Eastern Insurance Holdings, Inc. Announces Fourth Quarter 2009 Results
LANCASTER, Pa., Feb. 11 /PRNewswire-FirstCall/ -- Eastern Insurance Holdings, Inc. ("EIHI") (Nasdaq: EIHI) today reported earnings for the three months ended December 31, 2009. EIHI reported net income of $2.7 million, or $0.29 per diluted share, for the fourth quarter of 2009, compared to a net loss of $18.4 million, or $2.05 per diluted share, for the same period in 2008. EIHI's diluted book value per share was $15.78 as of December 31, 2009 compared to $14.13 as of December 31, 2008, an increase of $1.65 per share or 11.7 percent.
"I am pleased to report a solid quarter of results across all business segments. Those segments produced a consolidated combined ratio of 95.0 percent," said Bruce M. Eckert, Chief Executive Officer. "As in previous quarters, workers' compensation insurance, our largest business segment, contributed most significantly with a combined ratio of 86.0 percent. For all of 2009, we produced an 87.7 percent combined ratio in workers' compensation insurance."
Eckert added, "2009 was a challenging year with persistent downward pressure on both workers' compensation rates and employer payrolls. Despite these headwinds, we were not only profitable in all three of our operating segments, but we also grew our policyholder base by approximately 15 percent. Importantly, the majority of this growth occurred in our profitable small employer book of business. I am particularly pleased that in our first full year of operations after acquiring Employers Security Insurance Company, our bottom line results exceeded expectations in the Midwest, our top line grew by approximately 164 percent in the Southeast, and the Mid-Atlantic region remained the consistent generator of profits as it has throughout our history. We recently signed a lease for office space in Nashville, Tennessee and we look forward to the expansion of our Southeastern footprint in 2010. Similarly, we expect to open an office in western Pennsylvania by mid-year in support of that important market place."
Eckert continued, "Our group benefits insurance segment faced similar pressures throughout the year. Rate and plan design improvements and continued underwriting discipline throughout the year led to a 96.1 percent combined ratio for the fourth quarter. We are excited about additional product enhancements, which will be brought to market in 2010 with the launch of our Navigator series of ancillary group benefits products."
Consolidated highlights for the fourth quarter include:
- Revenue for the fourth quarter of 2009 increased to $36.7 million compared to $30.1 million for the same period in 2008. The increase in revenue is due primarily to an increase in income from limited partnerships and a change to net realized investment gains in 2009 from net realized investment losses in 2008, partially offset by a decrease in investment income and net premiums earned;
- Net premiums earned were $34.1 million for the fourth quarter of 2009 compared to $36.4 million for the same period in 2008. Net premiums earned were impacted by the termination of the reinsurance treaty effective July 1, 2008 that comprised the run-off specialty reinsurance segment and reductions in workers' compensation insurance premiums during the fourth quarter of 2009 related to payroll audit premium adjustments, renewal rate decreases and premium reductions related to favorable fourth quarter 2009 loss experience under retrospectively rated policies;
- Net investment income was $1.5 million ($1.1 million after-tax) for the three months ended December 31, 2009, compared to $2.2 million ($1.6 million after-tax) for the same period in 2008. The decrease in net investment income is due primarily to the current lower interest rate environment and an additional investment management fee accrual in the fourth quarter of 2009;
- The change in equity interest in limited partnerships increased $2.5 million to income of $461,000 ($327,000 after-tax) for the three months ended December 31, 2009, compared to a loss of $2.0 million ($1.4 million after-tax) for the same period in 2008;
- Net realized investment gains, excluding the segregated portfolio cell reinsurance segment, increased diluted earnings per share by $0.04 for the three months ended December 31, 2009 compared to net realized investment losses, excluding the segregated portfolio cell reinsurance segment, which decreased diluted earnings per share by $0.45 for the same period in 2008. Net realized investment gains, excluding the segregated portfolio cell reinsurance segment, were $531,000 ($416,000 after-tax) for the three months ended December 31, 2009, compared to net realized investment losses, excluding the segregated portfolio cell reinsurance segment, of $6.0 million ($4.0 million after-tax) for the same period in 2008; and
- $1.7 million ($1.1 million after-tax) of favorable loss reserve development on prior accident years was recorded in the workers' compensation insurance segment for the three months ended December 31, 2009, compared to no favorable loss reserve development on prior accident years for the same period in 2008.
Weighted average fully diluted shares considered outstanding used to calculate diluted earnings per share for the three months ended December 31, 2009 and 2008 consisted of the following:
2009 2008
---- ----
Shares issued on June 16, 2006 10,603,548 10,603,548
Weighted average ESOP shares 255,686 180,935
Weighted average restricted stock shares 121,030 49,335
Weighted average treasury shares purchased (2,091,757) (2,069,000)
Weighted average stock warrants exercised (1) 180,291 -----
Total 9,068,798 8,764,818
========= =========
(1) 306,099 warrants were outstanding as of January 1, 2009 of which
244,879 warrants were earned. The remaining 61,220 warrants will
not be earned. On March 10, 2009, the 244,879 warrants were
exercised. EIHI retained 64,588 warrants as payment of the exercise
price.
Segment Operating Results
Workers' Compensation Insurance
EIHI's workers' compensation insurance segment reported net income of $2.8 million for the fourth quarter of 2009, compared to $356,000 for the fourth quarter of 2008. Highlights for the fourth quarter include:
- Direct written premiums increased to $19.3 million for the three months ended December 31, 2009, compared to $18.8 million for the same period in 2008, an increase of 2.7 percent;
- Net premiums earned decreased to $18.6 million for the fourth quarter of 2009, compared with $20.0 million for the fourth quarter of 2008. The reduction in net premiums earned relates primarily to fourth quarter 2009 payroll audit premium adjustments, continued renewal rate decreases and premium reductions related to favorable fourth quarter 2009 loss experience under retrospectively rated policies;
- Audit premium, which results from an examination of the policyholders' payroll and other records, resulted in the Company recording return premium to policyholders of $362,000 for the three months ended December 31, 2009 compared to additional premium to the Company of $1.1 million for the same period in 2008, a decrease of $1.4 million;
- Net investment income was $738,000 for the fourth quarter of 2009, compared to $1.0 million for the same period in 2008. The decrease in net investment income is due primarily to a decrease in the invested asset base and the lower interest rate environment;
- The change in equity interest in limited partnerships was income of $307,000 for the three months ended December 31, 2009, compared to a loss of $1.1 million for the same period in 2008;
- After-tax net realized investment gains of $156,000 were recorded for the three months ended December 31, 2009, compared to after-tax net realized investment losses of $2.2 million for the same period in 2008;
- The combined ratio was 86.0 percent for the fourth quarter of 2009, compared to 81.3 percent for the same period last year;
- The accident period loss and LAE ratio was 67.3 percent and 60.8 percent for the three months ended December 31, 2009 and 2008, respectively. The 2009 accident period loss ratio reflects the Company's view of the current economic conditions. For the three months ended December 31, 2009, $1.7 million of favorable loss reserve development on prior accident years was recorded, which decreased the 2009 loss ratio by 9.1 percentage points compared to no favorable loss reserve development on prior accident years in the fourth quarter of 2008; and
- The expense ratio was 28.4 percent for the three months ended December 31, 2009 compared to 20.8 percent for the same period in 2008. The increase in the expense ratio is due to the aforementioned reductions in net premiums earned and an increase in corporate expense allocations.
Segregated Portfolio Cell Reinsurance
The segregated portfolio cell reinsurance segment now has fourteen active programs, including a new program effective December 1, 2009, which produce fee-based revenue and segregated portfolio cell dividends for EIHI's other business segments. Marketing activity in this segment has increased despite current economic trends, largely as a result of our expansion into the Southeast and Midwest markets.
Group Benefits Insurance
EIHI's group benefits insurance segment reported net income of $751,000 for the three months ended December 31, 2009, compared to a net loss of $1.0 million for the same period in 2008. Highlights for the fourth quarter include:
- Net premiums earned were $9.2 million for the fourth quarter of 2009 and 2008;
- Net investment income was $331,000 for the fourth quarter of 2009, compared to $554,000 for the fourth quarter of 2008. The decrease in net investment income is due primarily to a decrease in the invested asset base and the lower interest rate environment;
- The change in equity interest in limited partnerships was income of $76,000 for the three months ended December 31, 2009, compared to a loss of $567,000 for the same period in 2008;
- After-tax net realized investment gains of $228,000 were recorded for the three months ended December 31, 2009, compared to after-tax net realized investment losses of $1.4 million for the same period in 2008;
- The combined ratio was 96.1 percent for the fourth quarter of 2009, compared to 93.7 percent for the same period last year;
- The calendar year loss and LAE ratio was 63.7 percent for the three months ended December 31, 2009, compared to 62.5 percent for the same period in 2008; and
- The expense ratio was 32.3 percent for the three months ended December 31, 2009, compared to 31.2 percent for the same period in 2008. The increase in the expense ratio is largely a result of increased corporate expense allocations.
Run-Off Specialty Reinsurance
Prior to July 1, 2008, business in the run-off specialty reinsurance segment was assumed through participation in a reinsurance treaty with an unaffiliated ceding company related to an underground storage tank insurance program, referred to as "EnviroGuard," and a non-hazardous waste transportation product, referred to as "EIA Liability." Effective July 1, 2008, EIHI terminated the reinsurance treaty that comprised the run-off specialty reinsurance segment.
EIHI's run-off specialty reinsurance segment reported net income of $292,000 for the fourth quarter of 2009, compared to a net loss of $16.6 million for the same period last year. Highlights for the fourth quarter include:
- Net premiums earned were $(4,000) for the fourth quarter of 2009, compared to $932,000 in 2008. The decrease in net premiums earned is due to the July 1, 2008 termination of the reinsurance treaty that comprised the run-off specialty reinsurance segment;
- Net investment income was $368,000 for the three months ended December 31, 2009, compared to $308,000 for the same period last year;
- The change in equity interest in limited partnerships was income of $78,000 for the three months ended December 31, 2009, compared to a loss of $335,000 for the same period in 2008;
- After-tax net realized investment gains of $201,000 were recorded for the three months ended December 31, 2009, compared to after-tax net realized investment losses of $473,000 for the same period in 2008; and
- No loss reserve development on prior accident years was recorded in the run-off specialty reinsurance segment for the three months ended December 31, 2009 compared to $13.9 million of unfavorable loss reserve development for the same period in 2008.
Corporate and Other
The corporate and other segment primarily includes corporate expenses and EIHI's third party administration business. The corporate and other segment recorded a net loss of $1.2 million for the three months ended December 31, 2009 and 2008. The net loss in 2009 includes approximately $170,000 ($111,000 after-tax) of non-recurring expenses.
Financial Condition
Total assets were $391.2 million as of December 31, 2009. Shareholders' equity was $153.9 million as of December 31, 2009. As of December 31, 2009, EIHI's book value per share and diluted book value per share were $15.88 and $15.78, respectively. Outstanding shares used to calculate book value per share and diluted book value per share were 9,691,257 and 10,340,445, respectively, as of December 31, 2009. The basic book value per share calculation includes the impact of restricted stock awards of 251,675 shares and warrants exercised of 180,291. The diluted book value per share calculation includes the additional dilutive impact of stock options to purchase 649,188 common shares, which have a weighted average exercise price of $14.36.
Conference Call with Investors
EIHI will hold a conference call with investors beginning at 10:00 a.m. Eastern Time on Friday, February 12, 2010 to review the Company's 2009 fourth quarter results. The conference call will be available via a live webcast accessed through the Investor Relations section of www.easterninsuranceholdings.com. The dial-in numbers for the conference call are as follows:
Live Call |
|
800-860-2442 (Domestic) |
|
866-605-3852 (Canada) |
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412-858-4600 (International) |
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A replay of the conference call will be available through February 22, 2010, at 877-344-7529 (domestic) and 412-317-0088 (international). The replay conference number for the conference call is 437018. An online archive of the webcast will be available on the Investor Relations section of www.easterninsuranceholdings.com.
Consolidated Financial Results
Set forth in the tables below are the unaudited consolidated balance sheets as of December 31, 2009 and 2008 and unaudited statements of income for the three months and years ended December 31, 2009 and 2008.
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share data)
December December
31, 31,
2009 2008
ASSETS
Investments:
Fixed income securities, at estimated fair
value (amortized cost, $171,605; $180,102) $176,731 $183,136
Convertible bonds, at estimated fair value
(amortized cost, $14,921; $13,783) 16,677 12,346
Equity securities, at estimated fair value
(cost, $16,923; $22,287) 21,273 17,162
Other long-term investments at estimated
fair value (cost, $10,220; $10,586) 10,315 9,519
Total investments 224,996 222,163
Cash and cash equivalents 67,017 52,875
Accrued investment income 1,664 2,058
Premiums receivable (net of allowance,
$632; $581) 32,457 29,615
Reinsurance recoverable on paid and unpaid
losses and loss adjustment expenses 28,217 29,637
Deferred acquisition costs 6,487 5,760
Deferred income taxes, net 1,349 6,281
Federal income taxes recoverable 2,234 16
Intangible assets 7,448 9,179
Goodwill 10,752 10,752
Other assets 8,599 8,975
Total assets $391,220 $377,311
LIABILITIES
Reserves for unpaid losses and loss
adjustment expenses $151,208 $159,117
Unearned premium reserves 46,099 42,365
Advance premium 1,720 1,594
Accounts payable and accrued expenses 13,245 13,136
Ceded reinsurance balances payable 6,102 6,886
Benefit plan liabilities 311 497
Segregated portfolio cell dividend payable 16,684 13,140
Loan payable 1,986 2,439
Total liabilities 237,355 239,174
SHAREHOLDERS' EQUITY
Series A preferred stock, par value $0,
auth. shares-5,000,000; no shares issued
and outstanding - -
Common capital stock, par value $0, auth.
shares-20,000,000; issued-11,783,014 and
11,602,723, respectively;
outstanding-9,691,257 and 9,512,366,
respectively - -
Unearned ESOP compensation (4,859) (5,606 )
Additional paid in capital 113,049 111,772
Treasury stock, at cost (2,091,757 and
2,090,357 shares, respectively) (32,666) (32,655 )
Retained earnings 73,038 66,492
Accumulated other comprehensive income
(loss), net 5,303 (1,866 )
Total shareholders' equity 153,865 138,137
Total liabilities and shareholders' equity $391,220 $377,311
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
Three Months Ended Years Ended
December December December December
31, 31, 31, 31,
2009 2008 2009 2008
---- ---- ---- ----
Revenue:
Net premiums earned $34,122 $36,444 $134,986 $135,807
Net investment income 1,465 2,224 7,097 9,631
Change in equity
interest in limited
partnerships 461 (2,005) 1,261 (3,970)
Net realized investment
gains (losses) 603 (6,904) 952 (11,117)
Other revenue 76 331 645 853
--- --- --- ---
Total revenue 36,727 30,090 144,941 131,204
------ ------ ------- -------
Expenses:
Losses and loss
adjustment expenses
incurred 20,073 36,258 84,552 99,188
Acquisition and other
underwriting expenses 4,812 4,694 18,183 18,918
Other expenses 6,894 6,225 26,382 25,338
Amortization of
intangible assets 433 389 1,732 1,373
Policyholder dividends 191 298 432 551
Segregated portfolio
dividend expense 804 (447) 1,238 2,155
--- ---- ----- -----
Total expenses 33,207 47,417 132,519 147,523
------ ------ ------- -------
Income (loss) before
income taxes 3,520 (17,327) 12,422 (16,319)
Income tax expense 831 1,044 4,021 1,064
--- ----- ----- -----
Net income (loss) $2,689 $(18,371) $8,401 $(17,383)
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Earnings per share
(EPS):
Basic shares
outstanding 9,046,547 8,764,818 8,984,644 8,954,097
Basis EPS $0.29 $(2.05) $0.92 $(1.90)
Diluted shares
outstanding 9,068,798 8,764,818 9,051,701 8,954,097
Diluted EPS $0.29 $(2.05) $0.91 $(1.90)
Cautionary Statement
Some of the statements contained in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "project," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of these terms or other similar terminology. Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. No assurance can be given that management's expectations, beliefs or projections will occur or be achieved or accomplished. Factors that could affect the Company's actual results include, among others, the fact that our loss reserves are based on estimates and may be inadequate to cover our actual losses; the uncertain effects of emerging claim and coverage issues on our business; an inability to obtain or collect on our reinsurance protection; a downgrade in the A.M. Best rating of our insurance subsidiaries; the impact of extensive regulation of the insurance industry and legislative and regulatory changes; a failure to realize our growth strategies and investment objectives; the further deterioration in the fixed income and equity security markets, the effects of intense competition; the loss of one or more principal employees; the geographic concentration of our business; the failure of independent insurance brokers to adequately market our products; and other factors described in our filings with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance upon these forward-looking statements, which speak only as of the date of this release. The Company undertakes no obligation to update any forward-looking statements.
SOURCE Eastern Insurance Holdings, Inc.
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