The National Security Group, Inc. (NASDAQ: NSEC) results for the
three months and nine months ended September 30, 2018 and 2017,
based on accounting principles generally accepted in the United
States of America, were reported today as follows:
Unaudited Consolidated Financial Summary
Three months ended
September 30,
Nine months ended
September 30,
2018 2017 2018
2017 Gross premiums written $ 17,178,000 $ 17,246,000
$ 52,387,000 $ 52,953,000 Net premiums written
$ 15,429,000 $ 15,499,000 $ 47,690,000 $
48,354,000 Net premiums earned $ 15,445,000 $
15,467,000 $ 45,764,000 $ 45,838,000 Net investment income
1,020,000 939,000 2,799,000 2,795,000 Net realized investment gains
453,000 75,000 125,000 312,000 Other income 148,000 150,000
457,000 447,000
Total Revenues
17,066,000 16,631,000 49,145,000 49,392,000
Policyholder benefits and settlement expenses 9,825,000
11,184,000 29,024,000 34,911,000 Amortization of deferred policy
acquisition costs 782,000 706,000 2,372,000 2,470,000 Commissions
2,003,000 2,096,000 5,795,000 5,947,000 General and administrative
expenses 2,404,000 2,398,000 7,075,000 6,410,000 Taxes, licenses
and fees 567,000 709,000 1,565,000 1,915,000 Interest expense
306,000 320,000 917,000 969,000
Total Benefits, Losses and Expenses 15,887,000
17,413,000 46,748,000 52,622,000
Income
(Loss) Before Income Taxes 1,179,000 (782,000 )
2,397,000 (3,230,000 ) Income tax expense (benefit) 272,000
(225,000 ) 562,000 (1,358,000 )
Net Income
(Loss) $ 907,000 $ (557,000 ) $ 1,835,000 $
(1,872,000 )
Income (Loss) Per Common Share $ 0.36 $
(0.22 ) $ 0.73 $ (0.74 )
Reconciliation of Net Income
(Loss) to non-GAAP Measurement Net income (loss) $ 907,000 $
(557,000 ) $ 1,835,000 $ (1,872,000 ) Income tax expense (benefit)
272,000 (225,000 ) 562,000 (1,358,000 ) Realized investment losses
(gains), net (453,000 ) (75,000 ) (125,000 ) (312,000 )
Pretax
Income (Loss) From Operations $ 726,000 $ (857,000 ) $
2,272,000 $ (3,542,000 )
Management Commentary on Results of Operations
Summary:
For the three months ended September 30, 2018, the Company had
net income of $907,000, $0.36 income per share, compared to a net
loss of $557,000, $0.22 loss per share, for the three months ended
September 30, 2017. The pretax income from operations in the third
quarter of 2018 totaled $726,000 compared to pretax loss from
operations of $857,000 in the third quarter of 2017. During the
third quarter of 2018, claim activity related to catastrophe events
was significantly less compared to the same period last year. For
the three months ended September 30, 2018, the P&C segment had
$1,906,000 in reported losses and loss adjustment expenses (LAE)
from cat events (including development from first and second
quarter 2018 cat events). This includes $819,000 in reported losses
and LAE from Hurricane Florence, which made landfall on September
14, 2018 and primarily impacted our policyholders in South
Carolina. For the three months ended September 30, 2017, the
P&C segment had $3,626,000 in reported losses and LAE from cat
events (including development from first and second quarter 2017
cat events). Results for the third quarter of 2017 were negatively
impacted by losses reported from Hurricane Irma. On September 10,
2017, Hurricane Irma made U.S. landfall in the Florida Keys and
impacted our policyholders in Alabama, Georgia, South Carolina and
Tennessee. Georgia was the primary state in our coverage area
impacted by Hurricane Irma comprising over 85% of reported claims.
The impact of this catastrophe led to $2,718,000 in reported losses
and LAE for the quarter.
For the nine months ended September 30, 2018, the Company had
net income of $1,835,000, $0.73 income per share, compared to a net
loss of $1,872,000, $0.74 loss per share, for the nine months ended
September 30, 2017. The year to date pretax income from operations
in 2018 totaled $2,272,000 compared to a pretax loss from
operations of $3,542,000 in 2017. The reduction in reported losses
from catastrophe events in 2018 compared to 2017 was the primary
reason for the improved results in the current year compared to the
same period last year. Reported claims from cat events in 2018
totaled $4,378,000 compared to $12,804,000 in 2017; a reduction of
$8,426,000. Results for 2017 were negatively impacted by an
increased frequency of severe thunderstorm activity, which
generated widespread wind, hail and tornado damage to insured
property across the Southeastern United States throughout the
nine-month period. In addition, our P&C segment was negatively
impacted by losses reported from Hurricane Irma.
Three-month period ended September 30, 2018 compared to
three-month period ended September 30, 2017
Premium Revenue:For the three-month period ended
September 30, 2018, net premiums earned were down $22,000 at
$15,445,000 compared to $15,467,000 during the same period in 2017.
The decrease in premium revenue was primarily attributable to a
0.5% decrease in net premiums earned in the P&C segment.
Net Income (Loss):For the quarter ended September 30,
2018, the Company had net income of $907,000, $0.36 income per
share, compared to a net loss of $557,000, $0.22 loss per share,
for the same period in 2017, an increase of $1,464,000. As
discussed above, a decrease in frequency of severe thunderstorm
related losses was the primary factor contributing to the increase
in net income in the third quarter of the current year compared to
the same period last year.
Pretax Income (Loss) from Operations:For the three months
ended September 30, 2018, our pretax income from operations was
$726,000 compared to a pretax loss from operations of $857,000 for
the three months ended September 30, 2017; an increase of
$1,583,000. A decrease in severe thunderstorm activity during the
third quarter of 2018 compared to the same period last year was the
primary factor contributing to the improvement in pretax income
from operations. During the third quarter of 2018, the P&C
segment was impacted by three cat events with reported losses and
LAE totaling $1,198,000 compared to three cat events totaling
$3,126,000 during the third quarter of 2017.
P&C Segment Combined Ratio:The P&C segment ended
the third quarter of 2018 with a GAAP basis combined ratio of
96.5%. Reported catastrophe losses totaled $1,906,000 for the
quarter and added 13.7 percentage points to the combined ratio. In
comparison, the P&C segment ended the third quarter of 2017
with a GAAP basis combined ratio of 105.9%, with reported
catastrophe losses totaling $3,626,000, and increasing the combined
ratio by 25.8 percentage points. In addition to the reduction in
catastrophe losses in the third quarter of 2018, fire losses were
down $140,000 in the third quarter of 2018 compared to the same
period last year. Reported fire losses for the third quarter of
2018 totaled $2,809,000 and added 20.1 percentage points to the
third quarter 2018 combined ratio. In comparison, third quarter
2017 reported fire losses totaled $2,949,000 and added 21.0
percentage points to the third quarter 2017 combined ratio.
Nine-month period ended September 30, 2018 compared to
nine-month period ended September 30, 2017
Premium Revenue:For the nine-month period ended September
30, 2018, net premiums earned were down $74,000 at $45,764,000
compared to $45,838,000 for the same period in 2017. The decrease
in net premium earned was due to a 0.2% decline in net premium
earned in the P&C segment.
Net Income (Loss):For the nine-month period ended
September 30, 2018, the Company had net income of $1,835,000, $0.73
income per share, compared to a net loss of $1,872,000, $0.74 loss
per share, for the same period in 2017; an increase of $3,707,000.
Decreased frequency of catastrophe losses was the primary factor
contributing to the increase in year to date net income. We have
incurred catastrophe losses from 14 cat events in the first nine
months of 2018 compared to losses from 24 cat events during the
same period in 2017.
Pretax Income (Loss) from Operations:For the nine-month
period ended September 30, 2018, pretax income from operations was
$2,272,000 compared to a pretax loss from operations of $3,542,000
for the period ended September 30, 2017, an increase of $5,814,000.
The primary reason for the increase in pretax income from
operations in 2018 compared to 2017 was the significant reduction
in reported catastrophe losses in the current year compared to the
same period in the prior year. Losses and LAE reported from
catastrophe events totaled $4,378,000 in the first nine months of
2018 compared to $12,804,000 for the same period last year. The
single largest catastrophe event in 2018 was a severe thunderstorm,
tornado and hail event in mid-March which generated $1,136,000 in
insured losses from 211 reported claims. Claims reported in Alabama
accounted for 87.4% of all reported losses from this cat event. In
addition, the P&C segment had reported losses totaling $819,000
from Hurricane Florence (as well as an additional $681,000 in
incurred but not reported [IBNR] losses) in September 2018. In
comparison, the single largest catastrophe event in 2017 was
Hurricane Irma that totaled $2,718,000 from 832 claims. Claims
reported in Georgia were the primary source of losses and accounted
for 84.1% of all claims from this cat event.
P&C Segment Combined Ratio:The P&C segment ended
the first nine months of 2018 with a combined ratio of 94.0%.
Reported catastrophe losses totaled $4,378,000 and added 10.5
percentage points to the combined ratio. In comparison, 2017
reported cat event losses added $12,804,000 to prior year
policyholder benefits and settlement expenses. The P&C segment
ended the first nine months of 2017 with a combined ratio of 108.5%
with reported catastrophe losses contributing 30.8 percentage
points to the combined ratio. Partially offsetting the reduction in
catastrophe losses in 2018 was a $1,295,000 increase in reported
fire losses, in the current year, compared to the same period last
year. Fire losses reported in 2018 totaled $11,150,000 and added
26.9 percentage points to the 2018 combined ratio. In comparison,
2017 reported file losses totaled $9,855,000 and added 23.7
percentage points to the 2017 combined ratio.
Management Commentary on Financial
Position
Selected Balance Sheet Highlights
September 30, 2018
December 31, 2017 (UNAUDITED) Invested Assets $ 116,390,000
$ 114,731,000 Cash $ 5,154,000 $ 6,644,000 Total Assets $
147,720,000 $ 146,438,000 Policy Liabilities $ 79,491,000 $
76,674,000 Total Debt $ 15,148,000 $ 15,639,000 Accumulated Other
Comprehensive (Loss) Income $ (1,778,000 ) $ 2,646,000
Shareholders' Equity $ 46,840,000 $ 47,625,000 Book Value Per Share
$ 18.54 $ 18.88
Invested Assets:Invested assets as of September 30, 2018
were $116,390,000 up $1,659,000, or 1.4%, compared to $114,731,000
as of December 31, 2017. The primary changes in invested assets
were associated with changes in the bond portfolio. Positive cash
flow from operations led to a $3.7 million increase in bond
investment purchases during the first nine months of 2018; however,
this increase in new bond investments were partially offset by an
increase in market interest rates which reduced the market value of
our bond portfolio by $3.3 million.
Cash:The Company, primarily through its insurance
subsidiaries, had $5,154,000 in cash and cash equivalents at
September 30, 2018, compared to $6,644,000 at December 31,
2017. The decrease in cash was primarily due to an increase in
investments in our bond portfolio and reduction of debt.
Total Assets:Total assets as of September 30, 2018 were
$147,720,000 compared to $146,438,000 at December 31, 2017. The
increase in total assets was primarily due to an increase in
investments in our bond portfolio.
Policy Liabilities:Policy liabilities were $79,491,000 at
September 30, 2018 compared to $76,674,000 at December 31, 2017; an
increase of $2,817,000 or 3.7%. The primary reason for the increase
in policy liabilities in 2018 compared to 2017 was an increase in
unearned premium. Due to the timing of insurance renewals and new
business issuance across our entire book of P&C segment
business, unearned premium tends to peak during the second and
third quarters and decline during the fourth quarter when new
policy issuance reaches a seasonal low. This is the primary factor
contributing to the increase in unearned premium at September 30,
2018 compared to December 31, 2017.
Debt Outstanding:Total debt at September 30, 2018 was
$15,148,000 compared to $15,639,000 at December 31, 2017. The pay
down of a bank credit line was the primary reason for the $491,000
or 3.1% decrease in total debt.
Shareholders' Equity:Shareholders' equity as of September
30, 2018 was $46,840,000, down $785,000 compared to
December 31, 2017 Shareholders' equity of $47,625,000. Book
value per share was $18.54 at September 30, 2018, compared to
$18.88 per share at December 31, 2017, a decrease of $0.34.
The primary reason for the decrease in Shareholders' Equity was a
decrease in market value of available for sale investment
securities which declined $3.9 million. This decrease was primarily
due to an increase in market interest rates which reduced the
market value of our fixed income investments. Partially offsetting
these factors was net income of $1,835,000.
Update on 4th Quarter Event - Hurricane
Michael:
In addition to our third quarter earnings release, we are
updating our loss estimates from Hurricane Michael which will
impact our fourth quarter earnings. We emphasize that no provision
for losses from Hurricane Michael has been made in our third
quarter financial results presented herein as Michael occurred
early in the fourth quarter of 2018.
Net of re-insurance, management estimates that Hurricane Michael
will reduce our fourth quarter and full year pretax income by
$4,000,000. Management estimates that Hurricane Michael will reduce
fourth quarter and full year net income by $3,160,000 and will
reduce earnings per share by $1.25. Based on our analysis of
historical reporting patterns, post event model output and
assessment of early reports of claims to date, we estimate our
ultimate gross losses from Hurricane Michael (before re-insurance
recoveries) to be in the range of $11,000,000 to $14,000,000. Under
our catastrophe reinsurance coverage, we retain 100% of losses up
to $4,000,000 from a single event. After exceeding our retention,
losses are 100% re-insured up to $72,500,000 under our catastrophe
reinsurance program.
The National Security Group, Inc. (NASDAQ
Symbol: NSEC), through its property & casualty (P&C) and
life insurance subsidiaries, offers property, casualty, life,
accident and health insurance in ten states. The Company writes
primarily personal lines property coverage including dwelling fire
and windstorm, homeowners, and mobile homeowners lines of
insurance. The Company also offers life, accident and health,
supplemental hospital and cancer insurance products. The Company
was founded in 1947 and is based in Elba, Alabama. Additional
information about the Company, including additional details of
recent financial results, can be found on our website:
www.nationalsecuritygroup.com.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181113006193/en/
The National Security Group, Inc.Brian McLeod, 334-897-2273Chief
Financial Officer
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