Exhibit 99
THE MIDLAND COMPANY
7000 MIDLAND BOULEVARD
AMELIA, OHIO 45102-2607
(513) 943-7100
MAILING ADDRESS
P.O. BOX 1256
CINCINNATI, OHIO 45201
FOR IMMEDIATE RELEASE October 16, 2003
Contact: John I. Von Lehman
Executive Vice President and CFO
(513) 943-7100
THE MIDLAND COMPANY REPORTS THIRD QUARTER 2003 RESULTS
o CONTINUES DOUBLE-DIGIT PREMIUM GROWTH
o HURRICANE ISABEL LOSSES LESS THAN PROJECTED
o EXCLUDING CATASTROPHES, ENCOURAGING PROFITABILITY TRENDS IN MAJOR PRODUCTS
o MANAGEMENT COMMENTS ON OUTLOOK FOR FOURTH QUARTER
CINCINNATI, OCTOBER 16, 2003 -- THE MIDLAND COMPANY (NASDAQ: MLAN), a highly
focused provider of specialty insurance products and services, today reported
net income for the third quarter of $4.3 million, or 23 cents per share,
including 4 cents in realized capital gains, compared with a net loss of $2.6
million, or 15 cents per share in the third quarter of 2002, which included 21
cents per share in realized capital losses. Revenue increased 14.8 percent to
$184.2 million, compared with $160.5 million in last year's third quarter. All
per-share data is presented on an after-tax, diluted basis.
"The third quarter of 2003 illustrated the value of our business fundamentals,"
commented John W. Hayden, president and chief executive officer. "We are
gratified by the recent profitability trends in our manufactured housing and
site-built dwelling programs. The profit trends from these lines of business are
evidence of the aggressive rate increases, product design changes and
positioning strategies that we've undertaken.
"We are pleased to report that actual losses from Hurricane Isabel appear to be
less than were previously expected," he continued. "Gross losses from Hurricane
Isabel were approximately $9.0 million. After the benefit of our normal
catastrophe reinsurance program along with a one-time `second-event' coverage,
the hurricane had an after-tax earnings impact of 13 cents per share. As we
indicated in our press release on September 23, our third quarter was still
somewhat negatively impacted by a higher-than-normal level of catastrophe
losses.
"Total pre-tax catastrophe losses for the third quarter (net of reinsurance)
were $7.9 million, or 29 cents per share, compared with $4.4 million, or 16
cents per share in the third quarter of 2002. We believe that a normalized
historical average level of pre-tax catastrophe losses for a third quarter would
be approximately $5.9 million, or 21 cents per share," Hayden said.
"While weather and other unpredictable events can always impact our short-term
performance, we believe that our disciplined approach to underwriting and our
commitment to rate adequacy positions us to achieve our long-term objective of
consistently creating value for our shareholders," Hayden added.
Midland's wholly owned insurance subsidiary, American Modern Insurance Group,
specializes in insurance products and services such as manufactured housing,
site-built homes, motorcycles, watercraft, snowmobiles, recreational vehicles
and credit life and related products. American Modern's products and services
are offered through diverse distribution channels.
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THE MIDLAND COMPANY REPORTS THIRD QUARTER 2003 RESULTS
OCTOBER 16, 2003
DOUBLE-DIGIT PREMIUM GROWTH TREND CONTINUES
For the third quarter, American Modern's property and casualty gross written
premiums grew 14.6 percent to $184.3 million, including manufactured housing
gross written premium growth of 7.8 percent to $88.6 million.
"The continued growth of our manufactured housing line is extremely encouraging
in light of the challenges that have plagued the manufactured housing industry
over the past several years," Hayden said. "This growth is a consequence of
continued rate increases in our manufactured housing line, but we also believe
that the trend speaks to the strength of our commitment to this market, and to
our deep roots in the industry. At the same time, we are encouraged by signs of
recovery and our position to leverage opportunities in the manufactured housing
marketplace in the future."
Hayden indicated that gross written premiums in American Modern's property and
casualty lines other than manufactured housing - including motorcycle,
site-built dwelling, watercraft, mortgage fire, recreational vehicle, collateral
protection, and collector automobile - collectively grew 21.8 percent to $95.7
million during the third quarter. "Our diversification strategy continues to
demonstrate its value," he said. "As the manufactured housing market seeks
stability, we have been able to maintain a healthy growth rate due to the
continued contribution of our other specialty lines.
"Previous rate increases factor significantly into our overall premium growth
and we are continuing to aggressively pursue rate increases across all product
lines," Hayden added. "This is particularly evident in our motorcycle line,
where the timing of our entry into the market constrained our ability to
increase rates. We are consciously restraining growth in this area as we focus
on profitability. Accordingly, motorcycle premium rose just 4.4 percent in the
third quarter compared to prior year levels."
Hayden noted that the company's specialty focus runs across multiple lines and
multiple distribution channels.
"We believe this structure adds stability and diversification to our product and
service offering while solidifying our reputation as one of the nation's leading
specialty insurance companies," Hayden said.
CATASTROPHE AND SEASONAL LOSSES IMPACT UNDERWRITING RESULTS
For the third quarter, American Modern's property and casualty combined ratio
(losses and expenses as a percent of earned premiums) was 104.7 percent,
compared with 107.3 percent a year ago. Catastrophe losses accounted for 4.9
percentage points of this year's third quarter combined ratio, compared with 3.0
percentage points in the same period in 2002. The combined ratio calculations
include the effect of the reclassification of policy service fees that was
implemented in the second quarter of 2003. This reclassification resulted in
increasing the reported combined ratio by approximately 1.3 percentage points
for both the quarter and the first nine months of 2003 and approximately 1.2
percentage points for the quarter and first nine months of the prior year.
"From a profitability perspective, our third quarter was also impacted by a
higher-than-expected level of losses from our motorcycle product line," Hayden
said. "This trend is consistent with what we've discussed in prior quarters. We
had originally projected a loss of approximately 21 cents per share (after-tax)
related to the motorcycle product, reflecting the seasonality that is expected
with this line of business. Remember that the peak usage of motorcycles occurs
in the summer months. Our actual loss on this line in the third quarter came in
at approximately 28 cents per share, up from 17 cents in the third quarter of
2002. For the first nine months of 2003, the loss on motorcycle totaled 45
cents, up from 17 cents in the first nine months of 2002."
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THE MIDLAND COMPANY REPORTS THIRD QUARTER 2003 RESULTS
OCTOBER 16, 2003
Hayden emphasized that the company is taking aggressive action to address the
profitability of the motorcycle line. "Rate increases of 20 to 25 percent have
been approved and should begin to impact profitability in the next 12 to 24
months. The addition of several seasoned industry professionals to our
motorcycle team is allowing us to take a more focused approach in restructuring
and repositioning this product in the marketplace. Motorcycle will be an
important product line for our company in the years ahead," Hayden said.
"On a more positive note, we are pleased to report that the results from the
commercial liability lines that we exited some time ago were generally in line
with our expectations for the third quarter, after an unexpected uptick in the
second quarter. We remain hopeful that this positive trend will continue in the
coming quarters as we complete the run off of this book," Hayden said.
NINE-MONTH RESULTS
For the nine months ended September 30, 2003, net income was $13.3 million, or
74 cents per share, including 8 cents per share of realized capital gains,
compared with $11.1 million, or 62 cents per share, including 26 cents per share
in realized capital losses and 8 cents per share related to a change in
accounting principle, for the comparable period in 2002. Revenue for the first
nine months was $532.2 million compared with $472.0 million last year, a 12.7
percent increase.
American Modern's total property and casualty gross written premiums grew 13.0
percent to $510.4 million through the first nine months of 2003. Manufactured
housing gross written premiums rose 6.9 percent for the nine months, even though
we faced persistent challenging market conditions. Gross written premiums in all
other specialty lines such as motorcycle, watercraft, site-built dwelling,
mortgage fire, recreational vehicle and collector automobile products have
collectively grown 19.4 percent to $263.6 million.
INVESTMENT PORTFOLIO
The market value of Midland's investment portfolio rose to $792.7 million at
September 30, 2003, compared with $715.2 million a year earlier. Net pre-tax
investment income (excluding capital gains/losses) declined to $8.2 million for
the third quarter compared with $8.7 million in last year's third quarter, a 5.9
percent decrease. For the nine months, net pre-tax investment income declined
5.7 percent over the year-ago period, a reflection of the ongoing low
interest-rate environment. The annualized pre-tax equivalent yield, on a cost
basis, of American Modern's fixed income portfolio was 5.5 percent in the first
nine months of 2003, compared with 6.5 percent in the first nine months of 2002.
Pre-tax net unrealized gains on Midland's fixed income portfolio were $30.0
million at September 30, 2003, up from $28.2 million at December 31, 2002.
Pre-tax net unrealized gains on Midland's equity portfolio were $65.9 million,
up from $47.6 million at December 31, 2002.
STEADY BOOK VALUE GROWTH
Midland's shareholders' equity increased to a record $333.9 million, or $18.95
per share, at September 30, 2003, up 13.0 percent (on a per share basis) from
$294.6 million, or $16.77 per share, at September 30, 2002. The company's book
value per share has grown at a compounded annual rate of 10.5 percent over the
last 10 years.
OUTLOOK POSITIVE FOR THE FULL YEAR AND BEYOND
Hayden said that as the company enters the fourth quarter of 2003, management
has reason for optimism. "We like the growth and profitability trends that we're
seeing in several of our largest product lines," he commented. "Overall, we
would expect to achieve top-line property and casualty growth in the 11 to 13
percent range for the full year 2003 while achieving a combined ratio in the
range of 101 to 103 percent (including the 1.3 percentage point reclassification
add-back), assuming normal weather patterns. Investment income is expected to
continue to be approximately 5 to 7 percent less than the prior year for the
balance of the year.
Page 3 of 7
THE MIDLAND COMPANY REPORTS THIRD QUARTER 2003 RESULTS
OCTOBER 16, 2003
"With all of the uncertainty in the insurance marketplace, we believe there has
never been a better time to be a specialty insurer," Hayden added. "We believe
we can leverage our expertise in our chosen niches, and continue to create value
for our policyholders, business partners and shareholders. We believe we are in
a unique position of strength, and we look to leverage that strength in the
months and years ahead.
"We are firmly committed to achieving consistent, profitable growth," Hayden
said. "Our chosen specialty niches provide a pathway to profits. By fully
focusing on our key operating principles and our business strategies, we believe
we will continue to outperform over the long term."
ABOUT THE COMPANY
Midland, which is headquartered in Cincinnati, Ohio, is a provider of specialty
insurance products and services through its wholly owned subsidiary, American
Modern Insurance Group, which accounts for approximately 96 percent of Midland's
consolidated revenue. American Modern specializes in writing physical damage
insurance and related coverages on manufactured housing and has expanded to
other specialty insurance products including coverage for site-built homes,
motorcycles, watercraft, snowmobiles, recreational vehicles, physical damage on
long-haul trucks, extended service contracts, credit life and related products
as well as collateral protection and mortgage fire products sold to financial
institutions and their customers. Midland also owns a niche transportation
business, M/G Transport Group, which operates a fleet of dry cargo barges for
the movement of dry bulk commodities on the inland waterways. Midland's common
stock is traded on the Nasdaq National Market under the symbol MLAN. Additional
information on the company can be found on the Internet at
www.midlandcompany.com.
FORWARD LOOKING STATEMENTS DISCLOSURE
Certain statements made in this press release are forward-looking and are made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These statements include certain discussions relating to underwriting,
premium and investment income volume, business strategies, profitability and
business relationships, as well as any other statements concerning the year 2003
and beyond. The forward-looking statements involve risks, uncertainties and
other factors that may cause results to differ materially from those anticipated
in those statements. Factors that might cause results to differ from those
anticipated include, without limitation, adverse weather conditions, changes in
underwriting results affected by adverse economic conditions, fluctuations in
the investment markets, changes in the retail marketplace, changes in the laws
or regulations affecting the operations of the company or its subsidiaries,
changes in the business tactics or strategies of the company, its subsidiaries
or its current or anticipated business partners, the financial condition of the
company's business partners, acquisitions or divestitures, changes in market
forces, litigation and the other risk factors that have been identified in the
company's filings with the SEC, any one of which might materially affect the
operations of the company or its subsidiaries. Any forward-looking statements
speak only as of the date made. We undertake no obligation to update any
forward-looking statements to reflect events or circumstances arising after the
date on which they are made.
Page 4 of 7
MIDLAND REPORTS THIRD QUARTER 2003 RESULTS
OCTOBER 16, 2003
THE MIDLAND COMPANY
FINANCIAL HIGHLIGHTS
(UNAUDITED)
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- -------------------------------------
2003 2002 % CHANGE 2003 2002 % CHANGE
-------- -------- -------- -------- -------- --------
Revenues $184,222 $160,476 14.8% $532,152 $471,991 12.7%
======== ======== ====== ======== ======== ======
Income (Loss) Before Cumulative Effect
of Change in Accounting Principle and
Capital Gains (Losses)* $ 3,516 $ 1,029 241.7% $ 11,865 $ 17,136 -30.8%
====== ======
Net Cumulative Effect of Change
in Accounting Principle -- -- -- (1,463)
Net Capital Gains (Losses) 773 (3,644) 1,456 (4,529)
-------- -------- -------- ========
Net Income (Loss) $ 4,289 $ (2,615) 264.0% $ 13,321 $ 11,144 19.5%
======== ======== ====== ======== ======== =======
Income (Loss) per Share (Diluted) Before
Cumulative Effect of Change in
Accounting Principle and Capital
Gains (Losses)* $ 0.19 $ 0.06 216.7% $ 0.66 $ 0.96 -31.3%
====== ======
Net Cumulative Effect of Change in
Accounting Principle (Diluted) -- -- -- (0.08)
Net Capital Gains (Losses) per Share (Diluted) 0.04 (0.21) 0.08 (0.26)
-------- ------- -------- --------
Net Income (Loss) per Share (Diluted) $ 0.23 $ (0.15) 253.3% $ 0.74 $ 0.62 19.4%
======== ======== ======= ======== ======== ======
Dividends Declared per Share $0.04750 $0.04375 8.6% $0.14250 $0.13125 8.6%
======== ======== ======= ======== ======== ======
Market Value per Share $ 21.26 $ 16.83 26.3% $ 21.26 $ 16.83 26.3%
======== ======== ======= ======== ======== ======
Book Value per Share $ 18.95 $ 16.77 13.0% $ 18.95 $ 16.77 13.0%
======== ======== ======= ======== ======== ======
Shares Outstanding 17,626 17,570 17,626 17,570
======== ======== ======== ========
AMIG's Property and Casualty Operations:
Direct and Assumed Written Premium $184,296 $160,790 14.6% $510,449 $451,566 13.0%
======== ======== ======= ======== ======== ======
Net Written Premium $168,503 $154,206 9.3% $476,298 $431,737 10.3%
======== ======== ======= ======== ======== ======
Combined Ratio (GAAP) 104.7% 107.3% 104.1% 102.0%
======== ======== ======== ========
Combined Ratio (GAAP) -
Excluding Catastrophe Losses 99.8% 104.2% 97.3% 98.2%
======== ======== ======== ========
Dollar amounts in thousands except per share data.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Unless indicated otherwise, the financial information presented above is based
on GAAP.
*Non-GAAP financial measure. Items excluded from this measure are significant
components in understanding and assessing financial performance. The company
believes that this non-GAAP financial measure provides a clearer picture of
the core operations than the GAAP measure of net income, as it removes
potential issues of timing regarding investment gains and losses and any
fluctuations done solely to changes in accounting rules.
Page 5 of 7
MIDLAND REPORTS THIRD QUARTER 2003 RESULTS
OCTOBER 16, 2003
THE MIDLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three-Months Ended Nine-Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues:
Insurance:
Premiums earned $ 164,290 $ 148,417 $ 474,770 $ 425,794
Net investment income 8,195 8,706 24,634 26,114
Net realized investment gains (losses) 1,190 (5,607) 2,240 (6,968)
Other insurance income 3,568 3,460 10,565 9,799
Transportation 6,915 5,404 19,736 16,815
Other 64 96 207 437
--------- --------- --------- ---------
Total $ 184,222 $ 160,476 $ 532,152 $ 471,991
--------- --------- --------- ---------
Costs and Expenses:
Insurance:
Losses and loss adjustment expenses 105,139 98,473 297,222 250,686
Commissions and other policy acquisition costs 44,953 41,704 133,676 124,049
Operating and administrative expenses 21,612 19,685 63,335 62,655
Transportation operating expenses 6,339 5,118 18,756 16,666
Interest expense 961 850 2,782 2,703
--------- --------- --------- ---------
Total $ 179,004 $ 165,830 $ 515,771 $ 456,759
--------- --------- --------- ---------
Income (Loss) Before Federal Income Tax and Cumulative
Effect of Change in Accounting Principle 5,218 (5,354) 16,381 15,232
Provision (Credit) for Federal Income Tax 929 (2,739) 3,060 2,625
--------- --------- --------- ---------
Income (Loss) Before Cumulative Effect of Change
in Accounting Principle 4,289 (2,615) 13,321 12,607
Cumulative Effect of Change in Accounting Principle -- -- -- (1,463)
--------- --------- --------- ---------
Net Income (Loss) $ 4,289 $ (2,615) $ 13,321 $ 11,144
========= ========= ========= =========
Basic Earnings (Losses) per Common Share:
Income (Loss) Before Cumulative Effect of Change in
Accounting Principle and Capital Gains (Losses)* $ 0.20 $ 0.06 $ 0.68 $ 0.99
Cumulative Effect of Change in Accounting Principle -- -- -- (0.08)
Capital Gains (Losses) 0.05 (0.21) 0.09 (0.27)
--------- --------- --------- ---------
Total $ 0.25 $ (0.15) $ 0.77 $ 0.64
========= ========= ========= =========
Diluted Earnings (Losses) per Common Share:
Income (Loss) Before Cumulative Effect of Change in
Accounting Principle and Capital Gains (Losses)* $ 0.19 $ 0.06 $ 0.66 $ 0.96
Cumulative Effect of Change in Accounting Principle -- -- -- (0.08)
Capital Gains (Losses) 0.04 (0.21) 0.08 (0.26)
--------- --------- --------- ---------
Total $ 0.23 $ (0.15) $ 0.74 $ 0.62
========= ========= ========= =========
Dividends per Common Share $ 0.04750 $ 0.04375 $ 0.1425 $ 0.13125
========= ========= ========= =========
NOTE:
Dollar amounts in thousands except per share data.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Basic earnings per common share have been computed by dividing net income
by 17,411 shares in 2003 and 17,312 shares in 2002.
Diluted earnings per common share have been computed by dividing net income
by 17,913 for the third quarter and 17,919 shares on a year-to-date basis
in 2003 and by 17,341 for the third quarter and 17,868 shares on a
year-to-date basis in 2002. The calculations comprehend outstanding stock
options and restricted stock awards.
The Cumulative Effect of Change in Accounting Principle relates to
transition adjustment for the adoption of SFAS 142 "Goodwill and Other
Intangible Assets".
* Non-GAAP financial measure. Items excluded from this measure are
significant components in understanding and assessing financial
performance. The company believes that this non-GAAP financial measure
provides a clearer picture of the core operations than the GAAP measure of
net income, as it removes potential issues of timing regarding investment
gains and losses and any fluctuations done solely to changes in accounting
rules.
Page 6 of 7
MIDLAND REPORTS THIRD QUARTER 2003 RESULTS
OCTOBER 16, 2003
THE MIDLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30,
ASSETS 2003 2002
---------- ----------
Cash and Marketable Securities $ 798,975 $ 722,958
Receivables - Net 168,630 177,292
Property, Plant and Equipment - Net 69,410 61,618
Deferred Insurance Policy Acquisition Costs 93,936 102,261
Other 18,445 17,869
---------- ----------
Total Assets $1,149,396 $1,081,998
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Unearned Insurance Premiums $ 405,838 $ 430,149
Insurance Loss Reserves 198,159 160,078
Long-Term Debt 55,447 47,533
Short-Term Borrowings 22,267 34,327
Deferred Federal Income Tax 42,775 28,896
Other Payables and Accruals 90,973 86,379
Shareholders' Equity 333,937 294,636
---------- ----------
Total Liabilities and Shareholders' Equity $1,149,396 $1,081,998
========== ==========
Market Value per Common Share $ 21.26 $ 16.83
========== ==========
Book Value per Common Share $ 18.95 $ 16.77
========== ==========
Common Shares Outstanding 17,626 17,570
========== ==========
NOTE: Amounts in thousands except per share data.
Page 7 of 7