MEADOWBROOK INSURANCE GROUP, INC. SOUTHFIELD, Mich., March 2, 2015 /PRNewswire/ -- Meadowbrook Insurance Group, Inc. (NYSE: MIG) ("Meadowbrook" or the "Company") reported net income for the year ended December 31, 2014 of $28.7 million, or $0.57 per diluted share, compared to net loss of ($112.3 million), or ($2.25) per dilutive share, for the comparable period of 2013. The 2014 results include $7.1 million, or $0.14 per diluted share, of after-tax realized gains, compared to $5.6 million, or $0.11 per diluted share, for the same period in 2013. The 2013 results were largely impacted by an after-tax goodwill impairment of ($101.6 million), or ($2.04) per share.
The Company reported net income of $7.6 million, or $0.15 per share, for the three months ended December 31, 2014 compared to a net loss of ($11.9 million), or ($0.24) per share, for the three months ended December 31, 2013.
The GAAP combined ratio was 102.1% for the year ended December 31, 2014, compared to a GAAP combined ratio of 111.0% in the same period of 2013. Excluding the impact of the quota share reinsurance treaty, the GAAP combined ratio was 101.8% for the year ended December 31, 2014 and 107.9% for the year ended December 31, 2013. The accident year combined ratio was 102.4% for the year ended December 31, 2014, compared to 101.2% in 2013. The costs associated with the use of an unaffiliated "A" rated insurance company for policy issuance were 2.2% for the year ended December 31, 2014, compared to 0.5% for the same period in 2013.
The full year 2014 results were impacted by the decrease in net ultimate loss estimates for 2013 and prior accident years, which reduced the GAAP combined ratio by $1.7 million, or 0.3 percentage points. By comparison, the full year 2013 results included an increase in net ultimate loss estimates for 2012 and prior accident years of $68.4 million, which increased the GAAP combined ratio by 9.8 percentage points.
Statutory surplus, a non-GAAP measure, increased $22.8 million to $511.0 million at December 31, 2014 from $488.2 million at December 31, 2013.
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 65.7% for the year ended December 31, 2014, compared to 68.9% in 2013.
The expense ratio was 36.7% for the year ended December 31, 2014 compared to 32.3% in the prior year. The 2014 expense ratio excluding the impact of the quota share reinsurance treaty, was 37.0% compared to 33.3% in 2013, or an increase of 3.7 percentage points. This increase in 2014 primarily reflects the cost associated with the use of an unaffiliated "A" rated insurance company for policy issuance which added 1.7 percentage points; a shift in the mix of business, which includes business with a higher average commission rate; deleveraging impact of the anticipated reduction in earned premium associated with the Company's efforts to terminate unprofitable business; and the impacts of a special incentive bonus.
The full year 2014 gross written premium decreased to $742.5 million, compared to $944.0 million in 2013. The decline in premium is attributed to the termination of, or premium reductions in certain programs where pricing and underwriting did not meet the Company's underwriting standards and was partially offset by an overall year to date 6.5% written rate increase.
Pre-tax profit from net commissions and fee revenue for year ended December 31, 2014 was $11.2 million, compared to $13.7 million for 2013. The decrease was primarily due to increased agency commission expense attributable to a recently acquired agency and incentive compensation for a limited plan, which concluded in September, 2014.
General corporate expenses increased to $6.5 million for the year ended December 31, 2004, compared to $4.0 million for 2013 primarily due to increased legal and consulting fees related to the Company's exploration of strategic alternatives and execution of a merger agreement in December of 2014.
Fourth Quarter 2014
On December 30, 2014, the Company executed a merger agreement with Fosun International Limited under which the Company will be acquired for cash consideration of $8.65 per share.
Net income was $7.6 million, or $0.15 per share, for the three months ended December 31, 2014 compared to a net loss of ($11.9 million), or ($0.24) per share, for the three months ended December 31, 2013.
Net operating income was $6.5 million, or $0.13 per share, for the three months ended December 31, 2014 compared to a net operating loss of ($14.8 million), or ($0.30) per share for the three months ended December 31, 2013.
The fourth quarter GAAP combined ratio was 102.1% in 2014 compared to 124.6% in 2013. The fourth quarter 2014 results include 0.5 percentage points of favorable development on accident years 2013 and prior, whereas fourth quarter 2013 results include 18.5 percentage points of adverse development on accident years 2012 and prior. The accident year combined ratio was 102.6% for the quarter ended December 31, 2014, down from 106.1% in the comparable period in 2013. The costs associated with the use of an unaffiliated "A" rated insurance company for policy issuance were 2.4% for the quarter ended December 31, 2014, compared to 1.6% for the same period in 2013.
Other Matters
Dividends:
On February 27, 2015, the Board of Directors declared a quarterly dividend of $0.02 per share payable on March 30, 2015 to shareholders of record as of March 16, 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 years ended December 31, 2014 and December 31, 2013:
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
Meadowbrook Insurance Group, Inc
Consolidated Statutory Surplus to GAAP Shareholders' Equity
For Period Ending: December 2013
Statutory Consolidated Surplus 488,220
Statutory to GAAP differences:
Deferred policy acquisition costs 62,773
Unrealized loss on investments (5,649)
Non-admitted assets and other (5,255)
Total Statutory to GAAP
differences 51,869
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Total Non-Regulated Entities (1) (126,675)
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GAAP Consolidated Shareholders'
Equity 413,413
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(1) Total includes $80,930 of debentures and $130,723 of debt
Net Operating Income (Loss) and Net Operating Income (Loss) Per Share
Net operating income (loss) and net operating income (loss) per share are non-GAAP measures that represent net income (loss) excluding net realized gains or losses, net of tax. The most directly comparable financial GAAP measures to net operating income (loss) and net operating income (loss) per share are net income (loss) and net income (loss) per share, respectively. Net operating income (loss) and net operating income (loss) per share are intended as supplemental information and are not meant to replace net income (loss) or net income (loss) per share. Net operating income (loss) and net operating income (loss) per share should be read in conjunction with our GAAP financial results. The following is a reconciliation of net operating income (loss) to net income (loss), as well as net operating income (loss) per share to net income (loss) per share:
For the Three Months For the Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
2014 2013 2014 2013
---- ---- ---- ----
(In thousands, except share and per share data)
Net operating income (loss) $6,473 $(14,772) $21,547 $(117,908)
Net realized gains, net of tax 1,096 2,922 7,110 5,598
Net income (loss) $7,569 $(11,850) $28,657 $(112,310)
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Diluted earnings per common share:
Net operating income (loss) $0.13 $(0.30) $0.43 $(2.36)
Net income (loss) $0.15 $(0.24) $0.57 $(2.25)
Diluted weighted average common shares
outstanding 50,093,393 49,887,200 50,063,953 49,871,587
Management uses net operating income (loss) and net operating income (loss) 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 (loss) 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 (loss) and net operating income (loss) per share, along with net income (loss) and net income (loss) 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 For the Twelve
Months Months
Ended December Ended December
31, 31,
--------------- ---------------
2014 2013 2014 2013
---- ---- ---- ----
Accident year loss and LAE ratio 65.9% 69.5% 65.7% 68.9%
(Favorable) / adverse development -0.5% 18.5% -0.3% 9.8%
Net loss and LAE ratio 65.4% 88.0% 65.4% 78.7%
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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 the risk that the Company's shareholders do not approve the transaction; 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
DECEMBER 31, DECEMBER 31,
(In Thousands, Except Per Share Data) 2014 2013
------------------------------------ ---- ----
BALANCE SHEET DATA
ASSETS
Cash and invested assets $1,662,521 $1,667,804
Premium and agents balances 175,766 214,144
Reinsurance recoverable 535,425 519,884
Deferred policy acquisition costs 60,862 62,773
Prepaid reinsurance premiums 27,925 63,908
Goodwill 6,857 5,644
Other assets 210,418 227,685
Total Assets $2,679,774 $2,761,842
LIABILITIES
Loss and loss adjustment expense reserves $1,590,359 $1,616,521
Unearned premium reserves 276,350 354,367
Debt (1) 151,282 160,723
Debentures 80,930 80,930
Other liabilities 123,220 135,888
Total Liabilities 2,222,141 2,348,429
SHAREHOLDERS' EQUITY
Common shareholders' equity 457,633 413,413
Total Liabilities & Shareholders' Equity $2,679,774 $2,761,842
Book value per common share $9.14 $8.29
Book value per common share excluding
unrealized gain/loss, net of deferred taxes $8.44 $7.96
Tangible book value per common share $8.56 $7.68
(1) Includes $30.0 million drawdown on the Federal Home Loan Bank ("FHLB") credit facility, under which the Company carried $35.5 million and $30.4 million of high quality fixed income securities
that match the maturity of the FHLB credit facility at December 31, 2014 and December 31, 2013, respectively.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands, Except FOR THE THREE MONTHS FOR THE TWELVE MONTHS
Share & Per Share Data) ENDED DECEMBER 31, ENDED DECEMBER 31,
---------------------- ------------------ ------------------
SUMMARY DATA 2014 2013 2014 2013
------------ ---- ---- ---- ----
Gross written premiums $163,986 $185,232 $742,464 $944,011
Net written premiums 135,336 144,409 601,237 691,637
REVENUES
Net earned premiums $154,860 $169,992 $643,271 $697,417
Net commissions and fees 9,824 10,881 43,173 39,512
Net investment income 11,585 11,870 45,142 46,473
Net realized gains 1,687 3,909 10,939 7,769
Total Revenues 177,956 196,652 742,525 791,171
EXPENSES
Net losses and loss adjustment expenses 101,300 149,603 420,808 549,037
Policy acquisition and other underwriting expenses 56,898 62,227 236,271 225,510
General selling and administrative expenses 6,776 6,839 31,972 25,789
General corporate expenses 2,033 696 6,454 3,997
Amortization expense 1,029 1,091 3,988 4,237
Goodwill impairment expense - - - 115,397
Interest expense 3,460 3,519 13,899 12,950
Total Expenses 171,496 223,975 713,392 936,917
INCOME BEFORE INCOME TAXES AND EQUITY EARNINGS OF AFFILIATES AND UNCONSOLIDATED
SUBSIDIARIES 6,460 (27,323) 29,133 (145,746)
Income tax expense (benefit) (368) (15,548) 4,106 (30,960)
Equity earnings of affiliates, net of tax 739 894 3,609 3,441
Equity earnings (loss) of unconsolidated subsidiaries, net of tax 2 (969) 21 (965)
NET INCOME (LOSS) $7,569 $(11,850) $28,657 $(112,310)
Less: Net realized gains, net of tax 1,096 2,922 7,110 5,598
NET OPERATING INCOME (LOSS) (1) $6,473 $(14,772) $21,547 $(117,908)
Diluted earnings (losses) per common share
Net income (loss) $0.15 $(0.24) $0.57 $(2.25)
Net operating income (loss) $0.13 $(0.30) $0.43 $(2.36)
Diluted weighted average common shares outstanding 50,093,393 49,887,200 50,063,953 49,871,587
GAAP ratios:
Loss & LAE ratio 65.4% 88.0% 65.4% 78.7%
Other underwriting expense ratio 36.7% 36.6% 36.7% 32.3%
GAAP combined ratio 102.1% 124.6% 102.1% 111.0%
(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 DECEMBER 31,
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2014 2014 2013 2013
As Reported Excluding As Reported Excluding
Quota Share Quota Share
Surplus Relief Surplus Relief
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Net earned premium $154,860 $155,390 $169,992 $191,829
Net losses & loss adjustment expenses 101,300 101,083 149,603 163,942
Policy acquisition and other underwriting expenses 56,898 57,609 62,227 68,197
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(Loss) from net earned premium (3,338) (3,302) (41,838) (40,310)
Net investment income 11,585 11,585 11,870 11,870
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Profit from insurance operations $8,247 $8,283 $(29,968) $(28,440)
=== === ===
Net commissions and fees $9,824 $9,824 $10,881 $10,881
General selling & administrative expenses 6,776 6,776 6,839 6,839
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Profit from net commissions & fees $3,048 $3,048 $4,042 $4,042
=== === ===
General corporate expense $2,033 $2,033 $696 $696
Amortization expense 1,029 1,029 1,091 1,091
Goodwill impairment expense - - - -
Interest expense 3,460 3,460 3,519 3,519
----- ----- ----- -----
Other expenses $6,522 $6,522 $5,306 $5,306
=== === ===
Profit from insurance operations $8,247 8,283 (29,968) (28,440)
Profit from net commissions & fees 3,048 3,048 4,042 4,042
Other expenses (6,522) (6,522) (5,306) (5,306)
Net capital gains 1,687 1,687 3,909 3,909
Pretax Profit $6,460 $6,496 $(27,323) $(25,795)
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Key ratios:
GAAP combined ratio 102.1% 102.2% 124.6% 121.0%
Accident year combined ratio(1) 102.6% 103.0% 106.1% 104.7%
(1) 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.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands) FOR THE TWELVE MONTHS
-------------
ENDED DECEMBER 31,
------------------
2014 2014 2013 2013
As Reported Excluding As Reported Excluding
Quota Share Quota Share
Surplus Relief Surplus Relief
-------------- --------------
Net earned premium $643,271 $666,513 $697,417 $842,887
Net losses & loss adjustment expenses(1) 420,808 432,219 549,037 628,901
Policy acquisition and other underwriting expenses 236,271 246,476 225,510 280,933
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(Loss) from net earned premium (13,808) (12,182) (77,130) (66,947)
Net investment income 45,142 45,142 46,473 46,473
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Profit (Loss) from insurance operations 31,334 32,960 (30,657) (20,474)
Net commissions and fees $43,173 $43,174 $39,512 $39,512
General selling & administrative expenses 31,972 31,972 25,789 25,789
------ ------ ------ ------
Profit from net commissions & fees 11,201 11,202 13,723 13,723
General corporate expense $6,454 $6,453 $3,997 $3,997
Amortization expense 3,988 3,989 4,237 4,237
Goodwill impairment expense - - 115,397 115,397
Interest expense 13,899 13,899 12,950 12,950
------ ------ ------ ------
Other expenses 24,341 24,341 136,581 136,581
Profit (Loss) from insurance operations $31,334 32,960 (30,657) (20,474)
Profit from net commissions & fees 11,201 11,202 13,723 13,723
Other expenses (24,341) (24,341) (136,581) (136,581)
Net capital gains 10,939 10,939 7,769 7,769
Pretax Profit (Loss) $29,133 $30,760 $(145,746) $(135,563)
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Key ratios:
GAAP combined ratio 102.1% 101.8% 111.0% 107.9%
Accident year combined ratio(2) 102.4% 102.2% 101.2% 99.8%
(1) The twelve months ended December 31, 2014 include a decrease in net ultimate loss estimates for 2013 and prior accident years of $1.7 million and the twelve months ended December 31, 2013 include an increase in net ultimate loss estimates for 2012 and prior
accident years of $68.4 million.
(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.
