Protective Insurance Corporation (NASDAQ: PTVCA, PTVCB) today
reported results for the first quarter of 2019. The Company
produced first quarter net income of $2.7 million, or $0.18
per share, which compares to net income of $0.3 million, or $0.02
per share, for the prior year’s first quarter.
- Book value per share increased by $0.68 per share to $24.63
during the first quarter of 2019, an increase of 2.8% in the
quarter and total value creation of 3.3% including the $0.10 per
share dividend paid to shareholders during the first quarter of
2019.
- Net investment income increased 34.4% for the first quarter of
2019 compared to the prior year.
- Combined ratio of 108.0% for the first quarter of 2019, down
from 112.2% for the fourth quarter of 2018.
- Repurchased $3.5 million (197,397 shares) since January 1,
2019. These purchases are immediately accretive to book
value, given an average repurchase price of 72% of March 31, 2019
book value ($3.0 million of the $3.5 million in repurchases
occurred after March 31, 2019).
Net premiums earned for the first quarter of
2019 increased to $110.0 million, up 4.3% compared to the prior
year period. Gross premiums written for the first quarter of
2019 were flat at $148.9 million compared to $148.8 million written
during the prior year period. The higher net premiums earned
is attributable to changes to the Company’s reinsurance structure
for commercial automobile coverages.
Underwriting operations produced a combined
ratio of 108.0% during the first quarter of 2019 compared to a
combined ratio of 99.8% for the prior year period. The first
quarter 2019 increase in the combined ratio reflects an increase in
the current accident-year loss ratio related to severe commercial
automobile losses, including continued emergence of severity.
Adverse prior year development, including variable premium
adjustment provisions in our historical reinsurance treaties, was
$0.5 million (the net of $1.6 million of additional ceded premium
from commercial automobile coverages offset by $1.1 million of
favorable prior year reserve development primarily from workers’
compensation and independent contractor coverages). The
Company continues to maintain current accident-year loss ratios at
a level consistent with rising severity expectations in commercial
automobile. In our agency placed commercial automobile excess
and medium fleet product lines the Company attained double-digit
rate increases during the first quarter of 2019. As a result,
the premium retention rate achieved in these product lines was 66%,
resulting from our commitment to remain disciplined in our
underwriting and create long-term value for our
stakeholders.
Commercial automobile products covered by our
reinsurance treaties are subject to an aggregate stop-loss
provision. Once this aggregate stop-loss level is reached, for
every $100 of additional loss, the Company is responsible only for
its $25 retention. The following table illustrates the
financial impact of a further 5% or 10% increase in ultimate losses
for each of the five most recent reinsurance treaty years
(2014-2018) covering these commercial automobile products:
|
5% Increase in Ultimate Loss Ratio |
|
10% Increase in Ultimate Loss Ratio |
Gross loss expense from further strengthening current reserve
position |
$ |
35.3 |
|
$ |
70.7 |
Net financial loss |
|
9.2 |
|
|
18.1 |
$/share (after tax) |
$ |
0.49 |
|
$ |
0.96 |
Net investment income for the first quarter of
2019 increased 34.4% to $6.2 million compared to $4.6 million in
the prior year period. The increase reflects: higher average
funds invested resulting from positive cash flow, as well as a
reallocation from equity investments held in limited partnerships
into short duration, high quality bonds. Our fixed income
investment portfolio continues to emphasize shorter-duration
instruments. If there was a hypothetical increase in interest rates
of 100 basis points, the price of our bonds at March 31, 2019 would
be expected to fall by approximately 2.7%. Credit
quality remains high with a weighted average rating of AA-,
including cash.
During the first quarter of 2019, the Company
reallocated approximately $31.1 million of equity securities,
including distributions from limited partnerships, into
short-duration, high quality bonds. This reallocation was
consistent with investment activity throughout 2018 where
approximately $122 million of equity securities were reallocated to
short-duration treasuries. These equity sales further
solidified the conservative nature of our high quality,
short-duration investment portfolio; opportunistically utilized the
lower corporate tax rate of 21%, which was beneficial given the low
tax basis of many of these equity positions; and were accretive to
income.
The Company continues to focus on our operating
initiative of expense discipline, reflected in the 2.4% decline in
the expense ratio during the first quarter of 2019 when compared to
the first quarter of 2018. We will continue to manage our
expense base, particularly as we gain greater clarity on the impact
of continuing to attain increasing premium rates, and the influence
of increased rates upon the retention of renewing policies.
Book value per share as of March 31, 2019 was
$24.63, an increase of $0.68 per share during the first quarter,
after the payment of cash dividends to shareholders totaling $0.10
per share.
The Company's net income, determined in
accordance with U.S. generally accepted accounting principles
(GAAP) includes items that may not be indicative of ongoing
operations. The following table reconciles income before federal
income tax expense (benefit) to underwriting income (loss), a
non-GAAP financial measure that is a useful tool for investors and
analysts in analyzing ongoing operating trends.
|
|
|
Three Months Ended |
|
March 31 |
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
Income before federal income tax expense (benefit) |
$ |
3,514 |
|
|
$ |
314 |
|
Less: Net realized gains (losses) on investments |
|
(299 |
) |
|
|
376 |
|
Less: Net unrealized gains (losses) - equity securities and limited
partnerships |
|
6,327 |
|
|
|
(4,909 |
) |
Less: Goodwill impairment charge included in Other operating
expenses |
|
0 |
|
|
|
- |
|
Income (loss) from core business operations |
$ |
(2,514 |
) |
|
$ |
4,847 |
|
Less: Net investment income |
|
6,232 |
|
|
|
4,636 |
|
Underwriting income
(loss) |
$ |
(8,746 |
) |
|
$ |
211 |
|
|
|
|
|
Loss from core business operations, before
federal income tax expense, was $2.5 million for the first quarter
of 2019 compared to income from core business operations, before
federal income tax expense, of $4.8 million during the first
quarter of 2018.
The Company’s management uses the term income
(loss) from core business operations, a non-GAAP financial measure,
which is defined as income before federal income tax expense
excluding pre-tax realized and unrealized investment gains and
losses. This financial measure is used to evaluate the
Company’s operating performance because the recognition of realized
investment gains and losses, and occurrence of unrealized gains,
could distort analysis of trends in the core underwriting
business.
The combined ratios and the components, as
presented herein, are commonly used in the property/casualty
insurance industry and are applied to the Company’s GAAP
underwriting results.
Conference Call
Information:
Protective Insurance Corporation has scheduled
its quarterly conference call for Wednesday, May 8, 2019, at 11:00
AM EST to discuss results for the first quarter ended March 31,
2019.
To participate via teleconference, investors may
dial 1-877-705-6003 (U.S./Canada) or 1-201-493-6725 (International
or local) at least five minutes prior to the beginning of the
call. A replay of the call will be available through May 15,
2019 by calling 1-844-512-2921 or 1-412-317-6671 and referencing
passcode 13689060. Investors and interested parties may also
listen to the call via a live webcast, accessible on the company’s
web site via a link at the top of the main Investor Relations
page. To participate in the webcast, please register at least
fifteen minutes prior to the start of the call. The webcast
will be archived on this site until November 8, 2019. The
webcast may be accessed directly at:
http://public.viavid.com/index.php?id=133750.
Also available on the investor relations section
of our web site is an investor presentation providing additional
information to be reviewed in conjunction with our earnings
call. We have also made available complete interim financial
statements and copies of our filings with the Securities and
Exchange Commission.
The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions
to Form 10-Q but do not include all of the information and
footnotes as disclosed in the Company’s annual audited financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
fair presentation have been included.
Forward-looking statements in this report are
made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are
cautioned that such forward-looking statements involve inherent
risks and uncertainties. Readers are encouraged to review the
Company's annual report for its full statement regarding
forward-looking information.
Protective
Insurance Corporation and Subsidiaries |
Unaudited
Condensed Consolidated Balance Sheets |
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
December 31 |
|
|
2019 |
|
|
2018 |
|
Assets |
|
|
|
|
Investments
1: |
|
|
|
Fixed income securities (2019: $669,128; 2018:
$600,504) |
$ |
671,973 |
|
$ |
592,645 |
|
Equity securities |
|
68,956 |
|
|
66,422 |
|
Limited partnerships, at equity |
|
38,239 |
|
|
55,044 |
|
Commercial mortgage loans |
|
7,844 |
|
|
6,672 |
|
Short-term 2 |
|
1,000 |
|
|
1,000 |
|
|
|
|
788,012 |
|
|
721,783 |
|
Cash and cash equivalents |
|
117,418 |
|
|
163,996 |
|
Restricted cash and cash equivalents |
|
15,888 |
|
|
6,815 |
|
Accounts receivable |
|
108,974 |
|
|
102,972 |
|
Reinsurance recoverable |
|
404,424 |
|
|
392,436 |
|
Other assets |
|
95,572 |
|
|
88,426 |
|
Current federal income taxes |
|
6,025 |
|
|
7,441 |
|
Deferred federal income taxes |
|
3,478 |
|
|
6,262 |
|
|
|
$ |
1,539,791 |
|
$ |
1,490,131 |
|
|
|
|
|
|
Liabilities and shareholders' equity |
|
Reserves for losses and loss expenses |
$ |
894,221 |
|
$ |
865,339 |
|
Reserves for unearned premiums |
|
80,332 |
|
|
71,625 |
|
Borrowings under line of credit |
|
20,000 |
|
|
20,000 |
|
Accounts payable and other liabilities |
|
179,168 |
|
|
177,085 |
|
Current federal income taxes |
|
- |
|
|
- |
|
Deferred federal income taxes |
|
- |
|
|
- |
|
|
|
|
1,173,721 |
|
|
1,134,049 |
|
Shareholders' equity: |
|
|
|
Common stock-no par value |
|
634 |
|
|
634 |
|
Additional paid-in capital |
|
55,049 |
|
|
54,720 |
|
Accumulated other comprehensive income ( loss) |
|
1,416 |
|
|
(7,347 |
) |
Retained
earnings |
|
308,971 |
|
|
308,075 |
|
|
|
|
366,070 |
|
|
356,082 |
|
|
|
$ |
1,539,791 |
|
$ |
1,490,131 |
|
|
|
|
|
|
Number of common and common |
|
|
equivalent shares outstanding |
|
14,865 |
|
|
14,869 |
|
Book value per outstanding share |
$ |
24.63 |
|
$ |
23.95 |
|
|
|
|
|
|
1 2019 & 2018 cost in parentheses |
|
2 Approximates cost |
|
|
|
|
Protective
Insurance Corporation and Subsidiaries |
|
Unaudited
Condensed Consolidated Statements of Operations |
|
|
|
|
|
|
(in thousands,
except per share data) |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31 |
|
|
|
|
2019 |
|
|
|
2018 |
|
|
Revenues |
|
|
|
|
|
Net premiums
earned |
$ |
110,013 |
|
|
$ |
105,462 |
|
|
Net investment income |
|
6,232 |
|
|
|
4,636 |
|
|
Commissions and other income |
|
2,064 |
|
|
|
1,814 |
|
|
Net realized gains (losses) on investments, excluding impairment
losses |
|
(39 |
) |
|
|
376 |
|
|
Other-than-temporary impairment losses on investments |
|
|
(260 |
) |
|
|
- |
|
|
Net unrealized gains (losses) on equity securities and limited
partnership investments |
|
|
6,327 |
|
|
|
(4,909 |
) |
|
Net realized and unrealized gains (losses) on investments |
|
|
6,028 |
|
|
|
(4,533 |
) |
|
|
|
|
124,337 |
|
|
|
107,379 |
|
|
Expenses |
|
|
|
|
|
Losses and loss expenses incurred |
|
87,122 |
|
|
|
72,298 |
|
|
Other operating
expenses |
|
33,701 |
|
|
|
34,767 |
|
|
|
|
|
120,823 |
|
|
|
107,065 |
|
|
Income before federal income tax expense
(benefit) |
|
|
3,514 |
|
|
|
314 |
|
|
Federal income tax
expense (benefit) |
|
766 |
|
|
|
(16 |
) |
|
Net income |
|
$ |
2,748 |
|
|
$ |
330 |
|
|
|
|
|
|
|
|
Per share data - diluted: |
|
|
|
Income (loss) before net gains (losses) on investments |
$
(.14) |
|
$ .22 |
|
Net gains (losses) on investments |
.32 |
|
(.20) |
|
Net income |
|
$ .18 |
|
$ .02 |
|
|
|
|
|
|
|
Dividends |
|
$ .10 |
|
$ .28 |
|
|
|
|
|
|
|
Reconciliation of shares outstanding: |
|
|
Average
shares outstanding - basic |
|
14,848 |
|
|
|
15,010 |
|
|
Dilutive effect of
share equivalents |
|
30 |
|
|
|
24 |
|
|
Average shares
outstanding - diluted |
|
14,878 |
|
|
|
15,034 |
|
|
|
|
|
|
|
|
Protective
Insurance Corporation and Subsidiaries |
|
|
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
(in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31 |
|
|
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
|
Net cash provided by operating
activities |
|
$ |
11,405 |
|
|
$ |
8,027 |
|
Investing
activities: |
|
|
|
|
Purchases of available-for-sale investments |
|
|
(140,645 |
) |
|
|
(140,820 |
) |
Purchases of limited partnership interests |
|
|
- |
|
|
|
(200 |
) |
Proceeds
from sales or maturities |
|
|
|
|
of available-for-sale investments |
|
|
68,975 |
|
|
|
103,657 |
|
Proceeds from sales of equity securities |
|
|
|
9,169 |
|
|
|
59,757 |
|
Net purchases of short-term investments |
|
|
- |
|
|
|
- |
|
Purchase of insurance company-owned life insurance |
|
|
- |
|
|
|
(10,000 |
) |
Purchase of commercial mortgage loans |
|
|
(1,172 |
) |
|
|
- |
|
Distributions from limited partnerships |
|
|
17,214 |
|
|
|
- |
|
Other
investing activities |
|
|
(797 |
) |
|
|
(1,214 |
) |
Net cash provided by (used in) investing activities |
|
|
|
(47,256 |
) |
|
|
11,180 |
|
Financing
activities: |
|
|
|
|
Dividends paid to shareholders |
|
|
(1,493 |
) |
|
|
(4,229 |
) |
Drawings on
line of credit |
|
|
- |
|
|
|
0 |
|
Repayment
on line of credit |
|
|
- |
|
|
|
- |
|
Drawings on
margin account |
|
|
- |
|
|
|
- |
|
Repurchase
of common shares |
|
|
(468 |
) |
|
|
(235 |
) |
Proceeds
from sales of common stock |
|
|
- |
|
|
|
- |
|
Net cash used in financing activities |
|
|
|
(1,961 |
) |
|
|
(4,464 |
) |
|
|
|
|
|
|
Effect of foreign exchange rates on cash and cash equivalents |
|
|
|
307 |
|
|
|
(223 |
) |
|
|
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
and cash equivalents |
|
|
|
(37,505 |
) |
|
|
14,520 |
|
Cash, cash
equivalents and restricted cash and cash equivalents at beginning
of period |
|
|
170,811 |
|
|
|
68,713 |
|
Cash, cash
equivalents and restricted cash and cash equivalents at end of
period |
|
$ |
133,306 |
|
|
$ |
83,233 |
|
|
|
|
|
|
|
Financial
Highlights (unaudited) |
|
|
Protective
Insurance Corporation and Subsidiaries |
|
|
|
(In thousands,
except per share data) |
Three Months Ended |
|
|
March 31 |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
Annualized |
|
|
|
Book
value per share beginning of period |
$ |
23.95 |
|
|
$ |
27.83 |
|
Book value per
share end of period |
|
24.63 |
|
|
|
27.38 |
|
Change in book value per share |
$ |
0.68 |
|
|
$ |
(0.45 |
) |
Dividends
paid |
|
0.10 |
|
|
|
0.28 |
|
Change in book value per share plus dividends paid |
$ |
0.78 |
|
|
$ |
(0.17 |
) |
Total value creation 1 |
|
13.0 |
% |
|
|
(2.4 |
%) |
|
|
|
|
|
|
|
|
|
|
Return on average shareholders' equity: |
|
Average shareholders' equity |
|
361,076 |
|
|
|
415,311 |
|
|
|
|
|
|
Net income |
|
2,748 |
|
|
|
330 |
|
Less: Net realized gains (losses) on investments, net of tax |
|
4,762 |
|
|
|
(3,581 |
) |
Net operating income (loss) |
|
(2,014 |
) |
|
|
3,911 |
|
|
|
|
|
|
Return on net income 2 |
|
3.0 |
% |
|
|
0.3 |
% |
Return on net operating income (loss) 2 |
|
(2.2 |
%) |
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
Loss
and LAE expenses incurred |
$ |
87,122 |
|
|
$ |
72,298 |
|
Net premiums
earned |
|
110,013 |
|
|
|
105,462 |
|
Loss and LAE ratio |
|
79.2 |
% |
|
|
68.6 |
% |
|
|
|
|
|
Other
operating expenses |
$ |
33,701 |
|
|
$ |
34,767 |
|
Less: Commissions
and other income |
|
2,064 |
|
|
|
1,814 |
|
Other operating expenses, less commissions and other income |
|
$ |
31,637 |
|
|
$ |
32,953 |
|
Net
premiums earned |
|
110,013 |
|
|
|
105,462 |
|
Expense ratio |
|
28.8 |
% |
|
|
31.2 |
% |
|
|
|
|
|
Combined ratio
3 |
|
108.0 |
% |
|
|
99.8 |
% |
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
|
$ |
148,893 |
|
|
$ |
148,823 |
|
Net premiums written |
|
|
|
115,322 |
|
|
|
113,434 |
|
|
|
|
|
|
1 Total Value Creation equals change in book value plus dividends
paid, divided by beginning book value. Quarterly amounts have been
annualized. |
2 Quarterly amounts have been annualized. |
|
|
|
|
3 The combined ratio is calculated as ratio of losses and loss
expenses incurred, plus other operating expenses, less commission
and other income to net premiums earned. |
|
|
|
|
|
Investor Contact: William
Vensinvestors@protectiveinsurance.com (317) 429-2554
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