Attached files
| file | filename |
|---|---|
| 8-K - Protective Insurance Corp | form8k.htm |
Baldwin & Lyons, Inc. November 8, 2017
Unaudited Third Quarter Financial Statements Investor Contact: William Vens
investors@baldwinandlyons.com
(317) 429-2554
BALDWIN & LYONS ANNOUNCES RESULTS FOR THE QUARTER AND NINE MONTHS
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●
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Gross premiums written during the first nine months of 2017 increased 20.9% to $360.6 million compared to $298.1 million during the first nine months of 2016.
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●
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Net premiums earned during the first nine months of 2017 increased 11.7% to $231.1 million, compared to $206.9 million during the first nine months of 2016.
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●
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Combined ratio during the third quarter of 2017 was 99.3%, compared to 107.9% during the third quarter of 2016.
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Carmel, Indiana, November 8, 2017—Baldwin & Lyons, Inc. (NASDAQ: BWINA, BWINB) today reported results for the third quarter and first nine months of 2017. The Company produced third quarter net income of $7.4 million, or $0.49 per share, which compares to net income of $4.0 million, or $0.27 per share, for the prior year's third quarter. For the first nine months of 2017, net income totaled $1.8 million, or $0.12 per share, which compares to net income of $24.1 million, or $1.60 per share, for the prior year period.
Gross premiums written for the current quarter increased 29.0% to $131.5 million compared to $101.9 million written during the third quarter of 2016. Gross premiums written for the nine months of 2017 increased 20.9% to $360.6 million compared to $298.1 million written during the first nine months of 2016. The increases were primarily driven by continued growth in the Company's commercial automobile and workers' compensation products as well as growth in the Company's programs book of business.
Net premiums earned for the third quarter of 2017 were $89.1 million, 25.1% higher than last year's third quarter total. The continued growth in the Company's commercial automobile and workers' compensation products as well as growth in the Company's programs book of business contributed to the increase in premiums earned. For the first nine months of 2017, net premiums earned increased 11.7% to $231.1 million.
Net investment income for the third quarter of 2017 increased 14.6% to $4.0 million compared to $3.5 million in 2016, reflecting higher interest rates leading to higher reinvestment yields for short-duration fixed income securities, increased dividends from equity securities and a 3.0% increase in average funds invested resulting from positive cash flow. For the nine months ended September 30, 2017, net investment income increased 18.4% to $12.4 million, compared to $10.5 million in 2016, reflecting investment impacts similar to those experienced during the third quarter.
Underwriting operations produced a combined ratio of 99.3% during the third quarter of 2017, which compares to a combined ratio of 107.9% for the third quarter of 2016. The combined ratio difference reflects a $10.1 million reserve strengthening that occurred during the third quarter of 2016. For the nine months ended September 30, 2017, the combined ratio was 112.2%, which compares to a combined ratio of 95.9% for the 2016 period with the difference primarily related to reserve strengthening in the second quarter of 2017.
- 1 -
During the third quarter of 2017, the Company repurchased 84,960 shares of its Class B common stock at an average price per share of $22.12.
Book value per share as of September 30, 2017 was $26.93, an increase of $0.43 per share during the third quarter, after the payment of cash dividends to shareholders totaling $0.27 per share. For the nine months ended September 30, 2017, book value per share increased $0.12 after the payment of cash dividends to shareholders totaling $0.81 per share. The combination of the year-to-date increase in book value of $0.12, plus dividends paid to shareholders of $0.81, represents an annualized total value creation of 4.6% on beginning book value for the nine months ended September 30, 2017.
The Company's net income (loss), determined in accordance with U.S. generally accepted accounting principles (GAAP), includes items that may not be indicative of ongoing operations. The following table reconciles income (loss) before federal income taxes (benefits) to underwriting income (loss), a non-GAAP financial measure that is a useful tool for investors and analysts in analyzing ongoing operating trends.
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Three Months Ended
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Nine Months Ended
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|||||||||||||||
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September 30
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September 30
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|||||||||||||||
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2017
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2016
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2017
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2016
|
|||||||||||||
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Income (loss)
|
$
|
10,618
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$
|
5,635
|
$
|
(384
|
)
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$
|
35,988
|
|||||||
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Less: Net realized gains on investments
|
5,944
|
7,732
|
15,534
|
17,024
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||||||||||||
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Operating income (loss)
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$
|
4,674
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$
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(2,097
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)
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$
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(15,918
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)
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$
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18,964
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||||||
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Less: Investment income
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4,027
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3,513
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12,434
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10,501
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||||||||||||
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Underwriting income (loss)
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$
|
647
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$
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(5,610
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)
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$
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(28,352
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)
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$
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8,463
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||||||
Three months ended September 30, 2017
Operating Income (Loss)
Operating income, before federal income taxes, was $4.7 million for the third quarter of 2017 compared to operating loss, before federal income tax benefits, of $2.1 million during the third quarter of 2016.
Nine months ended September 30, 2017
Operating Income (Loss)
Operating loss, before federal income tax benefits, was $15.9 million for the nine months ended September 30, 2017 compared to operating income, before federal income taxes, of $19.0 million during the 2016 period.
The Company's management uses the term operating income, a non-GAAP financial measure, which is defined as income excluding pre-tax investment gains and losses. This financial measure is used to evaluate the Company's performance because the recognition of investment gains and losses in any given period is largely discretionary as to timing and could distort the analysis of trends. The Company believes that the defined term is used commonly in the property/casualty insurance industry and that equity analysts exclude gains and losses on investments in their analysis of the Company's results for the same reason.
The combined ratios and the components thereof, as presented herein, are commonly used in the property/casualty insurance industry and are applied to the Company's GAAP underwriting results.
- 2 -
Conference Call Information:
Baldwin & Lyons, Inc. has scheduled its quarterly conference call for Wednesday, November 8, 2017, at 11:00 AM ET (New York time) to discuss results for the third quarter ended September 30, 2017.
To participate via teleconference, investors may dial 1-877-705-6003 (U.S./Canada) or 1-201-493-6725 (International or local) at least five minutes prior to the beginning of the call. A replay of the call will be available through November 15, 2017 by calling 1-844-512-2921 or 1-412-317-6671 and referencing passcode 13670839. Investors and interested parties may also listen to the call via a live webcast, accessible on the company's web site via a link at the top of the main Investor Relations page. To participate in the webcast, please register at least fifteen minutes prior to the start of the call. The webcast will be archived on this site until May 8, 2018. The webcast may be accessed directly at: http://public.viavid.com/player/index.php?id=126325.
Also available on the investor relations section of our web site are complete interim financial statements and copies of our filings with the Securities and Exchange Commission.
The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q but do not include all of the information and footnotes as disclosed in the Company's annual audited financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 2017. Interim financial statements should be read in conjunction with the Company's annual audited financial statements.
Forward-looking statements in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve inherent risks and uncertainties. Readers are encouraged to review the Company's annual report for its full statement regarding forward-looking information.
- 3 -
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Financial Highlights (unaudited)
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Baldwin & Lyons, Inc. and Subsidiaries
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||||||||||||||||
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(In thousands, except per share data)
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Three Months Ended
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Nine Months Ended
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||||||||||||||
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September 30
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September 30
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|||||||||||||||
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2017
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2016
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2017
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2016
|
|||||||||||||
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Operating revenue
|
$
|
94,534
|
$
|
75,955
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$
|
247,293
|
$
|
221,406
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||||||||
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Net realized gains on investments
|
5,944
|
7,732
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15,534
|
17,024
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||||||||||||
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Total revenue
|
$
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100,478
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$
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83,687
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$
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262,827
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$
|
238,430
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||||||||
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Net operating income (loss)
|
$
|
3,570
|
$
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(1,025
|
)
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$
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(8,250
|
)
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$
|
13,016
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||||||
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Net realized gains on investments,
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||||||||||||||||
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net of federal income taxes
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3,864
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5,026
|
10,097
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11,066
|
||||||||||||
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Net income
|
$
|
7,434
|
$
|
4,001
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$
|
1,847
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$
|
24,082
|
||||||||
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Per share data - diluted:
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||||||||||||||||
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Average number of shares
|
15,118
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15,084
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15,124
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15,084
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||||||||||||
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Net operating income (loss)
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$
|
.24
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$
|
(.06
|
)
|
$
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(.55
|
)
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$
|
.86
|
||||||
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Net investment gains
|
.25
|
.33
|
.67
|
.74
|
||||||||||||
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Net income
|
$
|
.49
|
$
|
.27
|
$
|
.12
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$
|
1.60
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||||||||
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Dividends paid to shareholders
|
$
|
.27
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$
|
.26
|
$
|
.81
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$
|
.78
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||||||||
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Comprehensive income, net of tax
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||||||||||||||||
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Net income
|
$
|
7,434
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$
|
4,001
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$
|
1,847
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$
|
24,082
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||||||||
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Unrealized net gains (losses) on securities
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2,622
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2,736
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11,437
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(1,514
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)
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|||||||||||
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Foreign currency translation adjustments
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57
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(145
|
)
|
510
|
398
|
|||||||||||
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Comprehensive income
|
$
|
10,113
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$
|
6,592
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$
|
13,794
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$
|
22,966
|
||||||||
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|
||||||||||||||||
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Annualized:
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||||||||||||||||
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Total Value Creation 1
|
10.6
|
%
|
6.6
|
%
|
4.6
|
%
|
7.7
|
%
|
||||||||
|
Return on average shareholders' equity:
|
||||||||||||||||
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Net operating income (loss)
|
4.0
|
%
|
-1.1
|
%
|
(3.0
|
%)
|
4.8
|
%
|
||||||||
|
Net income
|
8.3
|
%
|
4.3
|
%
|
0.7
|
%
|
8.9
|
%
|
||||||||
|
Consolidated combined ratio of
|
||||||||||||||||
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insurance subsidiaries (GAAP basis):
|
99.3
|
%
|
107.9
|
%
|
112.2
|
%
|
95.9
|
%
|
||||||||
|
1 Total Value Creation equals: (1) change in book value plus dividends paid, divided by (2) beginning book value
|
||||||||||||||||
- 4 -
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Baldwin & Lyons, Inc. and Subsidiaries
|
||||||||
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Unaudited Consolidated Balance Sheets
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||||||||
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(in thousands, except per share data)
|
||||||||
|
September 30
|
December 31
|
|||||||
|
2017
|
2016
|
|||||||
|
Assets
|
||||||||
|
Investments 1:
|
||||||||
|
Fixed maturities ($485,626)
|
$
|
489,606
|
$
|
491,904
|
||||
|
Equity securities ($128,166)
|
194,167
|
119,945
|
||||||
|
Limited partnerships, at equity
|
69,568
|
76,469
|
||||||
|
Short-term 2
|
1,000
|
1,500
|
||||||
|
754,341
|
689,818
|
|||||||
|
Cash and cash equivalents
|
68,529
|
62,976
|
||||||
|
Accounts receivable
|
80,112
|
64,984
|
||||||
|
Reinsurance recoverable
|
307,239
|
255,024
|
||||||
|
Other assets
|
81,655
|
78,732
|
||||||
|
Current federal income taxes
|
5,680
|
2,603
|
||||||
|
$
|
1,297,556
|
$
|
1,154,137
|
|||||
|
Liabilities and shareholders' equity
|
||||||||
|
Reserves for losses and loss expenses
|
$
|
656,006
|
$
|
576,330
|
||||
|
Reserves for unearned premiums
|
40,059
|
21,694
|
||||||
|
Borrowings under line of credit
|
20,000
|
20,000
|
||||||
|
Accounts payable and other liabilities
|
162,144
|
120,356
|
||||||
|
Deferred federal income taxes
|
14,417
|
11,412
|
||||||
|
892,626
|
749,792
|
|||||||
|
Shareholders' equity:
|
||||||||
|
Common stock-no par value
|
642
|
644
|
||||||
|
Additional paid-in capital
|
54,845
|
54,286
|
||||||
|
Unrealized net gains on investments
|
45,488
|
34,051
|
||||||
|
Retained earnings
|
303,955
|
315,364
|
||||||
|
404,930
|
404,345
|
|||||||
|
$
|
1,297,556
|
$
|
1,154,137
|
|||||
|
Number of common and common
|
||||||||
|
equivalent shares outstanding
|
15,037
|
15,084
|
||||||
|
Book value per outstanding share
|
$
|
26.93
|
$
|
26.81
|
||||
|
1 2017 cost in parentheses
|
||||||||
|
2 Approximates cost
|
||||||||
- 5 -
|
Baldwin & Lyons, Inc. and Subsidiaries
|
||||||||||||||||
|
Unaudited Consolidated Statements of Operations
|
||||||||||||||||
|
(in thousands, except per share data)
|
||||||||||||||||
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30
|
September 30
|
|||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
|||||||||||||
|
Revenues
|
||||||||||||||||
|
Net premiums earned
|
$
|
89,100
|
$
|
71,235
|
$
|
231,070
|
$
|
206,870
|
||||||||
|
Net investment income
|
4,027
|
3,513
|
12,434
|
10,501
|
||||||||||||
|
Net realized gains on investments
|
5,944
|
7,732
|
15,534
|
17,024
|
||||||||||||
|
Commissions and other income
|
1,407
|
1,207
|
3,789
|
4,035
|
||||||||||||
|
100,478
|
83,687
|
262,827
|
238,430
|
|||||||||||||
|
Expenses
|
||||||||||||||||
|
Losses and loss expenses incurred
|
60,673
|
56,827
|
181,026
|
138,116
|
||||||||||||
|
Other operating expenses
|
29,187
|
21,225
|
82,185
|
64,326
|
||||||||||||
|
89,860
|
78,052
|
263,211
|
202,442
|
|||||||||||||
|
Income (loss) before federal income taxes (benefits)
|
10,618
|
5,635
|
(384
|
)
|
35,988
|
|||||||||||
|
Federal income taxes (benefits)
|
3,184
|
1,634
|
(2,231
|
)
|
11,906
|
|||||||||||
|
Net income
|
$
|
7,434
|
$
|
4,001
|
$
|
1,847
|
$
|
24,082
|
||||||||
|
Per share data - diluted:
|
||||||||||||||||
|
Income (loss) before net gains on investments
|
$
|
.24
|
$
|
(.06
|
)
|
$
|
(.55
|
)
|
$
|
.86
|
||||||
|
Net gains on investments
|
.25
|
.33
|
.67
|
.74
|
||||||||||||
|
Net income
|
$
|
.49
|
$
|
.27
|
$
|
.12
|
$
|
1.60
|
||||||||
|
Dividends
|
$
|
.27
|
$
|
.26
|
$
|
.81
|
$
|
.78
|
||||||||
|
Reconciliation of shares outstanding:
|
||||||||||||||||
|
Average shares outstanding - basic
|
15,089
|
15,084
|
15,084
|
15,068
|
||||||||||||
|
Dilutive effect of share equivalents
|
29
|
-
|
40
|
16
|
||||||||||||
|
Average shares outstanding - diluted
|
15,118
|
15,084
|
15,124
|
15,084
|
||||||||||||
- 6 -
|
Nine Months Ended
|
||||||||
|
September 30
|
||||||||
|
2017
|
2016
|
|||||||
|
Net cash provided by operating activities
|
$
|
55,235
|
$
|
32,397
|
||||
|
Investing activities:
|
||||||||
|
Purchases of available-for-sale investments
|
(305,130
|
)
|
(310,398
|
)
|
||||
|
Purchases of limited partnership interests
|
(897
|
)
|
-
|
|||||
|
Proceeds from sales or maturities
|
||||||||
|
of available-for-sale investments
|
257,977
|
286,580
|
||||||
|
Net sales of short-term investments
|
500
|
720
|
||||||
|
Distributions from limited partnerships
|
16,313
|
1,462
|
||||||
|
Other investing activities
|
(4,825
|
)
|
(5,440
|
)
|
||||
|
Net cash used in investing activities
|
(36,062
|
)
|
(27,076
|
)
|
||||
|
Financing activities:
|
||||||||
|
Dividends paid to shareholders
|
(12,250
|
)
|
(11,885
|
)
|
||||
|
Repurchase of common shares
|
(1,880
|
)
|
-
|
|||||
|
Net cash used in financing activities
|
(14,130
|
)
|
(11,885
|
)
|
||||
|
Effect of foreign exchange rates on cash and cash equivalents
|
510
|
398
|
||||||
|
Increase (decrease) in cash and cash equivalents
|
5,553
|
(6,166
|
)
|
|||||
|
Cash and cash equivalents at beginning of period
|
62,976
|
73,538
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
68,529
|
$
|
67,372
|
||||
- 7 -
|
Non-GAAP Financial Information:
|
||||||||||||||||
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30
|
September 30
|
|||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
|||||||||||||
|
Gross premiums written
|
$
|
131,523
|
$
|
101,921
|
$
|
360,558
|
$
|
298,120
|
||||||||
|
Net premiums written
|
96,222
|
70,530
|
246,459
|
202,764
|
||||||||||||
|
Loss and LAE ratio
|
68.1
|
%
|
79.8
|
%
|
78.3
|
%
|
66.8
|
%
|
||||||||
|
Expense ratio
|
31.2
|
%
|
28.1
|
%
|
33.9
|
%
|
29.1
|
%
|
||||||||
|
Combined ratio 1
|
99.3
|
%
|
107.9
|
%
|
112.2
|
%
|
95.9
|
%
|
||||||||
|
1 The combined ratio is calculated as ratio of (A) losses and loss expenses incurred, plus other operating expenses, less commission and other income to (B) net premiums earned.
|
||||||||||||||||
- 8 -