Meadowbrook Insurance Group Notes Q1 Net Income of $3.8M

Michigan-based Meadowbrook Insurance Group has reported net operating income for the quarter ended March 31, 2005 of $3.8 million, or $0.13 per diluted share, compared to net operating income of $3.3 million, or $0.11 per diluted share, in 2004.

Net income for the quarter ended March 31, 2005 was $3.7 million, or $0.13 per diluted share, compared to net income of $3.2 million, or $0.11 per diluted share, in 2004.

This improvement reflects the growth in earned premiums from profitable programs, continued rate increases, the leveraging of fixed costs, and an increase in agency commissions. These improvements were partially offset by an increase in administrative expenses associated with the compliance related to Section 404 of the Sarbanes-Oxley Act.

Commenting on the results, Meadowbrook President and Chief Executive Officer, Robert Cubbin noted, “The first quarter of 2005 demonstrates our commitment to continued underwriting discipline, our consistent focus upon growing our profitable specialty program and fee-for-service businesses, and our on-going plan to leverage fixed costs.”

During the quarter, gross written premiums increased $9.9 million, or
12.3%, to $91.0 million, from $81.1 million for the comparable period in 2004.

This increase reflects anticipated growth from premium rate increases, the conversion of existing controlled programs to the company’s underwriting subsidiaries, new programs implemented in 2004, and growth in existing programs.

Revenues increased $10.4 million, or 16.1%, to $74.9 million for the
quarter ended March 31, 2005, from $64.5 million for the comparable period in 2004.

Net earned premiums increased $11.1 million, or 22.3%, to $60.8 million for the quarter ended March 31, 2005, from $49.7 million for the comparable period in 2004. This increase reflects the impact in the current quarter of overall rate increases of 8.4% from last year, the earnings pattern from the controlled growth in written premiums, and the full year premium volume from new programs implemented in 2004.

As anticipated, net commissions and fees decreased $1.2 million, or 10.5%, to $10.1 million for the quarter. This decrease is primarily related to the planned run-off and prior year acceleration of revenue recognition due to the early termination of two limited duration fee-for-service contracts. This decrease was partially offset by an increase in commissions.

However, intercompany fees, which are eliminated upon consolidation, increased $1.7 million. Gross commissions and fees, before consolidation, increased to $22.5 million in the quarter, from $22.0 million in the comparable period in 2004.

Net investment income increased $494,000, or 13.7%, to $4.1 million for the quarter ended March 31, 2005, from $3.6 million for the comparable period in 2004. Average invested assets increased $76.1 million, or 23.0%, to $407.2 million in 2005. The increase in average invested assets reflects cash flows from underwriting activities, growth in gross written premiums during 2004 and 2005, and the net proceeds received from the senior debentures issued during the second quarter of 2004, offset by a decrease in unrealized gains.

Incurred losses increased $4.6 million, or 14.2%, to $37.1 million for the quarter ended March 31, 2005, from $32.5 million for the comparable period in 2004.

The loss and loss adjustment expense ratio for the quarter ended
March 31, 2005 was 65.6%, compared to 70.2% for the comparable period in 2004.

The improvement in the loss and loss adjustment expense (LAE) ratio reflects a smaller increase in net ultimate loss estimates on prior accident years this quarter than in the first quarter of 2004. The increase in net ultimate loss estimates on prior accident years this quarter was $1.5 million, or 0.7% of the company’s net loss and LAE reserves of $227.0 million, as of Dec. 31, 2004.

This overall improvement in the loss and loss adjustment expense ratio also reflects continued rate increases, the growth of earned premiums in the current accident year from profitable programs, and the expected shift in the balance of net earned premiums between the workers’ compensation and general liability lines of business.

Historically, the general liability line of business has a lower loss ratio and a higher commission rate. This improvement also includes a 1.2 percentage point decrease in unallocated loss adjustment expense as a result of efficiencies realized in claims handling.

Policy acquisition and other underwriting expenses increased $3.3 million, or 43.4%, to $10.8 million for the quarter ended March 31, 2005, from $7.5 million for the comparable period in 2004. The GAAP expense ratio was 33.7% for the quarter ended March 31, 2005, compared to 31.8% for the quarter ended March 31, 2004. The increase in the expense ratio is primarily due to the anticipated increase in outside commissions resulting from the previously mentioned shift in the balance of premiums between the workers’ comp and general liability lines of business.

In addition, the expense ratio this quarter was affected by higher insurance related assessments and an increase in excess reinsurance costs on one specific property-based program. Partially
offsetting these unfavorable impacts was a decrease in fixed costs and profit- sharing commissions paid to outside producers.

The GAAP combined ratio was 99.3% for the first quarter of 2005, compared to 102.0% for the comparable period in 2004.

As previously announced, the ratings of certain of the Company’s insurance company subsidiaries have been upgraded by A.M. Best to “B++” (Very Good).

The ratings upgrade applies to Star Insurance Company, Savers Property & Casualty Insurance Company, and Williamsburg National Insurance Company.

Additionally, A.M. Best reaffirmed the rating of Ameritrust Insurance Corporation as “B+”, with a positive outlook.

Topics Profit Loss