MEADOWBROOK INSURANCE GROUP INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - February 22, 2011

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8-K - MEADOWBROOK INSURANCE GROUP 8-K 2-22-2011 - MEADOWBROOK INSURANCE GROUP INCform8k.htm
EX-99.2 - EXHIBIT 99.2 - MEADOWBROOK INSURANCE GROUP INCex99_2.htm
Exhibit 99.1
 
Investor Presentation
February 2011
Bob Cubbin, CEO
Karen Spaun, CFO
 
 
 
2
Forward-Looking Statements
 Certain statements made by Meadowbrook Insurance Group, Inc. in this presentation 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.
 
 
 
3
The Meadowbrook Approach
  Our objective is to generate predictable results across the market cycle,
 with a target return on average equity of 10% - 17%
  To achieve these results we seek to leverage the unique characteristics of
 our balanced business model to generate:
  Consistent, profitable underwriting results
  Predictable investment income in a low-risk, high-quality, fixed income portfolio
  Profitable growth both organically and through acquisitions
  Strong cash flow from our insurance company subsidiaries and non-regulated fee-
 based services to leverage invested assets to equity and manage debt service
  Steady fee and commission income
We strive to deliver consistent results with a balanced business model
 We are a specialty niche focused commercial insurance underwriter and
 insurance administration services company
 
 
 
4
Meadowbrook Vitals
  Current market cap (at 2/18/11):  $559.5 million
  Outstanding shares at 12/31/10:  53.2 million
  Weighted average shares (At 12/31/10): 54.3 million
  Book value (12/31/2010):  $547.1 million  
  Book value per share:   $10.28 (TTM Dec -10 ROAE 11.4%) 
 – Excluding unrealized gain / loss, net of deferred taxes: $9.61 (TTM Dec -10 ROAE 12.1%)
 – Tangible book value per share (excluding goodwill and intangibles):$7.36 (TTM Dec -10 ROAE 15.7%)
 
  Debt to equity:    21.7%; 6.9% excluding debentures 
  Debt to total capital:   17.8%; 5.7% excluding debentures  
  Current price / book:   1.02 (at $10.51/share market price - as of 2/18/11)
  Dividend yield (at 2/18/11):  1.60%      
 
  Statutory premium leverage  Actual  Target  
 – GWP to Statutory surplus  2.2 to 1  2.75 to 1
 – NWP to Statutory surplus  1.9 to 1  2.25 to 1
 
  Insider ownership (at 12/31/10):  7.1%      
 
 
 
5
What Makes Us Different:
We are Flexible and are Able to Adapt to Changing Market Conditions
Diverse Revenue
Sources
Positioned to Manage
Insurance Cycles
Conservative
Investment
Philosophy
Ability to Attract and
Retain Talented
Professionals
Our model allows us to deliver more predictable results
Strong Capital and
Liquidity Position
Earned premium from insurance operations Fee revenue from risk management services Flexibility to utilize multiple distribution channels Product, program and geographic diversification Admitted market capabilities contribute to stability and higher renewal retention Non-admitted capabilities enable opportunistic response in volatile pricing environment High-quality fixed income approach to our $1.3 billion portfolio Investment approach reinforces our focus on underwriting profitability Team of talented insurance professionals with a wide range of expertise across all functions and lines of business Regional structure enables associates to deliver strong and responsive local service to clients Insurance subsidiaries rated A- (Excellent) by A.M. Best Insurance subsidiary surplus  levels  can support meaningful  premium growth Generate cash flows from both regulated and non-regulated sources, which provides flexibility Manageable debt levels, with access to $35 million line of credit (no outstanding balance)
 
 
 
6
Our Approach Has Delivered Results Over Time
Total Revenue ($M)
Net Operating Income ($M)
Shareholders’ Equity ($M)
Net Operating Income per Share
CAGR (2006 to 2010) = 24%
CAGR (2006 to 2010) = 28%
CAGR (2006 to 2010) = 28%
CAGR (2006 to 2010) = 10%
 
 
 
7
Capability Building Through Successful Acquisitions
Retail Agency Only
1955: Founded as a retail insurance agency
Core Capability Build Out
1985: Star Insurance Company
1990: Savers Property & Casualty Insurance Company
1994: American Indemnity Insurance Company
1996: Association Self Insurance Services
1997: Williamsburg National Insurance Company
 Crest Financial Services
1998: Ameritrust Insurance Corporation
 Florida Preferred Administrators, Inc.
1999: TPA Insurance Agency
Continued Synergistic Expansion
2007: USSU
2008: Procentury
  Strategic Staging of Acquisitions
 • Opportunity to leverage our diverse revenue
 platform, by expanding current distribution,
 servicing capabilities, and complementary
 product lines and classes
 • Ability to attract talented insurance
 professionals that are a good fit with
 Meadowbrook culture
 • Opportunity to create “win-win” situation by
 mitigation our downside risk and providing seller
 with opportunity to obtain fair value through deal
 structure
Meadowbrook actively reviews acquisition prospects on a strategic basis and enters into transactions that will increase long-term shareholder value We consider a range of strategic factors when looking at acquisitions including:
 
 
 
8
Diverse Revenue Sources
Insurance Operations
Commission Revenue
Fee Revenue
Our most prominent source of revenue and income comes from our insurance operation;
commission revenue and fee-for-service revenue generate unregulated free cash flow
  Admitted and non-admitted products and
 programs
  Risk sharing vehicles
  Managed program revenue
  Municipality and Association clients
  Agency commission from non-affiliated carriers
TTM Dec -10 Earned Premium:  $659.8 M
TTM Dec -10 Net Investment Income: $54.2M
TTM Dec -10 Fee Revenue: $23.0 M
TTM Dec -10 Commission Revenue: $11.2 M
 
 
 
9
Insurance Operations
Diversified Commercial Positions Built to Manage Across Cycles
Main Street Excess
and Surplus Lines
Admitted Programs
Non-Admitted
Programs
Specialty Markets
  Homogeneous specialized programs
  Heterogeneous geographic centers
  Product focused
  Promotes specialty agents
  Broad classes of “Main Street”
 commercial risks
  Promotes General Agent
 distribution
  Specialized programs ignored or
 underserved by the standard market
  Promotes wholesalers with specialty
 underwriting authority
  Solutions designed for very specific
 products and market segments
TTM Dec-10 GWP:$532 M
TTM Dec-10 GWP: $147 M
TTM Dec-10 GWP: $47 M
TTM Dec-10 GWP: $76 M
  Picture framers
  Music equipment stores
  Christian booksellers
  Chemical distributors
Description
Examples
  Restaurants, bars and taverns
  Apartments, hotels and motels
  Mercantile
  Contractors liability
  Pet-sitters
  Oil and gas contractors
  Assisted care facilities
  Package delivery
  Excess workers’ comp
  Transportation
  Agriculture
  Marine
 
 
 
10
National Scope with Regional Perspective
Bermuda
  Talented associates are located throughout the country to serve the needs of
 regional clients
  Support from headquarters enables efficient resource deployment and cross-unit
 coordination
Balance of effective local touch, with efficient national coordination
Meadowbrook locations
Top 10 production states (As of 12/31/2010)
1
2
4
6
3
1
2
7
5
10
8
9
 
 
 
11
Diverse Mix of Business
Full Year 2010 Gross Written Premium Business Mix
Year Ended December 31, 2010
  Our wide range of product
 expertise positions us well to
 support future growth
  Our new business is primarily
 rollover books of business with
 a proven track record of
 profitability
 
 
 
Loss and Expense Ratios
12
Loss ratio
2006 - 2010 GAAP and Accident Year Combined Ratios
96.8%
Our GAAP combined ratio has improved over time and our accident year combined ratio
has remained profitable
2006
2007
2008
2009#
2010
97.9%
95.4%
98.0%
93.3%
97.8%
93.2%
98.5%
95.0%
99.7%
Re-estimated AY Combined Ratio†
 (as of 12/31/2010)
94.7%*
94.7%*
93.2%*
98.3%
†The re-estimated AY combined ratio reflects reserve adjustments made following the accident year, for example, the 94.7% re-estimated 2006 AY
combined ratio reflects new loss development information gathered over the 4 years from 12/31/2006 to 12/31/2010; the 94.7% re-estimated 2007 AY
combined ratio reflects new loss development gathered over the 3 years from 12/31/2007 to 12/31/2010; etc.
* The 2006 - 2007 initial and re-estimated AY combined ratios excludes Century. The 2008 re-estimated AY combined ratio includes a pro-rata portion of
the Century AY 2008 development for the 5 post-merger months.
# 2009 AY and CY expense ratio reflects expense reclassification as disclosed in our May 3, 2010 8-k filing with the SEC.
99.7%
 
 
 
Expense Ratio Analysis
13
Twelve Month Ended GAAP Expense Ratio Comparison
Net earned premium  $539.6M    $659.8M
Policy acquisition   $175.1M    $227.0M  
and other u/w expenses
Expense ratio  32.5%    34.4%
*As a result of our internal cost allocation study,1.0% of internal claims administration is included in the 2010 expense
ratio instead of ULAE
 
 
 
14
Focus on Generating Consistent Investment
Income
Robust top line growth has led to a larger investment base and a meaningful
increase in full year NII
Pre-tax book yield was 4.2% at 12/31/2010 vs. 4.5% at 12/31/2006 The duration of our portfolio increased to 5.0 years at 12/31/2010 from 3.9 years at 12/31/2006 At 12/31/2010 our loss and LAE reserve duration was approximately 3.3 years Net investment income for YTD 12/31/2010 increased by 7.6% compared to YTD 12/31/2009 2010 year to date impairments of $491,000 on a $1.3 billion portfolio
 
 
 
15
We Maintain a High Quality, Low Risk Investment Portfolio
We maintain a conservative investment portfolio
Portfolio Allocation and Quality
Allocation based on market value
  Low equity risk exposure
 – 98% fixed income and cash
 – 2% equity
  High credit quality
 – 98% of bonds are investment grade
 – Average S&P rating of AA / Moody’s
 of Aa2
  The effective duration of our $1.3 billion
 portfolio is 5.0 years
  The duration on net reserves of $784
 million is approximately 3.3 years
NOTE: Data above as of December 31, 2010
 
 
 
16
Fee-Based and Agency Operations Give Us
Flexibility with Unregulated Cash Flow
  We serve the self-insurance market for municipalities and associations
 – Sample clients include the Michigan Municipal League, the Minnesota County
 Insurance Trust and the Alabama Forest Fund
  We provides clients administrative and back office services
  In many cases, programs have been built on long-standing
 relationships
  A source of non-regulated liquidity that has low capital requirements
Agency
Operations
Managed
Programs
  Original foundation of the company in 1955
  We operate five retail / wholesale agencies and generate commission
 income from more than 50 unaffiliated carriers
Our fee-based and commission businesses are relatively small but continue to
provide a valuable source of unregulated cash flow
 
 
 
17
Capital Management
Our goal is to be efficient managers of capital; we initiated a dividend during
2008 and since this time we have returned $54.4M to shareholders through
dividends and share repurchases
 
 
 
18
Capital Management
Since 2008 our share repurchase activity has been accretive, increasing
BVPS by $0.20
12/31/2010 BVPS: $10.28
 
 
 
19
Recent Financial Highlights:
Highlights ($ in M)
 
 
 
20
Full Year 2011 Guidance and Long Term Value Creation
Looking ahead to 2011, we expect a market similar to that which we have
experienced during 2010
Gross Written Premium
  $802M
Combined Ratio
  95.0%
Net income from operations
  $58.2M
Net operating income per share
  $1.07
2010 Results
  Leverage multiple revenue
 sources and diverse insurance
 offering to maximize
 opportunities across market
 cycles
  Increase underwriting leverage
 through selective growth
 opportunities, while sustaining
 appropriate diversification
  Increase investment leverage
 through cash from operations
  Leverage fixed costs over a
 larger revenue base
  Increase fee-for service
 income through new
 opportunities and margin
 expansion
Driving Long-term
 Enterprise Value
2011 Guidance*
Gross Written Premium
  Range of $830M - $850M
Combined Ratio
  Range of 96.0% - 97.0%
Net income from operations
  $53.0M - $58.5M
Net operating income per share
  $1.00 to $1.10 per share
*Our guidance range does not
include any favorable or
unfavorable development on
prior year reserves
 
 
 
 
 

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