Attached files
| file | filename |
|---|---|
| 8-K - MEADOWBROOK INSURANCE GROUP 8-K 2-22-2011 - MEADOWBROOK INSURANCE GROUP INC | form8k.htm |
| EX-99.1 - EXHIBIT 99.1 - MEADOWBROOK INSURANCE GROUP INC | ex99_1.htm |
Exhibit 99.2
Investor Supplement
February 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.
3
Expense Reclassification
During the first quarter of 2010, the Company made certain reclassifications to the expense
classifications on the Consolidated Statement of Income. These reclassifications were made to
enable the user of the financial statements to calculate the GAAP combined ratio directly from
the Consolidated Statement of Income. As a result, the Consolidated Statement of Income for
the twelve months ended December 31, 2009 has been reclassified to conform to this revised
presentation. These reclassifications do not change total expenses or consolidated net income
as originally reported for the twelve months ended December 31, 2009. Please refer to Form 8-
k filed on May 3, 2010 for further detail. For the twelve months ended December 31, 2010, this
refinement resulted in a 1.7 percentage point increase in the expense ratio, a 1.0 percentage
point decrease in the loss and LAE ratio and a decrease of $4.9 million in general selling and
administrative costs.
classifications on the Consolidated Statement of Income. These reclassifications were made to
enable the user of the financial statements to calculate the GAAP combined ratio directly from
the Consolidated Statement of Income. As a result, the Consolidated Statement of Income for
the twelve months ended December 31, 2009 has been reclassified to conform to this revised
presentation. These reclassifications do not change total expenses or consolidated net income
as originally reported for the twelve months ended December 31, 2009. Please refer to Form 8-
k filed on May 3, 2010 for further detail. For the twelve months ended December 31, 2010, this
refinement resulted in a 1.7 percentage point increase in the expense ratio, a 1.0 percentage
point decrease in the loss and LAE ratio and a decrease of $4.9 million in general selling and
administrative costs.
4
Full Year 2010 v. 2009 Comparison
(in thousands, except ratios)
Underwriting and Investing
Activities
Activities
Top line premium growth driven
primarily by new initiatives that were
launched in the second half of 2009
primarily by new initiatives that were
launched in the second half of 2009
Growth in net investment income
reflects 11.6% growth in average
invested assets, off-set by a
prolonged low reinvestment rate
environment in 2010
reflects 11.6% growth in average
invested assets, off-set by a
prolonged low reinvestment rate
environment in 2010
See slide 5/ for combined ratio
analysis
analysis
Net Commissions & Fees
Decline in fee and commission
revenue is driven by continued soft
market and conversion of USSU to
our paper in Q4 2010
revenue is driven by continued soft
market and conversion of USSU to
our paper in Q4 2010
After the cost refinement reduction of
$4.9 million, the remaining decrease
in general selling and administrative
expense reflects our ability to
leverage fixed costs
$4.9 million, the remaining decrease
in general selling and administrative
expense reflects our ability to
leverage fixed costs
Other Expenses
Reduction in other expenses driven
by lower outstanding debt balance
and reduction of scheduled
amortization
by lower outstanding debt balance
and reduction of scheduled
amortization
5
Loss and LAE Ratio
The 2010 loss ratio includes 4.7 points of favorable
development compared to 5.3 points of favorable
development in 2009
development compared to 5.3 points of favorable
development in 2009
The 2010 loss ratio includes the 1.0 point reduction
to ULAE due to the refinement of the allocation
process for administrative expenses and claims
handling expenses
to ULAE due to the refinement of the allocation
process for administrative expenses and claims
handling expenses
Excluding the 1.0 point reduction to ULAE, the
2010 loss and LAE ratio is slightly higher than 2009
due to higher incurred losses in short tail lines in
2010
2010 loss and LAE ratio is slightly higher than 2009
due to higher incurred losses in short tail lines in
2010
Expense Ratio
The 2010 expense ratio increase reflects an
increase in external expenses, including higher
commissions paid to agents for performing certain
policy processing activities
increase in external expenses, including higher
commissions paid to agents for performing certain
policy processing activities
We refined our allocation process between
administrative expense and claims handling and
general selling and administrative expenses, which
resulted in a 1.7 point increase in the expense
ratio.
administrative expense and claims handling and
general selling and administrative expenses, which
resulted in a 1.7 point increase in the expense
ratio.
Otherwise, 2010 internal expenses are slightly
down from 2009 as we leverage fixed costs
down from 2009 as we leverage fixed costs
(in thousands, except ratios)
|
Calendar Year Ratios
|
12 months
ended 2009 |
12 months
ended 2010 |
|
|
Net Earned Premium
|
$ 539,602
|
$ 659,840
|
|
|
Net Loss and Loss Adjustment Expense
|
(327,426)
|
(399,650)
|
|
|
GAAP Net Loss and LAE Ratio
|
60.7%
|
60.6%
|
|
|
|
|
|
|
|
Policy Acquisition and Other Underwriting Expenses
|
(175,134)
|
(227,031)
|
|
|
GAAP Expense Ratio
|
32.5%
|
34.4%
|
|
|
|
|
|
|
|
GAAP Combined Ratio
|
93.2%
|
95.0%
|
|
|
|
|
|
|
|
Accident Year Ratios
|
|
|
|
|
Calendar Year GAAP Net Loss and LAE Ratio
|
60.7%
|
60.6%
|
|
|
Favorable Prior Year Development
|
$ 28,670
|
$ 31,003
|
|
|
Impact of Favorable Prior Year Development
|
5.3%
|
4.7%
|
|
|
Accident Year Loss Ratio
|
66.0%
|
65.3%
|
|
|
|
|
|
|
|
GAAP Expense Ratio
|
32.5%
|
34.4%
|
|
|
|
|
|
|
|
Accident Year Combined Ratio
|
98.5%
|
99.7%
|
|
|
|
|
|
|
6
ROE Components
We have generated predictable earnings over the past two years, meeting our target
ROAE range of 10% - 17%.
ROAE range of 10% - 17%.
7
ROAE & Combined Ratio Illustration
2010 - ROAE of 11.4%, Combined Ratio of 95.0% and Investment Yield of 4.2%
2010
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%.
8
Investment Portfolio Appendix
9
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
of Aa2
The effective duration of our $1.3 billion
portfolio is 5.0 years
portfolio is 5.0 years
The duration on net reserves of $784
million is approximately 3.3 years
million is approximately 3.3 years
NOTE: Data above as of December 31, 2010
10
Municipal Bonds
Municipals v. Entire Portfolio
Quality Indicators
State Profile
Credit Enhancements*
$546.7M market value; 44% of the investment
portfolio
portfolio
December 31, 2010 net unrealized gain was
$20.0M
$20.0M
Tax exempt unrealized gain $19.7M
Taxable unrealized gain $ 0.3M
Average tax equivalent yield: 5.5%
FMV as a % of BV is 103.8% as of December
31, 2010
31, 2010
11
Structured Securities
Structured Relative to Entire Portfolio
Quality Indicators
RMBS Profile
$247.9M market value; 20% of the managed
portfolio
portfolio
December 31, 2010 unrealized gain was
$12.9M
$12.9M
RMBS unrealized gain $11.3M
CMBS unrealized loss $ 0.8M
ABS unrealized loss $ 0.8M
Average investment yield: 5.2%
12
Corporate Fixed Income
Corporates Profile
Corporates Relative to Entire Portfolio
Quality Indicators
|
Sector
|
Weight
|
|
Consumer non-cyclicals
|
19%
|
|
Banking
|
14%
|
|
Energy
|
13%
|
|
Electric
|
10%
|
|
Basic Industry
|
8%
|
|
All Other Sectors
|
36%
|
$400.5M market value; 32% of the
managed portfolio
managed portfolio
December 31, 2010 unrealized gain was
$20.2M.
$20.2M.
Average investment yield: 4.6%
13
Government and Agency
Government and Agency Profile
Government and Agency Relative to
Entire Portfolio
Entire Portfolio
$26.7 million market value; approximately
2% of the managed portfolio
2% of the managed portfolio
100% rated AAA
December 31, 2010 unrealized gain was
$1.3 million
$1.3 million
Average investment yield: 3.1%
14
Equities
Equities Relative to Entire Portfolio
Top 5 Equity Holdings
$28.5 million market value; 2% of the
managed portfolio
managed portfolio
December 31, 2010 unrealized gain was
$2.9M
$2.9M
Preferred stock unrealized gain
$2.0M
$2.0M
Bond mutual fund unrealized gain
$0.9M
$0.9M
Average tax equivalent yield: 7.9%
