Meadowbrook Insurance Group, Inc. Reports Second Quarter Results

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- Net Operating Income of $0.21 per diluted share - Net Income of $0.20 per diluted share - Combined Ratio of 92.7% - Gross Written Premium up 66.3% - Book Value per share of $8.31 SOUTHFIELD, Mich., Aug. 3 /PRNewswire-FirstCall/ -- MEADOWBROOK INSURANCE GROUP, INC. (NYSE:MIG) Second Quarter 2009 Highlights and Overview: -- Net operating income, a non-GAAP measure, increased 39.8% to $11.9 million, or $0.21 per diluted share on 57.5 million shares, in the second quarter of 2009 compared to $8.5 million, or $0.23 per diluted share on 37.1 million shares, in the second quarter of 2008. -- Net income increased 38.0% to $11.6 million, or $0.20 per diluted share, in the second quarter of 2009 compared to $8.4 million, or $0.23 per diluted share for the second quarter of 2008. -- Combined ratio was 92.7% in the second quarter of 2009, compared to 90.5% for the second quarter of 2008. -- Book value per share increased to $8.31 per share compared to $7.98 per share at March 31, 2009 and $7.64 per share at December 31, 2008. Meadowbrook Insurance Group, Inc. (NYSE:MIG) reported that second quarter net operating income, a non-GAAP measure, grew by 39.8% to $11.9 million or $0.21 per diluted share, compared to $8.5 million or $0.23 per diluted share in the second quarter of 2008. Net income increased by 38.0% to $11.6 million, or $0.20 per diluted share in the second quarter of 2009, compared to $8.4 million, or $0.23 per diluted share in the second quarter of 2008. Second quarter 2009 net income included after-tax realized losses of $287,000, or approximately $0.01 per diluted share, due to other than temporary impairments on investments in certain asset-backed securities, corporate bonds and preferred stocks. The second quarter 2009 GAAP combined ratio was 92.7%, compared to 90.5% for the second quarter of 2008. The loss ratio for the second quarter of 2009 was 59.4%, compared to 61.2% for the second quarter of 2008. The second quarter 2009 loss ratio includes 5.0 percentage points of favorable prior year reserve development, compared to 3.5 percentage points of favorable prior year reserve development in the second quarter of 2008. The expense ratio for the second quarter of 2009 was 33.3%, compared to 29.3% in the second quarter of 2008. The increase in the expense ratio is due primarily to higher commission levels and internal costs associated with our excess and surplus lines operations and a planned for reduction in reinsurance ceding commissions due to restructuring of those agreements. Second quarter 2009 gross written premium increased 66.3% to $156.9 million, compared to $94.4 million in the second quarter of 2008. As expected, net commission and fee revenue for the second quarter of 2009 was down to $8.4 million compared to $9.6 million in the second quarter of 2008. Additionally, there was a pre-tax loss, excluding amortization, on fee-for-service business of $378,000 compared to $1.7 million of pre-tax income, excluding amortization in the second quarter of 2008. Commenting on the results, Meadowbrook President and Chief Executive Officer Robert S. Cubbin stated: "Throughout the first half of 2009 we have focused on price adequacy and selective growth with strict adherence to underwriting discipline, and as a result, our performance in the second quarter and first half of the year has positioned us to achieve results at the high end of the range we previously set of $46 million to $52 million of net operating income. This generates operating EPS at the high end of the range of $0.80 to $0.90 per share. Growth in gross written premium was 66.3% for the quarter, and we continue to be optimistic about our prospects for revenue growth. We will continue to be selective in our approach to premium growth, as our markets have remained competitive. In certain classes of business, rate decreases that we saw in the recent past are moderating, but in our opinion the market is stabilizing, not hardening. We are pleased with our combined ratio results for the second quarter, which includes favorable development on prior year accident year loss reserves in our workers' compensation, general liability and auto liability lines. We expected that the revenue and income from our commission and fee-for-service business would decline in 2009 because a fee-based client decided to assume the administration of the program in-house. Also, management fees and commissions based on premium have declined because of the competitive market and poor economic conditions." Commenting on the integration progress of the ProCentury merger, Mr. Cubbin stated, "A year after the merger, it is gratifying to see that the opportunities we contemplated during due diligence are coming to fruition and producing real results. We have moved past the hypotheses and rationale for the merger and we are working from a largely integrated back office, product and distribution platform. We are leveraging fixed costs, we have created reinsurance purchasing efficiencies and we can cite specific examples of revenue enhancing initiatives that would not have otherwise been possible. We have expanded the size, expertise and scope of our organization, and because we have distinct capabilities in both the admitted and surplus lines markets, we have unique tools to manage through cycles: during softer cycles we can lean on the stability of our admitted and program business, and we have the flexibility in our surplus lines business to act quickly and opportunistically when the market firms." Year to Date June 30, 2009 Overview Net operating income for the six months ended June 30, 2009 increased 81.1% to $28.3 million, or $0.49 per diluted share on 57.5 million shares, compared to $15.6 million, or $0.42 per diluted share on 37.1 million shares for the same period in 2008. Net income for the first half of 2009 increased 62.5% to $25.2 million or $0.44 per share compared to $15.5 million or $0.42 per share for the same period in 2008. Our 2009 year to date results include $3.1 million of other than temporary impairment charges on our investment portfolio. For the first six months of 2009, pre-tax fee-for-service income, excluding amortization, declined by 71.4% to $1.2 million from $4.2 million for the six months ended June 30, 2008. The year to date GAAP combined ratio for 2009 improved to 90.2% compared to 92.1% for the year to date period ended June 30, 2008. The loss ratio for the six months ended June 30, 2009 improved to 58.7% compared to 61.5% for the same period in 2008. The expense ratio for the six months ended June 30, 2009 was 31.5% compared to 30.6% for same period in 2008. The year to date 2009 combined ratio includes 5.7 points of favorable prior year development compared to 3.9 points of favorable prior year development for year to date 2008. Other Matters Shareholders' Equity: At June 30, 2009, shareholders' equity was $477.4 million, or $8.31 per common share compared to $438.2 million, or $7.64 per common share, at December 31, 2008. Common shares outstanding at June 30, 2009 were 57,447,707 compared to 37,021,032 at June 30, 2008. The increase in outstanding shares is primarily due to the issuance of 21.1 million shares, or $122.7 million of new equity in conjunction with the ProCentury merger on July 31, 2008. At June 30, 2009, our debt-to-equity ratio was 28.6% compared to 32.2% at December 31, 2008. Our debt to equity ratio excluding debentures was 11.6% at June 30, 2009 compared to 13.8% at December 31, 2008. Dividend and Share Repurchases: On July 31, 2009, our Board of Directors declared a quarterly dividend of $0.02 per share payable on August 31, 2009 to shareholders of record as of August 14, 2009. We did not repurchase any shares during the second quarter of 2009. As of June 30, 2009, we have available up to 2,200,000 shares remaining under the share repurchase authorization. Investment Portfolio: At June 30, 2009 our pre-tax book yield was 4.6% compared to 4.3% at June 30, 2008. The duration of the portfolio was 4.1 years at June 30, 2009, compared to 4.5 years at December 31, 2008 and 3.9 years at June 30, 2008. The average pre-tax book yield on new purchases during the second quarter of 2009 was 5.1%. Net investment income for the second quarter of 2009 was $12.4 million, up from $6.9 million in the second quarter of 2008. For the six months ended June 30, 2009 net investment income was $24.7 million compared to $14.1 million for the same periods in 2008. The increases in net investment income for the quarter and year to date periods are primarily related to investment income from the Century Insurance portfolio. A- (Excellent) A.M. Best Rating Affirmed: On June 24, 2009, A.M. Best Company affirmed the financial strength rating of A- (Excellent) for Meadowbrook Insurance Group and its pooled members. The rating reflects Meadowbrook's sustained operating profitability, its supportive capitalization and management's expertise in both the specialty program business and alternative risk market. 2009 Expectations We anticipate continued growth throughout the year, and while the level of rate decreases has moderated, we continue to operate in a very competitive market and difficult economic environment. Therefore, we now believe a better estimate of full year gross written premium to be between $695.0 million and $715.0 million. Our outlook for net operating income has not changed, and we continue to expect net operating income at the higher end of a range of $46.0 million to $52.0 million, or $0.80 to $0.90 per share. Commenting on the 2009 outlook, Mr. Cubbin stated: "We expect to continue to grow profitably, and maintaining price adequacy requires us to grow selectively. A competitive insurance market and a poor economy have created downward pressure on revenue growth. Therefore, we now anticipate gross written premium in a range of $695.0 million to $715.0 million. We continue to expect that the higher end of our range of net operating income is achievable." Conference Call Meadowbrook's 2009 second quarter and year to date results will be discussed by management in more detail on Tuesday, August 4, 2009 at 9:00 a.m. Eastern Time. To listen to the call, please dial 1-877-407-0782 approximately five minutes prior to the start of the call and ask for the Meadowbrook conference call. Additionally, the conference call will be broadcast live over the Internet and can be accessed by all interested parties via the investor relations section of our website at http://www.meadowbrook.com/ or http://www.investorcalendar.com/. For those who cannot listen to the live conference call, a replay of the call will be available through Tuesday August 11, 2009 by dialing 1-877-660-6853 and referring to conference ID 327551 and account number 286. The webcast will be archived and available for replay through Friday, December 4, 2009. About Meadowbrook Insurance Group Meadowbrook Insurance Group, Inc., based in Southfield, Michigan, is a leader in the specialty program management market. Meadowbrook includes several agencies, claims and loss prevention facilities, self-insured management organizations and seven property and casualty insurance underwriting companies, including one in Bermuda. Meadowbrook has twenty-six locations in the United States. Meadowbrook is a risk management organization, specializing in specialty risk management solutions for agents, professional and trade associations, and small to medium-sized insureds. Meadowbrook Insurance Group, Inc. common shares are listed on the New York Stock Exchange under the symbol "MIG". For further information, please visit Meadowbrook's corporate web site at http://www.meadowbrook.com/. Certain statements made by Meadowbrook Insurance Group, Inc. in this release 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. MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED BALANCE SHEET INFORMATION JUNE 30, DECEMBER 31, (In Thousands, Except Per Share Data) 2009 2008 ------------------------------------- ---- ---- BALANCE SHEET DATA ASSETS Cash and invested assets $1,142,511 $1,085,648 Premium & agents balances 136,213 117,675 Reinsurance recoverable 267,890 268,703 Deferred policy acquisition costs 59,027 56,454 Prepaid reinsurance premiums 28,829 31,885 Goodwill 119,092 119,028 Other assets 124,527 134,523 ------- ------- Total Assets $1,878,089 $1,813,916 ========== ========== LIABILITIES Loss and loss adjustment expense reserves $902,406 $885,697 Unearned premium reserves 290,891 282,086 Debt 55,500 60,250 Debentures 80,930 80,930 Other liabilities 70,920 66,783 ------ ------ Total Liabilities 1,400,647 1,375,746 STOCKHOLDERS' EQUITY Common stockholders' equity 477,442 438,170 ------- ------- Total Liabilities & Stockholders' Equity $1,878,089 $1,813,916 ========== ========== Book value per common share $8.31 $7.64 Book value per common share excluding unrealized gain/loss, net of deferred taxes $8.10 $7.70 MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED INCOME STATEMENT INFORMATION (In Thousands, Except FOR THE QUARTER FOR THE SIX MONTHS Share & Per Share Data) ENDED JUNE 30, ENDED JUNE 30, ------------------------ ---------------- ------------------ SUMMARY DATA 2009 2008 2009 2008 ------------ ---- ---- ---- ---- Gross written premiums $156,891 $94,370 $316,882 $184,838 Net written premiums 134,524 76,071 268,040 147,470 REVENUES Net earned premiums $127,140 $77,031 $256,178 $143,053 Net commissions and fees 8,396 9,632 18,633 21,663 Net investment income 12,397 6,917 24,739 14,065 Net realized losses (958) (146) (2,950) (177) Total Revenues 146,975 93,434 296,600 178,604 EXPENSES Net losses & loss adjustment expenses (1) 70,464 43,542 140,251 81,203 Salaries & employee benefits 19,945 14,143 39,772 26,898 Interest expense 2,659 1,254 5,441 2,565 Policy acquisition and other underwriting expenses (1) 27,139 12,716 51,108 25,863 Amortization expense 1,420 1,563 2,928 3,114 Other administrative expenses 9,917 7,961 20,310 16,793 ----- ----- ------ ------ Total Expenses 131,544 81,179 259,810 156,436 INCOME BEFORE INCOME TAXES AND EQUITY EARNINGS 15,431 12,255 36,790 22,168 Income tax expense 3,827 3,879 11,701 6,790 Equity earnings of affiliates 41 61 96 117 -- -- -- --- NET INCOME $11,645 $8,437 $25,185 $15,495 ======= ====== ======= ======= NET OPERATING INCOME (2) $11,932 $8,532 $28,269 $15,610 ======= ====== ======= ======= Amortization expense 1,420 1,563 2,928 3,114 NET OPERATING INCOME, excluding amortization expense (3) $13,352 $10,095 $31,197 $18,724 ======= ======= ======= ======= Diluted earnings per common share Net income $0.20 $0.23 $0.44 $0.42 Net operating income $0.21 $0.23 $0.49 $0.42 Net operating income, excluding amortization expense $0.23 $0.27 $0.54 $0.50 Diluted weighted average common shares outstanding 57,516,750 37,126,911 57,481,241 37,126,782 GAAP ratios: Loss & LAE ratio 59.4% 61.2% 58.7% 61.5% Other underwriting expense ratio 33.3% 29.3% 31.5% 30.6% ---- ---- ---- ---- GAAP combined ratio 92.7% 90.5% 90.2% 92.1% ==== ==== ==== ==== (1) Both the loss and loss adjustment and expense ratios are calculated based upon the unconsolidated insurance company operations. The following supplemental information sets forth the intercompany fees, which are eliminated upon consolidation. (2) While net operating income is a non-GAAP disclosure, management believes this information is beneficial to reviewing the financial statements. Net operating income is net income less realized gains (losses) net of taxes associated with such gains (losses). (3) While net operating income, excluding amortization expense, is a non-GAAP disclosure, management believes this information is beneficial to reviewing the financial statements. Management believes this information is beneficial as amortization expense reflects an interim non-cash charge and in the long-term cash earnings will reflect GAAP earnings as we complete the amortization periods associated with current acquisitions. Net operating income, excluding amortization expense, is net income less realized gains (losses) net of taxes associated with such gains (losses) and less amortization expense. MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED UNCONSOLIDATED GAAP DATA FOR THE QUARTER FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------- -------------- (In Thousands) 2009 2008 2009 2008 -------------- ---- ---- ---- ---- Unconsolidated GAAP data - Ratio Calculation Table: Net earned premiums $127,140 $77,031 $256,178 $143,053 Consolidated net loss and LAE (1) $70,464 $43,542 $140,251 $81,203 Intercompany claim fees 4,995 3,629 10,103 6,735 ----- ----- ------ ----- Unconsolidated net loss and LAE $75,459 $47,171 $150,354 $87,938 ======= ======= ======== ======= GAAP loss and LAE ratio 59.4% 61.2% 58.7% 61.5% Consolidated policy acquisition and other underwriting expenses (1) $27,139 $12,716 $51,108 $25,863 Intercompany administrative and other underwriting fees 15,201 9,832 29,567 17,920 ------ ----- ------ ------ Unconsolidated policy acquisition and other underwriting expenses $42,340 $22,548 $80,675 $43,783 ======= ======= ======= ======= GAAP other underwriting expense ratio 33.3% 29.3% 31.5% 30.6% GAAP combined ratio 92.7% 90.5% 90.2% 92.1% ---- ---- ---- ---- 2009 2008 2009 2008 ---- ---- ---- ---- Unconsolidated GAAP data - Gross Commissions and Fees: Managed programs: Management fees $3,821 $4,174 $9,099 $10,206 Claims fees 2,006 2,305 3,972 4,485 Loss control fees 520 625 1,009 1,135 Reinsurance brokerage 90 98 155 394 -- -- --- --- Total managed programs 6,437 7,202 14,235 16,220 Agency commissions 2,171 2,681 4,965 6,009 Intersegment revenue (212) (251) (567) (566) ---- ---- ---- ---- Net commissions and fees 8,396 9,632 18,633 21,663 Intercompany commissions and fees 20,196 13,461 39,670 24,655 ------ ------ ------ ------ Gross commissions and fees $28,592 $23,093 $58,303 $46,318 ======= ======= ======= ======= Fee-for-service pre-tax income, excluding amortization $(378) $1,708 $1,213 $4,246 ===== ====== ====== ====== Pre-tax margin on fee-for- service income -1.3% 7.4% 2.1% 9.2% (1) Both the loss and loss adjustment and expense ratios are calculated based upon the unconsolidated insurance company operations. The above table sets forth the intercompany fees, which are eliminated in consolidation. The GAAP combined ratio is the sum of the GAAP loss and loss adjustment expense ratio and the GAAP expense ratio. The GAAP loss and loss adjustment expense ratio is the unconsolidated net loss and loss adjustment expense in relation to net earned premium. The GAAP expense ratio is the unconsolidated policy acquisition and other underwriting expenses in relation to net earned premium. MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED ADJUSTED GAAP EXPENSE RATIO SUMMARY FOR THE QUARTER FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------- -------------- (In Thousands) 2009 2008 2009 2008 -------------- ---- ---- ---- ---- Net earned premiums $127,140 $77,031 $256,178 $143,053 Less: Unconsolidated net loss and LAE 75,459 47,171 150,354 87,938 Unconsolidated policy acquisition and other underwriting expenses 42,340 22,548 80,675 43,783 ------ ------ ------ ------ Underwriting income $9,341 $7,312 $25,149 $11,332 ====== ====== ======= ======= GAAP combined ratio as reported 92.7% 90.5% 90.2% 92.1% Specialty risk management operations pre-tax income $20,875 $15,617 $48,286 $28,529 Less: Underwriting income 9,341 7,312 25,149 11,332 Net investment income and capital losses 11,439 6,771 21,789 13,888 ------ ----- ------ ------ Fee-based operations pre-tax income 95 1,534 1,348 3,309 Agency operations pre-tax (loss) income (473) 174 (135) 937 ---- --- ---- --- Total fee-for-service pre-tax income $(378) $1,708 $1,213 $4,246 ===== ====== ====== ====== GAAP expense ratio as reported 33.3% 29.3% 31.5% 30.6% Adjustment to include pre- tax income from total fee- for-service income (1) -0.3% 2.2% 0.5% 3.0% ---- --- --- --- GAAP expense ratio as adjusted (2) 33.6% 27.1% 31.0% 27.6% GAAP loss and LAE ratio as reported 59.4% 61.2% 58.7% 61.5% ---- ---- ---- ---- GAAP combined ratio as adjusted 93.0% 88.3% 89.7% 89.1% ==== ==== ==== ==== Reconciliation of consolidated pre-tax income: --------------------- Specialty risk management operations pre-tax income: Fee-based operations pre-tax income $95 $1,534 $1,348 $3,309 Underwriting income 9,341 7,312 25,149 11,332 Net investment income and capital losses 11,439 6,771 21,789 13,888 ------ ----- ------ ------ Total specialty risk management operations pre- tax income 20,875 15,617 48,286 28,529 Agency operations pre-tax (loss) income (473) 174 (135) 937 Less: Holding company expenses 892 719 2,992 1,619 Interest expense 2,659 1,254 5,441 2,565 Amortization expense 1,420 1,563 2,928 3,114 ----- ----- ----- ----- Consolidated pre-tax income $15,431 $12,255 $36,790 $22,168 ======= ======= ======= ======= (1) Adjustment to include pre-tax income from total fee-for-service income is calculated by dividing total fee-for-service income by net earned premiums. (2) While the adjusted GAAP expense ratio is a non-GAAP disclosure, management believes this information is beneficial to reviewing the financial statements. The adjusted GAAP expense ratio is the GAAP expense ratio, as reported, less the adjustment to include pre-tax income from total fee-for-service income. Management believes this information is beneficial as our GAAP expense ratio includes the impact of the margin associated with our fee-based operations. If the profit margin from our fee-for-service business is recognized as an offset to our underwriting expense, a more realistic picture of our operating efficiency emerges. MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION (In Thousands, Except Share & Per Share Data) ------------------------- 2006A 2007A Q108A ----- ----- ----- SUMMARY DATA ------------ Gross written premiums $330,872 $346,451 $90,468 Net written premiums 262,668 280,211 71,399 INCOME STATEMENT ---------------- REVENUES Net earned premiums $254,920 $268,197 $66,022 Commissions and fees (net) 41,172 45,988 12,031 Net investment income 22,075 26,400 7,148 Net realized gains (losses) 69 150 (31) -- --- --- Total Revenues 318,236 340,735 85,170 EXPENSES Net losses & loss adjustment expenses 146,293 150,969 37,661 Policy acquisition and other underwriting expenses 50,479 53,717 13,147 Other administrative expenses 28,824 32,269 8,832 Salaries & employee benefits 54,569 56,433 12,755 Amortization expense 590 1,930 1,551 Interest expense 5,976 6,030 1,311 ----- ----- ----- Total Expenses 286,731 301,348 75,257 INCOME BEFORE TAXES AND EQUITY EARNINGS 31,505 39,387 9,913 Income tax expense 9,599 11,726 2,911 Equity earnings of affiliates 128 331 56 --- --- -- NET INCOME $22,034 $27,992 $7,058 Net realized capital gain (loss), net of tax 45 97 (20) -- -- --- OPERATING INCOME $21,989 $27,895 $7,078 ======= ======= ====== Amortization expense 590 1,930 1,551 OPERATING INCOME, excluding amortization expense $22,579 $29,825 $8,629 ======= ======= ====== Weighted average common shares outstanding 29,566,141 33,101,965 37,103,270 Shares O/S at end of the period 29,107,818 36,996,287 37,021,032 PER SHARE DATA (Diluted) Net income $0.75 $0.85 $0.19 Net realized gain (loss), net of tax $0.01 $0.01 $- Operating income $0.74 $0.84 $0.19 Operating income, excluding amortization expense $0.76 $0.90 $0.23 OPERATING RATIO ANALYSIS ------------------------ GAAP Loss & LAE ratio 62.3% 61.2% 61.7% GAAP Expense ratio 34.5% 34.2% 32.2% ---- ---- ---- GAAP Combined ratio 96.8% 95.4% 93.9% ==== ==== ==== Unconsolidated GAAP data - Ratio Calculation Table: --------------------------- -------- -------- ------- Net earned premiums $254,920 $268,197 $66,022 Consolidated net loss and LAE $146,293 $150,969 $37,661 Intercompany claim fees 12,553 13,058 3,106 ------ ------ ----- Unconsolidated net loss and LAE $158,846 $164,027 $40,767 ======== ======== ======= GAAP Net loss and LAE ratio 62.3% 61.2% 61.7% Consolidated Policy acquisition and other underwriting expenses $50,479 $53,717 $13,147 Intercompany administrative and other underwriting fees 37,442 37,890 8,088 ------ ------ ----- Unconsolidated policy acquisition and other underwriting expenses $87,921 $91,607 $21,235 ======= ======= ======= GAAP Expense ratio 34.5% 34.2% 32.2% GAAP Combined Ratio 96.8% 95.4% 93.9% ---- ---- ---- Unconsolidated Commissions & Fees Managed programs: Management fees $18,714 $23,963 $6,032 Claims fees 8,776 9,025 2,180 Loss control fees 2,216 2,151 510 Reinsurance brokerage 735 929 296 --- --- --- Total managed programs 30,441 $36,068 9,018 Agency commissions 12,285 11,316 3,328 Intersegment commissions and fees (1,554) (1,396) (315) ------ ------ ---- Net Commissions and fees 41,172 45,988 12,031 Intercompany commissions and fees 49,995 50,948 11,194 ------ ------ ------ Gross commissions and fees $91,167 $96,936 $23,225 ======= ======= ======= Q208A Q308A Q408A ----- ----- ----- SUMMARY DATA ------------ Gross written premiums $94,370 $134,418 $138,427 Net written premiums 76,071 112,465 115,259 INCOME STATEMENT ---------------- REVENUES Net earned premiums $77,031 $104,243 $122,425 Commissions and fees (net) 9,632 12,309 8,932 Net investment income 6,917 10,622 11,937 Net realized gains (losses) (146) (7,290) (3,955) ---- ------ ------ Total Revenues 93,434 119,884 139,339 EXPENSES Net losses & loss adjustment expenses 43,542 63,932 67,750 Policy acquisition and other underwriting expenses 12,716 19,470 23,961 Other administrative expenses 7,960 8,055 10,153 Salaries & employee benefits 14,143 17,056 18,908 Amortization expense 1,563 1,531 1,665 Interest expense 1,254 2,333 2,783 ----- ----- ----- Total Expenses 81,178 112,377 125,220 INCOME BEFORE TAXES AND EQUITY EARNINGS 12,256 7,507 14,119 Income tax expense 3,879 3,338 6,539 Equity earnings of affiliates 61 26 126 -- -- --- NET INCOME $8,438 $4,195 $7,706 Net realized capital gain (loss), net of tax (95) (6,743) (4,562) --- ------ ------ OPERATING INCOME $8,533 $10,938 $12,268 ====== ======= ======= Amortization expense 1,563 1,531 1,665 OPERATING INCOME, excluding amortization expense $10,096 $12,469 $13,933 ======= ======= ======= Weighted average common shares outstanding 37,126,911 47,595,572 57,780,625 Shares O/S at end of the period 37,021,032 57,644,022 57,341,989 PER SHARE DATA (Diluted) Net income $0.23 $0.09 $0.13 Net realized gain (loss), net of tax $- $(0.14) $(0.08) Operating income $0.23 $0.23 $0.21 Operating income, excluding amortization expense $0.27 $0.26 $0.24 OPERATING RATIO ANALYSIS ------------------------ GAAP Loss & LAE ratio 61.2% 65.7% 59.5% GAAP Expense ratio 29.3% 31.0% 32.3% ---- ---- ---- GAAP Combined ratio 90.5% 96.7% 91.8% ==== ==== ==== Unconsolidated GAAP data - Ratio Calculation Table: --------------------------- ------- -------- -------- Net earned premiums $77,031 $104,243 $122,425 Consolidated net loss and LAE $43,542 $63,932 $67,750 Intercompany claim fees 3,629 4,508 5,053 ----- ----- ----- Unconsolidated net loss and LAE $47,171 $68,440 $72,803 ======= ======= ======= GAAP Net loss and LAE ratio 61.2% 65.7% 59.5% Consolidated Policy acquisition and other underwriting expenses $12,716 $19,537 $23,949 Intercompany administrative and other underwriting fees 9,832 12,821 15,630 ----- ------ ------ Unconsolidated policy acquisition and other underwriting expenses $22,548 $32,358 $39,579 ======= ======= ======= GAAP Expense ratio 29.3% 31.0% 32.3% GAAP Combined Ratio 90.5% 96.7% 91.8% ---- ---- ---- Unconsolidated Commissions & Fees Managed programs: Management fees $4,174 $6,972 $3,990 Claims fees 2,305 2,304 2,090 Loss control fees 625 467 467 Reinsurance brokerage 98 177 157 -- --- --- Total managed programs 7,202 9,920 6,704 Agency commissions 2,681 2,630 2,425 Intersegment commissions and fees (251) (241) (197) ---- ---- ---- Net Commissions and fees 9,632 12,309 8,932 Intercompany commissions and fees 13,461 17,329 20,683 ------ ------ ------ Gross commissions and fees $23,093 $29,638 $29,615 ======= ======= ======= 2008A Q109A Q209A ----- ----- ----- SUMMARY DATA ------------ Gross written premiums $457,683 $159,991 $156,891 Net written premiums 375,194 133,516 134,524 INCOME STATEMENT ---------------- REVENUES Net earned premiums $369,721 $129,038 $127,140 Commissions and fees (net) 42,904 10,237 8,396 Net investment income 36,624 12,342 12,397 Net realized gains (losses) (11,422) (1,992) (958) ------- ------ ---- Total Revenues 437,827 149,625 146,975 EXPENSES Net losses & loss adjustment expenses 212,885 69,787 70,464 Policy acquisition and other underwriting expenses 69,294 23,969 27,139 Other administrative expenses 35,000 10,393 9,917 Salaries & employee benefits 62,862 19,827 19,945 Amortization expense 6,310 1,508 1,420 Interest expense 7,681 2,782 2,659 ----- ----- ----- Total Expenses 394,032 128,266 131,544 INCOME BEFORE TAXES AND EQUITY EARNINGS 43,795 21,359 15,431 Income tax expense 16,667 7,874 3,827 Equity earnings of affiliates 269 55 41 --- -- -- NET INCOME $27,397 $13,540 $11,645 Net realized capital gain (loss), net of tax (11,420) (2,797) (287) ------- ------ ---- OPERATING INCOME $38,817 $16,337 $11,932 ======= ======= ======= Amortization expense 6,310 1,508 1,420 OPERATING INCOME, excluding amortization expense $45,127 $17,845 $13,352 ======= ======= ======= Weighted average common shares outstanding 44,995,712 57,410,327 57,516,750 Shares O/S at end of the period 57,341,989 57,447,707 57,447,707 PER SHARE DATA (Diluted) Net income $0.61 $0.24 $0.20 Net realized gain (loss), net of tax $(0.25) $(0.04) $(0.01) Operating income $0.86 $0.28 $0.21 Operating income, excluding amortization expense $1.00 $0.31 $0.23 OPERATING RATIO ANALYSIS ------------------------ GAAP Loss & LAE ratio 62.0% 58.0% 59.4% GAAP Expense ratio 31.3% 29.7% 33.3% ---- ---- ---- GAAP Combined ratio 93.3% 87.7% 92.7% ==== ==== ==== Unconsolidated GAAP data - Ratio Calculation Table: --------------------------- -------- -------- -------- Net earned premiums $369,721 $129,038 $127,140 Consolidated net loss and LAE $212,885 $69,787 $70,464 Intercompany claim fees 16,296 5,108 4,995 ------ ----- ----- Unconsolidated net loss and LAE $229,181 $74,895 $75,459 ======== ======= ======= GAAP Net loss and LAE ratio 62.0% 58.0% 59.4% Consolidated Policy acquisition and other underwriting expenses $69,349 $23,969 $27,139 Intercompany administrative and other underwriting fees 46,371 14,366 15,201 ------ ------ ------ Unconsolidated policy acquisition and other underwriting expenses $115,720 $38,335 $42,340 ======== ======= ======= GAAP Expense ratio 31.3% 29.7% 33.3% GAAP Combined Ratio 93.3% 87.7% 92.7% ---- ---- ---- Unconsolidated Commissions & Fees Managed programs: Management fees $21,168 $5,278 $3,821 Claims fees 8,879 1,966 2,006 Loss control fees 2,069 489 520 Reinsurance brokerage 728 65 90 --- -- -- Total managed programs $32,844 7,798 6,437 Agency commissions 11,064 2,794 2,171 Intersegment commissions and fees (1,004) (355) (212) ------ ---- ---- Net Commissions and fees 42,904 10,237 8,396 Intercompany commissions and fees 62,667 19,474 20,196 ------ ------ ------ Gross commissions and fees $105,571 $29,711 $28,592 ======== ======= ======= DATASOURCE: Meadowbrook Insurance Group, Inc. CONTACT: Karen M. Spaun, SVP & Chief Financial Officer, +1-248-204-8178, or Holly Moltane, Controller - GAAP Financial Reporting, +1-248-204-8590, both of Meadowbrook Insurance Group, Inc. Web Site: http://www.meadowbrook.com/

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