Meadowbrook Insurance Group, Inc. Reports Second Quarter Net Income up 15.1% to $6.2 Million
SOUTHFIELD, Mich. Second Quarter Overview:Meadowbrook Insurance Group, Inc. (NYSE: MIG) reported $6.2 million in net
income, or $0.20 per diluted share, for the quarter ended June 30, 2007. This
is an increase of 15.1%, from net income of $5.4 million, or $0.18 per diluted
share in 2006. After tax net operating income, excluding amortization,
increased 19.7% to $6.5 million, or $0.22 per diluted share, compared to $5.4
million or $0.18 per diluted share in 2006. These increases reflect improved
margins on our gross commission and fee income, an increase in net investment
income, and continued stable underwriting profits in a slightly more
competitive insurance market.
Year-to-Date Overview: Net income for the six months ended June 30, 2007, was $13.1 million, or
$0.44 per diluted share. This is an increase of 19.2%, from net income of
$11.0 million, or $0.37 per diluted share, for the comparable period in 2006.
After tax net operating income, excluding amortization, increased 21.1% to
$13.5 million, or $0.45 per diluted share, compared to $11.2 million, or $0.38
per diluted share in 2006.
Second Quarter highlights included:
-- Earnings per diluted share increased to $0.20, compared to $0.18 in
2006.
-- After tax net operating income, excluding amortization, increased to
$0.22, from $0.18 in 2006.
-- GAAP combined ratio of 97.4% with pre-tax underwriting income of $1.8
million.
-- Pre-tax margin on gross commission and fees, excluding amortization,
was 14.2%, or $3.3 million, up from 12.0% in 2006.
-- Amortization expense of $543,000 in the second quarter of 2007, up from
$142,000 in 2006.
-- Book value per share increased to $7.18; after the effect of the
offering completed on July 19, 2007, the pro-forma book value per share
is $7.52.
-- Acquisition of U.S. Specialty Underwriters, Inc. ("USSU") in April
2007.
-- A.M. Best Upgrade to "A-" (Excellent).
-- Successful completion of common stock offering in July 2007.
Year-to-Date highlights included:
-- Year-to-date earnings increased 19.2% to $13.1 million, or $0.44 per
diluted share, compared to $11.0 million, or $0.37 per diluted share in
2006.
-- Year-to-date after tax net operating income, excluding amortization,
increased 21.1% to $13.5 million, or $0.45 per diluted share, compared
to $11.2 million, or $0.38 per diluted share in 2006.
-- Annualized return on beginning equity increased to 13.0%.
-- GAAP combined ratio of 96.8% with pre-tax underwriting income of $4.3
million.
-- Pre-tax margin on gross commission and fees, excluding amortization,
was 15.3%, or $7.2 million, up from 13.1%, or $6.1 million in 2006.
Commenting on the results, Meadowbrook President and Chief Executive
Officer Robert S. Cubbin stated: "As a result of our commitment to strong underwriting discipline, controls
over price adequacy, and adherence to our corporate underwriting guidelines we
continue to achieve favorable results. We will continue to seek to grow our
fee-based operations and maintain underwriting profitability as we deploy the
new equity we raised in July. We remain optimistic that return on equity will
continue to move towards our targeted goal of 15%, or better." Second Quarter and Year-to-Date Results: Revenues: Revenues for the quarter ended June 30, 2007, increased 4.4%, to $84.2
million, compared to $80.6 million in 2006. For the first six months,
revenues increased 4.3%, to $167.1 million, compared to $160.3 million in
2006. Net earned premiums increased 4.1%, to $67.2 million for the quarter,
compared to $64.5 million in 2006. Net earned premiums for the first six
months increased 3.7%, to $132.4 million, compared to $127.6 million in 2006.
These increases are the result of selective growth consistent with our
corporate underwriting guidelines and our controls over price adequacy,
partially offset by a reduction in residual market premiums that are assigned
to us as a result of a decrease in the estimate of the overall size of the
residual market, and mandatory rate decreases in the Nevada, Florida and
Massachusetts workers' compensation markets. Net commissions and fees remained relatively flat at $10.7 million for the
second quarter of 2007, compared to 2006. For the first six months, net
commissions and fees increased slightly to $22.3 million. Overall net
commissions and fees increased as a result of our acquisition of USSU, offset
by a decrease in fees within a New England-based program, as well as the
timing of anticipated annual profit sharing payments received in 2006 versus
2007. In addition, net commissions and fees reflect lower commissions due to
rate reductions on policy renewals in our retail agency division. Net investment income increased 15.8%, to $6.2 million for the quarter
ended June 30, 2007. Year-to-date net investment income increased to $12.4
million, from $10.6 million in 2006. Average invested assets for the quarter
increased $78.2 million to $547.5 million. For the first six months, average
invested assets increased $69.3 million to $534.8 million. The increase in
average invested assets reflects cash flows from continued favorable
underwriting results and an incremental and anticipated increase in the
duration of our reserves. The average investment yield for June 30, 2007, was
4.55%, compared to 4.58% in 2006. The current pre-tax book yield was 4.44%
and the current after-tax book yield was 3.40%, compared to 3.26% for the
comparable period in 2006. The duration of the investment portfolio was 4.2
years. Expenses: Incurred losses were $39.7 million for the quarter ended June 30, 2007,
compared to $37.1 million in 2006. Year-to-date incurred losses were $76.4
million, up from $74.2 million in 2006. The loss and loss adjustment expense
ratio for the quarter was 64.1%, up 1.7 percentage points, from 62.4% in 2006.
For the first six months, the loss and loss adjustment expense ratio improved
0.3 percentage points to 62.7%, from 63.0% in 2006. The loss and loss adjustment expense ratio for both the quarter and the
year were impacted by prior year reinsurance premium adjustments related to an
inception to date reconciliation project concluded in conjunction with the
implementation of a new automated reinsurance system. For the quarter, these
premium adjustments added 0.9 percentage points to the loss and loss
adjustment expense ratio. In addition, a slightly more competitive insurance
market resulted in a small increase in the loss and loss adjustment expense
ratio, both for the quarter and the year. Overall the year-to-date improvement in the loss and loss adjustment
expense ratio includes favorable development on prior accident years of $2.1
million, or 0.7% of $302.7 million of overall reserves at December 31, 2006.
The improvement primarily reflects favorable claim settlements in the
professional liability and workers' compensation lines of business, offset by
unfavorable development primarily within the general liability line of
business. For the quarter, loss reserves for prior accident years reflected
little change. Policy acquisition and other underwriting expenses remained flat at $13.2
million for the second quarter of 2007, compared to 2006. The GAAP expense
ratio for the quarter decreased 1.5 percentage points to 33.3%, from 34.8% in
2006. This quarterly decrease in the expense ratio is primarily the result of
an increase in ceding commissions from new quota share program business as
well as a shift in the mix of business on existing programs, slightly offset
by an increase in insurance related assessments. Year-to-date policy acquisition and other underwriting expenses increased
to $26.8 million, from $24.6 million in 2006. The GAAP expense ratio for the
year increased 0.4 percentage points to 34.1%, from 33.7% in 2006. The slight
increase for the year in the expense ratio is primarily the result of a
difference in insurance related assessments. This was partially offset by an
increase in ceding commissions, also impacted by shifts in the mix of
business. Salaries and employee benefits for the quarter ended June 30, 2007
decreased to $12.9 million, from $13.8 million in 2006. Year-to-date salaries
and employee benefits decreased to $26.4 million, from $27.2 million in 2006.
This decrease reflects a reduction in variable compensation and health benefit
costs, offset by merit increases. Our headcount remained flat. The decrease
in variable compensation reflects the increase in our targeted return on
equity. Other administrative expenses increased to $7.6 million for the quarter,
from $7.1 million in 2006. Year-to-date other administrative expenses
remained relatively flat at $15.0 million in comparison to 2006. The
quarterly increase in other administrative expense is the result of our
acquisition of USSU, primarily due to the management fee associated with the
acquisition. Offsetting the increases related to USSU were various decreases
in other general operating expenses in comparison to 2006. For the first six
months, other administrative expenses also increased as a result of the USSU
acquisition and were offset by decreases in other general operating expenses
and policyholder dividends. Amortization expense for the quarter ended June 30, 2007, increased
$401,000 to $543,000, from $142,000 in 2006. Year-to-date amortization
expense increased $380,000 to $687,000, from $307,000 in 2006. Amortization
expense primarily relates to the customer relationships acquired with the
Florida-based agency operation in 2005 and the acquisition of USSU in April
2007. Interest expense for the quarter increased 11.2%, to $1.7 million, from
$1.5 million in 2006. Year-to-date interest expense increased 9.3%, to $3.2
million, from $2.9 million in 2006. These increases primarily reflect an
increase in the outstanding balance on our line of credit associated with
borrowings to fund the cash portion of our acquisition of USSU. After the
recent capital raising, this line of credit has been reduced to zero. Other Matters: Shareholders' Equity: Shareholders' equity increased to $219.3 million, or $7.18 per common
share, at June 30, 2007, compared to $201.7 million, or $6.93 per common
share, at December 31, 2006. This per share increase in book value primarily
reflects our year-to-date earnings, offset by the change in unrealized losses
in our investment portfolio. The investment portfolio is invested 99.7% in
investment grade fixed income securities. We continue to invest in securities
with minimum credit risk. In addition, this increase is offset by the increase in our shares
outstanding as a result of the additional shares issued in conjunction with
the payout of our long-term incentive plan for the 2004-2006 plan years. This
award was paid in a combination of cash and stock. The expense associated
with the long-term incentive plan was previously recorded in our income
statement and in the diluted earnings per share. This increase was also offset by the increase in our shares outstanding as
a result of the additional shares issued in conjunction with the purchase
price of the acquisition of USSU in April 2007. The calculation of book value
is based upon actual shares outstanding as of the balance sheet date, as
opposed to diluted weighted average shares outstanding. Accordingly, the
dilution on the book value per common stock is only recognized upon the actual
issuance of the shares. At June 30, 2007, our debt-to-equity ratio was 35.5%, compared to 31.2% at
December 31, 2006. Excluding the interest only, 30-year debentures, the debt-
to-equity ratio would be 10.0% at June 30, 2007, compared to 3.5% at December
31, 2006. Statutory Surplus: Statutory surplus increased to $174.6 million at June 30, 2007, from
$165.1 million at December 31, 2006. The increase in statutory surplus was
primarily due to statutory net income. Income Taxes: The effective federal tax rate for the six months ended June 30, 2007 was
28.3%, compared to 30.1% in 2006. This decrease is the result of a shift
towards increasing investments in tax-exempt securities. Our effective tax
rate differs from the 35% statutory rate, primarily due to interest income
from tax-exempt securities. A.M. Best Upgrade: As previously announced on April 3, 2007, A.M. Best Company raised the
financial strength rating of our insurance company subsidiaries to "A-"
(Excellent). Recent Acquisition: As previously announced on April 17, 2007, Meadowbrook, Inc., acquired the
business of USSU for a purchase price of $23.0 million. USSU is a specialty
program manager that produces fee based income by underwriting excess workers'
compensation coverage. USSU focuses on self-insureds within the healthcare
industry and public schools. This acquisition provides future growth
opportunity to fee-based operations. The growth within our fee-based operating
cash flows will provide available capital to contribute to our insurance
subsidiaries for future premium growth, select acquisitions, or other capital
strategies. Equity Offering: On July 19, 2007, we announced the successful completion of our public
offering of 5,500,000 additional shares of common stock at a price of $9.65
per share. In addition, the underwriters exercised their over-allotment
option of 937,500 additional shares. Total gross proceeds received in
conjunction with this offering were $62.1 million. Including the underwriting
discount associated with the offering and other estimated expenses, total net
proceeds were approximately $58.6 million. These net proceeds will be
utilized to support organic growth within our underwriting operations, fund
potential select acquisitions, reduce the balance on our line of credit, and
for other general corporate purposes. After consideration of the equity
offering our pro forma book value per common share would be $7.52 and our pro
forma debt to equity ratio would be 20.1%. Commenting on the offering, Mr. Cubbin stated: "We are very pleased with
the success of our recent stock offering. With our recent A.M. Best upgrade
to "A-" (Excellent) and other opportunities present in the market, we believed
it was the appropriate time to raise and profitably deploy new capital." Full Year 2007 and 2008 Earnings Expectations: As previously announced, our outlook for the full year 2007 includes
growth in net income of approximately 18% to between $24.0 million and $26.0
million, or $0.73-$0.79 per share. This outlook includes the following: a
gross written premium target of $370.0 million to $380.0 million, a gross
commissions and fees target of $96.0 million to $98.0 million, a combined
ratio between 97.0% and 98.0%, and growth in our pre-tax income before
amortization from agency and managed fees of approximately 30%. In addition,
our full year 2007 guidance includes amortization of intangible assets of
approximately $1.9 million, or approximately $0.04 per share. Our full year guidance for 2008 remains the same. Net income is
anticipated to grow between 25% to 28%, to between $31.0 million and $33.0
million, or $0.83-$0.89 per share. Our 2008 outlook includes the following
targets: gross written premium of $410.0 million to $420.0 million, gross
commissions and fees of $105.0 million to $110.0 million, a combined ratio
between 97.0% and 99.0%, and growth in our pre-tax income before amortization
from agency and managed fees of approximately 60%. Our 2008 guidance includes
amortization of intangible assets of $4.4 million, or approximately $0.08 per
share, related to our recent acquisition of USSU. About Meadowbrook Insurance Group A leader in the alternative risk market, Meadowbrook is a program-based
risk management company, specializing in alternative risk management solutions
for agents 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; ability to obtain 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; attainment 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) 2007 2006
BALANCE SHEET DATA
ASSETS
Cash and invested assets $542,065 $527,600
Premium & agents balances 97,192 85,578
Reinsurance recoverable 206,985 202,679
Deferred policy acquisition
costs 27,670 27,902
Prepaid reinsurance premiums 15,869 20,425
Goodwill 43,497 31,502
Other assets 84,464 73,314
Total Assets $1,017,742 $969,000
LIABILITIES
Loss and loss adjustment expense
reserves $523,258 $501,077
Unearned premium reserves 145,265 144,575
Debt 22,025 7,000
Debentures 55,930 55,930
Other liabilities 51,941 58,725
Total Liabilities 798,419 767,307
STOCKHOLDERS' EQUITY
Common stockholders' equity 219,323 201,693
Total Liabilities & Stockholders'
Equity $1,017,742 $969,000
Book value per common share $7.18 $6.93
Book value per common share excluding
unrealized loss on available for
sale securities, net of deferred taxes $7.34 $6.96
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands, Except
Share & Per Share Data
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
SUMMARY DATA 2007 2006 2007 2006
Gross written
premiums $78,000 $74,261 $167,504 $163,271
Net written
premiums 65,670 59,205 137,642 128,586
REVENUES
Net earned
premiums $67,191 $64,514 $132,395 $127,638
Commissions
and fees (net) 10,743 10,698 22,294 21,987
Net investment
income 6,229 5,380 12,385 10,619
Net realized
gains 20 25 14 18
Total Revenues 84,183 80,617 167,088 160,262
EXPENSES
Net losses &
loss adjustment
expenses(1) 39,707 37,146 76,353 74,189
Salaries &
employee
benefits 12,900 13,846 26,432 27,214
Interest expense 1,667 1,499 3,154 2,887
Policy
acquisition and
other under-
writing
expenses(1) 13,169 13,180 26,812 24,604
Amortization
expense 543 142 687 307
Other admini-
strative
expenses 7,598 7,133 14,992 14,927
Total Expenses 75,584 72,946 148,430 144,128
INCOME BEFORE
INCOME TAXES AND
EQUITY EARNINGS 8,599 7,671 18,658 16,134
Income tax
expense 2,461 2,312 5,610 5,159
Equity earnings
of affiliates 48 16 61 25
NET INCOME $6,186 $5,375 $13,109 $11,000
NET OPERATING
INCOME(2) $6,173 $5,359 $13,100 $10,988
Amortization
expense, net
of tax 353 92 447 200
NET OPERATING
INCOME,
excluding
amortization
expense(3) $6,526 $5,451 $13,547 $11,188
Diluted earnings
per common share
Net income $0.20 $0.18 $0.44 $0.37
Net operating
income $0.20 $0.18 $0.44 $0.37
Net operating
income,
excluding
amortization
expense $0.22 $0.18 $0.45 $0.38
Diluted
weighted
average
common
shares
outstanding 30,350,553 29,571,925 29,876,480 29,419,606
GAAP ratios:
Loss & LAE
ratio 64.1% 62.4% 62.7% 63.0%
Other
underwriting
expense ratio 33.3% 34.8% 34.1% 33.7%
GAAP
combined ratio 97.4% 97.2% 96.8% 96.7%
(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, net of taxes associated with such expense.
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
SUPPLEMENTAL INFORMATION
(In Thousands) FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2007 2006 2007 2006
Unconsolidated GAAP data - Ratio
Calculation Table:
Net earned premiums $67,191 $64,514 $132,395 $127,638
Consolidated net loss
and LAE(1) $39,707 $37,146 $76,353 $74,189
Intercompany claim fees 3,353 3,115 6,648 6,273
Unconsolidated net loss and LAE $43,060 $40,261 $83,001 $80,462
GAAP loss and LAE ratio 64.1% 62.4% 62.7% 63.0%
Consolidated policy acquisition
and other underwriting
expenses(1) $13,169 $13,180 $26,812 $24,604
Intercompany administrative and
other underwriting fees 9,178 9,291 18,330 18,408
Unconsolidated policy
acquisition and other
underwriting expenses $22,347 $22,471 $45,142 $43,012
GAAP other underwriting
expense ratio 33.3% 34.8% 34.1% 33.7%
GAAP combined ratio 97.4% 97.2% 96.8% 96.7%
2007 2006 2007 2006
Unconsolidated GAAP data - Gross
Commissions and Fees:
Managed programs:
Management fees $5,412 $5,090 $10,287 $9,621
Claims fees 2,247 2,351 4,451 4,451
Loss control fees 544 593 1,143 1,131
Reinsurance brokerage 85 143 418 561
Total managed programs 8,288 8,177 16,299 15,764
Agency commissions 2,860 2,878 6,745 7,139
Intersegment revenue (405) (357) (750) (916)
Net commissions and fees 10,743 10,698 22,294 21,987
Intercompany commissions
and fees 12,531 12,406 24,978 24,681
Gross commissions and fees $23,274 $23,104 $47,272 $46,668
Fee-for-service pre-tax income, $3,309 $2,761 $7,237 $6,096
excluding amortization
Pre-tax margin on fee-for-
service income 14.2% 12.0% 15.3% 13.1%
(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
SUPPLEMENTAL INFORMATION
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(In Thousands)
2007 2006 2007 2006
Net earned premiums $67,191 $64,514 $132,395 $127,638
Less:
Unconsolidated net
loss and LAE 43,060 40,261 83,001 80,462
Unconsolidated
policy acquisition
and other
underwriting
expenses 22,347 22,471 45,142 43,012
Underwriting income $1,784 $1,782 $4,252 $4,164
GAAP combined ratio as
reported 97.4% 97.2% 96.8% 96.7%
Specialty risk
management operations
pre-tax income $10,768 $9,334 $22,020 $18,632
Less:
Underwriting income 1,784 1,782 4,252 4,164
Net investment
income and capital
gains 6,249 5,405 12,399 10,637
Fee-based operations
pre-tax income 2,735 2,147 5,369 3,831
Agency operations pre-
tax income 574 614 1,868 2,265
Total fee-for-service
pre-tax income $3,309 $2,761 $7,237 $6,096
GAAP expense ratio as
reported 33.3% 34.8% 34.1% 33.7%
Adjustment to
include pre-tax
income from total
fee-for-service
income (1) 4.9% 4.3% 5.5% 4.8%
GAAP expense ratio as
adjusted (2) 28.3% 30.6% 28.6% 28.9%
GAAP loss and LAE
ratio as reported 64.1% 62.4% 62.7% 63.0%
GAAP combined ratio as
adjusted 92.4% 93.0% 91.3% 92.0%
Reconciliation of
consolidated pre-tax
income:
Specialty risk
management operations
pre-tax income:
Fee-based operations
pre-tax income $2,735 $2,147 $5,369 $3,831
Underwriting income 1,784 1,782 4,252 4,164
Net investment income
and capital gains 6,249 5,405 12,399 10,637
Total specialty risk
management operations
pre-tax income 10,768 9,334 22,020 18,632
Agency operations pre-
tax income 574 614 1,868 2,265
Less:
Holding company
expenses 533 636 1,389 1,569
Interest expense 1,667 1,499 3,154 2,887
Amortization expense 543 142 687 307
Consolidated pre-
tax income $8,599 $7,671 $18,658 $16,134
(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 INCOME STATEMENT INFORMATION
(In Thousands) FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2007 2006 2007 2006
SUMMARY DATA
Net Income $6,186 $5,375 $13,109 $11,000
Insurance Company Subsidiaries
Net Income $5,455 $4,952 $11,071 $9,535
Adjustments to reconcile net income
to net cash provided by operating
activities (283) 723 158 1,057
Changes in operating assets and
liabilities (1,551) 740 9,732 8,696
Total adjustments (1,834) 1,463 9,890 9,753
Net cash provided by operating
activities $3,621 $6,415 $20,961 $19,288
Fee-based Subsidiaries
Net income $731 $423 $2,038 $1,465
Depreciation 788 578 1,525 1,121
Amortization 543 142 687 307
Interest 1,667 1,499 3,154 2,887
Net income, excluding interest,
depreciation, and amortization(1) $3,729 $2,642 $7,404 $5,780
Adjustments to reconcile net income
to net cash provided by (used in )
operating activities 879 1,052 2,452 1,629
Changes in operating assets and
liabilities (146) (3,913) (3,214) (5,333)
Total adjustments 733 (2,861) (762) (3,704)
Depreciation (788) (578) (1,525) (1,121)
Amortization (543) (142) (687) (307)
Interest (1,667) (1,499) (3,154) (2,887)
Net cash provided by (used in)
operating activities $1,464 $(2,438) $1,276 $(2,239)
Consolidated total adjustments (1,101) (1,398) 9,128 6,049
Consolidated net cash provided by
operating activities $5,085 $3,977 $22,237 $17,049
(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 INCOME STATEMENT INFORMATION
(In Thousands, Except
Share & Per Share Data)
2004A 2005A Q106A
SUMMARY DATA
Gross written premiums $313,493 $332,209 $89,010
Net written premiums 233,961 258,134 69,381
INCOME STATEMENT
REVENUES
Net earned premiums $214,493 $249,959 $63,124
Commissions and fees (net) 40,535 35,916 11,289
Net investment income 14,911 17,975 5,239
Net realized gains (losses) 339 167 (7)
Total Revenues 270,278 304,017 79,645
EXPENSES
Net losses & loss adjustment
expenses 135,938 151,542 37,043
Policy acquisition and other
underwriting expenses 33,424 44,439 11,424
Other administrative expenses 25,588 26,810 7,794
Salaries & employee benefits 52,297 51,331 13,368
Amortization expense 376 373 165
Interest expense 2,281 3,856 1,388
Total Expenses 249,904 278,351 71,182
INCOME BEFORE TAXES AND EQUITY
EARNINGS 20,374 25,666 8,463
Income tax expense 6,352 7,757 2,847
Equity earnings of affiliates 39 1 9
NET INCOME $14,061 $17,910 $5,625
Net realized capital gain (loss),
net of tax 224 109 (4)
OPERATING INCOME $13,837 $17,801 $5,629
Amortization expense, net of tax 244 242 107
OPERATING INCOME, excluding
amortization expense $14,081 $18,043 $5,736
Weighted average common shares
outstanding 29,420,508 29,653,067 29,452,693
Shares O/S at end of the period 29,074,832 28,672,009 28,814,544
PER SHARE DATA (Diluted)
Net income $0.48 $0.60 $0.19
Net realized gain (loss), net of
tax $0.01 $- $-
Operating income $0.47 $0.60 $0.19
Operating income, excluding
amortization expense $0.48 $0.61 $0.19
OPERATING RATIO ANALYSIS
GAAP Loss & LAE ratio 67.9% 65.2% 63.7%
GAAP Expense ratio 33.5% 33.5% 32.5%
GAAP Combined ratio 101.4% 98.7% 96.2%
Unconsolidated GAAP data - Ratio
Calculation Table:
Net earned premiums $214,493 $249,959 $63,124
Consolidated net loss and LAE $135,938 $151,542 $37,043
Intercompany claim fees 9,691 11,523 3,158
Unconsolidated net loss and LAE $145,629 $163,065 $40,201
GAAP Net loss and LAE ratio 67.9% 65.2% 63.7%
Consolidated Policy acquisition and
other underwriting expenses $33,424 $44,439 $11,424
Intercompany administrative and other
underwriting fees 38,359 39,231 9,117
Unconsolidated policy acquisition and
other underwriting expenses $71,783 $83,670 $20,541
GAAP Expense ratio 33.5% 33.5% 32.5%
GAAP Combined Ratio 101.4% 98.7% 96.2%
Unconsolidated Commissions & Fees
Managed programs:
Management fees $16,253 $16,741 $4,531
Claims fees 13,207 7,113 2,100
Loss control fees 2,174 2,260 538
Reinsurance brokerage 420 660 418
Total managed programs 32,054 26,774 7,587
Agency commissions 9,805 11,304 4,261
Intersegment commissions and fees (1,324) (2,162) (559)
Net Commissions and fees 40,535 35,916 11,289
Intercompany commissions and fees 48,050 50,754 12,275
Gross commissions and fees $88,585 $86,670 $23,564
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands, Except
Share & Per Share Data)
Q206A Q306A Q406A
SUMMARY DATA
Gross written premiums $74,261 $85,827 $81,774
Net written premiums 59,205 68,905 65,177
INCOME STATEMENT
REVENUES
Net earned premiums $64,514 $63,688 $63,594
Commissions and fees (net) 10,698 9,612 9,573
Net investment income 5,380 5,584 5,872
Net realized gains (losses) 25 28 23
Total Revenues 80,617 78,912 79,062
EXPENSES
Net losses & loss adjustment
expenses 37,146 36,129 35,975
Policy acquisition and other
underwriting expenses 13,180 13,059 12,816
Other administrative expenses 7,133 6,766 7,130
Salaries & employee benefits 13,846 14,183 13,172
Amortization expense 142 142 142
Interest expense 1,499 1,558 1,531
Total Expenses 72,946 71,837 70,766
INCOME BEFORE TAXES AND EQUITY
EARNINGS 7,671 7,075 8,296
Income tax expense 2,312 2,056 2,384
Equity earnings of affiliates 16 74 29
NET INCOME $5,375 $5,093 $5,941
Net realized capital gain (loss),
net of tax 16 18 15
OPERATING INCOME $5,359 $5,075 $5,926
Amortization expense, net of tax 92 92 92
OPERATING INCOME, excluding
amortization expense $5,451 $5,167 $6,018
Weighted average common shares
outstanding 29,571,925 29,498,596 29,656,475
Shares O/S at end of the period 28,833,616 29,048,146 29,107,818
PER SHARE DATA (Diluted)
Net income $0.18 $0.17 $0.20
Net realized gain (loss), net of
tax $- $- $-
Operating income $0.18 $0.17 $0.20
Operating income, excluding
amortization expense $0.18 $0.18 $0.20
OPERATING RATIO ANALYSIS
GAAP Loss & LAE ratio 62.4% 61.7% 61.5%
GAAP Expense ratio 34.8% 35.5% 35.1%
GAAP Combined ratio 97.2% 97.2% 96.6%
Unconsolidated GAAP data - Ratio
Calculation Table:
Net earned premiums $64,514 $63,688 $63,594
Consolidated net loss and LAE $37,146 $36,129 $35,975
Intercompany claim fees 3,115 3,145 3,135
Unconsolidated net loss and LAE $40,261 $39,274 $39,110
GAAP Net loss and LAE ratio 62.4% 61.7% 61.5%
Consolidated Policy acquisition and
other underwriting expenses $13,180 $13,059 $12,816
Intercompany administrative and other
underwriting fees 9,291 9,522 9,512
Unconsolidated policy acquisition and
other underwriting expenses $22,471 $22,581 $22,328
GAAP Expense ratio 34.8% 35.5% 35.1%
GAAP Combined Ratio 97.2% 97.2% 96.6%
Unconsolidated Commissions & Fees
Managed programs:
Management fees $5,090 4,699 4,394
Claims fees 2,351 2,295 2,030
Loss control fees 593 552 533
Reinsurance brokerage 143 79 95
Total managed programs 8,177 7,625 7,052
Agency commissions 2,878 2,401 2,745
Intersegment commissions and fees (357) (414) (224)
Net Commissions and fees 10,698 9,612 9,573
Intercompany commissions and fees 12,406 12,667 12,647
Gross commissions and fees $23,104 $22,279 $22,220
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands, Except
Share & Per Share Data)
2006A Q107A Q207A
SUMMARY DATA
Gross written premiums $330,872 $89,504 $78,000
Net written premiums 262,668 71,972 65,670
INCOME STATEMENT
REVENUES
Net earned premiums $254,920 $65,204 $67,191
Commissions and fees (net) 41,172 11,551 10,743
Net investment income 22,075 6,156 6,229
Net realized gains (losses) 69 (6) 20
Total Revenues 318,236 82,905 84,183
EXPENSES
Net losses & loss adjustment
expenses 146,293 36,646 39,707
Policy acquisition and other
underwriting expenses 50,479 13,643 13,169
Other administrative expenses 28,823 7,393 7,598
Salaries & employee benefits 54,569 13,532 12,900
Amortization expense 591 144 543
Interest expense 5,976 1,488 1,667
Total Expenses 286,731 72,846 75,584
INCOME BEFORE TAXES AND EQUITY
EARNINGS 31,505 10,059 8,599
Income tax expense 9,599 3,149 2,461
Equity earnings of affiliates 128 13 48
NET INCOME $22,034 $6,923 $6,186
Net realized capital gain (loss),
net of tax 45 (4) 13
OPERATING INCOME $21,989 $6,927 $6,173
Amortization expense, net of tax 384 94 353
OPERATING INCOME, excluding
amortization expense $22,373 $7,021 $6,526
Weighted average common shares
outstanding 29,566,141 29,465,807 30,350,553
Shares O/S at end of the period 29,107,818 29,539,236 30,529,260
PER SHARE DATA (Diluted)
Net income $0.75 $0.23 $0.20
Net realized gain (loss), net of
tax $0.01 $- $-
Operating income $0.74 $0.23 $0.20
Operating income, excluding
amortization expense $0.76 $0.24 $0.22
OPERATING RATIO ANALYSIS
GAAP Loss & LAE ratio 62.3% 61.3% 64.1%
GAAP Expense ratio 34.5% 35.0% 33.3%
GAAP Combined ratio 96.8% 96.3% 97.4%
Unconsolidated GAAP data - Ratio
Calculation Table:
Net earned premiums $254,920 $65,204 $67,191
Consolidated net loss and LAE $146,293 $36,646 $39,707
Intercompany claim fees 12,553 3,295 3,353
Unconsolidated net loss and LAE $158,846 $39,941 $43,060
GAAP Net loss and LAE ratio 62.3% 61.3% 64.1%
Consolidated Policy acquisition and
other underwriting expenses $50,479 $13,643 $13,169
Intercompany administrative and other
underwriting fees 37,442 9,152 9,178
Unconsolidated policy acquisition and
other underwriting expenses $87,921 $22,795 $22,347
GAAP Expense ratio 34.5% 35.0% 33.3%
GAAP Combined Ratio 96.8% 96.3% 97.4%
Unconsolidated Commissions & Fees
Managed programs:
Management fees $18,714 $4,875 $5,412
Claims fees 8,776 2,204 2,247
Loss control fees 2,216 599 544
Reinsurance brokerage 735 333 85
Total managed programs 30,441 8,011 8,288
Agency commissions 12,285 3,885 2,860
Intersegment commissions and fees (1,554) (345) (405)
Net Commissions and fees 41,172 11,551 10,743
Intercompany commissions and fees 49,995 12,447 12,531
Gross commissions and fees $91,167 $23,998 $23,274
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands)
2004A 2005A Q106A
SUMMARY DATA
Net Income $14,061 $17,910 $5,625
Insurance Company Subsidiaries
Net Income $6,973 $13,508 $4,583
Adjustments to reconcile net income
to net cash provided by operating
activities 6,866 3,003 334
Changes in operating assets and
liabilities 48,270 59,784 7,956
Total adjustments 55,136 62,787 8,290
Net cash provided by operating
activities $62,109 $76,295 $12,873
Fee-based Subsidiaries
Net income $7,088 $4,402 $1,042
Depreciation 1,591 2,277 543
Amortization 376 373 165
Interest 2,535 3,856 1,388
Net income, excluding interest,
depreciation, and amortization $11,590 $10,908 $3,138
Adjustments to reconcile net income
to net cash provided by operating
activities (1,063) 4,444 577
Changes in operating assets and
liabilities 2,540 (3,194) (1,420)
Total adjustments 1,477 1,250 (843)
Depreciation (1,591) (2,277) (543)
Amortization (376) (373) (165)
Interest (2,535) (3,856) (1,388)
Net cash provided by (used in)
operating activities $8,565 $5,652 $199
Consolidated total adjustments 56,613 64,037 7,447
Consolidated net cash provided by
operating activities $70,674 $81,947 $13,072
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands)
Q206A Q306A Q406A
SUMMARY DATA
Net Income $5,375 $5,093 $5,941
Insurance Company Subsidiaries
Net Income $4,952 $4,966 $5,211
Adjustments to reconcile net income
to net cash provided by operating
activities 723 1,383 593
Changes in operating assets and
liabilities 740 17,596 20,623
Total adjustments 1,463 18,979 21,216
Net cash provided by operating
activities $6,415 $23,945 $26,427
Fee-based Subsidiaries
Net income $423 $127 $730
Depreciation 578 640 792
Amortization 142 141 142
Interest 1,499 1,558 1,531
Net income, excluding interest,
depreciation, and amortization $2,642 $2,466 $3,195
Adjustments to reconcile net income
to net cash provided by operating
activities 1,052 203 1,329
Changes in operating assets and
liabilities (3,913) 1,652 2,829
Total adjustments (2,861) 1,855 4,158
Depreciation (578) (640) (792)
Amortization (142) (141) (142)
Interest (1,499) (1,558) (1,531)
Net cash provided by (used in)
operating activities $(2,438) $1,982 $4,888
Consolidated total adjustments (1,398) 20,834 25,374
Consolidated net cash provided by
operating activities $3,977 $25,927 $31,315
MEADOWBROOK INSURANCE GROUP, INC.
FINANCIAL INFORMATION
SUPPLEMENT TO THE EARNINGS RELEASE
UNAUDITED INCOME STATEMENT INFORMATION
(In Thousands)
2006A Q107A Q207A
SUMMARY DATA
Net Income $22,034 $6,923 $6,186
Insurance Company Subsidiaries
Net Income $19,712 $5,616 $5,455
Adjustments to reconcile net income
to net cash provided by operating
activities 3,033 441 (283)
Changes in operating assets and
liabilities 46,915 11,283 (1,551)
Total adjustments 49,948 11,724 (1,834)
Net cash provided by operating
activities $69,660 $17,340 $3,621
Fee-based Subsidiaries
Net income $2,322 $1,307 $731
Depreciation 2,553 737 788
Amortization 590 144 543
Interest 5,976 1,488 1,667
Net income, excluding interest,
depreciation, and amortization $11,441 $3,676 $3,729
Adjustments to reconcile net income
to net cash provided by operating
activities 3,161 1,573 879
Changes in operating assets and
liabilities (852) (3,068) (146)
Total adjustments 2,309 (1,495) 733
Depreciation (2,553) (737) (788)
Amortization (590) (144) (543)
Interest (5,976) (1,488) (1,667)
Net cash provided by (used in)
operating activities $4,631 $(188) $1,464
Consolidated total adjustments 52,257 10,229 (1,101)
Consolidated net cash provided by
operating activities $74,291 $17,152 $5,085
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