Attached files
| file | filename |
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| 8-K - FORM 8-K - MERCER INSURANCE GROUP INC | form8k.htm |
KBW Insurance Conference
September 7, 2010
September 7, 2010
Mercer Insurance Group, Inc. (the “Company”) may from time to time make written or oral
“forward-looking statements,” including statements contained in the Company’s filings
with the Securities and Exchange Commission, in its reports to shareholders and in other
communications by the Company, which are made in good faith by the Company pursuant
to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements with respect to the Company’s
beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that
are subject to significant risks and uncertainties, and are subject to change based on various
factors (some of which are beyond the Company’s control). The words “may,” “could,”
“should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and
similar expressions are intended to identify forward-looking statements. A partial list of
important factors that may affect our financial condition and results of operations is set
forth in our filings with the Securities and Exchange Commission. The Company cautions
that the list of important factors is not exclusive. Readers are also cautioned not to place
undue reliance on these forward-looking statements, which reflect management’s analysis
only as of the current date. The Company does not undertake to update any forward-
looking statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
“forward-looking statements,” including statements contained in the Company’s filings
with the Securities and Exchange Commission, in its reports to shareholders and in other
communications by the Company, which are made in good faith by the Company pursuant
to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements with respect to the Company’s
beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that
are subject to significant risks and uncertainties, and are subject to change based on various
factors (some of which are beyond the Company’s control). The words “may,” “could,”
“should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and
similar expressions are intended to identify forward-looking statements. A partial list of
important factors that may affect our financial condition and results of operations is set
forth in our filings with the Securities and Exchange Commission. The Company cautions
that the list of important factors is not exclusive. Readers are also cautioned not to place
undue reliance on these forward-looking statements, which reflect management’s analysis
only as of the current date. The Company does not undertake to update any forward-
looking statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
NASDAQ: MIGP
• 2009 NPW of $138 million, primarily from two regions
centered on:
centered on:
– New Jersey/Pennsylvania
– California (2005 acquisition)
• A (Excellent) A.M. Best rating with stable outlook
• Marketing primarily commercial lines through 560
independent agents
independent agents
• Underwriting conservatively in challenging lines
• Reputation for quality coverages, competitive prices and
extraordinary customer service
extraordinary customer service
Competitive in Agencies
• Real access to senior managers
– Only one operating layer between CEO and line underwriters
• We listen and respond
– Smaller can mean more nimble
• In it for the long term
– Differentiate on coverages
– Modify pricing, not availability
• Lucrative
– Business is well underwritten
– Significant profit sharing with agency partners
• Focus on share of targeted niches
Track Record of Consistency
• Full-year net and operating income* recorded every year since
2003 IPO
2003 IPO
– Operating income* of $1.02 per share in 2010 first half compared with
$1.07 in 2009 first half
$1.07 in 2009 first half
• Book value has risen every year since IPO
• Full-year GAAP combined ratio below 100% every year since
2004
2004
– 97.6% ratio for 2010 first half
– Loss and loss adjusting reserves maintained near high-end of range
• Full-year operating ROE* between 9.5% and 11.8% since
2006 (post acquisition of FPIC)
2006 (post acquisition of FPIC)
– 8.6% operating ROE for 2010 first half (annualized)
• Consistent performance despite:
– Reduced premium levels since 2008 due to weak economy, lower
exposures and soft pricing
exposures and soft pricing
* See the Investors page of mercerins.com for non-GAAP and non-statutory reconciliation information
Strategies to Improve Book
Value and Maximize Profits
Value and Maximize Profits
• Reduce volatility of operating results by diversifying premium
sources
sources
– Emphasize commercial writings
– Business line diversification
– Geographic expansion
• Develop and use technology to improve efficiency to lower
expense ratio
expense ratio
– Improves customer service
• Make best use of capital by retaining as much profitable
business as practical
business as practical
• Invest conservatively to maximize current yield
– Minimize risk
– Maintain adequate liquidity
Diversify Premium Sources:
Emphasize Commercial Writings
Emphasize Commercial Writings
• Focus commercial
lines products on
clearly defined
market niches
lines products on
clearly defined
market niches
• Offer personal lines
strategically on East
Coast
strategically on East
Coast
Diversify Premium Sources:
Business Line Diversification
Business Line Diversification
• Recent product
introductions:
introductions:
– West Coast - Small
service contractors
service contractors
– East Coast - Waste
haulers, garages
haulers, garages
• CMP Includes:
- Religious institutions
- Residential contractors
- “Main St.” BOP
- Many other classes
Diversify Premium Sources:
Geographic Expansion
Geographic Expansion
Active
Mail order surety
Inactive
• 2005 acquisition brought
West Coast operation
West Coast operation
• Evaluating strategic
M&A
M&A
• Must supplement
strategic need
strategic need
• Must be accretive
• Agency appointments
• Protect franchise value
• Focus on
underrepresented areas
underrepresented areas
Loss and LAE Reserves
• Bulk of reserves are casualty
• Financial Pacific (acquired
2005)
2005)
– Focused on retail
construction
construction
– Exposure to construction
defect claims
defect claims
– Better regulatory
environment
environment
• Conservatively reserved
• In house legal team handles
90% of CD claims
90% of CD claims
In 000’s
Develop and Use Technology
• Expanding use of internet based processing
– Small commercial portals introduced on both coasts
– Personal lines portal updated
– Increasing familiarity and use by agents
– Comparative rating for personal auto to come
• In test phase for a service oriented architecture (SOA) system
for consolidation of multiple platforms
for consolidation of multiple platforms
• Opportunity to improve expense ratio AND agency service
Best Uses of Capital
• Reduce reliance on reinsurance
– Retention increased from $300,000 at time of IPO to $1 million
• Strategic M&A
• Support A.M. Best rating
• Periodic share repurchases
– Over 9% of outstanding shares repurchased since IPO
• Shareholder dividend since 2nd quarter of 2006
– Dividend increased 33% in the first quarter of 2010
• Positioned for economic and insurance market improvement
Invest Conservatively
•Investment strategy focused on
capital protection
capital protection
•High-quality portfolio
•Reduced risk by exiting certain
securities and classes
securities and classes
•Currently tax equivalent yield of
4.92%
4.92%
• Duration at 3.9 years
•Small equity portfolio
As of 6/30/10, in millions
Improve Book Value and
Maximize Profits
Maximize Profits
• Small, multi-regional property casualty insurer
• $112 million market cap, yielding 2.3%
• Trading at 64% of book value
• Uninterrupted record of profitability and book value growth
since 2003 IPO
since 2003 IPO
• Viable strategic plan
Based on closing price of $17.34/share on 8/31/10
Questions?