The Midland Company Comments on Fourth Quarter and 2004
January 07 2004 - 6:40PM
PR Newswire (US)
The Midland Company Comments on Fourth Quarter and 2004 Reiterates
Positive Outlook for 2004 Fourth Quarter Impacted By Reserve
Strengthening in Run-Off Commercial Liability Business CINCINNATI,
Jan. 7 /PRNewswire-FirstCall/ -- The Midland Company , a highly
focused provider of specialty insurance products and services,
today announced that its fourth quarter earnings will be impacted
by approximately $6.5 million (pre-tax), or 24 cents per share
(after-tax), related to losses and reserve strengthening associated
with the commercial liability lines that it decided to exit in
2001. As a result, management has revised its estimate of net
income for the fourth quarter of 2003 to be in a range of 50 to 54
cents per share, including approximately 8 cents per share in
realized capital gains, compared with 43 cents per share in the
fourth quarter of 2002. There were no capital gains or losses in
the fourth quarter of 2002. All per-share amounts are presented on
an after-tax, diluted basis. The company's wholly owned insurance
subsidiary, American Modern Insurance Group, decided to exit its
commercial liability programs for manufactured housing parks and
dealers in September 2001 and experienced acceptable run-off
results through March 2003, according to John W. Hayden, chief
executive officer and president. "As previously reported, this
trend changed during the second quarter of 2003 as we experienced
an unexpected spike in losses related to this business," Hayden
said. "The loss activity moderated in the third quarter but has
spiked again in the fourth quarter of 2003. Based on these loss
patterns, coupled with the inherent uncertainties associated with
any run-off book of business, we felt it was prudent to further
strengthen our reserves related to this business. After the reserve
strengthening, the company has in excess of $30 million in loss
reserves, related to this run-off line of business. It is important
to note that there is no unearned premium or policies in force
remaining relative to this line of business. The last policy was
written in the first half of 2002. "From a profitability
perspective, the reserve strengthening will obviously dampen our
fourth quarter earnings," Hayden continued. "Fortunately, exclusive
of this charge, the preliminary fourth quarter operating results
from major ongoing product lines are encouraging. We are especially
pleased with the trends we are seeing in our manufactured housing
and dwelling fire lines. At the same time, we continue to enjoy a
solid pattern of growth. On a preliminary basis, our property and
casualty gross written premium was up between 11 and 12 percent in
the fourth quarter of 2003 over the prior year's fourth quarter."
Hayden did note that American Modern incurred approximately $3.6
million (pre-tax), or approximately 13 cents per share, in losses
related to the California brush fires during the fourth quarter.
These losses, when coupled with the other catastrophe losses for
the quarter, were slightly above a normal range for a fourth
quarter. American Modern specializes in providing insurance
products and services for niche markets such as manufactured
housing, dwelling fire, motorcycle, watercraft, snowmobile,
recreational vehicle and credit life and related products. American
Modern's products and services are offered through diverse
distribution channels. Positive Outlook for 2004 Hayden noted that
management maintains an optimistic outlook for the year ahead.
"Looking forward, we expect the profitability trends that we've
seen recently in our manufactured housing and dwelling fire lines
of business to continue. These favorable trends are indicative of
the rigor we had in getting the necessary rate increases and
product design features incorporated into these product lines over
the last several years. More importantly, these trends inspire
confidence as we look to 2004 and beyond," Hayden added.
"Certainly, 2003 has been a year of many challenges for our company
given the higher-than-normal catastrophe losses, losses associated
with our motorcycle program and the losses associated with the
commercial liability programs that we ceased writing in prior
years. However, it's knowing that we are working our way through
these issues, coupled with the aggressive rate and underwriting
actions that we've taken on the motorcycle line, that leave us
optimistic about 2004," Hayden said. Hayden continued, "Assuming
normal weather patterns and considering the anticipated improvement
in the motorcycle business along with the strengthening in the
run-off commercial liability reserves, we expect a combined ratio
(ratio of losses and expenses to earned premium) between 97 and 99
percent for our property and casualty operations in 2004. This
would result in consolidated net income (assuming no realized
capital gains and losses) in the range of $2.00 to $2.20 per share
in 2004, up from estimated net income in 2003 in the range of $1.24
to $1.28 per share (including approximately 16 cents per share in
realized capital gains)." Hayden said, "When looking at the full
year 2003 net income estimate of $1.24 to $1.28 per share, it is
worth noting that the financial impact of higher-than-normal
catastrophe losses, losses from the motorcycle line and from the
run-off commercial liability programs collectively impacted
earnings by approximately $1.25 per share in 2003. "In terms of
top-line growth, we expect to achieve high single digit top- line
growth in 2004, primarily driven by premium volume increases in our
primary product lines offset by a possible decrease in premium from
our motorcycle line," Hayden concluded. Long-Term Focus on
Diversification of Product and Distribution Hayden noted that
Midland remains focused on long-term results and growth in
shareholder value rather than quarterly fluctuations. "Our
commitment and long-term track record is acknowledged in the
marketplace by our policyholders, distribution channels, business
partners and the various rating agencies," he said. "We know that
we must continue to focus on the core competencies that have
enabled us to earn this recognition. "The diversity of our product
lines and distribution channels creates numerous opportunities for
Midland and American Modern while our specialty focus enables us to
remain agile through all industry cycles," Hayden concluded. "Our
aim is to leverage those opportunities as we build the long- term
stability and profitability that have come to define Midland."
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 96 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, 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/ . 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 2003 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. DATASOURCE: The Midland Company
CONTACT: John I. Von Lehman, Executive Vice President and CFO of
The Midland Company, +1-513-943-7100
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