Protective Insurance Corporation (NASDAQ: PTVCA, PTVCB) today
reported results for the third quarter and first nine months of
2019. The Company produced a third quarter net loss of $0.7
million, or $0.05 per share, which compares to a net loss of $12.3
million, or $0.82 per share, for the prior year’s third quarter.
For the first nine months of 2019, net income totaled $3.6 million,
or $0.24 per share, which compares to a net loss of $9.5 million,
or $0.63 per share, for the prior year period.
The loss from core business operations, before
federal income tax benefit, was $1.1 million for the third quarter
of 2019 compared to a loss from core business operations, before
federal income tax benefit, of $17.9 million during the third
quarter of 2018. For the first nine months of 2019, the loss from
core business operations, before federal income tax expense,
totaled $4.6 million compared to a loss from core business
operations, before federal income tax benefit, of $6.6 million
during the 2018 period.
- Book value per share increased by
$0.07 per share to $25.33 during the third quarter of 2019, an
increase of 0.3% in the quarter and total value creation of 0.7%
including the $0.10 per share dividend paid to shareholders during
the third quarter of 2019. Shareholders’ equity decreased by $4.0m
during the third quarter of 2019, a decrease of 1.1%.
- Net investment income increased
20.2% for the third quarter of 2019 compared to the prior year and
21.4% during the first nine months of 2019 compared to prior
year.
- Repurchased $10.6 million (618,032
shares) since January 1, 2019. These purchases are immediately
accretive to book value per share, given an average repurchase
price of 68% of September 30, 2019 book value.
- Combined ratio of 107.1% for the
third quarter of 2019 and 107.2% for the first nine months of
2019.
Net premiums earned for the third quarter of
2019 increased to $110.3 million, up 13.9% compared to the prior
year period. The higher net premiums earned were primarily the
result of lower premiums ceded in the current quarter when compared
to the same period in 2018. Gross premiums written for the third
quarter of 2019 decreased 1.1% to $137.1 million compared to $138.7
million written during the prior year period.
Underwriting operations produced a combined
ratio of 107.1% during the third quarter of 2019 compared to a
combined ratio of 124.3% for the prior year period. The higher
combined ratio in the third quarter of 2018 reflects higher loss
and loss expenses due to reserve strengthening of $16.4 million
related to unfavorable prior accident year loss development in
commercial automobile coverages. During the third quarter of 2018
we also ceded an additional $13.8 million in premiums related to
the reserve strengthening, which did not recur in the 2019 period.
For the third quarter of 2019, prior accident year loss development
was unfavorable at $0.1 million. For the first nine months of both
2019 and 2018, the combined ratio was flat at 107.2%. The current
year combined ratio reflects increased losses and loss expenses
driven by severe commercial automobile claims, including continued
emergence of severity. For the first nine months of 2019, prior
accident year loss development was favorable at $1.6 million. The
Company continues to maintain current accident-year loss ratios at
a level consistent with rising severity expectations in commercial
automobile. In our commercial automobile portfolio, the Company
attained rate increases of 17.5% on $35.4 million of premiums
available for renewal during the third quarter of 2019. As a
result, the premium retention rate achieved in these product lines
was less than in recent years, resulting from our commitment to
remain disciplined in our underwriting and create long-term value
for our stakeholders.
Jeremy Johnson, Protective’s Chief Executive
Officer, said: “Our third quarter results demonstrate progress
towards our key pricing and risk selection initiatives. The
accident year loss ratio has decreased a further 1.9pts from the
2nd quarter, and 3.9pts from this time a year ago. We’re
achieving significant rate increases in our commercial auto
portfolio, while retaining our better priced business, managing
volatility and exercising expense discipline. Our customers and
distribution partners value the expertise we bring to them, and I’m
confident in our ability to further improve underwriting
performance.”
Commercial automobile products covered by our
reinsurance treaties from July-2013 through June-2019 are subject
to an aggregate stop-loss provision. Once this aggregate
stop-loss level is reached, for every $100 of additional loss, the
Company is responsible only for its $25 retention. The following
table illustrates the benefit of these reinsurance treaties, as the
net financial loss to the Company of a further increase in ultimate
losses for each of the six most recent reinsurance treaty years
(2013-2018) covering these commercial automobile products is only
about 25% of the gross loss:
|
5% Increase in Ultimate Loss Ratio |
|
10% Increase in Ultimate Loss Ratio |
Gross loss expense from further strengthening current reserve
position |
$ |
45.5 |
|
$ |
90.9 |
Net financial loss |
11.8 |
|
23.1 |
$/share (after tax) |
$ |
0.64 |
|
$ |
1.25 |
|
|
|
|
Commercial automobile products covered by the
Company’s reinsurance treaty from July-2019 through June-2020 are
also subject to an aggregate stop-loss provision. Once the
aggregate stop-loss level is reached, for every $100 of additional
loss, the Company is responsible for its $65 retention. This
increase in the Company’s retention compared to recent years,
reflects both: (1) the Company choosing to buy less reinsurance,
due to a higher cost of reinsurance for the 2019 treaty-year, and
(2) the Company’s confidence in profitability improvements given
rate increases it’s receiving on its commercial automobile
products.
Net investment income for the third quarter of
2019 increased 20.2% to $6.7 million compared to $5.6 million in
the prior year period. The increase reflects an increase in average
funds invested resulting from positive cash flow, as well as the
continued reallocation from equity investments in limited
partnerships and cash and cash equivalent investments into short
duration, high quality bonds. Our fixed income investment portfolio
continues to emphasize shorter-duration instruments. If there was a
hypothetical increase in interest rates of 100 basis points, the
price of our fixed income portfolio, including cash, at September
30, 2019 would be expected to fall by approximately 2.6%. Credit
quality remains high with a weighted average rating of AA-,
including cash. For the first nine months of 2019, net investment
income increased 21.4% to $19.4 million, compared to $16.0 million
in 2018, reflecting investment impacts similar to those experienced
during the third quarter.
The Company continues to focus on our operating
initiative of expense discipline, reflected in the 0.3 percentage
point decline in the expense ratio during the first nine months of
2019 when compared to 2018. Additionally, the expense ratio for the
third quarter of 2019 included charges of $1.6 million related to
severance and new hire costs as well as bad debt expense, which we
do not expect to recur. We will continue to manage our expense
base, particularly as we gain greater clarity on the impact of
continuing to attain increasing premium rates, and the influence of
increased rates upon the retention of renewing policies.
Book value per share as of September 30, 2019
was $25.33, an increase of $1.38 per share during the first nine
months of 2019, after the payment of cash dividends to shareholders
totaling $0.30 per share.
The Company's net income (loss), determined in
accordance with U.S. generally accepted accounting principles
(GAAP) includes items that may not be indicative of ongoing
operations. The following table reconciles income (loss) before
federal income tax expense (benefit) to underwriting loss, a
non-GAAP financial measure that is a useful tool for investors and
analysts in analyzing ongoing operating trends.
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
September 30 |
|
|
September 30 |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before federal income tax expense (benefit) |
$ |
(1,019 |
) |
|
$ |
(15,569 |
) |
|
$ |
4,445 |
|
|
$ |
(12,199 |
) |
Less: Net realized gains on investments |
1,141 |
|
|
449 |
|
|
1,468 |
|
|
1,740 |
|
Less: Net unrealized gains (losses) - equity securities and limited
partnerships |
(1,016 |
) |
|
1,924 |
|
|
7,573 |
|
|
(7,335 |
) |
Income
(loss) from core business operations |
$ |
(1,144 |
) |
|
$ |
(17,942 |
) |
|
$ |
(4,596 |
) |
|
$ |
(6,604 |
) |
Less: Net investment income |
6,703 |
|
|
5,578 |
|
|
19,434 |
|
|
16,010 |
|
Underwriting loss |
$ |
(7,847 |
) |
|
$ |
(23,520 |
) |
|
$ |
(24,030 |
) |
|
$ |
(22,614 |
) |
The Company’s management uses the term income
(loss) from core business operations, a non-GAAP financial measure,
which is defined as income (loss) before federal income tax expense
(benefit) excluding pre-tax realized and unrealized investment
gains and losses. This financial measure is used to evaluate the
Company’s operating performance because the recognition of realized
investment gains and losses, and occurrence of unrealized gains,
could distort analysis of trends in the core underwriting
business.
The combined ratios and the components, as
presented herein, are commonly used in the property/casualty
insurance industry and are applied to the Company’s GAAP
underwriting results.
Conference Call
Information:
Protective Insurance Corporation has scheduled
its quarterly conference call for Wednesday, November 6, 2019, at
11:00 AM EST to discuss results for the third quarter ended
September 30, 2019.
To participate via teleconference, investors may
dial 1-877-705-6003 (U.S./Canada) or 1-201-493-6725 (International
or local) at least five minutes prior to the beginning of the call.
A replay of the call will be available through November 13, 2019 by
calling 1-844-512-2921 or 1-412-317-6671 and referencing passcode
13694810. Investors and interested parties may also listen to the
call via a live webcast, accessible on the company’s web site via a
link at the top of the main Investor Relations page. To participate
in the webcast, please register at least fifteen minutes prior to
the start of the call. The webcast will be archived on this site
until May 6, 2020. The webcast may be accessed directly at:
http://public.viavid.com/index.php?id=136212.
Also available on the investor relations section
of our web site is an investor presentation providing additional
information to be reviewed in conjunction with our earnings call.
We have also made available complete interim financial statements
and copies of our filings with the Securities and Exchange
Commission.
The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions
to Form 10-Q but do not include all of the information and
footnotes as disclosed in the Company’s annual audited financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
fair presentation have been included.
Forward-looking statements in this report are
made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned
that such forward-looking statements involve inherent risks and
uncertainties. Readers are encouraged to review the Company's
annual report for its full statement regarding forward-looking
information.
Protective
Insurance Corporation and Subsidiaries |
Unaudited
Condensed Consolidated Balance Sheets |
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
December 31 |
|
|
|
2019 |
|
2018 |
|
Assets |
|
|
|
|
|
Investments 1: |
|
|
|
|
|
Fixed income securities (2019: $744,762; 2018:
$600,504) |
|
$ |
757,841 |
|
$ |
592,645 |
|
Equity securities |
|
72,837 |
|
66,422 |
|
Limited partnerships, at equity |
|
22,645 |
|
55,044 |
|
Commercial mortgage loans |
|
9,418 |
|
6,672 |
|
Short-term 2 |
|
1,000 |
|
1,000 |
|
|
|
863,741 |
|
721,783 |
|
Cash
and cash equivalents |
|
85,777 |
|
163,996 |
|
Restricted cash and cash equivalents |
|
22,410 |
|
6,815 |
|
Accounts receivable |
|
105,801 |
|
102,972 |
|
Reinsurance recoverable |
|
418,031 |
|
392,436 |
|
Other
assets |
|
93,756 |
|
88,426 |
|
Current
federal income taxes |
|
4,267 |
|
7,441 |
|
Deferred federal income
taxes |
|
2,984 |
|
6,262 |
|
|
|
$ |
1,596,767 |
|
$ |
1,490,131 |
|
|
|
|
|
|
|
Liabilities and
shareholders' equity |
|
|
|
|
|
Reserves for losses and loss expenses |
|
$ |
960,695 |
|
$ |
865,339 |
|
Reserves for unearned premiums |
|
76,329 |
|
71,625 |
|
Borrowings under line of credit |
|
20,000 |
|
20,000 |
|
Accounts payable and other
liabilities |
|
176,313 |
|
177,085 |
|
|
|
1,233,337 |
|
1,134,049 |
|
Shareholders' equity: |
|
|
|
|
|
Common stock-no par value |
|
613 |
|
634 |
|
Additional paid-in capital |
|
53,670 |
|
54,720 |
|
Accumulated other comprehensive income ( loss) |
|
9,594 |
|
(7,347 |
) |
Retained earnings |
|
299,553 |
|
308,075 |
|
|
|
363,430 |
|
356,082 |
|
|
|
$ |
1,596,767 |
|
$ |
1,490,131 |
|
|
|
|
|
|
|
Number of common and
common |
|
|
|
|
|
equivalent shares outstanding |
|
14,347 |
|
14,869 |
|
Book value per outstanding
share |
|
$ |
25.33 |
|
$ |
23.95 |
|
1 2019 & 2018 cost in parentheses2 Approximates cost
Protective Insurance Corporation and
Subsidiaries |
Unaudited
Condensed Consolidated Statements of Operations |
(in thousands,
except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
$ |
110,288 |
|
|
$ |
96,807 |
|
|
$ |
335,931 |
|
|
$ |
314,209 |
|
Net investment income |
|
6,703 |
|
|
5,578 |
|
|
19,434 |
|
|
16,010 |
|
Commissions and other
income |
|
2,716 |
|
|
3,413 |
|
|
6,761 |
|
|
7,488 |
|
Net realized gains on investments, excluding impairment losses |
|
1,199 |
|
|
449 |
|
|
1,872 |
|
|
1,740 |
|
Other-than-temporary impairment losses on investments |
|
(58 |
) |
|
- |
|
|
(404 |
) |
|
- |
|
Net unrealized gains (losses) on equity securities and limited
partnership investments |
|
(1,016 |
) |
|
1,924 |
|
|
7,573 |
|
|
(7,335 |
) |
Net realized and unrealized
gains (losses) on investments |
|
125 |
|
|
2,373 |
|
|
9,041 |
|
|
(5,595 |
) |
|
|
119,832 |
|
|
108,171 |
|
|
371,167 |
|
|
332,112 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Losses
and loss expenses incurred |
|
84,781 |
|
|
94,540 |
|
|
262,336 |
|
|
244,327 |
|
Other operating expenses |
|
36,070 |
|
|
29,200 |
|
|
104,386 |
|
|
99,984 |
|
|
|
120,851 |
|
|
123,740 |
|
|
366,722 |
|
|
344,311 |
|
Income (loss) before federal income tax expense
(benefit) |
|
(1,019 |
) |
|
(15,569 |
) |
|
4,445 |
|
|
(12,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax expense
(benefit) |
|
(312 |
) |
|
(3,244 |
) |
|
869 |
|
|
(2,691 |
) |
Net income (loss) |
|
$ |
(707 |
) |
|
$ |
(12,325 |
) |
|
$ |
3,576 |
|
|
$ |
(9,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data -
diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before net gains (losses) on investments |
|
$ (.06 |
) |
|
$ (.95 |
) |
|
$ (.24 |
) |
|
$ (.34 |
) |
Net gains (losses) on
investments |
|
.01 |
|
|
.13 |
|
|
.48 |
|
|
(.29 |
) |
Net income (loss) |
|
$ (.05 |
) |
|
$ (.82 |
) |
|
$ .24 |
|
|
$ (.63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding - basic |
|
14,361 |
|
|
14,969 |
|
|
14,607 |
|
|
14,998 |
|
Dilutive effect of share
equivalents |
|
- |
|
|
- |
|
|
77 |
|
|
- |
|
Average shares outstanding -
diluted |
|
14,361 |
|
|
14,969 |
|
|
14,684 |
|
|
14,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Protective
Insurance Corporation and Subsidiaries |
Unaudited
Condensed Consolidated Statements of Cash Flows |
(in
thousands) |
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
62,322 |
|
|
$ |
60,370 |
|
|
|
|
|
|
|
|
|
|
Investing
activities: |
|
|
|
|
|
|
Purchases of available-for-sale investments |
|
(342,299 |
) |
|
(330,217 |
) |
Purchases of limited partnership interests |
|
- |
|
|
(450 |
) |
Proceeds from sales or
maturities |
|
|
|
|
|
|
of available-for-sale investments |
|
183,261 |
|
|
228,487 |
|
Proceeds from sales of equity securities |
|
19,408 |
|
|
117,692 |
|
Purchase of insurance company-owned life insurance |
|
- |
|
|
(10,000 |
) |
Purchase of commercial mortgage loans |
|
(2,746 |
) |
|
- |
|
Distributions from limited partnerships |
|
33,395 |
|
|
369 |
|
Other investing
activities |
|
(1,655 |
) |
|
(4,352 |
) |
Net cash provided by (used in) investing activities |
|
(110,636 |
) |
|
1,529 |
|
Financing
activities: |
|
|
|
|
|
|
Dividends paid to shareholders |
|
(4,429 |
) |
|
(12,652 |
) |
Repurchase of common
shares |
|
(10,283 |
) |
|
(2,620 |
) |
Net cash used in financing activities |
|
(14,712 |
) |
|
(15,272 |
) |
|
|
|
|
|
|
|
Effect of foreign exchange rates on cash and cash equivalents |
|
402 |
|
|
(209 |
) |
|
|
|
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
and cash equivalents |
|
(62,624 |
) |
|
46,418 |
|
Cash, cash equivalents and
restricted cash and cash equivalents at beginning of period |
|
170,811 |
|
|
68,713 |
|
Cash, cash equivalents and
restricted cash and cash equivalents at end of period |
|
$ |
108,187 |
|
|
$ |
115,131 |
|
Financial Highlights (unaudited) |
Protective
Insurance Corporation and Subsidiaries |
(In thousands, except per
share data) |
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized |
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share beginning of period |
|
$ |
25.26 |
|
|
$ |
27.14 |
|
|
$ |
23.95 |
|
|
$ |
27.83 |
|
Book value per share end of
period |
|
25.33 |
|
|
25.96 |
|
|
25.33 |
|
|
25.96 |
|
Change in book value per share |
|
$ |
0.07 |
|
|
$ |
(1.18 |
) |
|
$ |
1.38 |
|
|
$ |
(1.87 |
) |
Dividends paid |
|
0.10 |
|
|
0.28 |
|
|
0.30 |
|
|
0.84 |
|
Change in book value per share plus dividends paid |
|
$ |
0.17 |
|
|
$ |
(0.90 |
) |
|
$ |
1.68 |
|
|
$ |
(1.03 |
) |
Total value creation 1 |
|
2.7 |
% |
|
(13.3 |
%) |
|
9.4 |
% |
|
(4.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders' equity |
|
365,423 |
|
|
397,640 |
|
|
359,771 |
|
|
403,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
(707 |
) |
|
(12,325 |
) |
|
3,576 |
|
|
(9,508 |
) |
Less: Net realized gains (losses) on investments, net of tax |
|
99 |
|
|
1,875 |
|
|
7,142 |
|
|
(4,420 |
) |
Net operating income (loss) |
|
(806 |
) |
|
(14,200 |
) |
|
(3,566 |
) |
|
(5,088 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on net income 2 |
|
(0.8 |
%) |
|
(12.4 |
%) |
|
1.3 |
% |
|
(3.1 |
%) |
Return on net operating income (loss) 2 |
|
(0.9 |
%) |
|
(14.3 |
%) |
|
(1.3 |
%) |
|
(1.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
and LAE expenses incurred |
|
$ |
84,781 |
|
|
$ |
94,540 |
|
|
$ |
262,336 |
|
|
$ |
244,327 |
|
Net premiums earned |
|
110,288 |
|
|
96,807 |
|
|
335,931 |
|
|
314,209 |
|
Loss and LAE
ratio |
|
76.9 |
% |
|
97.7 |
% |
|
78.1 |
% |
|
77.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
operating expenses |
|
$ |
36,070 |
|
|
$ |
29,200 |
|
|
$ |
102,658 |
|
|
$ |
99,984 |
|
Less: Commissions and other
income |
|
2,716 |
|
|
3,413 |
|
|
5,033 |
|
|
7,488 |
|
Other operating expenses, less commissions and other income |
|
$ |
33,354 |
|
|
$ |
25,787 |
|
|
$ |
97,625 |
|
|
$ |
92,496 |
|
Net premiums earned |
|
110,288 |
|
|
96,807 |
|
|
335,931 |
|
|
314,209 |
|
Expense
ratio |
|
30.2 |
% |
|
26.6 |
% |
|
29.1 |
% |
|
29.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
ratio 3 |
|
107.1 |
% |
|
124.3 |
% |
|
107.2 |
% |
|
107.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
premiums written |
|
$ |
137,145 |
|
|
$ |
138,699 |
|
|
$ |
433,191 |
|
|
$ |
429,792 |
|
Net premiums written |
|
109,292 |
|
|
97,014 |
|
|
340,309 |
|
|
324,702 |
|
1 Total Value Creation equals change in book
value plus dividends paid, divided by beginning book value.
Quarterly amounts have been annualized. 2 Quarterly and
year-to-date amounts have been annualized 3 The combined
ratio is calculated as ratio of losses and loss expenses incurred,
plus other operating expenses, less commission and other income to
net premiums earned.
Investor Contact: John
Barnettinvestors@protectiveinsurance.com(317) 429-2554
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