National Interstate Corporation Announces Record Net Income for the 2006 Fourth Quarter and Full Year

RICHFIELD, Ohio, Feb. 26  /PRNewswire-FirstCall/ -- National Interstate Corporation (NASDAQ:NATL) today reported record net income of $11.4 million ($.59 per share diluted) for the 2006 fourth quarter, compared to $7.9 million ($.41 per share diluted) for the 2005 fourth quarter. Net income of $35.7 million ($1.85 per share diluted) for the 2006 full year increased 17.9% compared to $30.3 million ($1.60 per share diluted) for 2005. The increase in the 2006 fourth quarter and full year net income reflects the Company's increased revenues and continued strong underwriting and investment results.

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For the 2006 fourth quarter, gross premiums written of $61.5 million were 64.7% above the $37.3 million reported for the 2005 fourth quarter, and the 2006 fourth quarter net premiums written of $52.0 million were 56.7% above the $33.2 million reported for the same period last year. Gross premiums written of $305.5 million for the 2006 full year increased 13.1% compared to $270.0 million for the 2005 full year, and 2006 full year net premiums written of $241.9 million increased 14.6% compared to $211.1 million for the 2005 full year. Comparing the 2006 fourth quarter to the 2005 fourth quarter, the Company experienced growth in all of its business components except the Other component, which is comprised primarily of policies assigned from involuntary state plans, over which the Company has no control. The most significant growth for both the 2006 fourth quarter and full year occurred in the Alternative Risk Transfer component, reflecting additional policies written in existing programs as well as the introduction of several new programs. The table below summarizes gross premiums written by business component:

             Three months ended December 31,     Year ended December 31,
                  2006            2005            2006             2005
             Amount Percent  Amount Percent   Amount Percent  Amount Percent
                                 (Dollars in thousands)
  Alternative
   Risk
   Transfer  $22,430  36.5%  $2,825   7.6%  $135,283  44.3% $103,537  38.4%
  Transpor-
   tation     21,980  35.7%  18,549  49.7%    89,399  29.3%   90,751  33.6%
  Specialty
   Personal
   Lines      11,001  17.9%   9,946  26.6%    52,060  17.0%   45,935  17.0%
  Hawaii
   and
   Alaska      4,731   7.7%   4,641  12.4%    23,267   7.6%   22,486   8.3%
  Other        1,369   2.2%   1,377   3.7%     5,495   1.8%    7,327   2.7%
  Gross
   Premiums
   Written   $61,511 100.0% $37,338 100.0%  $305,504 100.0% $270,036 100.0%




"We have grown our commercial products by maintaining relatively flat pricing for our renewal business and adding new customers. Our Specialty Personal Lines growth reflects moderate rate increases and additional policies in force," commented Dave Michelson, President and Chief Operating Officer of National Interstate Corporation.

The GAAP combined ratio of 78.9% for the 2006 fourth quarter was 4.3 percentage points lower than 83.2% for the 2005 fourth quarter, and the GAAP combined ratio of 83.5% for the 2006 full year was 0.9 percentage points higher than 82.6% for the 2005 full year.  The combined ratio comparisons for both the fourth quarter and full year reflect lower loss and loss adjustment expense ratios offset by higher underwriting expense ratios. The loss and loss adjustment expense ratio for the 2006 fourth quarter was 53.6% compared to 58.6% for the same period last year. This improvement in the 2006 fourth quarter reflects a smaller number of larger losses compared to 2005 and offsets the higher severity experienced earlier in this year. The 2006 full year loss and loss adjustment expense ratio of 59.6% was 0.8 percentage points lower than 2005. This decrease was primarily attributable to favorable development of prior year reserves of $7.5 million (4.9% of net loss and loss adjustment expense reserves) in 2006 compared to $5.2 million (4.7% of net loss and loss adjustment expense reserves) in 2005.  The 2006 fourth quarter underwriting expense ratio was 25.3% compared to 24.7% for the 2005 fourth quarter, and 23.9% for the 2006 full year compared to 22.2% for the 2005 full year. The 2005 fourth quarter and full year underwriting expense ratios were favorably impacted by non-recurring items primarily related to expenses for insolvencies, other state fees, and assigned risk business. The 2006 fourth quarter and full year underwriting expense ratios reflect normalized expenses related to insolvencies and other state fees, and were approximately 0.3 percentage points higher than 2005 due to accounting for stock based compensation required from the adoption of SFAS No. 123R. The underwriting expense ratios were consistent year over year when considering these items.

Alan Spachman, Chairman and Chief Executive Officer of National Interstate Corporation said, "Our record fourth quarter results did not surprise us. Several ongoing marketing initiatives produced results during the fourth quarter and claims severity patterns returned to historic seasonal levels. This quarter again highlights the potential for significant fluctuations in our quarterly results due to our new product introductions and the timing of large loss occurrences. Overall, we are pleased that we were able to achieve a GAAP combined ratio in the low 80's for the fourth consecutive year."

Net investment income for the 2006 fourth quarter was $4.9 million compared to $3.5 million for the same quarter last year, and $17.6 million for 2006 full year compared to $12.5 million for the 2005 full year. The net investment income increases of 37.7% and 40.3% for the fourth quarter and full year of 2006 respectively, over the same periods in 2005, reflected an increase in average cash and invested assets and higher interest rates available on the short term and fixed income portfolios. The growth in cash and invested assets resulted from positive cash flow from operations and reinvestment of investment earnings. For the 2006 full year, the Company generated cash flow from operations of $83.3 million contributing to a 26.9% increase in cash and investments.

Mr. Spachman concluded, "We achieved a return on average shareholders' equity of 22.8% in 2006, again exceeding our stated objective of inflation plus 15%. It is also exciting to report another year of top line growth and record profits. Over the last three years we have achieved a compounded annual growth rate of 16.5% in gross premiums written and 12.1% in earnings per share. We expect 2007 growth and profit increases to continue the trends established over the past few years."

About National Interstate Corporation

National Interstate Corporation (NASDAQ:NATL), founded in 1989, completed an initial public offering in February 2005. We are a specialty property and casualty insurance company with a niche orientation and focus on the transportation industry.  We differentiate ourselves within our markets by offering insurance products and services designed to meet the unique needs of targeted insurance buyers that we believe are underserved by the insurance industry. Our products include property and casualty insurance for transportation companies, captive insurance programs for commercial risks that we refer to as our alternative risk transfer component, specialty personal lines consisting primarily of recreational vehicle coverage, and transportation and general commercial insurance in Hawaii and Alaska. We offer our insurance products through multiple distribution channels including independent agents and brokers, affiliated agencies and agent Internet initiatives. Our insurance subsidiaries are rated "A" (Excellent) by A.M. Best Company. National Interstate is an independently operated subsidiary of Great American Insurance Company, a property-casualty subsidiary of American Financial Group, Inc. (NYSE:AFGNASDAQ:AFG). The Company is headquartered in Richfield, Ohio, which is located in northeastern Ohio between Cleveland and Akron.

Forward-Looking Statements

This document, including any information incorporated by reference, contains "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995). All statements, trend analyses and other information contained in this press release relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as "may," "target," "anticipate," "believe," "plan," "estimate," "expect," "intend," "project," and other similar expressions, constitute forward-looking statements. We made these statements based on our plans and current analyses of our business and the insurance industry as a whole. We caution that these statements may and often do vary from actual results and the differences between these statements and actual results can be material. Factors that could contribute to these differences include, among other things:  general economic conditions and other factors, including prevailing interest rate levels and stock and credit market performance which may affect (among other things) our ability to sell our products, our ability to access capital resources and the costs associated with such access to capital and the market value of our investments; customer response to new products and marketing initiatives; tax law changes; increasing competition in the sale of our insurance products and services and the retention of existing customers; changes in legal environment; regulatory changes or actions, including those relating to regulation of the sale, underwriting and pricing of insurance products and services and capital requirements; levels of natural catastrophes, terrorist events, incidents of war and other major losses; adequacy of insurance reserves; and availability of reinsurance and ability of reinsurers to pay their obligations.

The forward-looking statements herein are made only as of the date of this document.  The Company assumes no obligation to publicly update any forward- looking statements.

  Contact:
  Tanya Inama
  National Interstate Corporation
  877-837-0339
  



                     NATIONAL INTERSTATE CORPORATION
                         SELECTED FINANCIAL DATA
                  (In thousands, except per share data)

                                      Three months ended     Year ended
                                         December 31,        December 31,
                                        2006      2005      2006     2005
  Operating Data:
  Gross premiums written              $61,511   $37,338  $305,504 $270,036

  Net premiums written                $51,965   $33,153  $241,916 $211,106

  Premiums earned                     $57,956   $51,931  $217,319  194,397
  Net investment income                 4,876     3,542    17,579   12,527
  Net realized gains (losses)             479      (206)    1,193      278
  Other income                            784       500     2,387    1,974
    Total revenues                     64,095    55,767   238,478  209,176
  Losses and loss adjustment expenses  31,065    30,408   129,491  117,449
  Commissions and other underwriting
   expense                             12,689    10,434    42,671   35,741
  Other operating and general expenses  2,754     2,870    11,619    9,428
  Interest expense                        390       358     1,522    1,421
    Total expenses                     46,898    44,070   185,303  164,039
  Income before income taxes           17,197    11,697    53,175   45,137
  Provision for income taxes            5,769     3,775    17,475   14,857
    Net income                        $11,428    $7,922   $35,700  $30,280

  Per Share Data:
  Earnings per common share, basic      $0.60     $0.42     $1.87    $1.62
  Earnings per common share,
   assuming dilution                    $0.59     $0.41     $1.85    $1.60
  Book value per common share,
   basic (at period end)                 9.07      7.32      9.07     7.32
  Weighted average number of
   common shares outstanding, basic    19,158    19,041    19,136   18,737
  Weighted average number of
   common shares outstanding, diluted  19,379    19,244    19,302   18,975
  Common shares outstanding
   at period end                       19,159    19,055    19,159   19,055
  Cash dividend per common share        $0.04     $0.04     $0.16    $0.08

  GAAP Ratios:
  Losses and loss adjustment
   expense ratio                        53.6%     58.6%     59.6%    60.4%
  Underwriting expense ratio            25.3%     24.7%     23.9%    22.2%
  Combined ratio                        78.9%     83.2%     83.5%    82.6%
  Return on equity (a)                                      22.8%    28.5%
  Average shareholders' equity                           $156,648 $106,161


                                At December 31, 2006    At December 31, 2005
  Balance Sheet Data (GAAP):
  Cash and investments                $406,454                $320,220
  Reinsurance recoverable               90,070                  77,834
  Total assets                         806,248                 523,003
  Unpaid losses and loss
   adjustment expenses                 265,966                 223,207
  Long-term debt                        15,464                  16,297
  Total shareholders' equity          $173,763                $139,533

  Statutory Data: (b)
  Policyholder Surplus
   (Statutory) (c)                    $148,266                $122,825

  (a) The ratio of net income to the average of shareholders' equity at the
      beginning and at end of the period. Return on equity calculation is
      completed for year-to-date results only.
  (b) While financial data is reported in accordance with accounting
      principles generally accepted in the United States, or GAAP, for
      shareholder and other investment purposes, it is reported on a
      statutory basis for insurance regulatory purposes. Certain statutory
      expenses differ from amounts reported under GAAP. Specifically, under
      GAAP, premium taxes and other variable costs incurred in connection
      with writing new and renewal business are capitalized and amortized on
      a pro rata basis over the period in which the related premiums are
      earned. On a statutory basis, these items are expensed as incurred. In
      addition, certain other expenses, such as those related to the
      expensing or amortization of computer software, are accounted for
      differently for statutory purposes than the treatment accorded under
      GAAP.
  (c) The statutory policyholder surplus of National Interstate Insurance
      Company, which includes the statutory policyholder surplus of its
      subsidiaries, National Interstate Insurance Company of Hawaii, Inc.
      and Triumphe Casualty Company.


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DATASOURCE: National Interstate Corporation



CONTACT:  Tanya Inama of National Interstate Corporation,

[phone], or 



Web site:  http://www.nationalinterstate.com/ 

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