Baldwin & Lyons, Inc. (NASDAQ:BWINA) (NASDAQ:BWINB) today
reported results for the first quarter of 2018. The Company
produced first quarter net income of $0.3 million, or $0.02 per
share, which compares to net income of $6.8 million, or $0.45 per
share, for the prior year’s first quarter.
- Gross premiums written increased 35.3% during the first quarter
of 2018 to $148.8 million compared to $110.0 million during the
first quarter of 2017.
- Net investment income increased 25.6% during the first quarter
of 2018 compared to prior year
- Combined ratio of 99.8% during the first quarter of 2018
compared to 99.7% during the first quarter of 2017.
Net premiums earned for the first quarter of
2018 increased 42.6% to $105.5 million compared to the prior year
period. Continued growth in the Company’s commercial
automobile and workers’ compensation products, in both our retail
and program distribution channels, contributed to the increase in
premiums earned.
Gross premiums written for the first quarter of
2018 increased 35.3% to $148.8 million compared to $110.0 million
written during the prior year period. As with net premiums
earned, the increases were primarily driven by continued growth in
the Company’s commercial automobile and workers’ compensation
products in both our retail and program distribution
channels.
Net investment income for the first quarter of
2018 increased 25.6% to $4.6 million compared to $3.7 million in
the prior year period. The increase reflects higher interest
rates, leading to higher reinvestment yields for our short-duration
fixed income portfolio and an increase in average funds invested
resulting from positive cash flow. Our fixed income
investment portfolio continues to emphasize shorter-duration
instruments as was the case at year-end 2017 when we noted that if
interest rates were to rise by 100 basis points, the price of our
bonds would be expected to fall by approximately 2.7%. Credit
quality remains high with a weighted average rating of A+,
including cash.
Underwriting operations produced a combined
ratio of 99.8% during the first quarter of 2018 compared to a
combined ratio of 99.7% for the prior year period. For the
first quarter of 2018, prior accident year loss development was
favorable ($1.6 million) compared to a small deficiency produced in
the same period of 2017 ($0.1 million). The main driver of
the higher loss ratio for the first quarter of 2018 when compared
to 2017 is higher current accident year loss picks which were
increased following our adverse prior year reserve charges
recognized during the second quarter of 2017. We expect that
rate actions and changes in the mix of business will lower these
loss ratios over time, but are also striving for conservative loss
positions in the current accident year.
Premium growth is beginning to have a favorable
impact on our expense ratio, consistent with our stated strategy to
leverage the Company’s fixed expense base to improve the expense
ratio over time. The 2.8% decline in the expense ratio during
the first quarter of 2018 when compared to 2017 reflects this fixed
expense leverage. Increased writings within the workers’
compensation product also positively impacted the expense ratio due
to increased ceding commission income during the first quarter of
2018.
Book value per share as of March 31, 2018 was
$27.38, a decrease of $0.45 per share during the first quarter,
after the payment of cash dividends to shareholders totaling $0.28
per share. The combination of the year-to-date decrease in
book value of $0.45, plus dividends paid to shareholders of $0.28,
represents an annualized negative total value creation of 2.4% on
beginning book value for the first quarter of 2018.
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 taxes to underwriting income, a non-GAAP financial
measure that is a useful tool for investors and analysts in
analyzing ongoing operating trends.
|
|
|
Three Months Ended |
|
March 31 |
|
2018 |
|
2017 |
|
|
|
|
Income before federal income taxes |
$ |
314 |
|
|
$ |
10,178 |
Less: Net realized gains on investments |
|
376 |
|
|
|
1,008 |
Less: Net
unrealized gains (losses) on equity securities and limited
partnership invesments |
|
(4,909 |
) |
|
|
5,286 |
Income from core business operations |
$ |
4,847 |
|
|
$ |
3,884 |
Less: Net
investment income |
|
4,636 |
|
|
|
3,692 |
Underwriting
income |
$ |
211 |
|
|
$ |
192 |
|
|
|
|
Income from core business operations, before federal income
taxes, was $4.8 million for the first quarter of 2018 compared to
income from core business operations, before federal income taxes,
of $3.9 million during the first quarter of 2017.
The Company’s management uses the term income
(loss) from core business operations, a non-GAAP financial measure,
which is defined as income before federal income taxes excluding
pre-tax realized and unrealized investment gains and losses.
This financial measure is used to evaluate the Company’s
performance because the recognition of investment gains and losses
in any given period is largely discretionary as to timing and could
distort the analysis of trends.
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.
During the first quarter of 2018, the Company
reallocated approximately $54.0 million of equity securities into
short-duration treasuries of three years or less. These
equity sales further solidified the conservative nature of our high
quality, short duration investment portfolio; opportunistically
utilized the new lower corporate tax rate of 21%, which was
beneficial given the low tax basis of many of these equity
positions; and were accretive to income, given the increase in
yields at the shorter end of the yield curve.
Recently Adopted Accounting StandardAccounting
guidance for recognizing the mark-to-market change in our equity
investments portfolio was revised in 2018 under FASB ASU
2016-01: Recognition and Measurement of Financial Assets and
Financial Liabilities. As a result of the Company adopting
this accounting standard update, effective January 1, 2018, equity
portfolio investments are measured at fair value (i.e.
marked-to-market) and any changes in fair value are recognized in
net income through the Income Statement. Previously, the
Company’s equity portfolio securities, excluding those held within
limited partnerships, were classified as available-for-sale and
changes in fair value were recorded in other comprehensive income
on the Balance Sheet.
Upon adoption of this ASU, cumulative net
unrealized gains on equity securities of $71.0 million ($46.2
million net of tax), were reclassified within the equity section of
the Balance Sheet from accumulated other comprehensive income to
retained earnings. This adjustment had no overall impact on
shareholders’ equity, however since these net unrealized gains are
now included within retained earnings, they will not appear as
realized gains on the Income Statement when sold. During the
first quarter of 2018, the Company sold $59.8 million in equity
securities resulting in a realized gain of $35.1 million.
Since the majority of this gain was already included in retained
earnings on the Balance Sheet, that portion already included in
retained earnings was not recognized within realized gains on the
Income Statement.
Conference Call
Information:Baldwin & Lyons, Inc. has scheduled its
quarterly conference call for Wednesday, May 9, 2018, at 11:00 AM
EDT to discuss results for the first quarter ended March 31,
2018.
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 May 16,
2018 by calling 1-844-512-2921 or 1-412-317-6671 and referencing
passcode 13678057. 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 November 9, 2018. The
webcast may be accessed directly at:
http://public.viavid.com/index.php?id=128936.
Also available on the investor relations section
of our web site are 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.
|
|
|
|
|
Baldwin &
Lyons, Inc. and Subsidiaries |
|
|
|
|
Unaudited
Condensed Consolidated Balance Sheets |
|
|
|
|
(in thousands, except
per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
December 31 |
|
|
2018 |
|
2017 |
Assets |
|
|
|
|
Investments 1: |
|
|
|
|
Fixed maturities ($547,231) |
|
$ |
544,116 |
|
|
$ |
521,853 |
Equity securities ($114,619) |
|
|
149,027 |
|
|
|
201,763 |
Limited partnerships, at equity |
|
|
68,403 |
|
|
|
70,806 |
Short-term
2 |
|
|
1,000 |
|
|
|
1,000 |
|
|
|
762,546 |
|
|
|
795,422 |
Cash and
cash equivalents |
|
|
79,209 |
|
|
|
64,680 |
Restricted cash and cash equivalents |
|
|
4,024 |
|
|
|
4,033 |
Accounts
receivable |
|
|
104,377 |
|
|
|
87,551 |
Reinsurance recoverable |
|
|
322,055 |
|
|
|
318,331 |
Other
assets |
|
|
95,039 |
|
|
|
80,061 |
Current federal income
taxes |
|
|
- |
|
|
|
6,938 |
|
|
$ |
1,367,250 |
|
|
$ |
1,357,016 |
|
|
|
|
|
Liabilities and
shareholders' equity |
|
|
|
|
Reserves
for losses and loss expenses |
|
$ |
694,450 |
|
|
$ |
680,274 |
Reserves
for unearned premiums |
|
|
64,005 |
|
|
|
53,085 |
Borrowings under line of credit |
|
|
20,000 |
|
|
|
20,000 |
Accounts
payable and other liabilities |
|
|
170,411 |
|
|
|
170,488 |
Current
federal income taxes |
|
|
1,195 |
|
|
|
- |
Deferred federal income
taxes |
|
|
5,378 |
|
|
|
14,358 |
|
|
|
955,439 |
|
|
|
938,205 |
Shareholders'
equity: |
|
|
|
|
Common stock-no par value |
|
|
642 |
|
|
|
642 |
Additional paid-in capital |
|
|
55,511 |
|
|
|
55,078 |
Unrealized net gains (losses) on investments |
|
|
(2,461 |
) |
|
|
46,700 |
Retained
earnings |
|
|
358,119 |
|
|
|
316,391 |
|
|
|
411,811 |
|
|
|
418,811 |
|
|
$ |
1,367,250 |
|
|
$ |
1,357,016 |
|
|
|
|
|
Number of common and
common |
|
|
|
|
equivalent shares outstanding |
|
|
15,041 |
|
|
|
15,047 |
Book value per
outstanding share |
|
$ |
27.38 |
|
|
$ |
27.83 |
|
|
|
|
|
1 2018 cost in
parentheses |
|
|
|
|
2 Approximates
cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baldwin &
Lyons, Inc. and Subsidiaries |
|
|
|
|
Unaudited
Condensed Consolidated Statements of Income |
|
|
|
|
(in thousands, except
per share data) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31 |
|
|
2018 |
|
2017 |
Revenues |
|
|
|
|
Net premiums
earned |
|
$ |
105,462 |
|
|
$ |
73,974 |
Net investment income |
|
|
4,636 |
|
|
|
3,692 |
Commissions and other
income |
|
|
1,814 |
|
|
|
981 |
Net realized gains on investments, excluding impairment losses |
|
|
376 |
|
|
|
1,008 |
Other-than-temporary impairment losses on investments |
|
|
- |
|
|
|
- |
Net unrealized gains
(losses) on equity securities and limited partnership
investments |
|
|
(4,909 |
) |
|
|
5,286 |
Net
realized and unrealized gains (losses) on investments |
|
|
(4,533 |
) |
|
|
6,294 |
|
|
|
107,379 |
|
|
|
84,941 |
Expenses |
|
|
|
|
Losses
and loss expenses incurred |
|
|
72,298 |
|
|
|
48,599 |
Other operating
expenses |
|
|
34,767 |
|
|
|
26,164 |
|
|
|
107,065 |
|
|
|
74,763 |
Income before federal income taxes (benefits) |
|
|
314 |
|
|
|
10,178 |
Federal income taxes
(benefits) |
|
|
(16 |
) |
|
|
3,422 |
Net income |
|
$ |
330 |
|
|
$ |
6,756 |
|
|
|
|
|
Per share data
- diluted: |
|
|
|
|
Income
before net gains (losses) on investments |
|
$ |
.22 |
|
|
$ |
.18 |
Net gains (losses) on
investments |
|
|
(.20 |
) |
|
.27 |
Net income |
|
$ |
.02 |
|
|
$ |
.45 |
|
|
|
|
|
Dividends |
|
$ |
.28 |
|
|
$ |
.27 |
|
|
|
|
|
Reconciliation
of shares outstanding: |
|
|
|
|
Average
shares outstanding - basic |
|
|
15,010 |
|
|
|
15,096 |
Dilutive effect of
share equivalents |
|
|
24 |
|
|
|
8 |
Average shares
outstanding - diluted |
|
|
15,034 |
|
|
|
15,104 |
|
|
|
|
|
|
|
|
|
|
Baldwin &
Lyons, Inc. and Subsidiaries |
|
|
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows |
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31 |
|
|
2018 |
|
2017 |
|
|
|
|
|
Net cash
provided by operating activities |
|
$ |
8,027 |
|
|
$ |
6,398 |
|
Investing
activities: |
|
|
|
|
Purchases of available-for-sale investments |
|
|
(140,820 |
) |
|
|
(115,947 |
) |
Purchases of limited partnership interests |
|
|
(200 |
) |
|
|
- |
|
Proceeds from
sales or maturities |
|
|
|
|
of
available-for-sale investments |
|
|
163,414 |
|
|
|
105,282 |
|
Net purchases of short-term investments |
|
|
- |
|
|
|
(7,290 |
) |
Purchase of insurance company-owned life insurance |
|
|
(10,000 |
) |
|
|
- |
|
Distributions from limited partnerships |
|
|
- |
|
|
|
16,016 |
|
Other investing
activities |
|
|
(1,214 |
) |
|
|
(1,659 |
) |
Net
cash provided by (used in) investing activities |
|
|
11,180 |
|
|
|
(3,598 |
) |
Financing
activities: |
|
|
|
|
Dividends paid to shareholders |
|
|
(4,229 |
) |
|
|
(4,080 |
) |
Repurchase of
common shares |
|
|
(235 |
) |
|
|
- |
|
Net
cash used in financing activities |
|
|
(4,464 |
) |
|
|
(4,080 |
) |
|
|
|
|
|
Effect
of foreign exchange rates on cash and cash equivalents |
|
|
(223 |
) |
|
|
65 |
|
|
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted
cash |
|
|
14,520 |
|
|
|
(1,215 |
) |
Cash, cash equivalents
and restricted cash at beginning of period |
|
|
68,713 |
|
|
|
62,976 |
|
Cash, cash equivalents
and restricted cash at end of period |
|
$ |
83,233 |
|
|
$ |
61,761 |
|
|
|
|
|
|
|
|
|
|
|
Financial Highlights (unaudited) |
|
|
|
|
Baldwin
& Lyons, Inc. and Subsidiaries |
|
|
|
|
(In
thousands, except per share data) |
Three Months Ended |
|
|
|
March 31 |
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
Annualized |
|
|
|
|
|
Book value per share beginning of period |
$ |
27.83 |
|
|
$ |
26.81 |
|
|
Book value
per share end of period |
|
27.38 |
|
|
|
27.34 |
|
|
Change in book value per share |
$ |
(0.45 |
) |
|
$ |
0.53 |
|
|
Dividends paid |
|
|
0.28 |
|
|
|
0.27 |
|
|
Total value creation 1 |
|
(2.4 |
%) |
|
|
11.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average shareholders' equity: |
|
|
|
Net operating income |
|
4.0 |
% |
|
|
2.9 |
% |
|
Net
income |
|
|
0.3 |
% |
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and LAE expenses incurred |
$ |
72,298 |
|
|
$ |
48,599 |
|
|
Net
premiums earned |
|
105,462 |
|
|
|
73,974 |
|
|
Loss and LAE ratio |
|
68.6 |
% |
|
|
65.7 |
% |
|
|
|
|
|
|
|
Other operating expenses |
$ |
34,767 |
|
|
$ |
26,164 |
|
|
Less:
Commissions and other income |
|
1,814 |
|
|
|
981 |
|
|
Other operating expenses, less commission and other income |
$ |
32,953 |
|
|
$ |
25,183 |
|
|
Net
premiums earned |
|
105,462 |
|
|
|
73,974 |
|
|
Expense
ratio |
|
|
31.2 |
% |
|
|
34.0 |
% |
|
|
|
|
|
|
|
Combined ratio 2 |
|
99.8 |
% |
|
|
99.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
premiums written |
|
|
$ |
148,823 |
|
|
$ |
110,028 |
|
|
Net premiums
written |
|
|
|
113,434 |
|
|
|
77,530 |
|
|
|
|
|
|
|
|
1 Total
Value Creation equals change in book value plus dividends paid,
divided by beginning book value. Quarterly amounts have been
annualized |
|
2 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:
William Vensinvestors@baldwinandlyons.com(317)
429-2554
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