Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - MEADOWBROOK INSURANCE GROUP INC | ex99_2.htm |
| 8-K - MEADOWBROOK INSURANCE GROUP INC 8-K 5-5-2011 - MEADOWBROOK INSURANCE GROUP INC | form8k.htm |
Investor Presentation
First 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.
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%
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:
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
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
insurance administration services company
4
Meadowbrook Vitals
Current market cap (at 5/3/11): $545.3 million
Outstanding shares (at 3/31/11): 53.3 million
Weighted average shares (at 3/31/11): 53.5 million
Book value (at 3/31/2011): $558.0 million
Book value per share: $10.47
– Excluding unrealized gain / loss, net of deferred taxes: $9.85
– Tangible book value per share (excluding goodwill and intangibles): $7.58
Debt to equity: 20.7%; 6.2% excluding debentures
Debt to total capital: 17.1%; 5.1% excluding debentures
Current price / book: .98 (at $10.24/share market price - as of 5/3/11)
Dividend yield (at 5/3/11): 1.56%
Statutory premium leverage (TTM 3/31/11) Actual Guidelines
– GWP to Statutory surplus 2.1 to 1 3.0 to 1
– NWP to Statutory surplus 1.8 to 1 2.5 to 1
Insider ownership (at 3/31/11): 6.9%
5
What Makes Us Different:
We are Flexible and are Able to Adapt to Changing Market Conditions
Diverse Revenue
Sources
Sources
Earned premium from insurance operations
Fee revenue from risk management services
Flexibility to utilize multiple distribution channels
Positioned to Manage
Insurance Cycles
Insurance Cycles
Conservative
Investment
Philosophy
Investment
Philosophy
Ability to Attract and
Retain Talented
Professionals
Retain Talented
Professionals
Our model allows us to deliver more predictable results
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
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
flexibility
Manageable debt levels, with access to $35 million line of credit (no outstanding
balance)
balance)
Strong Capital and
Liquidity Position
Liquidity Position
Team of talented insurance professionals with a wide range of expertise across
all functions and lines of business
all functions and lines of business
Regional structure enables associates to deliver strong and responsive local
service to clients
service to clients
6
Our Approach Has Delivered Results Over Time
Total Revenue ($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
Continued Synergistic Expansion
Strategic Staging of Acquisitions
Meadowbrook actively reviews acquisition prospects
on a strategic basis and enters into transactions that
will increase long-term shareholder value
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:
at acquisitions including:
• Opportunity to leverage our diverse revenue
platform, by expanding current distribution,
servicing capabilities, and complementary
product lines and classes
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
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
mitigation our downside risk and providing seller
with opportunity to obtain fair value through deal
structure
8
Diverse Revenue Sources
Insurance Operations
Commission & 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
commission revenue and fee-for-service revenue generate unregulated free cash flow
Admitted and non-admitted products and
programs
programs
Risk sharing vehicles
Relatively small but provides a valuable source
of unregulated cash flow
of unregulated cash flow
Agency commission from non-affiliated carriers
Managed program revenue
Municipality and association clients
2010 Net Earned Premium: $659.8 M
2010 Pre-Tax Net Earned Premium Profit : $33.2M
2010 Net Investment Income: $54.2M
2010 Net Commission & Fee Revenue:
$34.2 M
2010 Pre-Tax Commission & Fee Income:
$11.7M
9
Insurance Operations
Diversified Commercial Positions Built to Manage Across Cycles
Main Street Excess
and Surplus Lines
and Surplus Lines
Admitted Programs
Non-Admitted
Programs
Programs
Specialty Markets
Homogeneous specialized programs
Heterogeneous geographic centers
Product focused
Promotes specialty agents
Broad classes of “Main Street”
commercial risks
commercial risks
Promotes General Agent
distribution
distribution
Specialized programs ignored or
underserved by the standard market
underserved by the standard market
Promotes wholesalers with specialty
underwriting authority
underwriting authority
Solutions designed for very specific
products and market segments
products and market segments
2010 GWP: $532 M
2010 GWP: $147 M
2010 GWP: $47 M
2010 GWP: $76 M
Food service industry
Trucking
Auto re-possessors
Health and fitness centers
Description
Examples
Garage dealers
Apartments, hotels and motels
Contractors liability
Restaurants, bars and taverns
Oil and gas contractors
Forced placed property
Taxis
Pet-sitters
Transportation
Excess workers’ comp
Environmental
Marine
10
National Scope with Regional Perspective
Bermuda
Talented associates are located throughout the country to serve the needs of
regional clients
regional clients
Support from headquarters enables efficient resource deployment and cross-unit
coordination
coordination
Balance of effective local touch, with efficient national coordination
Meadowbrook locations
Top 10 production states (QTD 3/31/2011)
1
2
4
5
3
1
2
9
6
8
7
10
11
Diverse Mix of Business
YTD 2011 Gross Written Premium Business Mix
12
Meadowbrook Workers’ Compensation Profile
We have strategically grown our workers’ compensation business. Overall, we
believe we have achieved controlled profitable growth.
believe we have achieved controlled profitable growth.
Workers’ Compensation Profile
Loss and Expense Ratios
13
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
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 3/31/2011)
94.8%*
94.5%*
93.0%*
98.1%
†The re-estimated AY combined ratio reflects reserve adjustments made following the accident year, for example, the 94.8% re-estimated 2006 AY
combined ratio reflects new loss development information gathered over the 4.25 years from 12/31/2006 to 3/31/2011; the 94.5% re-estimated 2007 AY
combined ratio reflects new loss development gathered over the 3.25 years from 12/31/2007 to 3/31/2011; etc.
combined ratio reflects new loss development information gathered over the 4.25 years from 12/31/2006 to 3/31/2011; the 94.5% re-estimated 2007 AY
combined ratio reflects new loss development gathered over the 3.25 years from 12/31/2007 to 3/31/2011; 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.
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.
99.4%
Expense Ratio Analysis
14
Quarter Ended March 31, 2010 and 2011 GAAP Expense Ratio Comparison
Net earned premium $151.4M $170.7M
Policy acquisition $51.9M $57.4M
and other u/w expenses
and other u/w expenses
Expense ratio 34.3% 33.7%
15
Focus on Generating Consistent Investment
Income
Income
Robust top line growth has led to a larger investment base and a meaningful
increase in NII
increase in NII
Pre-tax book yield was
4.2% at 3/31/2011 vs.
4.5% at 12/31/2007
4.2% at 3/31/2011 vs.
4.5% at 12/31/2007
The duration of our
portfolio increased to 5.1
years at 3/31/2011 from
4.4 years at 12/31/2007
portfolio increased to 5.1
years at 3/31/2011 from
4.4 years at 12/31/2007
At 3/31/2011 our loss and
LAE reserve duration was
approximately 3.4 years
LAE reserve duration was
approximately 3.4 years
Net investment income
YTD 3/31/11 increased by
4.2% compared to YTD
3/31/10
YTD 3/31/11 increased by
4.2% compared to YTD
3/31/10
2011 year to date
impairments of $84k on a
$1.3 billion portfolio
impairments of $84k on a
$1.3 billion portfolio
Pre-tax Net Investment Income ($ in M) and Average
Investment Yield
Investment Yield
16
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 5.1 years
portfolio is 5.1 years
The duration on net reserves of $802
million is approximately 3.4 years
million is approximately 3.4 years
NOTE: Data above as of March 31, 2011
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 $56.5M to shareholders through dividends and share
repurchases
since this time we have returned $56.5M to shareholders through dividends and share
repurchases
18
Highlights ($ in M, except per share amounts)
As compared to 2010 gross written premium is up 8.6%, our accident year combined ratio
is down 1.2 points and net operating income ex development has increased meaningfully.
is down 1.2 points and net operating income ex development has increased meaningfully.
19
Full Year 2011 Guidance and Long Term Value Creation
Looking ahead, we expect a market similar to that which we 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
sources and diverse insurance
offering to maximize
opportunities across market
cycles
Increase underwriting leverage
through selective growth
opportunities, while sustaining
appropriate diversification
through selective growth
opportunities, while sustaining
appropriate diversification
Increase investment leverage
through cash from operations
through cash from operations
Leverage fixed costs over a
larger revenue base
larger revenue base
Increase fee-for service
income through new
opportunities and margin
expansion
income through new
opportunities and margin
expansion
Driving Long-term
Enterprise Value
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