Attached files
| file | filename |
|---|---|
| 8-K - MEADOWBROOK INSURANCE GROUP, INC 8-K 11-15-2011 - MEADOWBROOK INSURANCE GROUP INC | form8k.htm |
| EX-99.1 - EXHIBIT 99.1 - MEADOWBROOK INSURANCE GROUP INC | ex99_1.htm |
Exhibit 99.2
Investor Supplement
Third Quarter Update - 2011
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.
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.
Notes on Non-GAAP Financial Measures
(1) Net operating income is a non-GAAP measure defined as net income excluding after-tax
realized gains and losses.
realized gains and losses.
(2) Accident year combined ratio is a non-GAAP measure that the impact of any adverse or
favorable development on prior year loss reserves.
favorable development on prior year loss reserves.
These non-GAAP metrics are common measurements for property and casualty insurance
companies. We believe this presentation enhances the understanding of our results by
highlighting the underlying profitability of our insurance business. Additionally, these measures
are key internal management performance standards.
companies. We believe this presentation enhances the understanding of our results by
highlighting the underlying profitability of our insurance business. Additionally, these measures
are key internal management performance standards.
3
Presentation Outline
Detail Financial Review
Return on Average Equity Analysis
Investment Portfolio Review
4
I. Detailed Financial Review
5
Nine Months Ended 2011 vs. 2010 Comparison
Underwriting and Investing
Activities
Activities
Top line earned premium growth
driven by USSU conversion, rate
increases and new business
initiatives from recent years.
driven by USSU conversion, rate
increases and new business
initiatives from recent years.
Excluding prior year development,
profit from underwriting activities has
increased meaningfully year over
year.
profit from underwriting activities has
increased meaningfully year over
year.
Net Commissions & Fees
Decline in fee and commission
revenue is driven by conversion of
USSU to our paper.
revenue is driven by conversion of
USSU to our paper.
The increase in GS&A relates
primarily to investments in sales
initiatives to stimulate revenue growth
in net commissions and fees.
primarily to investments in sales
initiatives to stimulate revenue growth
in net commissions and fees.
Other Expenses
General Corporate expenses are
down as a result of a reduction in the
variable compensation accrual.
down as a result of a reduction in the
variable compensation accrual.
Interest expense is down due to a
decrease in the average outstanding
debt (term loan).
decrease in the average outstanding
debt (term loan).
Taxes
The effective federal tax rate on
operating income was 24.6%
compared to 29.1% in the prior year.
The lower tax rate reflects tax exempt
interest accounting for a larger portion
of pre-tax income in 2011.
operating income was 24.6%
compared to 29.1% in the prior year.
The lower tax rate reflects tax exempt
interest accounting for a larger portion
of pre-tax income in 2011.
6
Nine Months Ended 2011 vs. 2010 Combined Ratio Analysis
Loss and LAE Ratio
The 2011 Loss and LAE ratio includes 0.1 points of
favorable development compared to 4.9 points of
favorable development in 2010.
favorable development compared to 4.9 points of
favorable development in 2010.
The 2011 Loss and LAE ratio includes 2.2 points of
unusual Q2 2001 storm losses.
unusual Q2 2001 storm losses.
Expense Ratio
The 2011 expense ratio decreased 0.8 points in
comparison to the same 2010 period. The
decrease reflects a reduction in the variable
compensation accrual, the leveraging of fixed costs
over a larger premium base and a slight reduction
in commission rates due to mix of business.
comparison to the same 2010 period. The
decrease reflects a reduction in the variable
compensation accrual, the leveraging of fixed costs
over a larger premium base and a slight reduction
in commission rates due to mix of business.
7
Impact of USSU Conversion on 2011 Results
As reflected in the third quarter results, the conversion of the USSU business from a fee-
based program to an insured program is accretive to earnings.
based program to an insured program is accretive to earnings.
*The decrease in pre-tax profit for the YTD period was driven by accounting rules that require premium revenue
to be earned ratably over the life of the policy term, whereas fee-based revenue is recognized during the period
the services are provided. At the same time, internal expenses supporting the program were expensed as
incurred for both 2011 and 2010.
to be earned ratably over the life of the policy term, whereas fee-based revenue is recognized during the period
the services are provided. At the same time, internal expenses supporting the program were expensed as
incurred for both 2011 and 2010.
8
II. Return on Average Equity Analysis
9
ROAE Components
2011 Projected Including and Excluding Storm Losses
2011 Projected Including and Excluding Storm Losses
10
ROAE & Combined Ratio Illustration
We strive to deliver predictable earnings across the market cycle with a return on average
equity target of 10% - 17%.
equity target of 10% - 17%.
2010 - ROAE of 11.4%, Combined Ratio of 95.0% and Investment Yield of 4.2%
2011 - Projected ROAE of 8.6%, Combined Ratio of 98.5% and Investment Yield of 3.9%
2010A
11
III. Investment Portfolio Review
12
Investment Portfolio Review
We maintain a high-quality, low-risk investment portfolio.
NOTE: Data above as of September 30, 2011
Low equity risk exposure
98% fixed income and
cash
cash
2% equity
High credit quality
99% of bonds are
investment grade
investment grade
Average S&P rating of
AA/Moody’s of Aa3
AA/Moody’s of Aa3
Interest Rate Risk Protection
Hold to maturity
High credit quality =
low historical
impairments
low historical
impairments
Access to additional
capital if needed
capital if needed
13
Government and Agency - September 30, 2011 Profile
Summary Profile
$25.2M market value; approximately 2% of the
managed portfolio
managed portfolio
Rated Aaa by Moody’s and AA+ by S&P
September 30, 2011 unrealized gain was $1.9M
Average investment yield: 3.2%
Government & Agency vs. Entire
Portfolio
Portfolio
Government vs. Agency
14
Corporate Fixed Income - September 30, 2011 Profile
Summary Profile
$486.5M market value; 35% of the investment
portfolio
portfolio
September 30, 2011 unrealized gain was
$36.0M.
$36.0M.
Average investment yield: 4.3%
Quality Indicators
Corporate vs. Entire Portfolio
Corporate Profile
15
Municipal Bonds - September 30, 2011 Profile
Summary Profile
$593.2M market value; 43% of the
investment portfolio
investment portfolio
September 30, 2011 net unrealized gain
was $42.5M
was $42.5M
Tax exempt unrealized gain $37.7M
Taxable unrealized gain $ 4.8M
Average tax equivalent yield: 5.5%
Quality Indicators & Geographic
Distribution
Distribution
Municipals vs. Entire Portfolio
16
Structured Securities - June 30, 2011 Profile
Summary Profile
Quality Indicators
Structured vs. Entire Portfolio
Structured Profile
17
Equities - September 30, 2011 Profile
Summary Profile
$27.0million market value; 2% of the managed
portfolio
portfolio
September 30, 2011 unrealized gain was $1.8M
Preferred stock unrealized gain $1.7M
Bond mutual fund unrealized gain
$0.1M
$0.1M
Average tax equivalent yield: 8.8%
Equities vs. Entire Portfolio
Equity Mix