The National Security Group, Inc. (NASDAQ:NSEC) today reported
net income for the three months ended December 31, 2017 of $669,000
and a net loss for the year ended December 31, 2017 of $1,203,000.
Unaudited consolidated financial results based on US Generally
Accepted Accounting Principles (GAAP) for the three month and
twelve month periods are summarized as follows:
Unaudited Consolidated Financial Summary
Three months endedDecember
31,
Year endedDecember 31,
2017 2016 2017 2016 Gross premiums written $
14,784,000 $ 14,801,000 $ 67,737,000 $
67,424,000 Net premiums written $ 13,034,000 $
13,175,000 $ 61,388,000 $ 61,525,000
Net premiums earned $ 15,325,000 $ 15,331,000 $ 61,163,000 $
61,398,000 Net investment income 852,000 867,000 3,647,000
3,892,000 Net realized investment gains (losses) (78,000 ) 462,000
234,000 998,000 Other income 149,000 149,000 596,000
605,000
Total Revenues 16,248,000
16,809,000 65,640,000 66,893,000 Policyholder
benefits and settlement expenses 7,958,000 10,856,000 42,869,000
38,847,000 Amortization of deferred policy acquisition costs
1,119,000 1,055,000 3,589,000 3,506,000 Commissions 1,776,000
1,581,000 7,723,000 7,894,000 General and administrative expenses
2,411,000 2,683,000 8,821,000 8,996,000 Taxes, licenses and fees
530,000 501,000 2,445,000 2,204,000 Interest expense 338,000
335,000 1,307,000 1,352,000
Total Benefits,
Losses and Expenses 14,132,000 17,011,000
66,754,000 62,799,000
Income (Loss) Before Income
Taxes 2,116,000 (202,000 ) (1,114,000 ) 4,094,000
Income tax expense (benefit) 1,447,000 (98,000 ) 89,000
1,031,000
Net Income (Loss) $ 669,000 $
(104,000 ) $ (1,203,000 ) $ 3,063,000
Income (Loss) Per
Common Share $ 0.26 $ (0.04 ) $ (0.48 ) $ 1.22
Reconciliation of Net Income (Loss) to Non-GAAP
Measurement Net income (loss) $ 669,000 $ (104,000 ) $
(1,203,000 ) $ 3,063,000 Income tax expense (benefit) 1,447,000
(98,000 ) 89,000 1,031,000 Realized investment (gains) losses, net
78,000 (462,000 ) (234,000 ) (998,000 )
Pretax Income
(Loss) From Operations $ 2,194,000 $ (664,000 ) $
(1,348,000 ) $ 3,096,000
Management Commentary on Results of Operations
Three months ended December 31, 2017
compared to three months ended December 31, 2016:
Premium Revenue:
For the three months ended December 31, 2017, net premiums
earned were down $6,000 at $15,325,000 compared to $15,331,000 for
the same period in 2016. The moderate decrease in premium revenue
is primarily attributable to a 5.5% increase in catastrophe
reinsurance cost.
Net Income (Loss):
For the three months ended December 31, 2017, the Company had
net income of $669,000, $0.26 income per share, compared to a net
loss of $104,000, $0.04 loss per share, for the same period in
2016, an increase of $773,000. Adversely impacting our fourth
quarter 2017 earnings was an increase in income tax expense of
$803,000 from the recognition and revaluation of our deferred tax
assets and liabilities due to enactment of the Tax Cuts and Jobs
Act (TCJA). However, a significant decline in catastrophe losses in
the fourth quarter of 2017 compared to the same period of 2016
contributed to the improvement in net income for the quarter. Net
of tax, fourth quarter 2017 reported losses and loss adjustment
expenses (LAE) from catastrophe losses totaled $290,000, compared
to $2,995,000 (net of reinsurance) in the fourth quarter of 2016.
Hurricane Matthew, which struck the Atlantic Coast impacting our
policyholders in Georgia and South Carolina, was the primary
contributor to our elevated level of catastrophe losses in
2016.
Federal Income Taxes:
On December 22, 2017, the President signed the TCJA, a
comprehensive tax legislation which, among other things, will
reduce the Company's statutory federal income tax rate from 34% to
21% effective January 1, 2018. In addition to the reduction in tax
rates, the TCJA makes broad and complex changes to the Internal
Revenue Code that will introduce changes to many tax related
exclusions, deductions and credits. While most provisions of the
TCJA do not take effect until 2018, the Company has recognized the
tax effects of the enacted legislation on deferred income tax
assets and liabilities in the fourth quarter of 2017. The
recognition of the impact of the TCJA on deferred tax assets and
liabilities resulted in an increase in income tax expense in the
fourth quarter of 2017 of $803,000.
Pretax Income (Loss) from Operations:
A primary non-GAAP financial measure utilized by management is
pretax income (loss) from operations. This measure consists of net
income (loss) before income taxes adjusted for realized investment
gains and losses. This measure provides a means of comparing the
results of our core operations without the impact of items that are
more unpredictable and less consistent from year to year. A
reconciliation of pretax income (loss) from operations is presented
in the table above.
For the three months ended December 31, 2017, the Company had
pretax income from operations of $2,194,000 compared to a pretax
loss from operations of $664,000 for the three months ended
December 31, 2016, an increase of $2,858,000. The primary reason
for improvement in pretax income from operations in the fourth
quarter of 2017 compared to the fourth quarter of 2016 was a
significant decline in weather related losses in our property and
casualty subsidiary. As mentioned previously, in the fourth quarter
of 2016, the P&C segment had an increase in catastrophe related
claims from Hurricane Matthew which decreased pretax income by
$4,000,000, net of reinsurance.
P&C Segment Combined Ratio:
A measure used to analyze our P&C subsidiaries underwriting
performance is the GAAP based combined ratio. Maintaining a
combined ratio below 100% indicates the Company is making an
underwriting profit. For the three months ended December 31, 2017,
the P&C segment had a combined ratio of 83.7%. The fourth
quarter of 2017 had a reduced severity level of catastrophe losses
compared to 2016 with two catastrophe events adding 10.5 percentage
points to the P&C segment combined ratio. In comparison, the
P&C segment ended the fourth quarter of 2016 with a combined
ratio of 104.1% with catastrophe losses from two cat events
contributing 32.9 percentage points to the combined ratio.
Hurricane Matthew was the primary factor leading to the elevated
fourth quarter 2016 combined ratio.
Year ended December 31, 2017 compared
to year ended December 31, 2016:
Premium Revenue:
For the year ended December 31, 2017, net premiums earned were
down $235,000 at $61,163,000 compared to $61,398,000 in 2016. The
decrease in premium revenue is primarily attributable to a 5.5%
increase in catastrophe reinsurance cost.
Net Income (Loss):
For the year ended December 31, 2017, the Company had a net loss
of $1,203,000, $0.48 loss per share, compared to net income of
$3,063,000, $1.22 income per share, for the same period in 2016, a
decrease of $4,266,000. The primary reason for the decline in 2017
year to date earnings compared to 2016 was the adverse impact of
losses incurred from Hurricane Irma coupled with an increase in
frequency and severity of catastrophe losses in early 2017 from a
very active spring storm season. Net of tax, our reported losses
and LAE from 26 catastrophe events in 2017 totaled $9,425,000
compared to 20 cat events in 2016 totaling $6,430,000 after
reinsurance recoveries. Also adversely impacting 2017 year to date
earnings was a fourth quarter charge to income tax expense of
$803,000 from the net impact of recognition and revaluation of
deferred tax assets and liabilities due to enactment of the
TCJA.
Pretax Income (Loss) from Operations:
For the year ended December 31, 2017, our pretax loss from
operations was $1,348,000 compared to pretax income from operations
of $3,096,000 for the year ended December 31, 2016, a decrease of
$4,444,000. The primary reason for the pretax loss from operations
in 2017 compared to the prior year was an increase in the frequency
and severity of catastrophe related claims in the P&C segment.
In addition to Hurricane Irma, which occurred in September of 2017,
our property and casualty subsidiary was impacted by numerous
tornado and severe thunderstorm related catastrophe events in the
first half of 2017.
P&C Segment Combined Ratio:
For the year ended December 31, 2017, the P&C segment had a
GAAP combined ratio of 102.3%. Reported claims from Hurricane Irma
coupled with 25 additional severe weather events in 2017 totaled
$14,280,000 and increased the P&C segment combined ratio by
25.7 percentage points. In comparison, for the year ended December
31, 2016, the P&C segment had a GAAP combined ratio of 94.6%.
Hurricane Matthew reported claims, net of reinsurance, along with
non-hurricane cat event claims totaled $9,742,000 and increased the
P&C segment combined ratio 17.5 percentage points. The P&C
segment ended 2016 with reported claims from 20 catastrophe
events.
Management Commentary on Financial Position
Selected Balance Sheet Highlights
December 31,2017
December 31,2016
(UNAUDITED) Invested Assets $ 114,731,000 $ 113,156,000 Cash $
6,644,000 $ 7,368,000 Total Assets $ 146,438,000 $ 148,579,000
Policy Liabilities $ 76,674,000 $ 76,174,000 Total Debt $
15,639,000 $ 17,126,000 Accumulated Other Comprehensive Income $
2,646,000 $ 1,007,000 Shareholders' Equity $ 47,625,000 $
48,052,000 Book Value Per Share $ 18.88 $ 19.09
Invested Assets:
Invested assets as of December 31, 2017 were $114,731,000 up
$1,575,000, or 1.4%, compared to $113,156,000 as of December 31,
2016. Although invested assets increased in 2017 compared to 2016,
growth of invested assets was adversely impacted by reduced cash
flow from operations primarily attributable to the increase in
weather related claims in the P&C segment.
Cash:
The Company, primarily through its insurance subsidiaries, had
$6,644,000 in cash and cash equivalents at December 31, 2017,
not materially different compared to $7,368,000 at
December 31, 2016.
Total Assets:
Total assets as of December 31, 2017 were $146,438,000 compared
to $148,579,000 at December 31, 2016. Asset growth was hampered in
2017 by increased catastrophe losses in the P&C segment.
Policy Liabilities:
Policy liabilities were $76,674,000 at December 31, 2017
compared to $76,174,000 at December 31, 2016; an increase of
$500,000 or 0.7%. The primary reason for the increase in policy
liabilities in 2017 compared to the same period last year was a
$839,000 increase in life segment accident and health and life loss
reserves. Life segment loss reserves were up 2.3% in 2017 compared
to 2016. While the property and casualty subsidiary had a
significant increase in reported claims early in the fourth quarter
of 2017 due to Hurricane Irma, over 95% of Hurricane Irma claims
were settled by December 31, 2017.
Debt Outstanding:
Total debt at December 31, 2017 was $15,639,000 compared to
$17,126,000 at December 31, 2016. Debt was reduced $1,487,000
during 2017. The improvement of balance sheet strength through both
capital growth and reduction of debt continues to be a primary
focus of management.
Shareholders' Equity:
Shareholders' equity as of December 31, 2017 was
$47,625,000, down $427,000 compared to December 31, 2016
Shareholders' equity of $48,052,000. Book value per share was
$18.88 at December 31, 2017, compared to $19.09 per share at
December 31, 2016, a decrease of $0.21. Despite the adverse
impact of Hurricane Irma along with a record amount of retained
catastrophe losses reported in our P&C segment during the
current year, the Company had only a 1.1% decrease in book value
per share and a minimal 0.9% decrease in Shareholders' Equity at
December 31, 2017 compared to December 31, 2016. The primary
factors contributing to the decrease in Shareholders' equity was a
net loss of $1,203,000, shareholder dividends of $504,000 and new
shares issued under our director compensation plan which totaled
$76,000. Partially offsetting these factors was an increase in
accumulated other comprehensive income of $1,204,000. The increase
in accumulated other comprehensive income was primarily driven by
increases in market values of available-for-sale investment
securities.
The National Security Group, Inc. (NASDAQ Symbol: NSEC), through
its property & casualty (P&C) and life insurance
subsidiaries, offers property, casualty, life, accident and health
insurance in ten states. The Company writes primarily personal
lines property coverage including dwelling fire and windstorm,
homeowners, and mobile homeowners lines of insurance. The Company
also offers life, accident and health, supplemental hospital and
cancer insurance products. The Company was founded in 1947 and is
based in Elba, Alabama. Additional information about the Company,
including additional details of recent financial results, can be
found on our website: www.nationalsecuritygroup.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20180228006478/en/
The National Security Group, Inc.Brian McLeod, 334-897-2273Chief
Financial Officer
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