitigation our downside risk and
providing seller with opportunity to obtain
fair value through deal structure
by mitigation our downside risk and
providing seller with opportunity to obtain
fair value through deal structure
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We Have Delivered Results Over Time
Total Revenue ($M)
Net Operating Income ($M)
Shareholders’ Equity ($M)
GAAP Combined Ratio
CAGR* (2007 to 2011) = 25%
CAGR* (12/31/2007 to 12/31/2011) = 18%
CAGR* (2007 to 2011) = 14% (excludes unusual 2011
storm losses of $9.0M($5.9M after-tax))
storm losses of $9.0M($5.9M after-tax))
*CAGR=Compound annual growth rate
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II. The Meadowbrook Approach
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The Meadowbrook Approach
Our Objective:
• To deliver consistent earnings, across the market cycle, with a target return on average equity
of 10% - 17%
of 10% - 17%
• We view objective relative to risk free rate, reinvestment rate
As reported
(2) Pro forma, results exclude $5.9M of unusual 2011 after-tax storm losses
We seek to leverage the unique characteristics of our balanced business model to achieve
consistent, profitable results across the market cycle.
consistent, profitable results across the market cycle.
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Diverse Revenue
Sources
Sources
• Earned premium from insurance operations
• Fee revenue from risk management services
• Flexibility to utilize multiple distribution channels
Positioned to Manage
Insurance Cycles
Insurance Cycles
Conservative
Investment
Philosophy
Investment
Philosophy
Culture of Disciplined
Underwriting, Claims
Handling & Reserving
Underwriting, Claims
Handling & Reserving
• Product, program and geographic diversification
• Admitted market capabilities contribute to stability and higher renewal retention
• Non-admitted capabilities enable opportunistic response in volatile pricing environment
• High-quality fixed income investment portfolio of $1.5B
• Investment approach reinforces our focus on underwriting profitability
• Insurance subsidiaries rated A- (Excellent) by A.M. Best
• Insurance subsidiary surplus levels can support meaningful premium growth
• Insurance subsidiaries have additional borrowing capacity through FHLB membership ($20M
outstanding balance on credit facility at 3/31/2012)
outstanding balance on credit facility at 3/31/2012)
• Generate cash flows from both regulated and non-regulated sources, which provides
flexibility
flexibility
• Manageable debt levels, with access to $35M line of credit ($9.5M outstanding balance at
3/31/2012)
3/31/2012)
Strong Capital and
Liquidity Position
Liquidity Position
• Team of talented insurance professionals with a wide range of expertise across all
functions and lines of business
functions and lines of business
• Focused on achieving pricing adequacy and adherence to disciplined underwriting
standards
standards
Our balanced business model allows us to adapt to changing market conditions
and deliver more predictable results.
and deliver more predictable results.
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Diverse Revenue Sources
Insurance Operations
Net Commission & Fee Revenue
Diverse revenue sources enhance the durability of our business model.
• Admitted programs & standard products
• Main Street Excess & Surplus Lines
• Non-admitted programs
• Specialty markets
• Relatively small but provides a valuable
source of unregulated cash flow
source of unregulated cash flow
• Agency commission from non-affiliated
carriers
carriers
• Managed program revenue
• Municipality and association clients
2011
Net Earned Premium: $747.6 M
Pre-Tax Net Earned Premium Profit : $2.6M
Net Investment Income: $54.5M
2011
Net Commission & Fee Revenue: $32.1 M
Pre-Tax Commission & Fee Income: $7.3M
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Main Street Excess
and Surplus Lines
and Surplus Lines
Admitted Programs &
Standard Market
Products
Standard Market
Products
Non-Admitted
Programs
Programs
Specialty Market
Products
Products
• Homogeneous specialized programs
• Heterogeneous geographic centers
• Promotes specialty agents
• Includes standard market products
• Broad classes of “Main Street”
commercial risks
commercial risks
• Promotes general agent distribution
• Specialized programs ignored or
underserved by the standard market
underserved by the standard market
• Promotes wholesalers with specialty
underwriting authority
underwriting authority
2011 GWP: $488M
2010 GWP: $468M
• Food service industry
• Educators
• Auto re-possessors
• Custom harvesters
Description
Examples
• Apartments, hotels and motels
• Contractors liability
• Restaurants, bars and taverns
• Convenience stores
• Oil and gas contractors
• Pet-sitters
• Professional liability
• Package delivery
• Excess workers’ comp
• Environmental
• Marine
• Med Mal
• Solutions designed for very specific
products and market segments
products and market segments
• Includes both admitted and excess &
surplus lines business
surplus lines business
2011 GWP: $43M
2010 GWP: $37M
2011 GWP: $122M
2010 GWP: $119M
2011 GWP: $251M
2010 GWP: $178M
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Positioned to Manage Insurance Cycles
Diverse Mix of Business
Diverse Mix of Business
TTM 3/31/2012 Gross Written Premium Business Mix
• We have built our business to
create product diversification as
indicated by the mix of business
create product diversification as
indicated by the mix of business
• This platform enables us to
grow our business
opportunistically with a focus on
underwriting discipline and
pricing adequacy
grow our business
opportunistically with a focus on
underwriting discipline and
pricing adequacy
• Our wide range of product
expertise positions us well to
support future growth
expertise positions us well to
support future growth
• Our new business is primarily
rollover books of business with
a proven track record of
profitability
rollover books of business with
a proven track record of
profitability
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Positioned to Manage Insurance Cycles
Diverse Geographic Distribution
Diverse Geographic Distribution
Our regional perspective provides the infrastructure to achieve geographic
diversification, while maintaining our effective local touch.
diversification, while maintaining our effective local touch.
Meadowbrook locations
Top 10 production states (2011)
1
5
9
10
3
9
6
8
7
Bermuda
TTM 3/31/12 GWP by Top 10 States | ||||
CA - 33.9% | FL - 9.6% | TX - 6.5% | NJ - 4.3% | NY - 3.7% |
IL -2.7% | MO - 2.6% | MI - 2.5% | PA - 2.2% | LA - 2.0% |
Culture of Disciplined Underwriting, Claims
Handling & Reserving
Handling & Reserving
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AY Loss ratios
*2006AY-2008AY loss
ratios re-estimated(1) as
of 12/31/09
ratios re-estimated(1) as
of 12/31/09
*2009AY-2011AY include
initial loss ratio estimates
initial loss ratio estimates
Our diverse mix of business, combined with our disciplined underwriting and low loss
retention levels enhances the predictability of our loss reserves.
retention levels enhances the predictability of our loss reserves.
(1) Re-estimated AY loss ratios reflect reserve adjustments made following the accident year, for example, the 12/31/09 re-estimated 2006 AY loss ratio of 60.7% reflects
new loss development information gathered over the 3 years from 12/31/06 to 12/31/09; the 3/31/12 re-estimated 2006 AY loss ratio reflects new loss development
gathered over the 5.25 years from 12/31/2006 to 3/31/2012; etc.
new loss development information gathered over the 3 years from 12/31/06 to 12/31/09; the 3/31/12 re-estimated 2006 AY loss ratio reflects new loss development
gathered over the 5.25 years from 12/31/2006 to 3/31/2012; etc.
(2) The 2006 - 2007 initial and re-estimated AY combined ratios excludes Century. The 2008 re-estimated AY combined ratio includes a pro-rata portion of the Century AY
2008 development for the 5 post-merger months.
2008 development for the 5 post-merger months.
Re-estimated (1)
AY loss ratios as
of 3/31/2012
AY loss ratios as
of 3/31/2012
0.2%
0.9%
(2.7%)
0.2%
0.8%
0.6%
(Favorable) Unfavorable Development
Between Estimation Points
Between Estimation Points
Culture of Disciplined Underwriting, Claims
Handling & Reserving
Handling & Reserving
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Our diverse mix of business, combined with our disciplined underwriting and low loss
retention levels enhances the predictability of our loss reserves.
retention levels enhances the predictability of our loss reserves.
Average = (0.3%)
Standard Deviation = 0.9%
(Favorable) Unfavorable Development Since 2009
$ in ‘000s
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Conservative Investment Philosophy
We maintain a high-quality, low-risk investment portfolio.
Portfolio Allocation and Quality
NOTE: Data above as of March 31, 2012
•Low equity risk exposure
• 98% fixed income and
cash
cash
• 2% equity
•High credit quality
• 99% of bonds are
investment grade
investment grade
• Average S&P rating of
AA/Moody’s of Aa3
AA/Moody’s of Aa3
•Interest Rate Risk Protection
• Hold to maturity
• High credit quality =
low historical
impairments
low historical
impairments
• Access to additional
capital if needed
capital if needed
$’s in (000’s) | % Allocation 03/31/2012 | Fair Value | Gross Unrealized Gain Position | Avg. Moody's | Avg. S&P |
Fixed Income | |||||
US Government and Agencies | 2% | $ 23,116 | $ 1,629 | Aaa | AA+ |
Corporate | 39% | $ 574,813 | $ 41,679 | A2 | A |
Mortgage and Asset Backed | 14% | $ 211,756 | $ 13,881 | Aaa | AA+ |
Municipal | 43% | $ 625,116 | $ 46,100 | Aa2 | AA+ |
Preferred Stock Debt | 0% | $ 2,355 | $ 431 | Ba2 | BB |
Total Fixed Income | 98% | $1,437,157 | $ 103,721 | ||
Equities | |||||
Preferred Stock | 1% | $ 12,423 | $ 2,228 | ||
Mutual Funds | 1% | $ 15,460 | $ 697 | ||
Total Equities | 2% | $ 27,883 | $ 2,925 |
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Our high quality investment portfolio is well matched to our loss
reserves and generates a predictable stream of income.
reserves and generates a predictable stream of income.
• Net investment income
has grown to $55M (TTM
3/31/12) from $37M in
2008
has grown to $55M (TTM
3/31/12) from $37M in
2008
• Invested asset base
increased to $1.5B at
3/31/2012, from $1.0B at
12/31/2008
increased to $1.5B at
3/31/2012, from $1.0B at
12/31/2008
• Pre-tax book yield was
4.0% at 3/31/2012 vs.
4.2% at 12/31/2008
4.0% at 3/31/2012 vs.
4.2% at 12/31/2008
• The duration of our
portfolio increased to 5.0
years at 3/31/2012 from
4.8 years at 12/31/2008
portfolio increased to 5.0
years at 3/31/2012 from
4.8 years at 12/31/2008
• The duration on net
reserves of $905M is
approximately 3.8 years
reserves of $905M is
approximately 3.8 years
Pre-tax Net Investment Income ($ in M) and Average
Investment Yield
Investment Yield
*4.8
*5.1
*5.0
*4.9
*5.0
*Effective Duration
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III. Financial Review
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Financial Highlights - First Quarter Update
Highlights ($ in M, except per share amounts)
While our first quarter results were impacted by unfavorable development, our current
accident year performed in line with expectations.
accident year performed in line with expectations.
* 2011 results presented above reflect the adoption of new accounting guidance associated with acquiring or renewing
insurance contracts. This guidance was adopted retrospectively effective January 1, 2012.
insurance contracts. This guidance was adopted retrospectively effective January 1, 2012.
Expense Ratio Analysis
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Reduction in internal expense ratio reflects a reduction in variable compensation and a shift
in mix of business resulting in a lower commission expense.
in mix of business resulting in a lower commission expense.
Net earned premium $170.7M $192.8M
Policy acquisition $58.2M(1) $63.1M
and other u/w expenses
and other u/w expenses
Expense ratio 34.1% 32.7%
2011 policy acquisition and other u/w expenses presented above reflect the adoption of new accounting guidance associated with
acquiring or renewing insurance contracts. This guidance was adopted retrospectively effective January 1, 2012.
acquiring or renewing insurance contracts. This guidance was adopted retrospectively effective January 1, 2012.
Loss & LAE Ratio Analysis
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The increase in the GAAP loss & LAE ratio reflects a change in development in 2012 as
compared to 2011, while the accident year loss and LAE ratio for both periods was similar.
compared to 2011, while the accident year loss and LAE ratio for both periods was similar.
GAAP Loss & LAE Ratio
AY Loss & LAE Ratio
Underwriting & Pricing Actions Taken
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Recent Actions Taken:
• Took action on certain workers’ compensation programs securing significant rate increases, as
well as restricting business from certain states and classes of business
well as restricting business from certain states and classes of business
• Since 1/1/2010 we have achieved cumulative rate increases of 16.3% on workers’
compensation line of business
compensation line of business
• Took action on a national transportation program increasing rate by 46.0% since the first
quarter of 2011, tightening underwriting procedures through review of driver records and
reducing the overall book of business by 41.2%
quarter of 2011, tightening underwriting procedures through review of driver records and
reducing the overall book of business by 41.2%
• Maintain culture of “early intervention” through continuous review of all programs and books of
business to ensure that our profitability targets are met
business to ensure that our profitability targets are met
We actively manage our business to achieve profitable results.
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2011 Results and 2012 Guidance
Looking ahead, we believe our balanced business model positions us well to continue
to deliver predictable earnings
to deliver predictable earnings
Gross Written Premium
• $904M
GAAP Combined Ratio
• 99.7%*
Net income from operations
• $40.9M*
Net operating income per share
• $0.78*
2011 Results
• Leverage multiple revenue
sources and diverse insurance
offering to maximize
opportunities across market
cycles
sources and diverse insurance
offering to maximize
opportunities across market
cycles
• Increase underwriting leverage
through selective growth
opportunities, while sustaining
appropriate diversification
through selective growth
opportunities, while sustaining
appropriate diversification
• Increase investment leverage
through cash from operations
through cash from operations
• Leverage fixed costs over a
larger revenue base
larger revenue base
• Increase fee-for service income
through new opportunities and
margin expansion
Driving Long-term
Enterprise Value
Enterprise Value
2012 Guidance
Gross Written Premium
• Range of $890M - $910M
GAAP Combined Ratio
• 97.5% - 98.5%
Net income from operations
• $46M - $51M*
Net operating income per share
• $0.90 - $1.00*
*We expect to be at or near the low end of
our net operating income and net
operating income per share range
our net operating income and net
operating income per share range
* 2011 results include unusual storm
activity that increased the combined
ratio by 1.2%, reduced net income by
$5.9M and reduced net operating
income per share by $0.11.
activity that increased the combined
ratio by 1.2%, reduced net income by
$5.9M and reduced net operating
income per share by $0.11.
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IV. Investment Considerations
Investment Considerations
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• Balanced business model delivers consistent, profitable results
• Average GAAP combined ratio of 95.5% (2007-2011)
• GAAP combined ratio standard deviation of 2.6% (2007-2011)
• Average ROAE (net operating income)10.2% (2007-2011)
• Proven history of generating profitable growth
• Revenue CAGR (2007-2011): 25%
• Net Operating Income CAGR (2007-2011): 10%
• BVPS CAGR (12/31/2007-12/31/2011): 9%
• Strong balance sheet
• Current capital and low debt levels position us well to fund future growth
• High-quality, low-risk investment portfolio
• Disciplined reserving culture and track record of reserve adequacy
• Proactive capital management
• Since 2008 we have returned $89M, or 44% of net operating income, to shareholders
through dividends and share repurchases
through dividends and share repurchases
• Quarterly dividend initiated in 2008; increased to $0.05 per share in 2011
• Management authorized to repurchase up to an additional 4.5M shares