- Strong Earnings of $1.03 Per Share for Fourth Quarter - Record
Earnings of $3.37 Per Share for Full Year - Solid Underwriting
Results Drive Record Earnings CINCINNATI, Feb. 16
/PRNewswire-FirstCall/ -- The Midland Company (NASDAQ:MLAN), a
highly focused provider of specialty insurance products and
services, today reported fourth quarter 2005 net income of $20.0
million, or $1.03 per share, including 3 cents in realized capital
gains, compared with $23.6 million, or $1.22 per share, which
included 14 cents in realized capital gains, in the fourth quarter
of 2004. All per share amounts are presented on an after-tax,
diluted basis. Net income before realized capital gains* for the
quarter was $19.4 million, or $1.00 per share. This compares to net
income before realized capital gains* for the fourth quarter of
2004 of $20.9 million, or $1.08 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's president and
chief executive officer, said, "Our fourth quarter results provide
a clear indication of the fundamental strength of our business.
Even after absorbing higher than normal catastrophe losses during
the quarter, we were able to post an exceptional 91.2 percent
property and casualty combined ratio. This compares to a combined
ratio of 89.0 percent in the fourth quarter of 2004, during which
we experienced more favorable weather patterns. More importantly,
our combined ratio excluding catastrophe losses was over four full
percentage points better than last year's fourth quarter result.
This is the truest indication of our underlying underwriting
expertise and discipline. "American Modern produced strong
underwriting results in each of its major product segments. The
residential property product segment, which includes manufactured
housing and site-built dwelling, continues to produce strong
underwriting results. The manufactured housing combined ratio for
the fourth quarter was 90.9 percent while the site-built dwelling
combined ratio remained solid at 92.4 percent. We continue to be
very gratified with the underwriting results from our residential
property products and believe these results underscore our position
as a market leader in these lines." "We were also very pleased with
the underwriting profits in our recreational casualty, financial
institutions and commercial lines business segments. Our
watercraft, recreational vehicle, motorcycle and excess and surplus
lines all posted combined ratios below 94 percent for the quarter.
Underwriting profit in each of our broad specialty product segments
combined with the benefits realized from our comprehensive
reinsurance program contributed to our strong fourth quarter,"
Hayden explained. Midland also announced that reported results
include the impact of expensing stock options, 1 cent per share for
the quarter and 6 cents per share for the full year. The company
adopted accounting guidance to expense stock options in the fourth
quarter 2005, and the results from prior 2005 quarters have been
restated to reflect the change. Midland's wholly owned insurance
subsidiary, American Modern Insurance Group, specializes in
providing insurance products and services for specialty markets
such as manufactured housing, site-built homes, motorcycles,
watercraft, snowmobiles, recreational vehicles, collector cars and
credit life and a variety of related financial institution credit
insurance products. American Modern's products and services are
offered through diverse distribution channels. Record Full Year
Results Midland again reported record earnings for the full year
ended December 31, 2005. Net income for the year was $65.3 million,
or $3.37 per share, including 21 cents in net realized capital
gains. That compares with the previous record set in 2004 of net
income of $54.2 million, or $2.83 per share, including 34 cents in
net realized capital gains. Net income before net realized capital
gains* for the full year was also a record $61.3 million, or $3.16
per share, compared to the previous record set last year of $47.8
million, or $2.49 per share. "We continue to be well-served by our
core operating strategies, which have produced a record level of
earnings for two consecutive years," Hayden added. Record Results
Despite Above Normal Levels of Catastrophe Losses "We are
particularly gratified to deliver record results in a year which
produced substantially higher than normal catastrophe losses.
Hurricane Katrina, the costliest storm in U.S. history, along with
hurricanes Rita and Wilma conspired to produce higher than normal
catastrophe losses in 2005. We estimate that these higher than
normal catastrophe losses, after considering reinsurance recoveries
and the cost of purchasing third and fourth event covers, reduced
earnings by approximately 46 cents per share." Hayden also
indicated that the storm losses have generally developed in a
manner consistent with the company's expectations. "Our
comprehensive reinsurance program, disciplined exposure management
and claim expertise certainly softened the impact of these events,
and again provided clear evidence of our sound business
fundamentals," Hayden said. "We have long-standing relationships
with our reinsurance partners and were delighted to see nearly all
of them participate in our 2006 reinsurance program." "During 2005,
our exposure management disciplines were once again an essential
part of our proactive risk management strategy. We continued to
make prudent underwriting decisions in order to achieve an
appropriate balance of exposure. This was particularly true in our
watercraft line, where deliberate action has been taken to moderate
exposures in coastal areas. Over the last 10 years, we have reduced
our property exposures in specific coastal states by approximately
30 percent. During this time, new manufactured housing shipments to
these states have constituted over half of all shipments
nationwide. We have benefited by broadening our product platform to
include products that do not carry the same level of catastrophe
risk, such as motorcycle. These actions provide clear evidence of
our exposure management discipline in action and validation of our
'profit before growth' mantra. We believe these strategies leave us
well positioned for profitable future growth." Manufactured Housing
Delivers Consistently Strong Underwriting Results "Manufactured
housing, our single largest product line, again delivered strong
underwriting results despite these higher than normal catastrophe
losses," Hayden said. American Modern's manufactured housing
combined ratio for the full year was 94.4 percent, bettering an
already solid 94.9 percent result for the full year 2004. Excluding
catastrophe losses, the combined ratio improved 1.3 percentage
points further to an outstanding 84.7 percent result for the year.
This manufactured housing combined ratio, excluding catastrophe
losses, clearly indicates rate adequacy and underwriting discipline
in the manufactured housing line. Motorcycle Line Achieves
Underwriting Profit, Continues Remarkable Improvement "Two years
ago, improving the results from our motorcycle line was the 'the
single most critical thing' in our organization. Last year, we
reported a dramatic improvement in these results as the combined
ratio decreased nearly 30 points from 131.7 percent in 2003 to
102.3 percent in 2004. As we began 2005, our goal was to
'break-even' in motorcycle. We are very happy to report that for
the second consecutive year, we significantly surpassed our goal,
posting an excellent combined ratio of 91.1 percent for 2005. After
considering fee income and investment income, this line produced an
after-tax profit of 22 cents per share in 2005! This is clear
evidence of the hard work contributed by both our business partners
and our associates, along with our ability to harness tremendous
energy around a common goal," Hayden said. "As we move into 2006,
we will now focus that energy around growing this line, and growing
it profitably," Hayden added. "We have now achieved rate adequacy
in this line and are not anticipating an overall rate increase
during 2006. We will, however, continue to execute our rate
segmentation strategy and are optimistic that our strategies will
translate to moderate growth in motorcycle premium in 2006 and
support higher levels of growth in the years to come." Property and
Casualty Premiums In the fourth quarter, American Modern's total
property and casualty gross written premiums were $164.6 million,
compared to $166.7 million, a decrease of 1.2 percent. Net written
premiums were $135.8 million for the quarter, compared to $156.2
million in last year's fourth quarter. Hayden indicated the
decrease in net written premium was from the purchase of fourth
event reinsurance cover coupled with growth in several accounts
where premium is ceded back to the producing agent. Manufactured
housing premiums for the quarter were $74.9 million, down 2.0
percent from last year's fourth quarter of $76.4 million. For the
full year, American Modern's total property and casualty gross
written premiums were $697.9 million, down 3.4 percent from the
year-ago level. Manufactured housing premiums were $331.5 million
for the year, compared to $334.1 in 2004, a decrease of 0.8
percent. Hayden commented, "While these premium results are not
what we are aspiring to achieve, they are not as disappointing as
they might appear on the surface. They reflect a stubborn devotion
to our 'profit before growth' mantra, and are not necessarily a
harbinger of things to come. "While our top-line was pressured in
2005 by the continued decline associated with several large
manufactured housing lender accounts that are no longer making new
manufactured housing loans, several deliberate exposure management
actions and a more normal run rate on a collateral protection book
of business we assumed in 2004, we did experience double digit
premium growth in our recreational vehicle and excess and surplus
lines product segments. "We have made significant investments in
our sales and our marketing efforts. We have continued to add
muscle to our sales organization, adding more feet on the street,
delivering extensive training, and providing a very novel 'road
show in a box' concept for our producers. We have also devoted
significant energy around raising our brand and market awareness,
and have already seen positive signs that the full breadth and
depth of our specialty product offering are becoming more fully
recognized in the marketplace. We continue to invest in our
award-winning modernLINK technology. We believe the easy to use
technology will differentiate American Modern from its competition.
In short, we look forward to harvesting the benefit of these
investments in the years to come and remain confident in our
ability to grow the top-line over the long term." Investment
Portfolio For the year, net pre-tax investment income was $40.5
million, up 9.0 percent from $37.2 million in 2004. The market
value of Midland's investment portfolio was $947.1 million at
December 31, 2005, compared with $971.4 million at year-end 2004.
Net pre-tax investment income (excluding capital gains/losses) was
$10.3 million for the fourth quarter compared with $10.1 million in
2004's fourth quarter. The annualized pre-tax equivalent yield, on
a cost basis, of the fixed income portfolio was 5.4 percent in 2005
compared with 5.3 percent in 2004. The fixed income portfolio has
an average credit quality of 'AA.' After-tax net realized
investment gains from the investment portfolio totaled 21 cents per
share in 2005 compared with 34 cents per share in 2004. There were
no write-downs or other-than-temporary impairments related to the
investment portfolio in 2005 or 2004. Record Profit Leads to Record
Book Value Per Share Midland's shareholders' equity increased to a
record $484.4 million, resulting in a record book value per share
of $25.54 at December 31, 2005, up 11.1 percent from $22.98 per
share last year. The company's book value per share has grown at a
compounded annual rate of 11.5 percent over the last 10 years.
"Midland's record of long-term performance is reflected in our A+
rating from independent firms, such as A.M. Best, our inclusion in
the Ward's Top 50 list of top performing property and casualty
insurers and in our history of increasing shareholder value,"
Hayden said. "Our common stock continues to outperform the broader
market and virtually every relevant index for the 5-, 10-, 15- and
20-year periods ended December 31, 2005. In January 2006, our Board
of Directors reiterated its confidence in our future by boosting
the indicated annual dividend 8.9 percent to an annualized rate of
24.5 cents per share. This is the 20th consecutive year that
Midland has increased its annual dividend." M/G Transport Group
Posts Strong Year M/G Transport, Midland's transportation
subsidiary, contributed an after- tax profit of 16 cents per share
for the full-year 2005, up from 6 cents per share in 2004. "M/G has
focused its resources around shorter, more profitable moves. This
strategy has tempered the top line, but considerably benefited the
bottom line. In addition, freight rates improved significantly
during the year and we expect this favorable rate environment to
continue in 2006," Hayden said. 2006 Reinsurance Program "We have
successfully placed our catastrophe reinsurance program for 2006.
Our 2006 reinsurance structure is similar to the 2005 program, with
a $3.0 million increase in retention, from $7 million to $10
million, and the purchase of an additional $40 million protection
on top of our previous $110 million cover. It should be noted after
the volatile weather patterns of 2005, that we will absorb a
significant increase in our base reinsurance cost in 2006, nearly
doubling that of 2005. This increase, along with the additional
cover, will adversely impact our 2006 earnings per share by
approximately 42 cents. We have already begun efforts to recoup
these costs through appropriate rate increases and/or product
changes. However, this is a process that takes some time, including
additional time after state approvals to get the new rates and
product changes in place into the renewal book and earned premium.
These efforts will likely produce minimal benefit to our 2006
bottom line, and likely will not be fully realized until 2007. 2006
Outlook "We are expecting a similarly solid underwriting
performance from our specialty products in 2006 but will have to
absorb a significant increase in our reinsurance costs. We will
likely recoup only a small portion of these additional reinsurance
costs in the form of product and/or rate changes during 2006,
despite our very best efforts to do so. Given these conditions and
assuming normal weather patterns, we anticipate a full year 2006
property and casualty combined ratio in the range of 93.5 to 95.0
percent," Hayden said. "Based upon these levels of underwriting
profit, and assuming mid-single digit investment income growth, we
anticipate full year 2006 net income in the range of $2.85 to $3.15
per share, assuming no realized capital gains or losses. "With
respect to the top-line, we anticipate low to mid-single digit
premium growth (on a percentage basis) in 2006, over the 2005
levels. While we anticipate that we will begin realizing benefits
from our sales and marketing initiatives, these benefits will be
somewhat offset by the continued decline in premium volume
associated with several large manufactured housing lender accounts.
"American Modern is a recognized leader in specialty insurance
products and services and has a strong 40-year tradition in the
industry," Hayden said. "We once again demonstrated our value and
sound business fundamentals in 2005 and expect to carry this
momentum into 2006." 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: Fourth Quarter Full-Year
Dollars in Millions (After-tax): 2005 2004 2005 2004 Net Income
Before Realized Capital Gains* $19.4 $20.9 $61.3 $47.8 Net Realized
Capital Gains .6 2.7 4.0 6.4 Net Income (GAAP) $20.0 $23.6 $65.3
$54.2 Per Share Amounts (After-tax, Diluted): 2005 2004 2005 2004
Net Income Before Realized Capital Gains* $1.00 $1.08 $3.16 $2.49
Net Realized Capital Gains 0.03 .14 0.21 0.34 Net Income (GAAP)
$1.03 $1.22 $3.37 $2.83 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 2006 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 Twelve-Months Ended December 31, December 31,
2005 2004 % Change 2005 2004 % Change Revenues $183,483 $204,756
-10.4% $733,430 $783,841 -6.4% Net Income $20,001 $23,642 $65,326
$54,238 Net Income per Share (Diluted) $1.03 $1.22 $3.37 $2.83
Dividends Declared per Share $0.05625 $0.05125 9.8% $0.22500
$0.20500 9.8% Market Value per Share $36.04 $31.27 15.3% $36.04
$31.27 15.3% Book Value per Share $25.54 $22.98 11.1% $25.54 $22.98
11.1% Shares Outstanding 18,964 18,807 18,964 18,807 AMIG's
Property and Casualty Operations: Direct and Assumed Written
Premium $164,636 $166,715 -1.2% $697,930 $722,394 -3.4% Net Written
Premium $135,848 $156,217 -13.0% $619,267 $671,985 -7.8% Combined
Ratio (GAAP) 91.2% 89.0% 93.8% 96.4% Combined Ratio (GAAP) -
Excluding Catastrophe Losses 83.7% 87.8% 86.4% 90.0% Note: Dollar
amounts in thousands except per share data. Unless indicated
otherwise, the financial information presented above is based on
GAAP. THE MIDLAND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED) Three-Months Ended Twelve-Months Ended December
31, December 31, 2005 2004 2005 2004 Revenues: Premiums earned
$158,638 $174,234 $631,864 $677,584 Net investment income 10,272
10,103 40,519 37,165 Net realized investment gains 884 4,207 6,262
9,933 Other insurance income 3,058 3,534 12,600 13,780
Transportation 10,631 12,678 42,185 45,379 Total $183,483 $204,756
$733,430 $783,841 Costs and Expenses: Losses and loss adjustment
expenses 65,210 71,923 286,662 348,611 Commissions and other policy
acquisition costs 51,001 54,686 198,585 201,155 Operating and
administrative expenses 29,009 30,104 112,329 108,536
Transportation operating expenses 8,423 12,176 36,986 43,266
Interest expense 1,114 1,283 5,967 5,169 Total $154,757 $170,172
$640,529 $706,737 Income Before Federal Income Tax 28,726 34,584
92,901 77,104 Provision for Federal Income Tax 8,725 10,942 27,575
22,866 Net Income $20,001 $23,642 $65,326 $54,238 Basic Earnings
per Common Share: $1.06 $1.26 $3.46 $2.91 Diluted Earnings per
Common Share: $1.03 $1.22 $3.37 $2.83 Dividends per Common Share
$0.05625 $0.05125 $0.22500 $0.20500 Note: Dollar amounts in
thousands except per share data. Twelve Months Ended December 31:
Basic earnings per common share have been computed by dividing net
income by 18,894 shares in 2005 and 18,618 shares in 2004. Diluted
earnings per common share have been computed by dividing net income
by 19,407 shares in 2005 and 19,190 shares in 2004. Three Months
Ended December 31: Basic earnings per common share have been
computed by dividing net income by 18,944 shares in 2005 and 18,789
shares in 2004. Diluted earnings per common share have been
computed by dividing net income by 19,446 shares in 2005 and 19,429
shares in 2004. The diluted earnings per share calculations
comprehend outstanding stock options and restricted stock awards.
THE MIDLAND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) December 31, ASSETS 2005 2004 Cash and Marketable
Securities $950,464 $978,296 Receivables - Net 269,862 201,705
Property, Plant and Equipment - Net 89,888 68,312 Deferred
Insurance Policy Acquisition Costs 88,374 90,423 Other 29,525
25,949 Total Assets $1,428,113 $1,364,685 LIABILITIES AND
SHAREHOLDERS' EQUITY Unearned Insurance Premiums $395,007 $390,447
Insurance Loss Reserves 254,660 232,915 Long-Term Debt 91,766
82,729 Short-Term Borrowings 20,005 33,177 Deferred Federal Income
Tax 38,350 47,604 Other Payables and Accruals 143,948 145,537
Shareholders' Equity 484,377 432,276 Total Liabilities and
Shareholders' Equity $1,428,113 $1,364,685 Market Value per Common
Share $36.04 $31.27 Book Value per Common Share $25.54 $22.98
Common Shares Outstanding 18,964 18,807 Note: Amounts in thousands
except per share data. First Call Analyst: FCMN Contact:
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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