Meadowbrook Insurance Group, Inc. Reports Second Quarter Operating Income of $8.5 Million

SOUTHFIELD, Mich., Aug. 1, 2011 /PRNewswire/ --

• Net operating income of $8.5 million, or $0.16 per diluted share
  • Results include higher than normal after-tax storm losses of $4.1 million, or $0.08 per diluted share, as previously announced
• Accident quarter combined ratio of 100.8%
  • Higher than normal storm activity added 3.5 percentage points, as previously announced
• Gross written premium increased 12% to $212.7 million
• Book value per share increased 5.4% to $10.84 as compared to December 31, 2010
• Board of Directors declared quarterly dividend of $0.04 per share

Second Quarter Overview:

Meadowbrook Insurance Group, Inc. (NYSE: MIG) reported second quarter 2011 net operating income of $8.5 million, or $0.16 per diluted share, compared to $12.6 million, or $0.23 per diluted share, for the same period last year. Net operating income is a non-GAAP measure the Company defines as net income excluding after-tax realized gains and losses. The current quarter net operating income reflects higher than normal after-tax storm losses of $4.1 million, or $0.08 per diluted share, incurred in 2011.

The accident quarter combined ratio, a non-GAAP measure that excludes the impact of any adverse or favorable development on prior year loss reserves, was 100.8% in 2011 and includes 3.5 percentage points of higher than normal storm losses. Excluding the higher than normal storm losses, the accident quarter combined ratio was 97.3% in 2011. The current accident quarter combined ratio reflects positive impacts of underwriting and pricing actions taken in the prior 12 months.

Commenting on the quarter, Meadowbrook President and Chief Executive Officer Robert S. Cubbin stated: "While we are generally pleased with our second quarter performance we were negatively impacted by widespread storm activity that was exceptionally high. Excluding the higher than average storm losses, our accident year combined ratio improved as compared to prior year and we continued to achieve profitable growth despite the competitive market. We have also been able to achieve premium growth through rate increases, while maintaining high retention rates. These achievements underscore our commitment to pricing adequacy and adherence to disciplined underwriting standards. Looking ahead, we believe our balanced business model positions us well to continue to deliver predictable earnings across the market cycle and we are optimistic about our future prospects."

Mr. Cubbin also commented on the unusual frequency of second quarter storm activity: "Our underwriting approach to property exposures focuses on spread of risks, avoiding those areas most frequently exposed to severe weather and maintaining a low catastrophe reinsurance retention level. None of the storms this quarter were severe enough to trigger our catastrophe reinsurance program as no single event resulted in losses greater than $2.4 million. That said, the frequency of storm losses was very high, with 12 ISO designated storms occurring during the quarter. The cumulative effect of the storms led to this greater than usual loss for us in the quarter. Our relatively lower than industry exposure to property catastrophes reduced our potential for even greater losses despite the significant number of severe storms that devastated many parts of the country."

Gross written premium increased $22.9 million, to $212.7 million from $189.8 million in the prior year. The increase reflects the maturation of programs initiated in recent years and rate increases that were achieved during the quarter.

Net losses and loss adjustment expenses of $121.4 million increased $22.2 million from $99.2 million in 2010. The GAAP loss and LAE ratio was 66.9% in 2011 and 61.0% in 2010.

Policy acquisition and other underwriting expenses increased $5.1 million to $62.5 million from $57.4 million in 2010. The Company's expense ratio was 34.4% compared to 35.2% in the prior year.

Net investment income grew $0.3 million to $13.8 million from $13.5 million in 2010.

Net commissions and fees increased $0.8 million to $7.9 million from $7.1 million in the prior year. The change was driven primarily by increased net commission revenue generated by the Company's Michigan agencies.

General corporate expenses decreased $2.0 million from a $1.3 million expense in 2010 to a benefit of $0.7 million in 2011. The current year amount reflects a reduction in the accrual for variable compensation, as compared to accruing a provision for variable compensation in 2010.

Six-months Ended June 30, 2011 Overview:

Net operating income for the six-months ended June 30, 2011 was $23.0 million, or $0.43 per diluted share, compared to $29.4 million, or $0.54 per diluted share, in the prior year.

The accident year-to-date combined ratio, a non-GAAP measure that excludes the impact of any adverse or favorable development on prior year loss reserves, improved to 99.0% in 2011 compared to 99.5% in 2010. The improved accident year-to-date combined ratio reflects underwriting and pricing actions taken in the prior 12 months.

Gross written premium increased $40.6 million, to $437.6 million from $397.0 million in the prior year. The increase reflects the maturation of programs initiated in recent years, rate increases that were achieved during the year and the conversion of an existing fee-based program into an insured program where the Company now assumes risk.

Net losses and loss adjustment expenses of $226.7 million increased $40.0 million from $186.7 million in 2010. The GAAP loss and LAE ratio was 64.4% in 2011 and 59.4% in 2010.

Policy acquisition and other underwriting expenses increased $10.7 million to $119.9 million from $109.2 million in 2010. The Company's expense ratio was 34.0% compared to 34.8% in the prior year.

Net investment income grew $0.8 million to $27.3 million from $26.5 million in 2010.

Net commissions and fees decreased $0.7 million to $16.3 million from $17.0 million in the prior year. The decrease was primarily driven by the conversion of fee-business into an insured program. Excluding the conversion, net commissions and fees were up slightly in 2011 compared to 2010.

General corporate expenses decreased $2.6 million to $0.6 million compared to $3.2 million in 2010.

Other Matters:

Dividend Declared And Share Repurchases

During the second quarter of 2011, the Board of Directors declared a dividend of $0.04 per share. In addition, the Company repurchased 400,000 shares at an average price of $9.76 per share during the second quarter.

Conference Call

Meadowbrook's 2011 second quarter results will be discussed by management in more detail on Tuesday, August 2, 2011 at 9:00 a.m. EDT.

To listen to the call please dial 1-877-407-8035 approximately five minutes prior to the start of the call and ask for the Meadowbrook conference call.  Additionally, the conference call will be broadcast live over the internet and can be accessed by all interested parties via the investor relations section of our website at www.meadowbrook.com or www.investorcalendar.com.  

For those who cannot listen to the live conference call, a replay of the call will be available through August 17, 2011 by dialing 1-877-660-6853 and referring to account number 286 and conference ID 375399.  The webcast will be archived and available for replay through November 2, 2011.

About Meadowbrook Insurance Group

Meadowbrook Insurance Group, Inc., based in Southfield, Michigan, is a leader in the specialty program management market.  Meadowbrook includes several agencies, claims and loss prevention facilities, self-insured management organizations and seven property and casualty insurance underwriting companies, including one in Bermuda. Meadowbrook has twenty-six locations in the United States. Meadowbrook is a risk management organization, specializing in specialty risk management solutions for agents, professional and 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 collectability 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.

SOURCE Meadowbrook Insurance Group, Inc.