SOUTHFIELD, Mich., Nov. 3 /PRNewswire-FirstCall/ --
- Gross Written Premium up 48.2%
- Net Operating Income of $0.23 per diluted share
- Net income of $0.09 per diluted share
- Combined Ratio of 96.7%
- Declared Quarterly Dividend of $0.02 per share
Third Quarter Overview:
Meadowbrook Insurance Group, Inc. (NYSE: MIG) reported net operating
income, a non GAAP measure, of $10.9 million or $0.23 per diluted share and
net income of $4.2 million, or $0.09 per diluted share for the quarter ended
September 30, 2008. Third quarter net income includes the after-tax impacts
of Hurricanes Gustav and Ike, which are now estimated at $5.4 million, or
$0.11 per diluted share, and an after-tax realized capital loss of $6.7
million, or $0.14 per diluted share. The realized capital loss was primarily
due to the other than temporary impairments of Freddie Mac, Fannie Mae and
Lehman Brothers preferred stock.
The 2008 third quarter GAAP combined ratio was 96.7%, including 8.1
percentage points of property catastrophe losses from the above mentioned
hurricanes. This compares to a combined ratio of 93.8% for the third quarter
of 2007. The loss ratio for the third quarter of 2008 was 65.7% including the
8.1 percentage points from the two hurricanes, compared to 59.9% for the third
quarter of 2007. The 2008 third quarter combined ratio includes an expense
ratio of 31.0% compared to 33.9% for the same period in 2007. The expense
ratio improvement is due primarily to the reduction of fronting fees and the
Company's ability to leverage fixed costs across a larger earned premium base.
Commenting on the Company's results, Meadowbrook President and Chief
Executive Officer Robert S. Cubbin stated, 'While our net income was adversely
impacted by the unanticipated crisis in the financial markets and the two
hurricanes, we are pleased with our core operating results. Gross written
premium grew by 48.2% to $134.4 million, which includes $37.8 million from
ProCentury for the two months following the closing on the merger. Excluding
ProCentury, gross written premium grew by 6.5%. Our operating profitability
continued despite a competitive market and the $5.4 million after-tax impact
of the two hurricanes, with only two months of premium from ProCentury. New
business initiatives from 2007 and 2008 have gained traction while we continue
to be selective in our growth and disciplined in our underwriting. We are
diligently monitoring achieved rates and see signs of a near term change to
more adequate pricing levels as the multiple negative impacts from recent
events are being realized. Our balance sheet remains under-levered and we are
well capitalized to grow our premium writings without the need to raise new
equity. The elimination of fronting fees and our ability to further leverage
fixed costs have contributed to the continuing improvement in the expense
ratio.'
Net operating income was adversely impacted by an after-tax realized loss
of $6.7 million, or $0.14 per diluted share, which consists of the previously
announced realized losses from preferred stock holdings of Fannie Mae, Freddie
Mac and Lehman Brothers. There was also some modest decline in the debt
security investment portfolio, primarily from GMAC and Lehman Brothers bonds
that have become impaired.
Commenting on the investment portfolio, Meadowbrook Chief Financial
Officer Karen M. Spaun stated, 'Meadowbrook maintains a conservative
investment portfolio, which focuses on high quality fixed income securities
and an appropriate level of liquidity. Consequently, the recent financial
crisis and its impact on Fannie Mae, Freddie Mac and Lehman Brothers only had
a 1.5% impact on our book value. We closely match the duration of our assets
to our liabilities and we have historically had and anticipate future positive
operating cash flows which allow us to hold securities to maturity and avoid
any forced sales to meet liquidity requirements. At September 30, 2008, 98.5%
of our bonds are investment grade.'
The effective tax rate for the third quarter of 2008 was 44.5%. The
unusually high effective tax rate for the quarter reflects the impact of
establishing a $2.0 million deferred tax valuation allowance relating to the
previously mentioned other than temporary impairments of Freddie Mac, Fannie
Mae and Lehman Brothers preferred stock. The valuation allowance was
established based upon our expectation that we will not recognize taxable
capital gains to offset the tax benefits from these capital losses. Our
investment and tax strategies reflect our intent and ability to hold our debt
securities to maturity.
Year-to-Date Overview:
Net operating income for the nine months ended September 30, 2008 was
$26.5 million, or $0.65 per diluted share and net income was $19.7 million, or
$0.48 per share. The after-tax impact of catastrophe losses for the nine
months ended September 30, 2008 was $5.4 million, or $0.13 per diluted share.
The year to date GAAP combined ratio for 2008 was 94.0% and includes 3.3
percentage points of catastrophe losses, compared to a combined ratio of 95.7%
for the same period in 2007. The loss ratio for the nine months ended
September 30, 2008 was 63.2% compared to 61.7% for the same period in 2007.
The combined ratio for the nine months ended September 30, 2008 includes an
expense ratio of 30.8% compared to 34.0% for the same period in 2007.
The year to date net operating income of $26.5 million was impacted by
after-tax realized losses of $6.9 million, or $0.17 per diluted share, due
primarily to the realized investment losses recorded in the third quarter.
Amortization expense for the nine months ended September 30, 2008, was $4.6
million, or $0.11 per diluted share.
Other Matters
ProCentury's Results:
Meadowbrook's results for the three and nine months ended September 30,
2008 included only two months of ProCentury's results because the effective
date for the closing of the merger was July 31, 2008.
Shareholders' Equity:
Shareholders' equity was $422.6 million, or $7.33 per common share at
September 30, 2008 on a substantially greater number of shares outstanding,
compared to $301.9 million, or $8.16 per common share, at December 31, 2007.
Common stock shares outstanding at September 30, 2008 increased to
57,644,022 from 36,980,070 shares outstanding at September 30, 2007. During
the quarter, we issued 21.1 million shares or $122.5 million of new equity in
conjunction with the ProCentury merger. The total consideration for the
transaction was $220.2 million resulting in estimated goodwill of $48.8
million and an increase in other intangible assets of $30.6 million.
At September 30, 2008, our debt-to-equity ratio was 34.0%, compared to
18.5% at December 31, 2007. Debt to equity excluding debentures was 14.8% at
September 30, 2008 compared to zero at December 31, 2007.
Dividend and Share Repurchases:
On October 31, 2008, our Board of Directors declared a quarterly dividend
of $0.02 per share payable on December 1, 2008, to shareholders of record as
of November 14, 2008.
During the third quarter of 2008, we repurchased 500,000 shares at a cost
of $7.01 per share. The total repurchase authorization is 3,000,000 shares
and 2,500,000 shares remain under the authorization.
Also on October 31, 2008, our Board of Directors elected two former
ProCentury board members, Robert F. Fix and Jeffrey A. Maffett, to our Board.
2008 and 2009 Expectations
We have revised our 2008 earnings guidance to include the effect of the
ProCentury merger. We now expect 2008 net operating income to be between
$37.0 million and $38.0 million, or $0.82 to $0.84 per diluted share. Our
2008 expectations include full year amortization expense of approximately $6.0
million.
For 2009, we expect net operating income to be in a range of $46 million
to $52 million. Gross written premium should be in a range of $725 million to
$740 million. Our combined ratio should be in a range of 95.0% to 97.0%.
Commenting on the 2009 outlook Mr. Cubbin stated, 'Achieving these goals
would result in net operating income of $0.80 to $0.90 per diluted share, and
net operating income, excluding amortization expense of between $0.90 and
$1.00 per diluted share, with approximately 57.6 million shares outstanding.
We view 2009 as a transitional year for the insurance market, and we are
positioning the company to take advantage of price stabilization and then
firming. We have confidence in the revenue synergies that are developing from
the ProCentury merger and expect meaningful value to emerge in the latter part
of 2009 and into 2010. We believe that the newly expanded Meadowbrook will be
well positioned to take advantage of opportunities in the changing specialty
insurance environment.'
About Meadowbrook Insurance Group
Following the recent merger with ProCentury Corporation, Meadowbrook today
includes several agencies, claims and loss prevention facilities, self-insured
management organizations and seven property and casualty insurance
underwriting companies, including one in Bermuda. Meadowbrook has twenty-six
locations in the United States. A leader in the specialty program management
market, Meadowbrook is a risk management organization, specializing in
alternative risk management solutions for agents, professional and trade
associations. 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 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.
