FREMONT, MI -- 11/09/09 --
Fremont Michigan InsuraCorp, Inc. (Fremont)
(OTCBB: FMMH) today reported financial results for the quarter and nine
months ended September 30, 2009 and announced that it is increasing its
quarterly cash dividend.
-- Net income of $.82 per diluted share in third quarter / Net income of
$1.31 per diluted share year to date
-- Combined ratio of 89.8% in third quarter / Combined ratio of 97.4%
year to date
-- Book value per share increases to $25.54 at September 30, 2009, versus
$22.59 at December 31, 2008
Richard E. Dunning, President and CEO, stated, "We are pleased to have
generated a very good combined ratio of 89.8% during the quarter. This
coupled with our investment income has produced solid operating performance
for the quarter. Underwriting discipline and agency partnership are
paramount during these times given the competitiveness of the Michigan
market."
"Our investment portfolio has experienced a nice rebound from the lows
experienced in the first quarter when there was significant disruption in
both the fixed and equity markets," noted Kevin G. Kaastra, Vice President
of Finance. "Profitable operations and good investment performance have
boosted our book value to $25.54 per share. Since the end of 2004, our book
value per share has experienced a compounded annual growth rate of 27.9%.
As we look forward to the future, we will continue to focus on pricing and
underwriting discipline, investment in our technology platform and
maintaining a conservative investment portfolio."
"We are also excited with the recent upgrade to our A.M. Best Financial
Strength Rating to an "A-" (Excellent) rating. The upgrade was an objective
in our long-term strategic plan developed and approved during 2008 as well
as the success received in the Pure Michigan corporate branding initiative
as an independent Michigan exclusive organization," noted Dunning.
The Board of Directors has increased the Company's quarterly cash dividend
from $.03 per share to $.04 per share, or 33%. The Company has declared a
quarterly cash dividend of $.04 per share on the common stock of the
Company payable on December 30, 2009 to shareholders of record on December
14, 2009.
In other Board action, on November 6, 2009, the Board of Directors of
Fremont Michigan InsuraCorp, Inc. elected Mr. James P. Hallan as a director
of the Company with his term as a director effective on November 6, 2009.
Mr. Hallan is the President and Chief Executive Officer of the Michigan
Retailers Association (MRA). He is also a member of MRA's Board of
Directors. Hallan also serves as President and Chief Executive Officer of
Retailers Mutual Insurance Company (RMIC). He is also a member of RMIC's
Board of Directors. Mr. Hallan serves as Chair of the Board of Directors of
Delta Dental Plans of Michigan, Ohio and Indiana and as a director of the
Delta Dental Plan Foundation.
Consolidated Three Months Ended Nine Months Ended
Highlights September 30, September 30,
------------------------------ ------------------------------
(Unaudited) 2009 2008 % 2009 2008 %
Consolidated
revenues $14,310,809 $12,430,693 15.1% $41,804,308 $36,922,726 13.2%
Net income $ 1,467,885 $ 1,301,866 12.8% $ 2,330,700 $ 3,523,306 -33.8%
Weighted
average
shares
outstanding 1,746,202 1,771,044 -1.4% 1,749,718 1,777,364 -1.6%
Basic
earnings per
share $ 0.84 $ 0.74 13.5% $ 1.33 $ 1.98 -32.8%
Diluted
earnings per
share $ 0.82 $ 0.72 13.9% $ 1.31 $ 1.94 -32.5%
Operating
income (1) $ 2,080,223 $ 2,281,000 -8.8% $ 2,997,078 $ 5,290,721 -43.4%
Operating
income per
share (1) $ 1.19 $ 1.29 -7.8% $ 1.71 $ 2.98 -42.6%
Cash
dividends
declared per
share $ 0.03 $ 0.03 0.0% $ 0.09 $ 0.03 200.0%
Book value
per share $ 25.54 $ 22.65 12.8% $ 25.54 $ 22.65 12.8%
(1) Please refer to the Non-GAAP financial measures section of this
release for further explanation of this measure.
Our net income was $1,468,000 or $.82 per diluted share in the third
quarter of 2009 compared to $1,302,000, or $.72 per diluted share, for the
same period a year ago. Operating income was $2,080,000, or $1.19 per
share, compared to $2,281,000, or $1.29 per share, for the same period a
year ago.
Net income for the nine months ended September 30, 2009 was $2,331,000 or
$1.31 per diluted share compared to $3,523,000 or $1.94 per diluted share
in 2008. Operating income was $2,997,000, or $1.71 per share, compared to
$5,291,000, or $2.98 per share, for the same period a year ago.
Stockholder's equity increased $5.3 million or 13.5% in the first nine
months of 2009 due to profitable results and appreciation in the fair value
of our investment portfolio. Since December 31, 2008, the fair value of our
investment portfolio has increased approximately $4.6 million ($3.0
million, net of tax). Book value per share has increased to $25.54 as of
September 30, 2009 compared to $22.59 as of December 31, 2008, an increase
of $2.95 or 13.1%.
During the third quarter, the Company repurchased 10,000 shares of its
stock at a price of $15.60. Since first announcing the repurchase plan in
May 2008, which authorized repurchasing up to 100,000 shares, the Company
has repurchased 56,190 shares at an average price of $17.14.
Consolidated Statement
of Income Three Months Ended Nine Months Ended
(Unaudited) September 30, September 30,
------------------------ ------------------------
2009 2008 2009 2008
----------- ----------- ----------- -----------
Direct premiums written $17,979,342 $16,620,491 $49,698,844 $45,132,718
=========== =========== =========== ===========
Net premiums written $15,120,470 $13,920,858 $41,473,505 $37,157,252
=========== =========== =========== ===========
Net premiums earned $13,561,708 $12,066,502 $39,580,197 $35,061,830
Loss and LAE 7,940,906 6,559,562 25,935,476 19,806,639
Policy acquisition and
other underwriting
expenses 4,237,706 3,941,913 12,608,286 12,018,546
----------- ----------- ----------- -----------
Underwriting gain 1,383,096 1,565,027 1,036,435 3,236,645
Other revenue items
Net investment income 533,649 563,572 1,473,814 1,614,847
Net realized gains
(losses) on
investments 51,974 (351,782) 263,468 (193,180)
Other income 163,478 152,401 486,829 439,229
----------- ----------- ----------- -----------
Total other revenue
items 749,101 364,191 2,224,111 1,860,896
----------- ----------- ----------- -----------
Income before federal
income taxes 2,132,197 1,929,218 3,260,546 5,097,541
Federal income tax
expense 664,312 627,352 929,846 1,574,235
----------- ----------- ----------- -----------
Net income $ 1,467,885 $ 1,301,866 $ 2,330,700 $ 3,523,306
=========== =========== =========== ===========
Earnings per share
Basic $ .84 $ .74 $ 1.33 $ 1.98
Diluted $ .82 $ .72 $ 1.31 $ 1.94
Loss and LAE ratio (1) 58.6% 54.4% 65.5% 56.5%
Policy acquisition &
other underwriting
expense ratio (1) 31.2% 32.7% 31.9% 34.3%
Combined ratio (1) 89.8% 87.1% 97.4% 90.8%
(1) Please refer to the Non-GAAP financial measures section of this
release for further explanation of this measure.
Direct premiums written increased 8.2% during the quarter as a result of
growth in the personal (up 9.8%) and commercial (up 5.1%) segments. In the
personal segment, direct premiums written for personal auto increased 16.2%
due to our continued focus on targeting the companion auto policy when we
already write the homeowner policy. Homeowner premiums increased 4.2% for
the quarter; however, new business volume was down 9.1% due to a focus on
stricter underwriting guidelines coupled with rate increases put into
effect during the second and third quarters. The increase in commercial
premiums is due to renewal premium growth of 11.9%. We continue to review
all commercial renewals to ensure that we are retaining policies that are
appropriately priced for the risk assumed. Year to date, direct premiums
written increased 10.1% led by the personal (up 11.9%), farm (up 8.0%) and
commercial (up 5.8%) segments. Renewal premiums are up 10.1% and new
business premium volume is up 8.7%.
Our loss and LAE ratio was 58.6% during the third quarter compared to 54.4%
in the 2008 quarter. The 4.2 percentage point increase was impacted by
increased losses in the homeowners and workers compensation lines offset by
a decrease in the loss and LAE ratio in the personal auto line. The
homeowners line continues to be hindered by increased frequency and
severity associated with fire losses while workers compensation experienced
higher loss frequency during the 2009 quarter. Personal auto's loss and LAE
declined during the 2009 quarter as result of a decrease in loss severity
coupled with higher net premiums earned.
Year to date we generated a loss and LAE ratio of 65.5% which is up from
56.5% in the prior year period. The increase is a result of higher fire
losses experienced in the personal, commercial and farm segments, an
increase in weather related losses experienced during the first quarter of
2009 and higher loss frequency in the workers compensation line. Offsetting
these factors is a decline in loss severity in the personal auto line.
The Company's expense ratio dropped to 31.2% in the third quarter of 2009
compared to 32.7% in the 2008 quarter. Year to date, the Company's expense
ratio was 31.9% compared to 34.3% last year. The declining expense ratio is
driven by growth in net premiums earned, operating efficiencies, lower
assessments from state mandated pools and associations and lower
depreciation expense in 2009.
Investments
Net investment income was down 5.3% in the third quarter of 2009 and 8.7%
for the year to date period. The decline is due to the lower yield
environment that exists today compared to a year ago. In addition, changes
have been made to the fixed portfolio structure in order to mitigate
interest rate and credit risk resulting in a shorter duration and a lower
tax equivalent yield. The fixed portfolio's tax equivalent book yield and
effective duration were 4.55% and 4.73, respectively, as of September 30,
2009 compared to 5.14% and 4.94, respectively, as of September 30, 2008.
During the second quarter 2009, the Company began adding to its equity
portfolio via purchases of common stocks and mutual funds with an overall
dividend component. Since March 31, 2009, the Company has added
approximately $4,066,000 to the equity portfolio using a proven
professional equity manager. Funding for the equity purchases has come from
existing cash balances, operating cash flow and sales and maturities of
fixed maturities.
Non-GAAP Financial Measures
We believe that disclosure of certain Non-GAAP financial measures enhances
investor understanding of our financial performance. The following Non-GAAP
financial measures are utilized in this release:
Operating income is income before federal income tax expense excluding net
realized investment gains. Because our calculation may differ from similar
measurements used by other companies, investors should be careful when
comparing our measure of operating income to that of other companies. We
include this measurement because we believe it illustrates the performance
of normal, ongoing operations, which is important in understanding and
evaluating the company's financial condition and results of operations.
Combined ratio is a commonly used financial measure of underwriting
performance. A combined ratio below 100 percent generally indicates a
profitable book of business. The combined ratio is the sum of two
separately calculated ratios, the loss and loss adjustment expense ratio
(referred to as the "loss and LAE ratio") and the expense ratio. When
prepared in accordance with GAAP, the loss and LAE ratio is calculated by
dividing the sum of losses and loss adjustment expenses by net premium
earned. The expense ratio is calculated by dividing policy acquisition and
other underwriting expenses by net premiums earned.
About Fremont Michigan InsuraCorp, Inc.
Fremont Michigan InsuraCorp, Inc. is the holding company for Fremont
Insurance Company. Headquartered in Fremont, Michigan, the company provides
property and casualty insurance to individuals, farms and small businesses
exclusively in Michigan. Fremont Michigan InsuraCorp's common stock is
listed on the OTC Bulletin Board (OTCBB) under the symbol "FMMH."
Certain of the statements contained herein (other than statements of
historical facts) are forward-looking statements. Such forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and include estimates and
assumptions related to economic, competitive and legislative developments.
These forward-looking statements are subject to change and uncertainty that
are, in many instances, beyond the company's control and have been made
based upon management's expectations and beliefs concerning future
developments and their potential effect on Fremont Michigan InsuraCorp,
Inc. For a list of factors which could affect the Company's results, see
the Company's filings with the Securities and Exchange Commission,
including "Item 1A. Risk Factors," set forth in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2008. There can be no
assurance that future developments will be in accordance with management's
expectations so that the effect of future developments on the Company will
be those anticipated by management.
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
Assets 2009 2008
------------- ------------
Investments:
Fixed maturities available for sale, at fair
value $ 56,436,776 $ 53,958,783
Equity securities available for sale, at fair
value 10,426,675 4,560,368
Mortgage loans on real estate from related
parties 241,063 247,000
------------- ------------
Total investments 67,104,514 58,766,151
Cash and cash equivalents 6,763,491 6,576,564
Receivable from investments 13,644 -
Premiums due from policyholders, net 9,999,994 8,888,334
Amounts due from reinsurers 7,919,245 6,844,407
Prepaid reinsurance premiums 2,055,485 465,006
Accrued investment income 566,474 594,776
Deferred policy acquisition costs 3,875,902 3,596,147
Deferred federal income taxes 2,955,744 4,741,726
Property and equipment, net of accumulated
depreciation 2,537,704 2,455,766
Other assets 7,409 30,670
------------- ------------
$ 103,799,606 $ 92,959,547
============= ============
Liabilities and Stockholders' Equity
Liabilities:
Losses and loss adjustment expenses $ 21,879,855 $ 21,369,524
Unearned premiums 27,358,865 25,455,624
Reinsurance balances payable 47,117 161,845
Accrued expenses and other liabilities 9,894,326 6,657,625
------------- ------------
Total liabilities 59,180,163 53,644,618
------------- ------------
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value, authorized
4,500,000 shares, no shares
issued and outstanding - -
Class A common stock, no par value, authorized
5,000,000 shares, 1,747,159 and 1,740,154 shares
issued and outstanding at
September 30, 2009 and December 31, 2008,
respectively - -
Class B common stock, no par
value, authorized 500,000 shares,
no shares issued and outstanding - -
Additional paid-in capital 8,955,852 8,653,443
Retained earnings 34,521,250 32,507,143
Accumulated other comprehensive income (loss) 1,142,341 (1,845,657)
------------- ------------
Total stockholders' equity 44,619,443 39,314,929
------------- ------------
Total liabilities and stockholders' equity $ 103,799,606 $ 92,959,547
============= ============
Contact:
Kevin Kaastra
Vice President of Finance
231-924-0300
