MEADOWBROOK INSURANCE GROUP, INC.
(NYSE - MIG)
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CONTACT: ROBERT S. CUBBIN, PRESIDENT & CHIEF EXECUTIVE OFFICER, (248) 204-8031
KAREN M. SPAUN, SVP & CHIEF FINANCIAL OFFICER, (248) 204-8178
JENNIFER BARBER, SENIOR FINANCIAL ANALYST, (248) 204-8159
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MEADOWBROOK INSURANCE GROUP, INC.
REPORTS FIRST QUARTER 2003
NET INCOME OF $2.8 MILLION
BOARD NAMES KAREN M. SPAUN, CHIEF FINANCIAL OFFICER
AND GREGORY L. WILDE, EXECUTIVE VICE PRESIDENT
MEADOWBROOK ADOPTS SFAS 148 - EXPENSING OF STOCK OPTIONS
SOUTHFIELD, MICHIGAN
MAY 8, 2003
First Quarter Results:
Meadowbrook Insurance Group (NYSE: MIG) reported net income for the quarter
ended March 31, 2003 grew over 200% to $2.8 million, or $0.09 per share,
compared to $910,000, or $0.11 per share in 2002. The improvement in net income
reflects an increase in fee-for-service revenue, a reduction in interest
expense, and overall expense improvements. As a result of the new equity
offering in June 2002, the diluted weighted average common shares outstanding
increased to 29,510,681 for the quarter ended March 31, 2003, from 8,512,194 for
the same period in 2002.
"We are pleased by the progress we are making in growing our bottom line profit.
We are on track with our plan to leverage our fixed costs, while maintaining
underwriting discipline and focusing on growing our existing profitable
programs," commented Meadowbrook's President and Chief Executive Officer Robert
S. Cubbin.
During the first quarter of 2003, gross written premium increased $11.3 million,
or 19.6%, to $68.8 million, from $57.5 million in the comparable period in 2002.
This increase reflects the anticipated growth from premium rate increases,
conversion of existing controlled programs to the Company's own insurance
company subsidiaries and the result of the previously announced renewal rights
contract in Missouri. The decline in gross written premium in 2002 included
planned reductions to reduce leverage ratios. The prior year reduction in gross
written premium is now reflected in reduced revenue and premium earned in the
current quarter.
PRESS RELEASE PAGE 2
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Revenues:
Revenues decreased $6.7 million, or 13.1 %, to $44.3 million in the first
quarter of 2003 from $51.0 million for the comparable period in 2002.
Net earned premium decreased $11.3 million, or 29.2%, to $27.4 million in the
first quarter of 2003, from $38.7 million during the same period of 2002. The
decreases reflect the planned reduction in premium from programs previously
discontinued, partially offset by the elimination of the surplus relief treaty,
in which a portion of the 2002 net earned premium was ceded to an "A+" rated
reinsurer.
Net commissions and fees increased $4.4 million, or 49.0%, to $13.4 million in
the first quarter of 2003, from $9.0 million during the same period of 2002.
This increase includes $4.7 million from new fee-for-service contracts.
Expenses:
Incurred losses decreased $7.3 million, or 29.7%, to $17.2 million in the first
quarter of 2003, from $24.5 million in the comparable period of 2002. The first
quarter 2003 loss and loss adjustment expense ratio was 69.0%. This includes a
calendar quarter loss and allocated adjustment expense ratio of 61.7% and an
unallocated claims handling expense (ULAE) ratio of 7.3%. This compares to the
2002 loss and loss adjustment expense ratio of 67.4%, which included a calendar
quarter loss and allocated expense ratio of 63.2%, and an unallocated claims
handling expense (ULAE) ratio of 4.2%. The current quarter's loss ratio was
affected by an increase in the unallocated claims handling expenses (ULAE) of
$2.1 million paid in the first quarter of 2003. This increase was a result of
the growth in gross written premium in the first quarter of 2003, compared to
the decline in gross written premium in 2002. Also impacting the loss ratio was
an increase in losses related to the Company's mandatory participation in
residual market pools.
Commenting on the first quarter loss ratio, Mr. Cubbin stated: "The temporary
increase in our loss ratio is the anomalous result of the growth of gross
written premium and the decline of net earned premium (Resulting from the
planned premium reductions in 2002). In calculating our calendar quarter loss
ratio, unallocated claims expenses are paid based upon gross written premium
while the dollar amount paid is compared to net earned premium. As net earned
premium increases in future quarters, the impact on the loss ratio calculation
will lessen and the loss ratio should decline accordingly."
Salaries and employee benefits for the first quarter of 2003 increased $2.3
million, or 24.1 %, to $11.9 million, from $9.6 million in the first quarter of
2002, due primarily to increases in staff related to new fee-for-service
contracts.
Policy acquisition and other underwriting expenses decreased $5.2 million, or
58.2%, to $3.8 million in the first quarter of 2003, from $9.0 million in the
comparable period in 2002. The GAAP expense ratio was 36.5% in the first quarter
of 2003, compared to 37.8% in the first quarter of 2002. Reductions in overall
outside commission expense and guaranty fund assessments had a favorable impact
in the first quarter of 2003.
PRESS RELEASE PAGE 3
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Other administrative expenses in the first quarter of 2003 were $7.1 million, an
increase of $1.7 million, or 30.8%, from $5.4 million in the comparable period
in 2002, primarily related to new fee for-service contracts.
Mr. Cubbin further commented, "The fluctuations we are experiencing in gross
written premium volume, ($299.1 million in 2001, $183.6 million in 2002 and
$230-$235 million projected for 2003) are causing unusual values in the
calculation of our loss and expense ratios. The current accident year results
are more reflective of actual improvements year-over-year and are a better
indication of the trends in our continuing business. Additionally, the on-going
growth of our premium and fees will allow us to leverage our fixed costs and
continue to reduce our overall expenses as a percentage of our revenues."
Interest expense decreased $1.0 million, or 81.0%, to $237,000 in the first
quarter of 2003, from the comparable period in 2002. This reflects the decrease
in average outstanding debt of $54.7 million in 2002, to $23.8 million in 2003.
A decline in the effective interest rate also had a favorable impact on the
interest expense during the first quarter of 2003. At March 31, 2003, the
Company's debt to equity ratio was 11.7%, compared to 18.7% at December 31,
2002.
Other Matters:
On May 7, 2003, the Board of Directors elected Merton J. Segal, Chairman of the
Board; Robert S. Cubbin, President and Chief Executive Officer; Gregory L.
Wilde, Executive Vice President; Karen M. Spaun, Senior Vice President and Chief
Financial Officer; and Michael G. Costello, Senior Vice President, General
Counsel and Secretary.
During the quarter, the Board of Directors approved the adoption of Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation". Stock options will be expensed using the prospective method,
which expenses options granted after the beginning of the year of adoption. In
the first quarter of 2003, the Company recorded compensation expense of $86,000
relating to stock options granted in 2003.
Shareholders' equity increased to $149.8 million, or $5.10 per common share, at
March 31, 2003, compared to $147.4 million, or $4.98 per common share, at
December 31, 2002. The increase in shareholders' equity reflects first quarter
net income, share repurchases and unrealized appreciation in the investment
portfolio. During the first quarter of 2003, the Company repurchased and retired
227,800 shares.
Statutory surplus was $90.5 million at March 31, 2003.
Cash flow from operations was a positive $12.8 million dollars for the first
quarter of 2003 compared to cash used in operations of $6.4 million in the same
period of 2002. This positive cash flow in the quarter reflects an increase in
earnings, collections on reinsurance recoverables, collection of higher written
premium, and upfront payments on fee-for-service contracts.
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 insureds of all sizes. 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.
PRESS RELEASE PAGE 4
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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
(IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31, DECEMBER 31,
BALANCE SHEET DATA 2003 2002
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ASSETS
Cash and invested assets $293,207 $286,050
Premium & agents balances 81,315 71,420
Reinsurance recoverable 199,202 202,213
Deferred policy acquisition costs 15,902 12,140
Prepaid reinsurance premiums 17,173 18,115
Goodwill 28,997 28,997
Other assets 56,446 55,904
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TOTAL ASSETS $692,242 $674,839
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LIABILITIES
Loss and loss adjustment
expense reserves $361,923 $374,933
Unearned premium reserves 92,153 68,678
Debt 21,035 32,497
Other liabilities 67,297 51,336
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TOTAL LIABILITIES 542,408 527,444
STOCKHOLDERS' EQUITY
Common stockholders' equity 149,834 147,395
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $692,242 $674,839
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BOOK VALUE PER COMMON SHARE $ 5.10 $ 4.98
BOOK VALUE PER COMMON SHARE EXCLUDING
UNREALIZED GAIN/LOSS ON AVAILABLE FOR SALE
SECURITIES, NET OF DEFERRED TAXES $ 4.81 $ 4.69
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(IN THOUSANDS, EXCEPT FOR THE QUARTER
SHARE & PER SHARE DATA) ENDED MARCH 31,
SUMMARY DATA 2003 2002
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Gross premiums written $ 68,789 $ 57,506
Net premiums written 51,802 37,904
REVENUES
Net premiums earned $ 27,384 $ 38,657
Commissions and fees (net) 13,356 8,964
Net investment income 3,353 3,124
Net capital gains 205 9
Gain on sale of subsidiary - 199
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TOTAL REVENUES 44,298 50,953
EXPENSES
Net losses & loss adjustment expenses (1) 17,186 24,458
Salaries & employee benefits 11,932 9,613
Interest on notes payable 237 1,250
Policy acquisition and other underwriting expenses (1) 3,756 8,986
Other administrative expenses 7,084 5,418
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TOTAL EXPENSES 40,195 49,725
INCOME BEFORE TAXES 4,103 1,228
Federal income tax expense 1,347 318
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NET INCOME $ 2,756 $ 910
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NET OPERATING INCOME (2) $ 2,621 $ 773
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DILUTED EARNINGS PER COMMON SHARE
Net income $ 0.09 $ 0.11
Net operating income $ 0.09 $ 0.09
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 29,510,681 8,512,194
GAAP RATIOS:
Loss & LAE ratio 69.0% 67.4%
Other underwriting expense ratio 36.5% 37.8%
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GAAP combined ratio 105.5% 105.2%
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(1) Both the loss and loss adjustment and expense ratios are calculated based
upon the unconsolidated insurance company operations. The supplemental
information contained on page 7 sets forth the intercompany fees, which are
eliminated in consolidation.
(2) Net operating income is net income less realized gains (losses) net of
taxes associated with such gains (losses).
MEADOW BROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
SUPPLEMENTAL INFORMATION
(In Thousands) FOR THE QUARTER
ENDED MARCH 31,
---------------
2003 2002
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UNCONSOLIDATED GAAP DATA - RATIO CALCULATION TABLE:
Net earned premium $ 27,384 $ 38,657
Consolidated net loss and LAE (1) $ 17,186 $ 24,458
Intercompany claim fees 1,720 1,609
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Unconsolidated net loss and LAE $ 18,906 $ 26,067
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GAAP loss and LAE ratio 69.0% 67.4%
Consolidated policy acquisition and other underwriting expenses (1) $ 3,756 $ 8,986
Intercompany administrative and other underwriting fees 6,235 5,632
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Unconsolidated policy acquisition and other underwriting expenses $ 9,991 $ 14,618
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GAAP other underwriting expense ratio 36.5% 37.8%
GAAP combined ratio 105.5% 105.2%
2003 2002
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UNCONSOLIDATED GAAP DATA - GROSS COMMISSIONS AND FEES:
Managed programs $ 10,362 $ 5,563
Agency commissions 4,147 3,638
Intersegment revenue (1,153) (237)
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Net commissions and fees 13,356 8,964
Intercompany commissions and fees 7,955 7,241
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Gross commissions and fees $ 21,311 $ 16,205
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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
(IN THOUSANDS, EXCEPT
SHARE & PER SHARE DATA)
2001A Q102A Q202A
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SUMMARY DATA
Gross premiums written $ 299,104 $ 57,506 $ 42,816
Net premiums written 186,083 37,904 40,722
INCOME STATEMENT
REVENUES
Net premiums earned $ 163,665 $ 38,657 $ 44,313
Commissions and fees (net) 40,675 8,964 9,968
Net Investment income 14,228 3,124 3,505
Net capital gains (losses) 735 9 (310)
(Loss) gain on sale of subsidiary (1,097) 199 -
TOTAL REVENUES 218,206 50,953 57,476
EXPENSES
Net losses & loss adj. expenses 125,183 24,458 30,638
Policy acquisition and other underwriting expenses 31,662 8,986 10,948
Other administrative expenses 22,778 5,418 6,073
Salaries & employee benefits 44,179 9,613 9,235
Gain on debt reduction - - (359)
Interest on notes payable 4,516 1,250 874
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TOTAL EXPENSES 228,318 49,725 57,409
PRETAX (LOSS) INCOME (10,112) 1,228 67
Federal income tax (benefit) expense (3,602) 318 (55)
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NET (LOSS) INCOME $ (6,510) $ 910 $ 122
Net realized capital (loss) gain, net of tax (239) 138 (205)
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OPERATING (LOSS) INCOME $ (6,271) $ 772 $ 327
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Weighted average common shares outstanding 8,512,186 8,517,861 13,902,073
Shares O/S at end of the period 8,512,194 8,512,194 29,787,194
PER SHARE DATA (DILUTED)
Net (loss) income $ (0.76) $ 0.11 $ 0.01
Net realized capital (loss) gain, net of tax $ (0.02) $ 0.02 $ (0.01)
Operating (loss) income $ (0.74) $ 0.09 $ 0.02
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OPERATING RATIO ANALYSIS
GAAP Loss & LAE ratio 81.1% 67.4% 72.6%
GAAP Expense ratio 36.0% 37.8% 35.8%
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GAAP COMBINED RATIO 117.1% 105.2% 108.4%
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UNCONSOLIDATED GAAP DATA - RATIO CALCULATION TABLE:
Net earned premium $ 163,665 $ 38,657 $ 44,313
Consolidated net loss and LAE $ 125,183 $ 24,458 $ 30,638
Intercompany claim fees 7,520 1,609 1,521
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Unconsolidated net loss and LAE $ 132,703 $ 26,067 $ 32,159
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GAAP NET LOSS AND LAE RATIO 81.1% 67.4% 72.6%
Consolidated Policy acquisition and other underwriting expenses $ 31,662 $ 8,986 $ 10,948
Intercompany administrative and other underwriting fees 27,309 5,632 4,938
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Unconsolidated policy acquisition and other underwriting expenses $ 58,971 $ 14,618 $ 15,886
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GAAP EXPENSE RATIO 36.0% 37.8% 35.8%
GAAP COMBINED RATIO 117.1% 105.2% 108.4%
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UNCONSOLIDATED COMMISSIONS & FEES
Managed programs $ 25,471 $ 5,563 $ 6,088
Agency commissions 15,706 3,638 3,976
Intersegment commissions and fees (502) (237) (96)
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Net Commissions and fees 40,675 8,964 9,968
Intercompany commissions and fees 34,829 7,241 6,459
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Gross commissions and fees $ 75,504 $ 16,205 $ 16,427
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Q302A Q402A 2002A Q103A
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SUMMARY DATA
Gross premiums written $ 40,591 $ 42,724 $ 183,637 $ 68,789
Net premiums written 29,838 31,331 139,795 51,802
INCOME STATEMENT
REVENUES
Net premiums earned $ 31,340 $ 31,073 $ 145,383 $ 27,384
Commissions and fees (net) 8,654 9,995 37,581 13,356
Net Investment income 3,751 3,578 13,958 3,353
Net capital gains (losses) 626 341 666 205
(Loss) gain on sale of subsidiary - - 199 -
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TOTAL REVENUES 44,371 44,987 197,787 44,298
EXPENSES
Net losses & loss adj. expenses 24,639 18,999 98,734 17,186
Policy acquisition and other underwriting expenses 6,945 6,756 33,635 3,756
Other administrative expenses 5,977 5,548 23,016 7,084
Salaries & employee benefits 9,130 9,681 37,659 11,932
Gain on debt reduction - - (359) -
Interest on notes payable 582 315 3,021 237
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TOTAL EXPENSES 47,273 41,299 195,706 40,195
PRETAX (LOSS) INCOME (2,902) 3,688 2,081 4,103
Federal income tax (benefit) expense (1,011) 1,179 431 1,347
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (1,891) $ 2,509 $ 1,650 $ 2,756
Net realized capital (loss) gain, net of tax 413 225 571 135
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OPERATING (LOSS) INCOME $ (2,304) $ 2,284 $ 1,079 $ 2,621
============ ============ ============ ============
Weighted average common shares outstanding 29,785,580 29,644,402 20,543,878 29,510,681
Shares O/S at end of the period 29,744,894 29,591,494 29,591,494 29,363,694
PER SHARE DATA (DILUTED)
Net (loss) income $ (0.06) $ 0.08 $ 0.08 $ 0.09
Net realized capital (loss) gain, net of tax $ 0.02 $ 0.00 $ 0.03 $ 0.00
Operating (loss) income $ (0.08) $ 0.08 $ 0.05 $ 0.09
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OPERATING RATIO ANALYSIS
GAAP Loss & LAE ratio 83.3% 66.1% 72.1% 69.0%
GAAP Expense ratio 36.2% 36.1% 36.5% 36.5%
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GAAP COMBINED RATIO 119.5% 102.2% 108.6% 105.5%
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UNCONSOLIDATED GAAP DATA - RATIO CALCULATION TABLE:
Net earned premium $ 31,340 $ 31,073 $ 145,383 $ 27,384
Consolidated net loss and LAE $ 24,639 $ 18,999 $ 98,734 $ 17,186
Intercompany claim fees 1,474 1,550 6,154 1,720
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Unconsolidated net loss and LAE $ 26,113 $ 20,549 $ 104,888 $ 18,906
============ ============ ============ ============
GAAP NET LOSS AND LAE RATIO 83.3% 66.1% 72.1% 69.0%
Consolidated Policy acquisition and other underwriting expenses $ 6,945 $ 6,756 $ 33,635 $ 3,756
Intercompany administrative and other underwriting fees 4,409 4,466 19,445 6,235
------------ ------------ ------------ ------------
Unconsolidated policy acquisition and other underwriting expenses $ 11,354 $ 11,222 $ 53,080 $ 9,991
============ ============ ============ ============
GAAP EXPENSE RATIO 36.2% 36.1% 36.5% 36.5%
GAAP COMBINED RATIO 119.5% 102.2% 108.6% 105.5%
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UNCONSOLIDATED COMMISSIONS & FEES
Managed programs $ 5,587 $ 6,498 $ 23,736 $ 10,362
Agency commissions 3,113 3,603 14,330 4,147
Intersegment commissions and fees (46) (106) (485) (1,153)
------------ ------------ ------------ ------------
Net Commissions and fees 8,654 9,995 37,581 13,356
Intercompany commissions and fees 5,883 6,016 25,599 7,955
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Gross commissions and fees $ 14,537 $ 16,011 $ 63,180 $ 21,311
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