MLAN Midland Co (MM)

- Record Net Income of $1.25 Per Share CINCINNATI, July 19 /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, 2007. Net income for the quarter was a record $25.0 million, or $1.25 per share, which compares to last year's second quarter net income of $9.8 million, or 50 cents per share. All per share amounts are on an after-tax, diluted basis. Net income before realized capital gains* was also a record $21.3 million, or $1.07 per share, for the second quarter, compared to the year ago level of $8.5 million, or 44 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 said, "We are very pleased to once again deliver record setting profit results while growing top line premium at a double digit pace. We continue to effectively leverage our company's core strengths in extending our track record of superior profit and growth. Effective execution of our profit and growth strategies in the marketplace drives our ability to consistently produce outstanding results, and clearly demonstrates our deep and unique specialty property and casualty insurance knowledge and expertise. "Our record setting second quarter profits are the result of solid non- catastrophe underwriting, further enhanced by very favorable weather conditions. The per share impact from catastrophes was 48 cents below last year's second quarter and well below what we might normally expect in the second quarter," Hayden said. Catastrophe related losses for the second quarter were 17 cents per share, compared to 65 cents per share a year ago. Midland's wholly owned insurance subsidiary, American Modern Insurance Group, Inc., specializes in providing insurance products and services for niche markets such as manufactured housing, site-built dwelling, motorcycle, watercraft, snowmobile, recreational vehicle, 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. American Modern's products and services are offered through diverse distribution channels. Solid Property and Casualty Underwriting Results "We are well pleased with the underwriting results we achieved in the second quarter," Hayden commented. American Modern's property and casualty combined ratio (losses and expenses as a percent of earned premium) was 93.4 percent, compared with 100.1 percent a year ago. Excluding catastrophe losses, American Modern's combined ratio was a solid 90.6 percent compared to 87.9 percent in the second quarter of 2006. "These positive underwriting results continue to be evident across our entire specialty property and casualty insurance platform," Hayden continued. "In particular, manufactured housing, site-built dwelling and mortgage fire all produced solid underwriting results for the quarter." The manufactured housing combined ratio for the second quarter was a solid 95.2 percent, compared with 106.8 percent in last year's second quarter. "Our ability to consistently deliver outstanding profit results over time is enabled by our unique understanding of our chosen specialty product lines, and is evidenced in our underwriting, pricing and claims practices. Our adherence to a set of fundamental principles continues to serve us well and has us confident that our specialty property and casualty insurance platform is well positioned for profitable growth," Hayden said. Property and Casualty Premiums Grow 13.8 Percent "We are particularly pleased to have again achieved a double digit property and casualty premium growth rate for the quarter, which makes five double-digit growth quarters in a row," Hayden said. "For the second quarter, American Modern's property and casualty gross written premiums grew an impressive 13.8 percent to $238.2 million. While our premium growth for the first half of 2007 has been very strong, we do expect that the growth rate will moderate somewhat for the remainder of the year." Hayden continued, "Exceptional growth in our mortgage fire, collateral protection and excess and surplus lines products drove our second quarter results. Additionally, we are building momentum in several of our recreational casualty product lines; motorcycle, recreational vehicle, and collector car all achieved strong growth over the prior year second quarter." Manufactured housing premiums grew 4.0 percent to $94.1 million for the second quarter, compared to $90.5 million in last year's second quarter. "We continue to make significant gains in marketplace brand awareness and are sustaining very favorable policyholder retention levels, while fully leveraging our diverse distribution platform. We are keenly focused on growing premiums in all of our product lines and are confident in our ability to do so profitably," Hayden said. Record Six-Month Results For the six months ended June 30, 2007, net income was a record $48.7 million, or $2.45 per share, including 27 cents of realized capital gains. This compares to prior year six month net income of $32.2 million, or $1.65 per share, which included 15 cents from realized capital gains. American Modern's property and casualty combined ratio was 92.4 percent compared to 94.5 percent in the prior year. Excluding the impact of catastrophe losses, American Modern's combined ratio for the first six months of 2007 was 90.0 percent, compared to last year's exceptional result of 86.9 percent. American Modern's property and casualty gross written premiums were $443.6 million for the first half of 2007, up 15.4 percent from the $384.5 million for the first six months of last year. Investment Portfolio, Market Value Growth and Record Book Value The market value of Midland's investment portfolio was $1.0 billion at June 30, 2007, compared with $937.9 million at June 30, 2006. Net pre-tax investment income (excluding capital gains and losses) increased 14.9 percent to $11.7 million in the second quarter of 2007 compared to $10.2 million in 2006. The annualized pre-tax equivalent yield, on a cost basis, of Midland's fixed income portfolio was 6.0 percent in the second quarter of 2007 compared with 5.6 percent in the comparable prior period. After-tax realized investment gains from Midland's investment portfolio totaled 18 cents per share in the second quarter of 2007, compared to six cents in last year's second quarter. Pre-tax net unrealized losses on Midland's fixed income portfolio were $5.1 million at June 30, 2007, compared to $8.3 million at June 30, 2006. Pre-tax net unrealized gains on Midland's equity portfolio were $108.7 million at June 30, 2007, up from $89.3 million at June 30, 2006. Midland's shareholders' equity increased to $614.2 million, or $31.74 per share, at quarter-end, up 18.7 percent from $510.4 million, or $26.74 per share, at June 30, 2006. The company's book value per share has grown at a compound annual rate of 13.0 percent over the last 10 years. Hayden noted that Midland's common stock continues to outperform the broader equity markets and virtually every relevant index for the 5-, 10-, 15- and 20-year periods ended June 30, 2007. "We are proud of that record and believe it clearly exemplifies our fundamental value to shareholders," he said. M/G Transport Contributes to Strong Second Quarter M/G Transport, Midland's transportation subsidiary, contributed an after- tax profit of 17 cents per share for the second quarter of 2007, compared with five cents per share for the second quarter of 2006. "M/G Transport remains well positioned in the barge transportation marketplace and is efficiently managing its fleet," Hayden said. Superior Financial Strength, Positive Outlook for 2007, Raises Full Year Earnings Guidance "American Modern has long been recognized as a leader in the specialty insurance business," Hayden said. "This leadership position was confirmed by A.M. Best's recent affirmation of the A+ (Superior) rating of our property and casualty insurance subsidiaries. This affirmation along with American Modern's Top 50 Ward Financial Group ranking attests to our outstanding financial strength and ability to consistently deliver superior financial results over the long-term. "As we look to the remainder of 2007, we continue to have a very positive outlook and are confident in the fundamentals driving our business results," he continued. "While we achieved significant double digit premium growth for the first half of the year, our growth expectations for the full year are moderated somewhat by the fact that several significant business relationships were initiated during the second and third quarters of 2006, making the 2007 comparisons for quarters in the second half of the year a bit more difficult. As such, we would expect premium growth rates in the low to mid-single digits for the third and fourth quarters, resulting in a high single digit or perhaps low double-digit growth rate for the full year. "Given the strong results that we have posted in the first half of 2007, we are raising our previously issued earnings guidance. We anticipate a property and casualty combined ratio in the range of 92.5 percent to 94.0 percent, assuming normal weather for the remainder of the year. Based on these levels of underwriting profit, we estimate our full year earnings, exclusive of net capital gains or losses; will be in the range of $3.85 to $4.15 per share. This would represent a solid double-digit percentage increase over our previous record net income before realized capital gains* of $3.31 per share established in 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 Global Select 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: Dollars in Millions Second Quarter Six Months Full Year (After-tax): 2007 2006 2007 2006 2006 Net Income Before Realized Capital Gains* $21.3 $8.5 $43.3 $29.4 $65.1 Net Realized Capital Gains 3.7 1.3 5.4 2.8 5.6 Net Income (GAAP) $25.0 $9.8 $48.7 $32.2 $70.7 Per Share Amounts (After-tax, Diluted): 2007 2006 2007 2006 2006 Net Income Before Realized Capital Gains* $1.07 $0.44 $2.18 $1.50 $3.31 Net Realized Capital Gains 0.18 0.06 0.27 0.15 0.29 Net Income (GAAP) $1.25 $0.50 $2.45 $1.65 $3.60 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 2007 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 Three-Months Ended June 30, 2007 2006 % Change Revenues $225,691 $190,173 18.7% Net Income $24,984 $9,805 154.8% Net Income per Share (Diluted) $1.25 $0.50 150.0% Dividends Declared per Share $0.10000 $0.06125 63.3% Market Value per Share $46.94 $37.98 23.6% Book Value per Share $31.74 $26.74 18.7% Shares Outstanding 19,351 19,089 AMIG's Property and Casualty Operations: Direct and Assumed Written Premium $238,234 $209,357 13.8% Net Written Premium $206,805 $183,707 12.6% Combined Ratio (GAAP) 93.4% 100.1% Combined Ratio (GAAP) - Excluding Catastrophe Losses 90.6% 87.9% AMIG's Life Insurance Operations: Direct and Assumed Written Premium $16,199 $9,978 62.3% Net Written Premium $6,538 $2,701 142.1% Combined Ratio (GAAP) 86.8% 93.6% Note: Dollar amounts in thousands except per share data. THE MIDLAND COMPANY FINANCIAL HIGHLIGHTS Six-Months Ended June 30, 2007 2006 % Change Revenues $435,689 $377,105 15.5% Net Income $48,745 $32,240 51.2% Net Income per Share (Diluted) $2.45 $1.65 48.5% Dividends Declared per Share $0.20000 $0.12250 63.3% Market Value per Share $46.94 $37.98 23.6% Book Value per Share $31.74 $26.74 18.7% Shares Outstanding 19,351 19,089 AMIG's Property and Casualty Operations: Direct and Assumed Written Premium $443,615 $384,465 15.4% Net Written Premium $383,055 $336,251 13.9% Combined Ratio (GAAP) 92.4% 94.5% Combined Ratio (GAAP) - Excluding Catastrophe Losses 90.0% 86.9% AMIG's Life Insurance Operations: Direct and Assumed Written Premium $30,023 $19,299 55.6% Net Written Premium $11,799 $4,849 143.3% Combined Ratio (GAAP) 85.9% 96.4% Note: Dollar amounts in thousands except per share data. THE MIDLAND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three-Months Ended Six-Months Ended June 30, June 30, 2007 2006 2007 2006 Revenues: Insurance: Premiums earned $188,581 $162,273 $368,525 $321,500 Net investment income 11,747 10,224 23,173 20,504 Net realized investment gains 5,643 1,931 8,133 4,398 Other insurance income 3,348 3,286 6,695 6,463 Transportation 16,372 12,459 29,163 24,240 Total $225,691 $190,173 $435,689 $377,105 Costs and Expenses: Insurance: Losses and loss adjustment expenses 85,503 $91,941 159,439 $152,839 Commissions and other policy acquisition costs 59,234 43,708 120,584 97,929 Operating and administrative expenses 32,945 29,464 63,746 58,313 Transportation operating expenses 11,102 10,996 20,092 20,468 Interest expense 1,076 1,356 2,111 2,735 Total $189,860 $177,465 $365,972 $332,284 Income Before Federal Income Tax 35,831 12,708 69,717 44,821 Provision for Federal Income Tax 10,847 2,903 20,972 12,581 Net Income $24,984 $9,805 $48,745 $32,240 Basic Earnings per Common Share $1.29 $0.51 $2.53 $1.70 Diluted Earnings per Common Share: $1.25 $0.50 $2.45 $1.65 Dividends per Common Share $0.10000 $0.06125 $0.2000 $0.1225 Note: Dollar amounts in thousands except per share data. Shares used for EPS calculations (000's): Basic EPS Diluted EPS Six months ended June 30 2007 19,297 19,903 2006 19,020 19,557 Three months ended June 30 2007 19,334 19,943 2006 19,055 19,585 THE MIDLAND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, ASSETS 2007 2006 Cash and Marketable Securities $1,045,340 $1,036,436 Receivables - Net 291,898 276,710 Property, Plant and Equipment - Net 132,808 118,879 Deferred Insurance Policy Acquisition Costs 106,706 99,277 Other 36,263 38,226 Total Assets $1,613,015 $1,569,528 LIABILITIES AND SHAREHOLDERS' EQUITY Unearned Insurance Premiums $472,623 $445,324 Insurance Loss Reserves 223,652 221,639 Long-Term Debt 89,854 90,508 Short-Term Borrowings 8,426 17,937 Deferred Federal Income Tax 40,973 47,197 Other Payables and Accruals 163,337 172,177 Shareholders' Equity 614,150 574,746 Total Liabilities and Shareholders' Equity $1,613,015 $1,569,528 Note: Amounts in thousands except per share data. DATASOURCE: The Midland Company CONTACT: W. Todd Gray, Executive Vice President and CFO, The Midland Company, +1-513-943-7100 Web site: http://www.midlandcompany.com/

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