SOUTHFIELD, Mich., July 28 MI-Meadowbrook-ern.
SOUTHFIELD, Mich., July 28 /PRNewswire-FirstCall/ --
- Earnings per diluted share of $0.23
- Operating earnings, excluding amortization, grew 50.3% to $10.1 million, or
$0.27 EPS
- Combined Ratio Improves to 90.5%
- Gross Written Premium up 21%
- Declared Quarterly Dividend of $0.02 per share
- Increased Share Repurchase Authorization to 3.0 million shares
- Closing on ProCentury merger set for July 31, 2008.
Second Quarter Overview:
Meadowbrook Insurance Group, Inc. (NYSE: MIG) reported that net income
grew 36.4% to $8.4 million, or $0.23 per diluted share, for the quarter ended
June 30, 2008, compared to net income of $6.2 million, or $0.20 per diluted
share, for the comparable period in 2007. Net operating income, excluding
amortization, which is a non-GAAP measure of cash earnings, increased 50.3% to
$10.1 million, compared to $6.7 million in 2007. Gross written premium in the
quarter grew 21% to $94.4 million, up from $78.0 million in 2007. As a result
of an equity offering last year, common stock shares outstanding at June 30,
2008 increased to 37,021,032, from 30,529,260 shares outstanding at June 30,
2007.
Year-to-Date Overview:
Net income for the six months ended June 30, 2008, increased 18.2% to
$15.5 million, or $0.42 per diluted share, compared to net income of $13.1
million, or $0.44 per diluted share, for the comparable period in 2007.
Year-to-date net operating income, excluding amortization, increased 35.8% to
$18.7 million, or $0.50 per diluted share, compared to $13.8 million, or $0.46
per diluted share in 2007.
Second Quarter highlights included:
-- Quarter-to-date net operating income, excluding amortization,
increased 50.3% to $10.1 million, or $0.27 per diluted share, compared to $6.7
million, or $0.22 per diluted share in 2007.
-- Gross written premium grew 21% to over $94.0 million.
-- Amortization expense increased to $1.6 million, from $543,000 in
2007.
-- Book value per share grew to $8.43, from $8.16 at December 31, 2007.
-- GAAP combined ratio improved to 90.5%, compared to 97.4% in 2007.
-- Pre-tax underwriting income of $7.3 million, up from $1.8 million in
2007.
-- Affirmation of A.M. Best financial strength rating.
-- Receipt of both shareholder and regulatory approval in connection
with ProCentury merger.
-- Establishment of exchange ratio and election deadline in connection
with ProCentury merger.
Year-to-Date highlights included:
-- Year-to-date net operating income, excluding amortization, increased
35.8% to $18.7 million, from $13.8 million in 2007.
-- GAAP combined ratio of 92.1% with pre-tax underwriting income of
$11.3 million.
-- Exercised option to acquire the remaining earnings of the USSU
acquisition.
-- Total revenue grew approximately 6.9%.
Commenting on the results, Meadowbrook President and Chief Executive
Officer Robert S. Cubbin stated:
"We are pleased with the profitable growth we have experienced in our
underwriting subsidiaries despite the competitive environment. We are
beginning to recognize growth from our 2007 marketing initiatives that
followed our A.M. Best upgrade to "A-" in 2007. We remain optimistic that we
will meet our pre-merger 2008 gross written premium targets of $385 to $395
million and will soon begin to realize some of the growth synergies from the
ProCentury merger. We continue to focus on underwriting profits through our
ability to leverage fixed costs and maintain price adequacy. We remain
confident that our growth plans for full year 2008 are achievable."
Second Quarter and Year-to-Date Results:
Net Income:
As noted above, net income for the quarter was up 36.4% to $8.4 million,
or $0.23 per diluted share, compared to net income of $6.2 million, or $0.20
per diluted share in 2007. Net income for the first six months was up 18.2%
to $15.5 million, or $0.42 per diluted share, compared to net income of $13.1
million, or $0.44 per diluted share in 2007.
Net Operating Income, Excluding Amortization (a non-GAAP measure of cash
earnings):
Net operating income, excluding amortization, for the quarter increased
50.3% to $10.1 million, compared to $6.7 million in 2007. For the first six
months, net operating income, excluding amortization, increased 35.8% to $18.7
million, compared to $13.8 million in 2007.
Revenues:
Revenues for the quarter ended June 30, 2008, increased 11.0%, to $93.4
million, compared to $84.2 million in 2007. For the first six months,
revenues increased 6.9%, to $178.6 million, compared to $167.1 million in
2007.
Net earned premiums increased $9.8 million, or 14.6%, to $77.0 million for
the quarter, compared to $67.2 million in 2007. Net earned premiums for the
first six months increased 8.1%, to $143.1 million, compared to $132.4 million
in 2007. This increase was primarily the result of overall growth within our
existing programs and the new business we began writing in 2007 and 2008, as
well as additional selective growth consistent with our corporate underwriting
guidelines and our controls over price adequacy.
Net commissions and fees decreased $1.1 million, or 10.3%, to $9.6 million
for the quarter, compared to $10.7 million in 2007. For the first six months,
net commissions and fees decreased to $21.7 million, compared to $22.3 million
in 2007. In 2008, we converted a portion of the policies produced by USSU to
our insurance company subsidiaries. The intercompany management fees
associated with that portion of the USSU business that we moved to our
insurance company subsidiaries were $1.0 million for the three months ended
June 30, 2008. These fees are now eliminated upon consolidation, but do not
impact overall consolidated results. Excluding the full year impact of this
change, net commission and fees would have been relatively flat in comparison
to the second quarter of 2007. Net commission and fees were partially
impacted by a decrease in fees within a New England-based program and by lower
agency commission revenue, both due to competitive pricing in certain
jurisdictions.
Net investment income increased by 11.0%, to $6.9 million for the quarter
ended June 30, 2008. Year-to-date net investment income increased to $14.1
million, from $12.4 million in 2007. Average invested assets for the quarter
increased $94.4 million to $641.9 million. For the first six months, average
invested assets increased $112.9 million to $647.7 million. The increase in
average invested assets primarily resulted from the positive cash flows from
operations, favorable underwriting results, and the lengthening of the
duration of our reserves. In addition, the increase in average invested
assets includes cash from our equity offering in July 2007.
The average investment yield was 4.31% for June 30, 2008, down from 4.55%
in 2007. The current pre-tax book yield was 4.28%. The current after-tax
book yield was 3.24%, compared to 3.40% in 2007. The duration of the
investment portfolio is 3.9 years.
During the quarter, we recognized a capital loss of $168,000 related to a
single asset-backed security. This asset-backed security had some indirect
sub-prime exposure that is wrapped by insurance from monoline insurer, FGIC.
The security is collateralized by fixed rate second loans originated in 2005.
The security is current on all interest payments, is adequately collateralized
and we have the ability and intent to hold the security to maturity. However,
the present value of the expected cash flows is below the amortized cost of
the security. Therefore, we are required to recognize any unrealized loss as
a capital loss in the income statement. Accordingly, the amortized cost was
reduced at June 30, 2008 to market value.
Our investment portfolio is 99.7% in investment grade securities and we
continue to invest in securities with minimum credit risk. While our
investment portfolio includes investments in mortgage-backed and agency-backed
securities, we do not have any direct exposure to any sub-prime risks.
Mortgage-backed securities, including both commercial and residential
mortgage-backed, were 19.0% of our investment portfolio at June 30, 2008,
compared to 19.5% at June 30, 2007. Asset-backed securities were 3.2% of our
investment portfolio at June 30, 2008, compared to 4.6% at June 30, 2007.
Within the asset-backed sector, we have an indirect exposure to subprime loans
on four securities totaling $2.6 million. Two securities are AAA rated and
have current credit enhancement in excess of the initial credit enhancement.
The other two securities are insured by FGIC, which has been downgraded. As a
result, these two securities have been downgraded to BBB- and BB. Since these
securities no longer bear a rating of high credit quality and are in an
unrealized loss position, we are required to evaluate the securities for other
than temporary impairment charges, in accordance with accounting guidelines.
As a result, an impairment loss of $168,000, as noted above, was recognized on
one of the securities. No impairment was required to be recognized on the
other security. We do not expect any principal loss will be realized on either
security.
Expenses:
The GAAP combined ratio for the quarter improved 6.9 percentage points to
90.5%, compared to 97.4% in 2007. For the first six months, our combined
ratio was 92.1%, compared to 96.8% in 2007, an improvement of 4.7 percentage
points. Our combined ratio was favorably impacted by the elimination of the
fronting fees associated with our prior use of an unaffiliated insurance
carrier, as well as our ability to further leverage fixed costs. In addition,
our combined ratio was favorably impacted by an increase in favorable
development on prior accident years ultimate loss estimates.
Incurred losses were $43.5 million for the quarter ended June 30, 2008,
compared to $39.7 million in 2007. Year-to-date incurred losses were $81.2
million, up from $76.4 million in 2007. The loss and loss adjustment expense
ratio for the quarter improved 2.9 percentage points to 61.2%, from 64.1% in
2007. For the first six months, the loss and loss adjustment expense ratio
improved 1.2 percentage points to 61.5%, from 62.7% in 2007.
For the quarter, our loss and loss adjustment expense ratio included
favorable development of $2.7 million, or 3.5 percentage points, compared to
adverse development of $83,000 in 2007. For the first six months, we had
favorable development on prior accident years of $5.6 million, or 3.9
percentage points, compared to favorable development of $2.1 million, or 1.6
percentage points in 2007.
Policy acquisition and other underwriting expenses decreased 3.4%, to
$12.7 million for the second quarter of 2008, compared to $13.2 million in
2007. The GAAP expense ratio for the quarter improved 4.0 percentage points
to 29.3%, from 33.3% in 2007. Year-to-date policy acquisition and other
underwriting expenses decreased 3.5%, to $25.9 million, from $26.8 million in
2007. The GAAP expense ratio for the year improved 3.5 percentage points to
30.6%, from 34.1% in 2007. The decrease within our expense ratio reflects the
anticipated decrease due to the elimination of the fronting fees paid in 2007
and our continued leveraging of fixed costs as we are able to grow without
adding to our staffing levels.
Salaries and employee benefits for the quarter ended June 30, 2008
increased $1.2 million, or 9.6%, to $14.1 million, from $12.9 million in 2007.
Year-to-date salaries and employee benefits increased to $26.9 million, from
$26.4 million in 2007. This change primarily reflects an increase in variable
compensation, as a result of our favorable results and its relation to our
targeted variable compensation thresholds and an increase in health benefit
costs. Slightly offsetting these unfavorable variances was a decrease in
profit sharing commissions. The decrease in profit sharing commissions was
the result of our purchase of an excess book of business.
Other administrative expenses increased to $8.0 million for the quarter,
from $7.6 million in 2007. Year-to-date other administrative expenses
increased to $16.8 million, from $15.0 million in comparison to 2007. The
year-to-date increase primarily relates to the management fee associated with
the USSU acquisition. These fees were discontinued upon termination of the
Management Agreement we had with the former owners of USSU in January 2008.
Amortization expense for the quarter ended June 30, 2008, increased $1.0
million, to $1.6 million, from $543,000 in 2007. Year-to-date amortization
expense increased $2.4 million, to $3.1 million, from $687,000 in 2007. This
increase in amortization expense primarily relates to the customer
relationships acquired with the USSU business and the excess book of business.
Interest expense for the quarter decreased 24.8%, to $1.3 million, from
$1.7 million in 2007. Year-to-date interest expense decreased 18.7%, to $2.6
million, from $3.2 million in 2007. These decreases primarily reflect a
decrease in the average outstanding balance on our line of credit, as well as
a decrease in our overall average interest rates on our debentures, in
comparison to 2007.
In April 2008, we entered into three interest rate swap transactions to
mitigate our interest rate risk on our remaining $30.0 million in debt not
previously fixed with our prior interest rate swaps entered into in 2005. This
was the result of our overall capital structure, recent interest rate
reductions and the fact that the 3-month LIBOR rate was at its lowest point
since we entered into our prior interest rate swap transactions. As a result,
all of our senior debentures and trust preferred securities now have fixed
interest rates associated with them. The average fixed interest rate
associated with the interest rate swaps was 8.2%, compared to an annualized
rate of 9.6% in 2007.
Other Matters:
Shareholders' Equity:
Shareholders' equity increased to $312.0 million, or $8.43 per common
share, at June 30, 2008, compared to $301.9 million, or $8.16 per common
share, at December 31, 2007. This per share increase in book value primarily
reflects our year-to-date earnings and an increase in unrealized losses, net
of deferred income tax, of $4.4 million.
At June 30, 2008, our debt-to-equity ratio was 17.9%, compared to 18.5% at
December 31, 2007, which is comprised solely of our interest only 30-year
debentures. Excluding these debentures our debt-to-equity ratio would have
been 0% at June 30, 2008.
Dividend and Share Repurchases:
On July 25, 2008, our Board of Directors declared a quarterly dividend of
$0.02 per share payable on September 2, 2008, to shareholders of record as of
August 15, 2008.
At our regularly scheduled Board of Directors meeting of July 25, 2008,
our Board of Directors increased our authorized share repurchases from
1,000,000 to 3,000,000 in market transactions for a period not to exceed
twenty-four months. As of June 30, 2008, we did not repurchase any shares
under our prior share repurchase plan.
Statutory Surplus:
Statutory surplus increased to $205.5 million at June 30, 2008, from
$188.4 million at December 31, 2007. The increase in statutory surplus was
primarily due to statutory net income. As of June 30, 2008, our earned
surplus is $56.0 million, which represents our available dividend potential
from our insurance company subsidiaries to our holding company for capital
strategies, such as acquisitions, dividends, debt repayments, and share
repurchases.
Income Taxes:
The effective federal tax rate for the six months ended June 30, 2008 was
28.9%, compared to 28.3% in 2007. The increase in the effective tax rate from
2007 to 2008 reflects a lower contribution of investment income to pre-tax
income. Investment income represented 63.4% of pre-tax income for the six
months ended June 30, 2008, compared to 66.4% in 2007. This decrease reflects
the improved underwriting results in 2008, compared to 2007, slightly offset
by growth in invested assets from operations and the cash proceeds from the
equity raise in July 2007.
A.M. Best Affirmation:
As previously announced on June 4, 2008, A.M. Best Company affirmed the
financial strength rating of "A-" (Excellent) for our insurance company
subsidiaries.
ProCentury Merger Update:
As announced on July 14, 2008, the shareholders of both Meadowbrook and
ProCentury have now approved the merger of the companies. In addition, and as
recently announced, all regulatory approvals were obtained and we established
the exchange ratio and the election form deadline. The exchange ratio for
ProCentury Corporation common shares exchanged for Meadowbrook common stock in
the merger will be 2.5000. The election form deadline for ProCentury
Corporation shareholders to submit their election forms for selecting the form
of merger consideration to be received upon consummation of the merger has
been set at 5:00 p.m., Eastern Time, on July 30, 2008. The closing on the
transaction is scheduled for July 31, 2008.
Commenting on the finalization of the merger, Robert S. Cubbin stated, "We
are extremely excited that we will be closing on the merger transaction very
soon. We were pleased with the strong support for the merger we received from
the shareholders of both companies and we appreciate the cooperation we
received for the regulators in order to meet our deadlines. Both management
teams have been working together diligently to insure a smooth transition into
one organization. We are excited about the numerous growth opportunities
created by this merger and look forward to finally being able to bring these
two very disciplined operations together."
We expect to provide a more detailed merger update in mid-August 2008.
About Meadowbrook Insurance Group
A leader in the specialty program management market, Meadowbrook is a risk
management organization, specializing in alternative risk management solutions
for agents, professional/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 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. Meadowbrook is not under
any obligation to (and expressly disclaims any such obligation to) update or
alter its 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
JUNE 30, DECEMBER 31,
(In Thousands, Except Per Share Data) 20082007
BALANCE SHEET DATA
ASSETS
Cash and invested assets$643,779$651,601
Premium & agents balances 94,242 87,341
Reinsurance recoverable 200,904 199,514
Deferred policy acquisition costs 28,997 26,926
Prepaid reinsurance premiums 18,669 17,763
Goodwill 60,371 43,497
Other assets 91,244 87,324
Total Assets $1,138,206 $1,113,966
LIABILITIES
Loss and loss adjustment expense reserves $558,864$540,002
Unearned premium reserves159,250 153,927
Debentures55,930 55,930
Other liabilities 52,142 62,213
Total Liabilities 826,186 812,072
STOCKHOLDERS' EQUITY
Common stockholders' equity 312,020 301,894
Total Liabilities & Stockholders' Equity $1,138,206 $1,113,966
Book value per common share $8.43 $8.16
Book value per common share excluding
unrealized gain/loss on available for sale
securities, net of deferred taxes$8.45 $8.07
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands, Except FOR THE QUARTER FOR THE SIX MONTHS
Share & Per Share Data) ENDED JUNE 30, ENDED JUNE 30,
SUMMARY DATA2008 20072008 2007
Gross written premiums $94,370$78,000$184,838 $167,504
Net written premiums76,071 65,670 147,470137,642
REVENUES
Net earned premiums$77,031$67,191$143,053 $132,395
Net commissions and fees 9,632 10,743 21,663 22,294
Net investment income6,917 6,229 14,065 12,385
Net realized (losses)
gains(146)20(177)14
Total Revenues93,434 84,183 178,604167,088
EXPENSES
Net losses & loss
adjustment expenses (1)43,542 39,707 81,203 76,353
Salaries & employee
benefits 14,143 12,900 26,898 26,432
Interest expense 1,254 1,667 2,565 3,154
Policy acquisition and
other underwriting
expenses(1)12,716 13,169 25,863 26,812
Amortization expense 1,563543 3,114687
Other administrative
expenses7,961 7,598 16,793 14,992
Total Expenses81,179 75,584 156,436148,430
INCOME BEFORE INCOME TAXES
AND EQUITY EARNINGS 12,255 8,599 22,168 18,658
Income tax expense 3,879 2,461 6,790 5,610
Equity earnings of
affiliates 61 48 117 61
NET INCOME $8,437 $6,186 $15,495$13,109
NET OPERATING INCOME (2) $8,532 $6,173 $15,610$13,100
Amortization expense 1,563543 3,114687
NET OPERATING INCOME,
excluding amortization
expense (3) $10,095 $6,716 $18,724$13,787
Diluted earnings per common
share
Net income $0.23 $0.20 $0.42 $0.44
Net operating income $0.23 $0.20 $0.42 $0.44
Net operating income,
excluding amortization
expense $0.27 $0.22 $0.50 $0.46
Diluted weighted average
common shares outstanding 37,126,911 30,350,553 37,126,782 29,876,480
GAAP ratios:
Loss & LAE ratio 61.2% 64.1% 61.5% 62.7%
Other underwriting
expense ratio29.3% 33.3% 30.6% 34.1%
GAAP combined ratio 90.5% 97.4% 92.1% 96.8%
(1) Both the loss and loss adjustment and expense ratios are calculated
based upon the unconsolidated insurance company operations. The following
supplemental information sets forth the intercompany fees, which are
eliminated upon consolidation.
(2) 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 (losses) net of taxes
associated with such gains (losses).
(3) While net operating income, excluding amortization expense, is a non-
GAAP disclosure, management believes this information is beneficial to
reviewing the financial statements. Management believes this information is
beneficial as amortization expense reflects an interim non-cash charge and in
the long-term cash earnings will reflect GAAP earnings as we complete the
amortization periods associated with current acquisitions. Net operating
income, excluding amortization expense, is net income less realized gains
(losses) net of taxes associated with such gains (losses) and less
amortization expense.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED UNCONSOLIDATED GAAP DATA
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(In Thousands)
2008 2007 20082007
Unconsolidated GAAP data -
Ratio Calculation Table:
Net earned premiums $77,031$67,191 $143,053$132,395
Consolidated net loss and
LAE (1) $43,542$39,707 $81,203 $76,353
Intercompany claim fees3,629 3,353 6,735 6,648
Unconsolidated net loss and LAE $47,171$43,060 $87,938 $83,001
GAAP loss and LAE ratio 61.2% 64.1% 61.5% 62.7%
Consolidated policy acquisition
and other underwriting
expenses (1)$12,716$13,169 $25,863 $26,812
Intercompany administrative
and other underwriting fees 9,832 9,17817,920 18,330
Unconsolidated policy
acquisition and other
underwriting expenses $22,548$22,347 $43,783 $45,142
GAAP other underwriting
expense ratio 29.3% 33.3% 30.6% 34.1%
GAAP combined ratio 90.5% 97.4% 92.1% 96.8%
2008 2007 20082007
Unconsolidated GAAP data -
Gross Commissions and Fees:
Managed programs:
Management fees$4,174 $5,412 $10,206 $10,287
Claims fees 2,305 2,247 4,485 4,451
Loss control fees 625544 1,135 1,143
Reinsurance brokerage 98 85 394 418
Total managed programs 7,202 8,28816,220 16,299
Agency commissions 2,681 2,860 6,009 6,745
Intersegment revenue(251) (405) (566) (750)
Net commissions and fees 9,632 10,74321,663 22,294
Intercompany commissions and
fees 13,461 12,53124,655 24,978
Gross commissions and fees $23,093$23,274 $46,318 $47,272
Fee-for-service pre-tax income,
excluding amortization $1,708 $3,309$4,246 $7,237
Pre-tax margin on fee-for-
service income 7.4% 14.2% 9.2% 15.3%
(1) Both the loss and loss adjustment and expense ratios are calculated
based upon the unconsolidated insurance company operations. The above table
sets forth the intercompany fees, which are eliminated in consolidation. The
GAAP combined ratio is the sum of the GAAP loss and loss adjustment expense
ratio and the GAAP expense ratio. The GAAP loss and loss adjustment expense
ratio is the unconsolidated net loss and loss adjustment expense in relation
to net earned premium. The GAAP expense ratio is the unconsolidated policy
acquisition and other underwriting expenses in relation to net earned premium.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED ADJUSTED GAAP EXPENSE RATIO SUMMARY
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(In Thousands)
2008 2007 20082007
Net earned premiums $77,031$67,191 $143,053$132,395
Less: Unconsolidated net
loss and LAE 47,171 43,06087,938 83,001
Unconsolidated
policy acquisition
and other
underwriting
expenses 22,548 22,34743,783 45,142
Underwriting income $7,312 $1,784 $11,332 $4,252
GAAP combined ratio as
reported 90.5% 97.4% 92.1% 96.8%
Specialty risk
management operations
pre-tax income $15,617$10,848 $28,529 $22,167
Less: Underwriting income 7,312 1,78411,332 4,252
Net investment
income and capital
gains 6,771 6,24913,888 12,399
Fee-based operations
pre-tax income1,534 2,815 3,309 5,516
Agency operations pre-
tax income 174494 937 1,721
Total fee-for-service
pre-tax income $1,708 $3,309$4,246 $7,237
GAAP expense ratio as
reported 29.3% 33.3% 30.6% 34.1%
Adjustment to
include pre-tax
income from total
fee-for-service
income (1)2.2% 4.9% 3.0%5.5%
GAAP expense ratio as
adjusted (2) 27.1% 28.3% 27.6% 28.6%
GAAP loss and LAE
ratio as reported 61.2% 64.1% 61.5% 62.7%
GAAP combined ratio as
adjusted 88.3% 92.4% 89.1% 91.3%
Reconciliation of
consolidated pre-tax
income:
Specialty risk
management operations
pre-tax income:
Fee-based operations
pre-tax income $1,534 $2,815$3,309 $5,516
Underwriting income 7,312 1,78411,332 4,252
Net investment
income and capital
gains 6,771 6,24913,888 12,399
Total specialty risk
management operations
pre-tax income 15,617 10,84828,529 22,167
Agency operations pre-tax
income 174494 937 1,721
Less: Holding company
expenses 719533 1,619 1,389
Interest expense 1,254 1,667 2,565 3,154
Amortization expense 1,563543 3,114 687
Consolidated pre-tax
income $12,255 $8,599 $22,168 $18,658
(1) Adjustment to include pre-tax income from total fee-for-service income
is calculated by dividing total fee-for-service income by net earned premiums.
(2) While the adjusted GAAP expense ratio is a non-GAAP disclosure,
management believes this information is beneficial to reviewing the financial
statements. The adjusted GAAP expense ratio is the GAAP expense ratio, as
reported, less the adjustment to include pre-tax income from total fee-for-
service income. Management believes this information is beneficial as our GAAP
expense ratio includes the impact of the margin associated with our fee-based
operations. If the profit margin from our fee-for-service business is
recognized as an offset to our underwriting expense, a more realistic picture
of our operating efficiency emerges.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED CASH OPERATING ACTIVITIES SUMMARY FOR
INSURANCE COMPANY AND FEE-BASED SUBSIDIARIES
(In Thousands)FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30,ENDED JUNE 30,
2008 20072008 2007
SUMMARY DATA
Net Income $8,437 $6,186 $15,495 $13,109
Insurance Company Subsidiaries
Net Income$9,643 $5,455 $16,931 $11,071
Adjustments to reconcile net income
to net cash provided by operating
activities2,480(283) 2,877 158
Changes in operating assets and
liabilities 5,848 (1,551) 7,1219,732
Total adjustments 8,328 (1,834) 9,9989,890
Net cash provided by operating
activities $17,971 $3,621 $26,929 $20,961
Fee-based Subsidiaries
Net (loss) income$(1,206) $731 $(1,436) $2,038
Depreciation 760 7881,5051,525
Amortization 1,563 5433,114 687
Interest 1,254 1,6672,5653,154
Net income, excluding interest,
depreciation, and amortization (1)
("EBIDA") $2,371 $3,729 $5,748 $7,404
Adjustments to reconcile net income
to net cash provided by (used in )
operating activities 2,371 8794,2022,452
Changes in operating assets and
liabilities (1,832) (146) (3,548) (3,214)
Total adjustments 539 733 654 (762)
Depreciation (760) (788) (1,505) (1,525)
Amortization(1,563) (543) (3,114)(687)
Interest(1,254) (1,667) (2,565) (3,154)
Net cash (used in) provided by
operating activities$(667) $1,464$(782) $1,276
Consolidated total adjustments 8,867 (1,101) 10,6529,128
Consolidated net cash provided by
operating activities $17,304 $5,085 $26,147 $22,237
(1) While net income, excluding interest, depreciation, and amortization,
is a non-GAAP disclosure, management believes this information is beneficial
to reviewing the financial statements.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION
(In Thousands, Except
Share & Per Share Data)
2005A 2006A
SUMMARY DATA
Gross written premiums $332,209 $330,872
Net written premiums258,134 262,668
INCOME STATEMENT
REVENUES
Net earned premiums$249,959 $254,920
Commissions and fees (net) 35,91641,172
Net investment income17,97522,075
Net realized gains (losses) 16769
Total Revenues 304,017 318,236
EXPENSES
Net losses & loss adjustment
expenses 151,542 146,293
Policy acquisition and other
underwriting expenses 44,43950,479
Other administrative expenses26,81028,824
Salaries & employee benefits 51,33154,569
Amortization expense373 590
Interest expense 3,856 5,976
Total Expenses 278,351 286,731
INCOME BEFORE TAXES AND EQUITY
EARNINGS 25,66631,505
Income tax expense7,757 9,599
Equity earnings of affiliates 1 128
NET INCOME $17,910 $22,034
Net realized capital gain (loss),
net of tax 10945
OPERATING INCOME $17,801 $21,989
Amortization expense373 590
OPERATING INCOME, excluding
amortization expense $18,174 $22,579
Weighted average common shares
outstanding 29,653,06729,566,141
Shares O/S at end of the period 28,672,00929,107,818
PER SHARE DATA (Diluted)
Net income$0.60 $0.75
Net realized gain (loss), net of
tax $- $0.01
Operating income $0.60 $0.74
Operating income, excluding
amortization expense $0.61 $0.76
OPERATING RATIO ANALYSIS
GAAP Loss & LAE ratio65.2% 62.3%
GAAP Expense ratio 33.5% 34.5%
GAAP Combined ratio 98.7% 96.8%
Unconsolidated GAAP data - Ratio
Calculation Table:
Net earned premiums $249,959 $254,920
Consolidated net loss and LAE $151,542 $146,293
Intercompany claim fees 11,52312,553
Unconsolidated net loss and LAE $163,065 $158,846
GAAP Net loss and LAE ratio 65.2% 62.3%
Consolidated Policy acquisition and
other underwriting expenses $44,439 $50,479
Intercompany administrative and other
underwriting fees 39,23137,442
Unconsolidated policy acquisition and
other underwriting expenses $83,670 $87,921
GAAP Expense ratio33.5% 34.5%
GAAP Combined Ratio 98.7% 96.8%
Unconsolidated Commissions & Fees
Managed programs:
Management fees $16,741 $18,714
Claims fees 7,113 8,776
Loss control fees 2,260 2,216
Reinsurance brokerage 660 735
Total managed programs 26,77430,441
Agency commissions 11,30412,285
Intersegment commissions and fees(2,162) (1,554)
Net Commissions and fees 35,91641,172
Intercompany commissions and fees50,75449,995
Gross commissions and fees $86,670 $91,167
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION
(In Thousands, Except
Share & Per Share Data)
Q107A Q207A Q307A Q407A
SUMMARY DATA
Gross written premiums $89,504 $78,000 $90,729 $88,218
Net written premiums 71,972 65,670 73,203 69,366
INCOME STATEMENT
REVENUES
Net earned premiums $65,204 $67,191 $67,337 $68,465
Commissions and fees
(net) 11,551 10,743 13,319 10,375
Net investment income 6,156 6,229 6,788 7,227
Net realized gains
(losses)(6) 20 100 36
Total Revenues 82,905 84,183 87,544 86,103
EXPENSES
Net losses & loss
adjustment expenses 36,646 39,707 37,015 37,601
Policy acquisition and
other underwriting
expenses13,643 13,169 12,927 13,978
Other administrative
expenses 7,394 7,598 9,190 8,087
Salaries & employee
benefits13,532 12,900 15,750 14,251
Amortization expense144 543 622 621
Interest expense 1,487 1,667 1,476 1,400
Total Expenses 72,846 75,584 76,980 75,938
INCOME BEFORE TAXES AND
EQUITY EARNINGS 10,059 8,599 10,564 10,165
Income tax expense3,149 2,461 3,219 2,897
Equity earnings of
affiliates 13 48 210 60
NET INCOME $6,923 $6,186 $7,555 $7,328
Net realized capital
gain (loss), net of tax (4) 13 65 23
OPERATING INCOME $6,927 $6,173 $7,490 $7,305
Amortization expense144 543 622 621
OPERATING INCOME,
excluding amortization
expense $7,071 $6,716 $8,112 $7,926
Weighted average common
shares outstanding 29,465,807 30,350,553 35,378,119 37,074,978
Shares O/S at end of the
period 29,539,236 30,529,260 36,980,070 36,996,287
PER SHARE DATA (Diluted)
Net income$0.23 $0.20 $0.21 $0.20
Net realized gain
(loss), net of tax$- $- $- $-
Operating income $0.23 $0.20 $0.21 $0.20
Operating income,
excluding amortization
expense $0.24 $0.22 $0.23 $0.21
OPERATING RATIO ANALYSIS
GAAP Loss & LAE ratio 61.3% 64.1% 59.9% 59.5%
GAAP Expense ratio 35.0% 33.3% 33.9% 34.5%
GAAP Combined ratio 96.3% 97.4% 93.8% 94.0%
Unconsolidated GAAP data -
Ratio Calculation Table:
Net earned premiums $65,204 $67,191 $67,337 $68,465
Consolidated net loss and
LAE $36,646 $39,707 $37,015 $37,601
Intercompany claim fees 3,295 3,353 3,297 3,113
Unconsolidated net loss
and LAE $39,941 $43,060 $40,312 $40,714
GAAP Net loss and LAE
ratio61.3% 64.1% 59.9% 59.5%
Consolidated Policy
acquisition and other
underwriting expenses$13,643 $13,169 $12,927 $13,978
Intercompany
administrative and other
underwriting fees 9,152 9,178 9,916 9,644
Unconsolidated policy
acquisition and other
underwriting expenses$22,795 $22,347 $22,843 $23,622
GAAP Expense ratio35.0% 33.3% 33.9% 34.5%
GAAP Combined Ratio 96.3% 97.4% 93.8% 94.0%
Unconsolidated Commissions
& Fees
Managed programs:
Management fees$4,875 $5,412 8,376 5,300
Claims fees 2,204 2,247 2,337 2,237
Loss control fees 599 544 489 519
Reinsurance brokerage 333 85 185 326
Total managed programs8,011 8,288 11,387 8,382
Agency commissions3,885 2,860 2,329 2,242
Intersegment commissions
and fees (345) (405) (397) (249)
Net Commissions and fees 11,551 10,743 13,319 10,375
Intercompany commissions
and fees12,447 12,531 13,213 12,757
Gross commissions and
fees $23,998 $23,274 $26,532 $23,132
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION
(In Thousands, Except
Share & Per Share Data)
2007A Q108A Q208A
SUMMARY DATA
Gross written premiums$346,451 $90,468 $94,370
Net written premiums 280,211 71,399 76,071
INCOME STATEMENT
REVENUES
Net earned premiums $268,197 $66,022 $77,031
Commissions and fees (net) 45,988 12,031 9,632
Net investment income 26,400 7,148 6,917
Net realized gains (losses)150 (31) (146)
Total Revenues 340,735 85,170 93,434
EXPENSES
Net losses & loss adjustment
expenses 150,969 37,661 43,542
Policy acquisition and other
underwriting expenses 53,717 13,147 12,716
Other administrative expenses 32,269 8,832 7,961
Salaries & employee benefits56,433 12,755 14,143
Amortization expense 1,930 1,551 1,563
Interest expense 6,030 1,311 1,254
Total Expenses 301,348 75,257 81,179
INCOME BEFORE TAXES AND EQUITY
EARNINGS 39,387 9,913 12,255
Income tax expense 11,726 2,911 3,879
Equity earnings of affiliates 331 56 61
NET INCOME$27,992 $7,058 $8,437
Net realized capital gain (loss),
net of tax 97 (20)(95)
OPERATING INCOME $27,895 $7,078 $8,532
Amortization expense 1,930 1,551 1,563
OPERATING INCOME, excluding
amortization expense $29,825 $8,629 $10,095
Weighted average common shares
outstanding33,101,965 37,103,270 37,126,911
Shares O/S at end of the period 36,996,287 37,021,032 37,021,032
PER SHARE DATA (Diluted)
Net income $0.85 $0.19 $0.23
Net realized gain (loss), net of
tax $0.01$- $-
Operating income $0.84 $0.19 $0.23
Operating income, excluding
amortization expense$0.90 $0.23 $0.27
OPERATING RATIO ANALYSIS
GAAP Loss & LAE ratio 61.2% 61.7% 61.2%
GAAP Expense ratio 34.2% 32.2% 29.3%
GAAP Combined ratio 95.4% 93.9% 90.5%
Unconsolidated GAAP data - Ratio
Calculation Table:
Net earned premiums $268,197 $66,022 $77,031
Consolidated net loss and LAE$150,969 $37,661 $43,542
Intercompany claim fees13,058 3,106 3,629
Unconsolidated net loss and LAE $164,027 $40,767 $47,171
GAAP Net loss and LAE ratio 61.2% 61.7% 61.2%
Consolidated Policy acquisition and
other underwriting expenses $53,717 $13,147 $12,716
Intercompany administrative and other
underwriting fees 37,890 8,088 9,832
Unconsolidated policy acquisition and
other underwriting expenses $91,607 $21,235 $22,548
GAAP Expense ratio 34.2% 32.2% 29.3%
GAAP Combined Ratio 95.4% 93.9% 90.5%
Unconsolidated Commissions & Fees
Managed programs:
Management fees $23,963 $6,032 $4,174
Claims fees 9,025 2,180 2,305
Loss control fees 2,151 510 625
Reinsurance brokerage 929 296 98
Total managed programs $36,068 9,018 7,202
Agency commissions 11,316 3,328 2,681
Intersegment commissions and fees (1,396) (315) (251)
Net Commissions and fees45,988 12,031 9,632
Intercompany commissions and fees 50,948 11,194 13,461
Gross commissions and fees $96,936 $23,225 $23,093
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED HISTORICAL CASH OPERATING ACTIVITIES SUMMARY FOR
INSURANCE COMPANY AND FEE-BASED SUBSIDIARIES
(In Thousands)
2005A 2006A
SUMMARY DATA
Net Income $17,910 $22,034
Insurance Company Subsidiaries
Net Income $13,508 $19,712
Adjustments to reconcile net
income to net cash provided by
operating activities 3,003 3,033
Changes in operating assets and
liabilities 59,78446,915
Total adjustments62,78749,948
Net cash provided by operating
activities $76,295 $69,660
Fee-based Subsidiaries
Net income $4,402$2,322
Depreciation 2,277 2,553
Amortization373 590
Interest 3,856 5,976
Net income, excluding interest,
depreciation, and amortization
("EBIDA") $10,908 $11,441
Adjustments to reconcile net
income to net cash provided by
operating activities 4,444 3,161
Changes in operating assets and
liabilities (3,194) (852)
Total adjustments 1,250 2,309
Depreciation (2,277) (2,553)
Amortization (373) (590)
Interest (3,856) (5,976)
Net cash provided by (used in)
operating activities$5,652$4,631
Consolidated total adjustments 64,03752,257
Consolidated net cash provided by
operating activities $81,947 $74,291
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED HISTORICAL CASH OPERATING ACTIVITIES SUMMARY FOR
INSURANCE COMPANY AND FEE-BASED SUBSIDIARIES
(In Thousands)
Q107A Q207AQ307AQ407A
SUMMARY DATA
Net Income $6,923 $6,186 $7,555 $7,328
Insurance Company Subsidiaries
Net Income $5,616 $5,455 $7,195 $7,329
Adjustments to reconcile net income
to net cash provided by operating
activities 441(283) 668 (130)
Changes in operating assets and
liabilities 11,283 (1,551) 16,602 29,199
Total adjustments 11,724 (1,834) 17,270 29,069
Net cash provided by operating
activities $17,340 $3,621 $24,465 $36,398
Fee-based Subsidiaries
Net income $1,307$731 $360 $(1)
Depreciation 737 788 755 867
Amortization 144 543 622 621
Interest1,488 1,6671,4751,400
Net income, excluding interest,
depreciation, and amortization
("EBIDA")$3,676 $3,729 $3,212 $2,887
Adjustments to reconcile net income
to net cash provided by operating
activities 1,573 8791,4271,998
Changes in operating assets and
liabilities (3,068) (146) 3,734 (2,011)
Total adjustments (1,495)7335,161 (13)
Depreciation(737) (788)(755)(867)
Amortization(144) (543)(622)(621)
Interest (1,488) (1,667) (1,475) (1,400)
Net cash provided by (used in)
operating activities $(188) $1,464 $5,521 $(14)
Consolidated total adjustments 10,229 (1,101) 22,431 29,056
Consolidated net cash provided by
operating activities $17,152 $5,085 $29,986 $36,384
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED HISTORICAL CASH OPERATING ACTIVITIES SUMMARY FOR
INSURANCE COMPANY AND FEE-BASED SUBSIDIARIES
(In Thousands)
2007A Q108A Q208A
SUMMARY DATA
Net Income $27,992 $7,058 $8,437
Insurance Company Subsidiaries
Net Income $25,595 $7,288 $9,643
Adjustments to reconcile net income
to net cash provided by operating
activities696397 2,480
Changes in operating assets and
liabilities55,533 1,273 5,848
Total adjustments 56,229 1,670 8,328
Net cash provided by operating
activities $81,824 $8,958 $17,971
Fee-based Subsidiaries
Net income $2,397 $(230)$(1,206)
Depreciation 3,147745 760
Amortization 1,930 1,551 1,563
Interest 6,030 1,311 1,254
Net income, excluding interest,
depreciation, and amortization
("EBIDA")$13,504 $3,377 $2,371
Adjustments to reconcile net income
to net cash provided by operating
activities 5,877 1,831 2,371
Changes in operating assets and
liabilities(1,491)(1,716) (1,832)
Total adjustments 4,386115 539
Depreciation (3,147) (745) (760)
Amortization (1,930)(1,551) (1,563)
Interest (6,030)(1,311) (1,254)
Net cash provided by (used in)
operating activities $6,783 $(115) $(667)
Consolidated total adjustments60,615 1,785 8,867
Consolidated net cash provided by
operating activities$88,607 $8,843 $17,304
SOURCE Meadowbrook Insurance
