MEADOWBROOK INSURANCE GROUP, INC. SOUTHFIELD, Mich., May 6, 2015 /PRNewswire/ -- Meadowbrook Insurance Group, Inc. (NYSE: MIG) ("Meadowbrook" or the "Company") reported first quarter net income of $8.3 million, or $0.17 per diluted share, compared to net income of $10.4 million, or $0.21 per dilutive share, for the comparable period of 2014. The 2015 results include $0.9 million, or $0.02 per diluted share, of after-tax realized gains, compared to $2.0 million, or $0.04 per diluted share, for the same period in 2014.
The GAAP combined ratio remained unchanged at 99.9% in the first quarter 2015 compared to the first quarter of 2014. The accident year combined ratio was 100.0% for the quarter ended March 31, 2015, compared to 100.3% in 2014. The costs associated with the use of an unaffiliated "A" rated insurance company for policy issuance were 2.4% for the quarter ended March 31, 2015, compared to 2.0% for the same period in 2014.
The first quarter 2015 results were modestly impacted by the decrease in net ultimate loss estimates for 2014 and prior accident years, which reduced the GAAP combined ratio by $0.1 million, or 0.1 percentage points. By comparison, the first quarter 2014 results included a decrease in net ultimate loss estimates for 2013 and prior accident years of $0.7 million, which increased the GAAP combined ratio by 0.4 percentage points.
Statutory surplus, a non-GAAP measure, increased $8.1 million to $519.1 million at March 31, 2015 from $511.0 million at December 31, 2014.
The accident year loss and LAE ratio, a non-GAAP measure that excludes changes in net ultimate loss estimates from prior year loss reserves, was 62.3% for the quarter ended March 31, 2015, compared to 63.9% in 2014.
The expense ratio was 37.7% for the first quarter 2015 compared to 36.4% in the prior year. The first quarter 2015 results include a 0.4 percentage point increase in the cost associated with the use of an unaffiliated "A" rated insurance company for policy issuance, the costs of which are 2.4% for the first quarter 2015 compared to 2.0% in the first quarter 2014. The 2015 increase is the result of the increased maturity of the program. The remaining increase in the 2015 expense ratio is the result of a shift in the mix of business toward business that has a higher average commission rate and a reduction in ceding commissions related to planned reductions in a few programs including the run-off of a workers' compensation servicing carrier treaty.
The first quarter 2015 gross written premium decreased to $190.1 million, compared to $201.7 million in 2014. The decline in premium, as expected, is attributable to the termination of, or the reduction of premium in certain programs for which pricing and/or underwriting risk did not meet the Company's targets. This decline was offset by an overall 2.5% written rate increase.
Pre-tax profit from net commissions and fee revenue for the quarter ended March 31, 2015 was $3.7 million, compared to $3.6 million for 2014.
General corporate, amortization and interest expenses all remained consistent in the first quarter 2015 at $6.0 million, compared to the first quarter 2014 at $6.1 million.
Other Matters
Dividends:
On May 5, 2015, the Board of Directors declared a quarterly dividend of $0.02 per share payable on June 1, 2015 to shareholders of record as of May 21, 2015.
Non-GAAP Measures
Statutory Surplus
Statutory surplus is a non-GAAP measure with the most directly comparable financial GAAP measure being shareholders' equity. The following is a reconciliation of statutory surplus to shareholders' equity for the first quarter 2015:
Meadowbrook Insurance Group, Inc.
Consolidated Statutory Surplus to GAAP Shareholders' Equity
For Period Ending: March 31, 2015
(in thousands)
Statutory
Consolidated Surplus $519,054
Statutory to GAAP
differences:
Deferred policy
acquisition costs 62,883
Unrealized gain on
investments 30,062
Non-admitted assets
and other (19,156)
Total Statutory to
GAAP differences 73,789
Total Non-Regulated
Entities (1) (122,788)
GAAP Consolidated
Shareholders' Equity $470,055
(1) Total includes $80,930 of debentures and $120,184 of debt
Meadowbrook Insurance Group, Inc.
Consolidated Statutory Surplus to GAAP Shareholders' Equity
For Period Ending: December 2014
Statutory Consolidated Surplus 510,999
Statutory to GAAP differences:
Deferred policy acquisition costs 60,862
Unrealized gain on investments 21,414
Non-admitted assets and other (15,553)
Total Statutory to GAAP
differences 66,723
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Total Non-Regulated Entities (1) (120,089)
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GAAP Consolidated Shareholders'
Equity 457,633
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(1) Total includes $80,930 of debentures and $121,282 of debt
Net Operating Income and Net Operating Income Per Share
Net operating income and net operating income per share are non-GAAP measures that represent net income excluding net realized gains or losses, net of tax. The most directly comparable financial GAAP measures to net operating income and net operating income per share are net income and net income per share, respectively. Net operating income and net operating income per share are intended as supplemental information and are not meant to replace net income or net income per share. Net operating income and net operating income per share should be read in conjunction with our GAAP financial results. The following is a reconciliation of net operating income to net income, as well as net operating income per share to net income per share:
For the Three Months
Ended March 31,
2015 2014
---- ----
(In thousands, except share
and per share data)
Net operating income $7,461 $8,390
Net realized gains, net of tax 857 1,966
--- -----
Net income $8,318 $10,356
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Diluted earnings per common
share:
Net operating income $0.15 $0.17
Net income $0.17 $0.21
Diluted weighted average
common shares outstanding 50,185,430 49,984,743
Management uses net operating income and net operating income per share as components to assess our performance and as measures to evaluate the results of our business. Management believes these measures provide investors with valuable information relating to our ongoing performance that may be obscured by the net effect of realized gains and losses as a result of the Company's market risk sensitive instruments, which primarily relate to fixed income securities that are available for sale and not held for trading purposes. Realized gains and losses may vary significantly between periods and are generally driven by external economic developments, such as capital market conditions. Accordingly, net operating income excludes the effect of items that tend to be highly variable from period to period and highlights the results from the Company's ongoing business operations and the underlying profitability of the Company's business. Accordingly, management believes it is useful for investors to evaluate net operating income and net operating income per share, along with net income and net income per share when reviewing and evaluating Meadowbrook's performance.
Accident Year Loss and LAE Ratio
The accident year loss and LAE ratio is a non-GAAP measure and represents the Company's net loss and LAE ratio excluding the impact of any adverse or favorable development on prior year loss and LAE reserves. The most directly comparable financial GAAP measure to the accident year loss ratio and LAE is the net loss and LAE ratio. The accident year loss and LAE ratio is intended as supplemental information and is not meant to replace the loss and LAE ratio. The accident year loss ratio should be read in conjunction with the GAAP financial results. The following is a reconciliation of the accident year loss ratio to the net loss and LAE ratio:
For the Three Months
Ended March 31,
2015 2014
---- ----
Accident year loss and LAE ratio 62.3% 63.9%
(Favorable) / adverse development (0.1%) (0.4%)
----- -----
Net loss and LAE ratio 62.2% 63.5%
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Management uses the accident year loss and LAE ratio as one component to assess the Company's current year performance and as a measure to evaluate, and if necessary, adjust pricing and underwriting. Meadowbrook's net loss and LAE ratio is based on calendar year information. Adjusting this ratio to an accident year loss and LAE ratio allows us to evaluate information based on the current year activity. Management believes this measure provides investors with valuable information for comparison to historical trends and current industry estimates. Management also believes that it is useful for investors to evaluate the accident year loss and LAE ratio and net loss and LAE ratio separately when reviewing and evaluating the Company's performance.
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 six property and casualty insurance underwriting companies. Meadowbrook has twenty-eight 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 http://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 filings with the Securities and Exchange Commission for more information on risk factors. Actual results could differ materially. These factors and risks include, but are not limited to: actual loss and loss adjustment expenses exceeding our reserve estimates; competitive pressures in our business; the failure of any of the loss limitation methods we employ; a failure of additional capital to be available or only available on unfavorable terms; our geographic concentration and the business, economic, natural perils, man made perils, and regulatory conditions within our most concentrated region; our ability to appropriately price the risks we underwrite; goodwill impairment risk employed as part of our growth strategy; actions taken by regulators, rating agencies or lenders, including the impact of the downgrade by A.M. Best of the Company's Insurance Company Subsidiaries' financial strength rating, A.M. Best's downgrade of our issuer credit rating and any other future action by A.M. Best with respect to such ratings; increased risks or reduction in the level of our underwriting commitments due to market conditions; a failure of our reinsurers to pay losses in a timely fashion, or at all; interest rate changes; continued difficult conditions in the global capital markets and the economy generally; market and credit risks affecting our investment portfolio; liquidity requirements forcing us to sell our investments; a failure to introduce new products or services to keep pace with advances in technology; the new federal financial regulatory reform; our holding company structure and regulatory constraints restricting dividends or other distributions by our Insurance Company Subsidiaries; minimum capital and surplus requirements imposed on our Insurance Company Subsidiaries; our reliance upon producers, which subjects us to their credit risk; loss of one of our core selected producers; our dependence on the continued services and performance of our senior management and other key personnel; our reliance on our information technology and telecommunications systems; managing technology initiatives and obtaining the efficiencies anticipated with technology implementation; a failure in our internal controls; the cyclical nature of the property and casualty insurance industry; severe weather conditions and other catastrophes; the effects of litigation, including the previously disclosed arbitration and class action litigation or any similar litigation which may be filed in the future; state regulation; assessments imposed upon our Insurance Company Subsidiaries to provide funds for failing insurance companies, and risks and uncertainties relating to the proposed transaction with Fosun, including uncertainties as to the timing of the transaction; the risk that regulatory or other approvals required for the transaction are not obtained or are obtained subject to conditions that are not anticipated; competitive responses to the transaction; litigation relating to the transaction; disruptions of current plans and operations caused by the announcement and pendency of the proposed transaction; potential difficulties in employee retention as a result of the announcement and pendency of the proposed transaction; and disruption from the proposed transaction making it more difficult to maintain relationships with agents, wholesalers, suppliers, customers, policyholders and regulators.
For additional information with respect to certain of these and other factors, refer to "Risk Factors" above and subsequent filings made with the United States Securities and Exchange Commission. We are not under any obligation to (and expressly disclaim any obligation to) update or alter our 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
MARCH 31, DECEMBER 31,
(In Thousands, Except Per Share Data) 2015 2014
------------------------------------ ---- ----
BALANCE SHEET DATA
ASSETS
Cash and invested assets $1,678,255 $1,662,521
Premium and agents balances 180,438 175,766
Reinsurance recoverable 539,967 535,425
Deferred policy acquisition costs 62,883 60,862
Prepaid reinsurance premiums 30,957 27,925
Goodwill 6,857 6,857
Other assets 188,412 210,418
Total Assets $2,687,769 $2,679,774
LIABILITIES
Loss and loss adjustment expense reserves $1,578,468 $1,590,359
Unearned premium reserves 289,137 276,350
Debt (1) 150,184 151,282
Debentures 80,930 80,930
Other liabilities 118,995 123,220
Total Liabilities 2,217,714 2,222,141
STOCKHOLDERS' EQUITY
Common stockholders' equity 470,055 457,633
Total Liabilities & Stockholders' Equity $2,687,769 $2,679,774
Book value per common share $9.34 $9.14
Book value per common share excluding
unrealized gain/loss, net of deferred taxes $8.55 $8.44
Tangible book value per common share $8.79 $8.56
(1) Includes $30.0 million drawdown on the Federal Home Loan Bank ("FHLB") credit facility, under which the Company carried $34.3 million and $35.5 million of high quality fixed
income securities that match the maturity of the FHLB credit facility at March 31, 2015 and December 31, 2014, respectively.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands, Except FOR THE THREE MONTHS
Share & Per Share Data) ENDED MARCH 31,
---------------------- ---------------
SUMMARY DATA 2015 2014
------------ ---- ----
Gross written premiums $190,131 $201,695
Net written premiums 157,374 161,949
REVENUES
Net earned premiums $147,619 $162,539
Net commissions and fees 11,519 12,047
Net investment income 10,898 11,261
Net realized gains 1,318 3,025
Total Revenues 171,354 188,872
EXPENSES
Net losses and loss adjustment expenses 91,827 103,190
Policy acquisition and other underwriting expenses 55,725 59,198
General selling and administrative expenses 7,843 8,495
General corporate expenses 1,621 1,633
Amortization expense 957 987
Interest expense 3,408 3,462
Total Expenses 161,381 176,965
INCOME BEFORE INCOME TAXES AND EQUITY EARNINGS OF AFFILIATES AND UNCONSOLIDATED SUBSIDIARIES 9,973 11,907
Income tax expense 2,186 2,846
Equity earnings of affiliates, net of tax 529 1,293
Equity earnings of unconsolidated subsidiaries, net of tax 2 2
NET INCOME $8,318 $10,356
Less: Net realized gains, net of tax 857 1,966
NET OPERATING INCOME (1) $7,461 $8,390
Diluted earnings per common share
Net income $0.17 $0.21
Net operating income $0.15 $0.17
Diluted weighted average common shares outstanding 50,185,430 49,984,743
GAAP ratios:
Loss & LAE ratio 62.2% 63.5%
Other underwriting expense ratio 37.7% 36.4%
GAAP combined ratio 99.9% 99.9%
(1) 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 net
of taxes associated with such gains.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands) FOR THE THREE MONTHS
-------------
ENDED MARCH 31,
---------------
2015 2014
As reported As reported
----------- -----------
Net earned premium $147,619 $162,539
Net losses & loss adjustment expenses(1) 91,827 103,190
Policy acquisition and other underwriting expenses 55,725 59,198
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Profit (loss) from net earned premium 67 151
Net investment income 10,898 11,261
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Profit from insurance operations $10,965 $11,412
Net commissions and fees $11,519 $12,047
General selling & administrative expenses 7,843 8,495
----- -----
Profit from net commissions & fees $3,676 $3,552
General corporate expense $1,621 $1,633
Amortization expense $957 987
Interest expense $3,408 3,462
------ -----
Other expenses $5,986 $6,082
Profit from insurance operations $10,965 $11,412
Profit from net commissions & fees 3,676 3,552
Other expenses (5,986) (6,082)
Net capital gains 1,318 3,025
Pretax Profit $9,973 $11,907
Key ratios:
GAAP combined ratio 99.9% 99.9%
Accident year combined ratio (2) 100.0% 100.3%
Accident year combined ratio (2), excluding the policy issuance fee 97.6% 98.3%
(1) The three months ended March 31, 2015 include a decrease in net ultimate loss estimates for 2014 and prior accident years of $87K and the three months ended March 31, 2014 include a decrease in net
ultimate loss estimates for 2013 and prior accident years of $714K.
(2) The accident year combined ratio is the sum of the expense ratio and accident year loss ratio. The accident year loss ratio measures loss and LAE occurring in a particular year, regardless of when
they are reported and does not take into consideration changes in estimates in loss reserves from prior accident years.
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SOURCE Meadowbrook Insurance Group, Inc.
