MLAN Midland Co (MM)

The Midland Company Reports Record Second Quarter Results - Record Second Quarter Earnings Per Share of $1.06, Up 83 Percent Over Year Ago Record Level CINCINNATI, July 21 /PRNewswire-FirstCall/ -- The Midland Company (NASDAQ:MLAN), a highly focused provider of specialty insurance products and services, today reported record results for the second quarter ended June 30, 2005. Net income for the quarter was a record $20.7 million, or $1.06 cents per share. That compares with the previous record net income of $11.3 million, or 58 cents per share reported in last year's second quarter. This equates to an 83 percent increase in earnings per share on a quarter over quarter basis. All per share amounts are on an after-tax, diluted basis. Net income before realized capital gains* for the quarter was a record $19.8 million, or $1.01 per share, up 80 percent (on a per share basis) from the year ago level of $10.9 million, or 56 cents per share. The company believes that this non-GAAP financial measure provides a clearer picture of the underlying operating activities than the GAAP measure of net income, as it removes potential issues such as timing of investment gains (or losses) and allows readers to individually assess these components of net income. John W. Hayden, Midland president and chief executive officer, commented, "We are delighted with the continuation of the favorable earnings trend these record-setting second quarter results represent. They far surpass the previous record established in last year's second quarter, and were again driven by solid underwriting profits from our core property and casualty operations. We have delivered record results in each of our last three quarters, as well as a combined ratio of less than 90 percent in each of those periods. Our momentum is clearly evident, as is the power of our disciplined approach to underwriting specialty personal lines insurance risks." "We are very pleased with our underwriting trends across the board," Hayden said. "In particular, manufactured housing, site-built dwelling, motorcycle and excess and surplus lines posted solid underwriting results. We also enjoyed even more favorable weather conditions than a year ago, as the impact from catastrophes was 14 cents per share better than the second quarter of 2004 and approximately 25 cents per share better than we might normally expect in the second quarter," Hayden said. Catastrophe losses for the second quarter were 15 cents per share, compared to 29 cents per share a year ago. Midland's wholly owned insurance subsidiary, American Modern Insurance Group, specializes in providing insurance products and services for niche markets such as manufactured housing, site-built dwelling, motorcycle, watercraft, snowmobile, recreational vehicle and credit life and related products. American Modern's products and services are offered through diverse distribution channels. P&C Combined Ratio Impressive at 89.9 Percent American Modern's property and casualty combined ratio (losses and expenses as a percent of earned premium) was 89.9 percent in the second quarter, compared with 96.5 percent a year ago. This outstanding performance was largely driven by solid underwriting results from specialty products such as manufactured housing, site-built dwelling, motorcycle and excess and surplus lines. Excluding catastrophe losses, American Modern's second quarter combined ratio was 87.1 percent, compared with 91.4 percent in the same period of 2004. "We continue to see very positive underwriting momentum in our major product lines," Hayden said. "Our residential property lines, which include manufactured housing and site-built dwelling, had a terrific quarter as both products achieved sub-90 percent combined ratios," Hayden said. The manufactured housing combined ratio was 88.8 percent for the quarter, bettering an already solid mark of 93.6 percent last year. The site-built dwelling combined ratio for the second quarter was 89.1 percent, in line with last year's excellent result of 88.6 percent. Hayden added, "Our rate actions and underwriting disciplines continue to yield very favorable results in the motorcycle line. For the quarter, motorcycle produced an after-tax net profit, including service fees and investment income, of three cents per share, compared to an after-tax net loss of eight cents per share in the second quarter of 2004. Our motorcycle results continue to be well ahead of our original plan, giving us confidence that we are on track to produce break-even or better underwriting results for the full year." "Overall, we are extremely pleased with the underwriting performance of our specialty property and casualty product offering and are confident that our underwriting and pricing discipline will continue to serve us well," Hayden said. Property and Casualty Premiums American Modern's property and casualty gross written premiums for the second quarter were $183.4 million, down from $205.7 million in last year's second quarter. "There are several important items to consider when looking at our top-line result for the quarter," Hayden began. "In the second quarter of 2004, we assumed a book of collateral protection business. This assumed business totaled $17.6 million in the second quarter of 2004, including a one- time unearned premium pickup of $13.6 million. Our written premium from this book of business decreased by $14.7 million in the second quarter of 2005, to $2.9 million; this decrease was driven by last year's non-recurring unearned premium assumption." "Next, the corrective actions we have undertaken to improve our motorcycle results have had a dampening effect on premium in that line. As we have said, we will not pursue growth at the expense of profit. This year's second quarter motorcycle combined ratio improved over 20 percentage points from a year ago, while our gross written premium for the line decreased quarter over quarter by $4.8 million. That said, we are anticipating the decline in motorcycle premiums to moderate, and we remain very confident in our ability to profitably grow this line over the long term." Finally, while our manufactured housing premiums were essentially flat on a quarter over quarter basis, we actually consider this a very positive result. As we have previously stated, several lenders are no longer making new manufactured housing loans. Collectively, these accounts produced $8.2 million less in gross written premium during the quarter. We are pleased to note that exclusive of this trend, our manufactured housing premiums from all other sources actually grew by 13 percent in the quarter. The good news in this regard is that we believe the majority of the decline from these lenders should be mostly behind us in the next 18 to 24 months. For the full year 2005, we are anticipating an adverse top line impact of $30 million from these portfolios, and less than half that in 2006." "We are keenly focused on growing all of our lines of business and growing them profitably. We believe that given the prevailing market dynamics, our full year 2005 top line premiums will likely be flat as compared to 2004. We are currently making significant investments in sales and marketing, and expect to harvest the benefits of these investments in the years to come," Hayden said. Record Six-Month Results For the six months ended June 30, 2005, net income was a record of $42.3 million, or $2.16 per share, which includes seven cents from realized capital gains. That is a 46 percent increase over last year's previous record net income of $28.2 million, or $1.48 cents per share, which included 18 cents per share in net capital gains. American Modern's property and casualty combined ratio was 89.3 percent compared to 95.4 percent last year. Excluding the impact of catastrophe losses, American Modern's combined ratio for the first six months of 2005 was 86.8 percent, compared to 91.9 percent last year. American Modern's property and casualty gross written premiums were $347.5 million for the first half of the year. Manufactured housing premiums decreased slightly from the prior year to $165.8 million. Investment Portfolio, Book Value and Market Value Growth The market value of Midland's investment portfolio increased to a record of $970.9 million at June 30, 2005, compared with $905.6 million at June 30, 2004. Net pre-tax investment income (excluding capital gains and losses) increased 13 percent to $10.2 million for the second quarter compared with $9.0 million in last year's second quarter. This increase is due primarily to the year-over-year growth of the fixed income portfolio. The annualized pre- tax equivalent yield, on a cost basis, of American Modern's fixed income portfolio was 5.3 percent in the first six months of both 2005 and 2004. After-tax realized investment gains from Midland's investment portfolio totaled five cents per share in this year's second quarter compared with realized investment gains of two cents in last year's second quarter. Pre-tax net unrealized gains on Midland's fixed income portfolio were $21.7 million at June 30, 2005, up from $11.4 million at June 30, 2004. Pre-tax net unrealized gains on Midland's equity portfolio were $83.1 million at June 30, 2005, up from $80.0 million at June 30, 2004. Midland's shareholders' equity increased to a record $468.0 million, or $24.75 per share, at June 30, 2005, up from $392.8 million, or $20.93 per share, at June 30, 2004, an increase of 18 percent. Midland's book value per share has grown at a compound annual rate of 12 percent over the last 10 years. Hayden noted that, "Midland's common stock continues to outperform the broader equities market and virtually every relevant index for the 1-, 5-, 10-, 15- and 20-year periods ended June 30, 2005. We are extremely proud of this performance record and believe it is a good indicator of our company's intrinsic value." Update Hurricane Dennis (Third Quarter Event) Hurricane Dennis came ashore on the Florida panhandle and along the Alabama coastline on July 10. On the basis of information received to date, the company anticipates that net after-tax losses from this storm will be less than 10 cents per share. Generally, the third quarter is more susceptible to volatile weather patterns. The company typically would consider catastrophe losses of approximately 30 cents to be normal for the third quarter. In the third quarter of 2004, American Modern reported a net after-tax impact from catastrophes of 98 cents per share, driven largely by the four major hurricanes that hit Florida and impacted the southeastern United States in August and September of 2004. Positive Outlook for 2005, Raise Full Year Earnings Guidance "We continue to maintain a very positive earnings outlook for the remainder of 2005, and remain confident in the fundamentals driving our business results," Hayden said. "In terms of guidance for the full year, we anticipate a combined ratio, assuming normal weather in the third and fourth quarters, in the range of 92.5 percent to 93.5 percent for 2005, noting that weather patterns and seasonal products such as motorcycle and watercraft tend to drive our combined ratio up during the third quarter. We also expect investment income to increase moderately given the larger base of invested assets," Hayden continued. "This level of underwriting profit and investment income should translate to net income before realized capital gains in the range of $3.25 to $3.45 per share." "American Modern's outstanding performance in the first half of 2005 has buoyed our expectations for the full year," Hayden said. "Midland and the specialty insurance expertise of American Modern Insurance Group continue to deliver fundamental strength and fundamental value. We expect to fully leverage that strength and value in 2005 and beyond," Hayden concluded. About the Company Midland, which is headquartered in Cincinnati, Ohio, is a provider of specialty insurance products and services through its wholly owned subsidiary, American Modern Insurance Group, which accounts for approximately 95 percent of Midland's consolidated revenue. American Modern specializes in writing physical damage insurance and related coverages on manufactured housing and has expanded to other specialty insurance products including coverage for site-built homes, motorcycles, watercraft, snowmobiles, recreational vehicles, physical damage on long-haul trucks, extended service contracts, excess and surplus lines coverages, credit life and related products as well as collateral protection and mortgage fire products sold to financial institutions and their customers. Midland also owns a niche transportation business, M/G Transport Group, which operates a fleet of dry cargo barges for the movement of dry bulk commodities on the inland waterways. Midland's common stock is traded on the Nasdaq National Market under the symbol MLAN. Additional information on the company can be found on the Internet at http://www.midlandcompany.com/. *Non-GAAP Measure and Reconciliation to GAAP Measure Net income before realized capital gains is a non-GAAP measure. Items excluded from this measure are significant components in understanding and assessing financial performance. The company believes that this non-GAAP financial measure provides a clearer picture of the underlying operating activities than the GAAP measure of net income, as it removes potential issues such as timing of investment gains (or losses) and allows readers to individually assess these components of net income. Reconciliation to GAAP: Second Quarter Dollars in Millions (After-tax): 2005 2004 Net Income Before Realized Capital Gains* $19.8 $10.9 Net Realized Capital Gains 0.9 0.4 Net Income (GAAP) $20.7 $11.3 Per Share Amounts (After-tax, Diluted): 2005 2004 Net Income Before Realized Capital Gains* $1.01 $0.56 Net Realized Capital Gains 0.05 0.02 Net Income (GAAP) $1.06 $0.58 Forward-Looking Statements Disclosure Certain statements made in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These statements include certain discussions relating to underwriting, premium and investment income volume, business strategies, profitability and business relationships, as well as any other statements concerning the year 2005 and beyond. The forward-looking statements involve risks, uncertainties and other factors that may cause results to differ materially from those anticipated in those statements. Factors that might cause results to differ from those anticipated include, without limitation, adverse weather conditions, changes in underwriting results affected by adverse economic conditions, fluctuations in the investment markets, changes in the retail marketplace, changes in the laws or regulations affecting the operations of the company or its subsidiaries, changes in the business tactics or strategies of the company, its subsidiaries or its current or anticipated business partners, the financial condition of the company's business partners, acquisitions or divestitures, changes in market forces, litigation and the other risk factors that have been identified in the company's filings with the SEC, any one of which might materially affect the operations of the company or its subsidiaries. Any forward-looking statements speak only as of the date made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made. THE MIDLAND COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED) Three-Months Ended June 30, 2005 2004 % Change Revenues $186,338 $195,583 -4.7% Net Income $20,734 $11,324 Net Income per Share (Diluted) $1.06 $0.58 Dividends Declared per Share $0.05625 $0.05125 9.8% Market Value per Share $35.19 $29.65 18.7% Book Value per Share $24.75 $20.93 18.3% Shares Outstanding 18,908 18,766 AMIG's Property and Casualty Operations: Direct and Assumed Written Premium $183,446 $205,666 -10.8% Net Written Premium $172,318 $192,008 -10.3% Combined Ratio (GAAP) 89.9% 96.5% Combined Ratio (GAAP) - Excluding Catastrophe Losses 87.1% 91.4% Note: Dollar amounts in thousands except per share data. Certain prior year amounts have been reclassified to conform to the current year presentation. Unless indicated otherwise, the financial information presented above is based on GAAP. THE MIDLAND COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED) Six-Months Ended June 30, 2005 2004 % Change Revenues $376,704 $386,204 -2.5% Net Income $42,284 $28,172 Net Income per Share (Diluted) $2.16 $1.48 Dividends Declared per Share $0.1125 $0.1025 9.8% Market Value per Share $35.19 $29.65 18.7% Book Value per Share $24.75 $20.93 18.3% Shares Outstanding 18,908 18,766 AMIG's Property and Casualty Operations: Direct and Assumed Written Premium $347,516 $366,087 -5.1% Net Written Premium $323,817 $338,480 -4.3% Combined Ratio (GAAP) 89.3% 95.4% Combined Ratio (GAAP) - Excluding Catastrophe Losses 86.8% 91.9% Note: Dollar amounts in thousands except per share data. Certain prior year amounts have been reclassified to conform to the current year presentation. Unless indicated otherwise, the financial information presented above is based on GAAP. THE MIDLAND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three-Months Ended Six-Months Ended June 30, 2005 June 30, 2005 2005 2004 2005 2004 Revenues: Insurance: Premiums earned $159,689 $170,415 $325,280 $334,054 Net investment income 10,193 9,030 20,119 17,744 Net realized investment gains 1,413 702 2,216 5,408 Other insurance income 3,152 4,041 6,394 8,303 Transportation 11,891 11,395 22,695 20,695 Total $186,338 $195,583 $376,704 $386,204 Costs and Expenses: Insurance: Losses and loss adjustment expenses $71,771 88,567 $134,710 167,892 Commissions and other policy acquisition costs 44,343 51,569 102,045 103,262 Operating and administrative expenses 28,210 27,353 54,963 52,432 Transportation operating expenses 10,414 10,690 20,544 19,754 Interest expense 1,617 1,542 3,079 2,561 Total $156,355 $179,721 $315,341 $345,901 Income Before Federal Income Tax 29,983 15,862 61,363 40,303 Provision for Federal Income Tax 9,249 4,538 19,079 12,131 Net Income $20,734 $11,324 $42,284 $28,172 Basic Earnings per Common Share: $1.09 $0.60 $2.24 $1.53 Diluted Earnings per Common Share: $1.06 $0.58 $2.16 $1.48 Dividends per Common Share $0.05625 $0.05125 $0.1125 $0.1025 Note: Dollar amounts in thousands except per share data. Certain prior year amounts have been reclassified to conform to the current year presentation. Shares used for EPS calculations (000's): Basic EPS Diluted EPS Six months ended June 30 2005 18,859 19,538 2004 18,453 18,977 Three months ended June 30 2005 18,886 19,565 2004 18,752 19,259 THE MIDLAND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, 2005 2004 ASSETS Cash and Marketable Securities $975,659 $978,296 Receivables - Net 231,826 201,705 Property, Plant and Equipment - Net 82,206 68,312 Deferred Insurance Policy Acquisition Costs 90,817 90,423 Other 24,767 25,948 Total Assets $1,405,275 $1,364,684 LIABILITIES AND SHAREHOLDERS' EQUITY Unearned Insurance Premiums $393,312 $390,447 Insurance Loss Reserves 215,859 232,915 Long-Term Debt 92,843 82,729 Short-Term Borrowings 12,992 33,177 Deferred Federal Income Tax 43,762 47,604 Other Payables and Accruals 178,478 145,536 Shareholders' Equity 468,029 432,276 Total Liabilities and Shareholders' Equity $1,405,275 $1,364,684 Note: Dollar amounts in thousands. DATASOURCE: The Midland Company CONTACT: John I. Von Lehman, Executive Vice President and CFO of The Midland Company, +1-513-943-7100 Web site: http://www.midlandcompany.com/

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