The Midland Company Reports Third Quarter Profit - Earnings per
Share of 12 Cents Following Four Hurricanes CINCINNATI, Oct. 21
/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, 2004. Net income per share was 12 cents, which
included 1 cent in realized capital gains. For last year's third
quarter, net income per share was 23 cents, which included 4 cents
in realized capital gains. Revenue for the quarter increased 4.7
percent to a record $192.9 million, compared with $184.2 million in
last year's third quarter. All per share amounts are on an after-
tax, diluted basis. John W. Hayden, Midland president and chief
executive officer, said, "We are gratified to report a profitable
third quarter, given the volatile weather conditions that we
experienced. In essence, the higher-than-normal catastrophe losses
masked an extremely solid underwriting performance in our core
lines of business." Catastrophe losses totaled 98 cents per share
in the third quarter, 93 cents of which emanated from hurricanes
Charley, Frances, Ivan and Jeanne. This compares to catastrophe
losses of 29 cents per share last year. "Catastrophe losses were
unusually high in this year's third quarter, largely due to the
widespread damage caused by these four hurricanes. Based on our
current premium volume and our historic experience, we would expect
normal third quarter catastrophe losses in the range of 25 cents to
30 cents per share. If we had experienced a normal level of
catastrophe losses during the quarter, we estimate that we were on
track for earnings per share in the range of 80 to 85 cents,
including 1 cent in realized capital gains," Hayden said. Hayden
noted, "We know that many people in Florida and nearby states,
including many of our policyholders, have suffered damage to their
homes and property. Our hearts go out to them and we are eager to
assist them in getting their lives back to normal as soon as
possible. We have received approximately 9,300 claims from the four
major storms that hit Florida and the southeast in August and
September. We are extremely proud of the dedication displayed by
our field claims staff in their prompt response to this
unprecedented sequence of events. In fact, we are on track to close
over 90 percent of the claims from these four storms within 30 days
of the date the claims were reported to us, a standard of
performance we believe is among the best in the industry.
"Specialty product claims expertise and proactive risk management
are two of our key operating strategies that served us well in
dealing with the four hurricanes. Our disciplined underwriting
approach, comprehensive reinsurance program and strong
non-catastrophe results from our core lines all contributed to our
third quarter profitability. We believe that these same elements,
along with our other key operating principles, position us well to
achieve our long-term objective of bringing value to our
shareholders," Hayden said. 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. Positioned for Profitable
Growth For the third quarter, American Modern's property and
casualty gross written premiums grew 2.9 percent to $189.6 million
from $184.3 million in last year's third quarter. American Modern's
core manufactured housing gross written premium increased nearly 1
percent to $89.3 million in the third quarter. "The manufactured
housing industry continues to be sluggish, yet American Modern
continues to expand its manufactured housing premium base," Hayden
noted. "During the quarter, we also saw the benefit of our
specialty product offering and our multiple distribution channel
strategies. Gross written premium from our other property and
casualty specialty lines -- which includes site-built dwelling,
motorcycle, excess and surplus lines, collateral protection,
mortgage fire, recreational vehicle and collector automobile
products -- collectively grew 4.9 percent in the third quarter to
$100.3 million. As expected, motorcycle gross written premium
decreased 25.5% to $11.1 million for the quarter as the necessary
underwriting enhancements and rate increases were implemented. "Our
site-built dwelling and collateral protection lines achieved
notable growth. Site-built dwelling premiums increased 8.5% to
$23.0 million. Collateral protection volume benefited from a book
of business we acquired in the second quarter and increased 51.1%
to $13.5 million. Our diversification strategy continues to yield
very positive results as we continue to strive to be a market
leader in the niches where we choose to compete." "American
Modern's premium growth has a track record of outpacing the
industry. With our market positioning, diverse distribution
channels and specialty product offerings, we remain confident in
our ability to grow our top line revenues," Hayden said.
Catastrophe Losses Increase Combined Ratio, Non-catastrophe
Underwriting Results Strong American Modern's property and casualty
combined ratio (losses and expenses as a percent of earned premium)
was 105.9 percent in the third quarter, compared with 104.7 percent
a year ago. The increase in the combined ratio was attributable to
a high level of catastrophe losses during the quarter. Excluding
catastrophe losses, American Modern's third quarter combined ratio
improved more than 11 points to 88.6 percent, compared with 99.8
percent in the same period of 2003. "Our non-catastrophe
underwriting results suggest that the actions that we have taken
over the last several years, including tightened underwriting
criteria and rate increases, are paying dividends. Looking at some
of our core lines, the non-catastrophe loss ratios for manufactured
housing and site- built dwelling decreased over 9 percentage points
and motorcycle decreased by 39 percentage points, compared the to
the third quarter last year," Hayden said. Much Improved Motorcycle
Results Hayden said, "We continue to see considerable progress in
the motorcycle line. The net loss in this line improved by 24
cents, on a quarter-over- quarter basis, coming in at 4 cents per
share for the quarter as compared to 28 cents per share in the
third quarter of 2003. We typically expect the motorcycle losses to
be higher in the second and third quarters as these time periods
represent the peak motorcycle riding season. We have made
tremendous progress toward improving our motorcycle results and are
well ahead of plan. As we move into the fourth quarter with the
peak riding season nearly complete, we are very optimistic that we
will beat our previously announced full year 2004 expected combined
ratio objective of 115.9 percent by at least 5 percentage points."
Record Nine-Month Results For the nine months ended September 30,
2004, net income was a record of $30.6 million, or $1.60 per share,
which includes 19 cents from net realized capital gains. That
compares with net income of $13.3 million, or 74 cents per share,
which included 8 cents per share in net capital gains, last year.
Revenue increased 8.8 percent to a record $579.1 million compared
with $532.2 million in the same period last year. American Modern's
property and casualty gross written premiums grew 8.9 percent to
$555.7 million for the nine months ended September 30, 2004.
Manufactured housing premium increased 4.4 percent over the prior
year level to $257.7 million. American Modern's property and
casualty combined ratio was 98.9 percent compared to 104.1 percent
last year. Excluding the impact of catastrophe losses, American
Modern's combined ratio for the first nine months of 2004 was 90.8
percent, compared to 97.3 percent last year. Investment Portfolio,
Book Value and Market Value Growth The market value of Midland's
investment portfolio increased to a record of $955.5 million at
September 30, 2004, compared with $792.7 million at September 30,
2003. Net pre-tax investment income (excluding capital gains and
losses) increased to $9.3 million for the third quarter compared
with $8.3 million in last year's third quarter. This increase is
due primarily to the year-over-year growth of the fixed income
portfolio, which benefited in part by the new capital raised in
2004. The annualized pre-tax equivalent yield, on a cost basis, of
American Modern's fixed income portfolio was 5.2 percent in the
first nine months of 2004 compared with 5.5 percent in the
comparable prior period. After-tax realized investment gains from
American Modern's investment portfolio totaled 1 cent per share in
this year's third quarter compared with realized investment gains
of 4 cents in last year's third quarter. Pre-tax net unrealized
gains on Midland's fixed income portfolio were $25.0 million at
September 30, 2004, down from $30.0 million at September 30, 2003.
Pre-tax net unrealized gains on Midland's equity portfolio were
$82.1 million at September 30, 2004, up from $65.9 million at
September 30, 2003. Midland's shareholders' equity increased to a
record $404.9 million, or $21.56 per share, at September 30, 2004,
up from $333.9 million, or $18.95 per share, at September 30, 2003.
Shareholders' equity at September 30, 2004 includes approximately
$25 million in net proceeds from the previously reported sale of
1,150,000 shares of Midland stock in the first quarter of 2004.
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, 2004. This is a
performance record we are extremely proud of and one that we
believe is a good indicator of the value we bring to our
shareholders." Named to Ward's Top 50 Insurance Companies On August
24, 2004, American Modern Insurance Group was once again named to
Ward's Top 50 Insurance Companies as an insurance company that has
excelled at balancing safety, consistency and performance. "We are
proud to be recognized along with a group of superior insurance
companies. This recognition is directly attributable to our 1,000
plus associates, who work hard every day to deliver superior
results." Positive Full-Year Outlook "In terms of guidance for the
full year, we anticipate a combined ratio, assuming normal weather,
in the range of 97.0 percent to 98.0 percent for 2004. We also
expect investment income to increase moderately given the larger
base of invested assets," Hayden said. "This level of underwriting
profit and investment income should put us at the low end of our
previously reported full-year earnings per share guidance, in the
range of $2.41 to $2.61 per share, which includes the 19 cents of
capital gains realized through September 30, 2004. This would truly
be a terrific performance considering that we have incurred higher
than normal catastrophe losses." 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, 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/ . 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 2004 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 Nine-Months Ended
September 30, September 30, % % 2004 2003 Change 2004 2003 Change
Revenues $192,881 $184,222 4.7% $579,085 $532,152 8.8% Net Income
$2,424 $4,289 $30,596 $13,321 Net Income per Share (Diluted) $0.12
$0.23 $1.60 $0.74 Dividends Declared per Share $0.05125 $0.04750
7.9% $0.15375 $0.14250 7.9% Market Value per Share $27.35 $21.26
28.6% $27.35 $21.26 28.6% Book Value per Share $21.56 $18.95 13.8%
$21.56 $18.95 13.8% Shares Outstanding 18,783 17,626 18,783 17,626
AMIG's Property and Casualty Operations: Direct and Assumed Written
Premium $189,592 $184,296 2.9% $555,679 $510,449 8.9% Net Written
Premium $177,288 $168,503 5.2% $515,768 $476,298 8.3% Combined
Ratio (GAAP) 105.9% 104.7% 98.9% 104.1% Combined Ratio (GAAP) -
Excluding Catastrophe Losses 88.6% 99.8% 90.8% 97.3% 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, September 30, 2004 2003 2004 2003
Revenues: Insurance: Premiums earned $169,296 $164,290 $503,350
$474,770 Net investment income 9,318 8,269 27,062 24,861 Net
realized investment gains 318 1,190 5,726 2,240 Other insurance
income 1,943 3,558 10,246 10,545 Transportation 12,006 6,915 32,701
19,736 Total $192,881 $184,222 $579,085 $532,152 Costs and
Expenses: Insurance: Losses and loss adjustment expenses 108,796
105,139 276,688 297,222 Commissions and other policy acquisition
costs 43,207 44,953 146,469 133,676 Operating and administrative
expenses 26,000 21,612 78,432 63,335 Transportation operating
expenses 11,336 6,339 31,090 18,756 Interest expense 1,325 961
3,886 2,782 Total $190,664 $179,004 $536,565 $515,771 Income Before
Federal Income Tax 2,217 5,218 42,520 16,381 Provision (Credit) for
Federal Income Tax (207) 929 11,924 3,060 Net Income $2,424 $4,289
$30,596 $13,321 Basic Earnings per Common Share: $0.13 $0.25 $1.65
$0.77 Diluted Earnings per Common Share: $0.12 $0.23 $1.60 $0.74
Dividends per Common Share $0.05125 $0.04750 $0.15375 $0.14250
Note: Dollar amounts in thousands except per share data. Certain
prior year amounts have been reclassified to conform to the current
year presentation. Basic earnings per common share have been
computed by dividing net income by 18,561 shares in 2004 and 17,411
shares in 2003. Diluted earnings per common share have been
computed by dividing net income by 19,100 shares in 2004 and 17,919
shares in 2003. The calculations comprehend outstanding stock
options and restricted stock awards. THE MIDLAND COMPANY CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, ASSETS 2004
2003 Cash and Marketable Securities $961,384 $798,975 Receivables -
Net 201,900 168,630 Property, Plant and Equipment - Net 67,760
69,410 Deferred Insurance Policy Acquisition Costs 91,934 93,936
Other 22,034 18,445 Total Assets $1,345,012 $1,149,396 LIABILITIES
AND SHAREHOLDERS' EQUITY Unearned Insurance Premiums $405,480
$405,838 Insurance Loss Reserves 260,724 198,159 Long-Term Debt
85,047 55,447 Short-Term Borrowings 15,774 22,267 Deferred Federal
Income Tax 45,047 42,775 Other Payables and Accruals 128,006 90,973
Shareholders' Equity 404,934 333,937 Total Liabilities and
Shareholders' Equity $1,345,012 $1,149,396 Market Value per Common
Share $27.35 $21.26 Book Value per Common Share $21.56 $18.95
Common Shares Outstanding 18,783 17,626 Note: Amounts in thousands
except per share data. 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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