MLAN Midland Co (MM)

- Third Quarter Earnings Per Share of 21 Cents Following Unprecedented Hurricane Activity - Non-Catastrophe Underwriting Results Continue to be Strong - Reiterates Record Full Year Earnings Guidance - Again Recognized Among Ward's Top 50 P&C Insurance Companies CINCINNATI, Oct. 20 /PRNewswire-FirstCall/ -- The Midland Company (NASDAQ:MLAN), a highly focused provider of specialty insurance products and services, today reported results for the third quarter ended September 30, 2005. Net income for the quarter was $4.0 million, or 21 cents per share, exceeding last year's third quarter net income of $2.4 million, or 12 cents per share. All per share amounts are on an after-tax, diluted basis. Net income before realized capital gains* for the quarter was $2.0 million, or 10 cents per share compared to the year ago level of $2.2 million, or 11 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 to report a profitable quarter, given this year's unprecedented hurricane season. We believe this result is clear evidence of the fundamental strength of Midland's operations. We experienced extremely volatile weather conditions in the third quarter, including the costliest hurricane in United States history." The impact from catastrophe losses for the quarter was 96 cents per share, including the collective impact of Hurricanes Katrina, Rita and Dennis as well as other third quarter catastrophe losses. "This compares with a normally anticipated level of catastrophe losses for a third quarter of approximately 30 cents per share, factoring in our current premium volume and historic experience. Had we experienced a more normal level of catastrophe losses during the quarter, we believe that we would have again been on track to produce record third quarter earnings, exclusive of capital gains." "Our hearts go out to the people whose lives have been affected by these storms. These are the very times when American Modern can deliver true value to its policyholders, and we are doing just that. To that end, we are extremely proud of the timely and compassionate efforts of our team of claims professionals in addressing the needs of our policyholders in the aftermath of these storms," Hayden said. American Modern Insurance Group, Midland's wholly-owned insurance subsidiary, has over 135 company claims adjusters serving policyholders in the affected areas. "Our adjusters are making significant personal sacrifices and are working diligently to help our policyholders get their lives back on track as quickly as possible. Despite the difficult conditions presented by Hurricane Katrina, our claims team has already closed more than 75 percent of the claims reported to us to date. Our company adjusters who are not directly serving in the affected areas are also contributing significantly by covering expanded territories. Our claims team continues to deliver the superior service our policyholders have come to expect from us," said Hayden. 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. Strong Non-Catastrophe Underwriting Results Soften Impact of Catastrophe Losses "Exclusive of the higher level of catastrophe losses, we continue to be very pleased with the underwriting trends across our major product lines. Manufactured housing and site built dwelling posted strong non-catastrophe underwriting results that were in line with last year's already excellent non- catastrophe results. Non-catastrophe underwriting results from several other lines including our excess and surplus lines, mortgage fire and motorcycle showed a nice improvement from the same quarter a year ago." Excluding catastrophe losses, American Modern's third quarter property and casualty combined ratio was an excellent 88.1 percent, compared with 88.6 percent in the same period of 2004. "These solid underwriting results, while overshadowed by higher than normal catastrophe losses, still provide a clear sign of the underlying strength of our business," Hayden said. American Modern's property and casualty combined ratio (losses and expenses as a percent of earned premium) was 106.6 percent in the third quarter, compared to 105.9 percent a year ago. Catastrophe losses for the quarter impacted the property and casualty combined ratio by 18.5 percentage points, 1.2 percentage points higher than last year's catastrophe impact of 17.3 percent. Catastrophe losses reduced earnings per share by 96 cents in the third quarter, with 83 cents of the impact emanating from Hurricanes Katrina and Rita. "Our gross losses from Hurricane Katrina are estimated to be approximately $110 million, which is at the upper limit of our reinsurance program. Additionally, we are anticipating state assessments of approximately $4 million. After considering reinsurance and other catastrophe related items, Hurricane Katrina impacted earnings on an after-tax basis by $12.0 million, or 62 cents per share. "Hurricane Rita made landfall on the Texas/Louisiana border on September 24, 2005 as a category 3 storm and, while it was much less impactful to our operating results than Hurricane Katrina, it will still be one of our most significant catastrophic events ever," Hayden continued. "Like Hurricane Katrina, Hurricane Rita's impact was softened by our core property reinsurance program. With Hurricane Rita, we will also derive benefit from our aggregate reinsurance program, which provides protection against a sequence of catastrophic events such as we have experienced over the last three months. The after-tax loss from Hurricane Rita, after considering reinsurance and other catastrophe related items, was $4.1 million, or 21 cents per share," Hayden said. "During this period of extremely volatile weather patterns, we have again been well-served by our deep specialty product expertise and proactive risk management disciplines. Our disciplined underwriting approach, comprehensive reinsurance program and strong non-catastrophe underwriting results all contributed to our third quarter profitability. We believe that these business fundamentals have us on track to produce yet another year of record earnings and continue to achieve our longer term objective of delivering value to our shareholders," Hayden said. "Third Event" Reinsurance Added Shortly following Hurricane Katrina, American Modern Insurance Group purchased "third event" reinsurance coverage. The company's core property catastrophe reinsurance program includes an automatic reinstatement of coverage (for an additional premium) for a second event, but does not provide coverage for a third or subsequent event. Since Katrina and Rita occurred as early in the season as they did, the company decided to secure coverage against a potential third event in the open market. This "third event" coverage, along with our aggregate reinsurance program, provides comparable reinsurance coverage against a third event to the coverage that we had in place before Hurricane Katrina," Hayden said. "By rounding out our reinsurance program with third event coverage, we believe we are well positioned to absorb even a third catastrophic event in 2005." Property and Casualty Premiums American Modern's property and casualty gross written premiums for the third quarter were $185.8 million, compared to $189.6 million in last year's third quarter. "We are keenly focused on growing all of our lines of business and growing them profitably. In 2005, however, we are overcoming declining portfolios from our lender channel as well as experiencing a more normal run rate on the collateral protection book of business we assumed in 2004. Nonetheless, we are encouraged with the results we are seeing from a premium production standpoint," Hayden said. "We are seeing signs that the significant amount of time, energy and investment we are now putting towards producing steady premium growth is beginning to build momentum." "Manufactured housing premium for the third quarter was up 2.4 percent to $91.4 million, compared to $89.3 million in the third quarter of 2004. This is a remarkable achievement given the underlying conditions in the manufactured housing industry. This is clear evidence of our market leadership in that industry. Beyond the declining lender portfolios, our manufactured housing premiums grew in the double digit range over the third quarter of last year. This is one indication that our sales and marketing initiatives are beginning to pay real benefits. Several other products in our broad specialty offering achieved notable growth. Premium from our excess and surplus lines was up 9.8 percent over a year ago, and our recreational vehicle quarterly premiums are 11.4 percent ahead of last year. "We did experience a decline in premiums in our motorcycle and watercraft lines in the third quarter reflecting deliberate underwriting actions intended to enhance profitability and maintain an acceptable spread of risk critical to our exposure management strategy. These actions have dampened our shorter term growth results, but should positively impact our underwriting results in the quarters and years ahead. As we have said in the past, profit is paramount to growth. We intend to grow our lines, but grow them profitably. We also experienced a decrease in premiums from our mortgage fire line, which resulted from the sale of a mortgage portfolio serviced by one of our agents within this line." Record Nine-Month Results For the nine months ended September 30, 2005, net income was a record $46.3 million, or $2.39 per share, which includes 18 cents from realized capital gains, up 49 percent from last year's previous record net income of $30.6 million, or $1.60 cents per share, which included 19 cents per share in net capital gains. Net income before realized capital gains per share* increased by 57 percent over the first nine months of 2004. In the first nine months of 2005, American Modern's property and casualty combined ratio was 94.7 percent compared to 98.9 percent last year. Excluding the impact of catastrophe losses, American Modern's combined ratio for the first nine months of 2005 was 87.3 percent, compared to 90.8 percent last year. American Modern's property and casualty gross written premiums were $533.3 million for the first nine months of the year, compared to $555.7 in the same period last year. Manufactured housing premiums were level at $257.7 million for the first nine months of 2005 and 2004. Investment Portfolio, Book Value and Market Value Growth The market value of Midland's investment portfolio increased to $966.1 million at September 30, 2005, compared with $955.5 million at September 30, 2004. Net pre-tax investment income (which does not include capital gains and losses) increased 8.7 percent to $10.1 million for the third quarter compared with $9.3 million in last year's third quarter. This increase is driven by 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 nine months of 2005, up from 5.2 percent in the first nine months of 2004. Midland's shareholders' equity increased to $464.6 million, or $24.53 per share, at September 30, 2005, up from $404.9 million, or $21.56 per share, at September 30, 2004, an increase of nearly 14 percent. Midland's book value per share has grown at a compound annual rate of 11.5 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 September 30, 2005. We are extremely proud of this performance record and believe it is a good indicator of the value we deliver to our shareholders." M/G Transport Group M/G Transport Group, Midland's niche transportation subsidiary, was also affected by Hurricanes Katrina and Rita. M/G Transport has relocated its principal operations office from New Orleans to Baton Rouge, Louisiana. "M/G Transport is working diligently to recover and restore the barges that were damaged or displaced by the hurricanes. Notably, M/G Transport has continued to deliver shipments, albeit at a reduced level. While it will be some time before M/G Transport is able to resume normal operations, we do not anticipate a significant earnings impact," Hayden said. "In fact, M/G Transport produced a net profit for both the month of September and the third quarter, which is quite an accomplishment considering the disruption caused by the two storms." M/G Transport Group accounts for approximately 5 percent of Midland's total revenues. American Modern Celebrates 40 Year Anniversary, Named to Ward's Top 50 Insurance Companies The Midland Company, which was founded in 1938, formed American Modern Insurance Group in 1965. In August 2005, American Modern Insurance Group celebrated its 40 year anniversary. "We are very proud of our long and storied history of serving policyholders in the specialty insurance marketplace. We certainly appreciate the support of our associates, agents and other business partners over these 40 years. They have helped make American Modern the premier specialty insurer that it is today. American Modern was founded on the same fundamental business disciplines and values that have served as the cornerstone of our continued growth. We embrace these disciplines and values, leveraging them as our platform for continued growth. Over the last several years, we have added to our history by expanding our specialty product offering, establishing multifaceted distribution channels and investing significantly in our award winning technology platform. These initiatives, along with our fundamental business disciplines and values leave us well positioned for a bright and rewarding future," Hayden said. On August 23, 2005 American Modern Insurance Group was once again named to Ward's Top 50 Insurance Companies as a top performing insurance company in balancing financial safety, consistency and performance. "This marks the seventh consecutive year American Modern has achieved this distinction," Hayden said. "It is quite an honor to be recognized alongside such an elite group of insurance companies." On Track for Record Full Year Earnings, Reiterates Full Year Earnings Guidance Hayden added, "We are very pleased with our underwriting results, exclusive of the third quarter's hurricane losses, both for the quarter as well as on a year to date basis, and remain very upbeat about our earnings outlook. As an indication of our fundamental strength, we believe that we are on track for record full year earnings, even after the higher than normal level of catastrophe losses. Assuming normal weather conditions for the fourth quarter, we anticipate a full year property and casualty combined ratio in the range of 93.5 percent to 94.5 percent. We also expect net investment income to continue to trend higher than a year ago, given the increase in our asset base," Hayden said. "This level of underwriting profit and investment income should translate to net income before realized capital gains in the range of $2.95 to $3.15 per share, in line with our previous guidance." It is also worth noting that this level of earnings would be well ahead of our prior record results of $2.49 per share, exclusive of realized capital gains*, reported in 2004. In terms of 2005's top line, we continue to overcome declining lender portfolios in our manufactured housing line and are adjusting to a more normal run rate on the collateral protection book of business we assumed in 2004. We believe that given prevailing market conditions, our full year 2005 top line premiums will likely be approximately 3 percent less than our premium level from last year. As we have said, we expect that this burden will be significantly less in the years to come. We are also eager to begin harvesting the benefits of the investments we have made in sales and marketing, which leaves us optimistic for our 2006 premium levels," Hayden said. 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: Third Quarter Nine Months Dollars in Millions (After-tax): 2005 2004 2005 2004 Net Income Before Realized Capital Gains* $2.0 $2.2 $42.8 $26.9 Net Realized Capital Gains 2.0 0.2 3.5 3.7 Net Income (GAAP) $4.0 $2.4 $46.3 $30.6 Per Share Amounts (After-tax, Diluted): 2005 2004 2005 2004 Net Income Before Realized Capital Gains* $0.10 $0.11 $2.21 $1.41 Net Realized Capital Gains 0.11 0.01 0.18 0.19 Net Income (GAAP) $0.21 $0.12 $2.39 $1.60 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 September 30, 2005 2004 % Change Revenues $173,243 $192,881 -10.2% Net Income $4,014 $2,424 Net Income per Share (Diluted) $0.21 $0.12 Dividends Declared per Share $0.05625 $0.05125 9.8% Market Value per Share $36.03 $27.35 31.7% Book Value per Share $24.53 $21.56 13.8% Shares Outstanding 18,943 18,783 AMIG's Property and Casualty Operations: Direct and Assumed Written Premium $185,778 $189,592 -2.0% Net Written Premium $159,602 $177,288 -10.0% Combined Ratio (GAAP) 106.6% 105.9% Combined Ratio (GAAP) - Excluding Catastrophe Losses 88.1% 88.6% 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) Nine-Months Ended September 30, 2005 2004 % Change Revenues $549,947 $579,085 -5.0% Net Income $46,298 $30,596 Net Income per Share (Diluted) $2.39 $1.60 Dividends Declared per Share $0.16875 $0.15375 9.8% Market Value per Share $36.03 $27.35 31.7% Book Value per Share $24.53 $21.56 13.8% Shares Outstanding 18,943 18,783 AMIG's Property and Casualty Operations: Direct and Assumed Written Premium $533,294 $555,679 -4.0% Net Written Premium $483,419 $515,768 -6.3% Combined Ratio (GAAP) 94.7% 98.9% Combined Ratio (GAAP) - Excluding Catastrophe Losses 87.3% 90.8% 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 Nine-Months Ended September 30, 2005 September 30, 2005 2005 2004 2005 2004 Revenues: Insurance: Premiums earned $147,946 $169,296 $473,226 $503,350 Net investment income 10,128 9,318 30,247 27,062 Net realized investment gains 3,162 318 5,378 5,726 Other insurance income 3,148 1,943 9,542 10,246 Transportation 8,859 12,006 31,554 32,701 Total $173,243 $192,881 $549,947 $579,085 Costs and Expenses: Insurance: Losses and loss adjustment expenses $86,742 108,796 $221,452 276,688 Commissions and other policy acquisition costs 45,539 43,207 147,584 146,469 Operating and administrative expenses 26,860 26,000 81,823 78,432 Transportation operating expenses 8,019 11,336 28,563 31,090 Interest expense 1,774 1,325 4,853 3,886 Total $168,934 $190,664 $484,275 $536,565 Income Before Federal Income Tax 4,309 2,217 65,672 42,520 Provision (Benefit) for Federal Income Tax 295 (207) 19,374 11,924 Net Income $4,014 $2,424 $46,298 $30,596 Basic Earnings per Common Share: $0.21 $0.13 $2.45 $1.65 Diluted Earnings per Common Share: $0.21 $0.12 $2.39 $1.60 Dividends per Common Share $0.05625 $0.05125 $0.16875 $0.15375 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 Nine months ended September 30 2005 18,878 19,369 2004 18,561 19,100 Three months ended September 30 2005 18,914 19,401 2004 18,775 19,307 THE MIDLAND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 2005 2004 ASSETS Cash and Marketable Securities $971,040 $978,296 Accounts Receivable - Net 135,846 113,979 Reinsurance Recoverables and Prepaid Reinsurance Premiums 218,270 87,726 Property, Plant and Equipment - Net 84,087 68,312 Deferred Insurance Policy Acquisition Costs 94,594 90,423 Other 27,001 25,948 Total Assets $1,530,838 $1,364,684 LIABILITIES AND SHAREHOLDERS' EQUITY Unearned Insurance Premiums $412,135 $390,447 Insurance Loss Reserves 356,462 232,915 Long-Term Debt 92,310 82,729 Short-Term Borrowings 13,167 33,177 Deferred Federal Income Tax 39,821 47,604 Other Payables and Accruals 152,278 145,536 Shareholders' Equity 464,665 432,276 Total Liabilities and Shareholders' Equity $1,530,838 $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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