RICHFIELD, Ohio, Nov. 7 /PRNewswire-FirstCall/ -- National
Interstate Corporation (NASDAQ:NATL) today reported net income for
the third quarter ended September 30, 2006 of $6.5 million ($0.34
per share diluted), compared to $8.2 million ($0.43 per share
diluted) for the third quarter of 2005. The 20.7% decrease in net
income for the third quarter of 2006 compared to the third quarter
of 2005 is primarily attributable to increased severity from new
losses occurring during the quarter and expenses that were more in
line with expectations than the favorable expenses that were
incurred during last year's third quarter. These higher losses and
normalized expenses were offset by a 42.5% increase in net
investment income in the quarter compared to the third quarter of
2005. Net income for the first nine months of 2006 was $24.3
million ($1.26 per share diluted), an increase of 8.6% or $1.9
million compared to $22.4 million ($1.18 per share diluted) for the
same period of 2005. The higher net income reflects a 13.7%
increase in total revenues offset by a 2.8 percentage point
increase in the GAAP combined operating ratio from 82.4% to 85.2%
for the first nine months of 2005 and 2006, respectively. (Logo:
http://www.newscom.com/cgi-bin/prnh/20050114/NILOGO) Alan Spachman,
Chairman and President of National Interstate Corporation stated,
"We were pleased with the improvement in our top line and
investment results. We were not surprised that losses spiked upward
in the third quarter of this year due to an atypical number of
large losses, or that the unusually low underwriting expense ratio
returned to a more normal level when compared to the same quarter
last year. We historically have accurately projected loss results
over twelve month periods, but can and do experience loss ratio
peaks and valleys in any specific month or quarter. Our
underwriting expense ratio during the third quarter was consistent
with our expectations even though it was higher than the same
quarter last year. We highlighted the favorable one- time expense
variances when they occurred last year and remain satisfied with
operating expenses at the current levels." For the 2006 third
quarter, gross premiums written of $61.7 million and net premiums
written of $51.0 million grew 8.3% and 8.4%, respectively. Gross
premiums written for the first nine months of 2006 increased 4.9%
to $244.0 million, compared to $232.7 million for the same period
last year, and net premiums written increased 6.7% to $190.0
million compared to $178.0 for the same period of 2005. The premium
growth in both the third quarter and first nine months resulted
from increases in the Alternative Risk Transfer, Specialty Personal
Lines, and Hawaii/Alaska business components offset by decreases in
the Transportation and Other (primarily assigned risk policies)
components. Alternative Risk Transfer is the fastest growing
component with increases of 78.3% and 12.1% for the third quarter
and first nine months of 2006, respectively, compared to the same
periods last year. Premiums for the assigned risk policies, which
were received from state insurance plans and the Company has no
control over, were down 76.6% for the third quarter of 2006
compared to the third quarter of 2005 and 30.7% for the first nine
months of 2006 compared to the first nine months of 2005. Excluding
assigned risk policies, gross premiums written grew 14.5% and 5.8%
for the third quarter and nine months ended September 30, 2006,
respectively, compared to the same periods of 2005. The GAAP
combined ratio increased 8.6 percentage points to 91.1% for the
third quarter of 2006, compared to 82.5% for the same period in
2005. For the first nine months of 2006, the GAAP combined ratio
increased 2.8 percentage points to 85.2% compared to 82.4% for the
same period of 2005. The loss and loss adjustment expenses for the
third quarter of 2006 include an unusually high number of large
losses that are reflected in the 67.3% loss and loss adjustment
expense ratio, a 4.4 percentage point increase over the ratio of
62.9% experienced for the third quarter of 2005. The Company's
commercial policy limits which typically range from $1 million to
$5 million subject the Company to potential quarterly fluctuations
as a result of timing of large loss occurrences. Also affecting the
increase in the GAAP combined ratio was a higher underwriting
expense ratio of 23.8% in the third quarter of 2006 compared to
19.6% reported for third quarter of 2005. The third quarter 2006
underwriting expense ratio is consistent with that of prior
quarters of 2006, while the 2005 third quarter underwriting expense
ratio was unusually low due to a reduction in estimated expenses
for insolvencies and other state fees, and a reclassification of
expenses related to assigned risk business. Net investment income
for the 2006 third quarter was $4.5 million compared to $3.2
million for the same quarter last year and $12.7 million for the
first nine months of 2006 compared to $9.0 million for the same
period of 2005. The net investment income increases of 42.5% and
41.4% for the third quarter and first nine months of 2006,
respectively, over the same periods in 2005, reflected an increase
in average cash and invested assets and higher interest rates
available on the short-term and fixed-income portfolio. The growth
in cash and invested assets resulted from positive cash flow from
operations and reinvestment of continued strong earnings. The
Company's investment income continues to grow at a faster rate than
the growth rate of the Company's average investment portfolio. Mr.
Spachman continued, "Our top-line growth rate improved during the
third quarter as we anticipated and we expect this trend to
continue for the remainder of the year in spite of current market
conditions. The third quarter of 2006 was our first quarter as a
public company in which net income was below the same quarter in
the prior year. We remain optimistic that 2006 will finish as
another record-setting year for both sales and profits with an
annual return on average shareholders equity over 20%, beating our
stated objective of 15% plus the rate of inflation." In addition,
the Company announced today that at the Company's November 2, 2006
Board of Directors meeting, the Board approved the payment of a
quarterly dividend previously referenced in the Company's press
release dated May 22, 2006. The $0.04 per share cash dividend will
be payable on December 15, 2006 to shareholders of record of the
Company's common stock as of the close of business on November 30,
2006. About National Interstate Corporation National Interstate
Corporation (NASDAQ:NATL), founded in 1989, completed an initial
public offering in February 2005. We are a specialty property and
casualty insurance company with a niche orientation and focus on
the transportation industry. We differentiate ourselves within our
markets by offering insurance products and services designed to
meet the unique needs of targeted insurance buyers that we believe
are underserved by the insurance industry. Our products include
property and casualty insurance for transportation companies,
captive insurance programs for commercial risks that we refer to as
our alternative risk transfer component, specialty personal lines
consisting primarily of recreational vehicle coverage, and
transportation and general commercial insurance in Hawaii and
Alaska. We offer our insurance products through multiple
distribution channels including independent agents and brokers,
affiliated agencies and agent Internet initiatives. Our insurance
subsidiaries are rated "A" (Excellent) by A.M. Best Company.
National Interstate is an independently operated subsidiary of
Great American Insurance Company, a property-casualty subsidiary of
American Financial Group, Inc. (NYSE:AFGNASDAQ:AFG). The Company is
headquartered in Richfield, Ohio, which is located in northeastern
Ohio between Cleveland and Akron. Forward-Looking Statements This
document, including any information incorporated by reference,
contains "forward-looking statements" (within the meaning of the
Private Securities Litigation Reform Act of 1995). All statements,
trend analyses and other information contained in this press
release relative to markets for our products and trends in our
operations or financial results, as well as other statements
including words such as "may," "target," "anticipate," "believe,"
"plan," "estimate," "expect," "intend," "project," and other
similar expressions, constitute forward-looking statements. We made
these statements based on our plans and current analyses of our
business and the insurance industry as a whole. We caution that
these statements may and often do vary from actual results and the
differences between these statements and actual results can be
material. Factors that could contribute to these differences
include, among other things: general economic conditions and other
factors, including prevailing interest rate levels and stock and
credit market performance which may affect (among other things) our
ability to sell our products, our ability to access capital
resources and the costs associated with such access to capital and
the market value of our investments; customer response to new
products and marketing initiatives; tax law changes; increasing
competition in the sale of our insurance products and services and
the retention of existing customers; changes in legal environment;
regulatory changes or actions, including those relating to
regulation of the sale, underwriting and pricing of insurance
products and services and capital requirements; levels of natural
catastrophes, terrorist events, incidents of war and other major
losses; adequacy of insurance reserves; and availability of
reinsurance and ability of reinsurers to pay their obligations. The
forward-looking statements herein are made only as of the date of
this document. The Company assumes no obligation to publicly update
any forward- looking statements. NATIONAL INTERSTATE CORPORATION
SELECTED FINANCIAL DATA (In thousands, except per share data) Three
months ended Nine months ended September 30, September 30, 2006
2005 2006 2005 Operating Data: Gross premiums written $61,727
$56,985 $243,993 $232,698 Net premiums written $51,022 $47,049
$189,951 $177,952 Premiums earned $56,619 $52,866 $159,363 $142,466
Net investment income 4,528 3,178 12,703 8,985 Net realized gains
199 178 714 484 Other income 586 559 1,603 1,474 Total revenues
61,932 56,781 174,383 153,409 Losses and loss adjustment expenses
38,092 33,254 98,426 87,041 Commissions and other underwriting
expense 11,283 8,577 29,982 25,307 Other operating and general
expenses 2,766 2,322 8,865 6,558 Interest expense 389 340 1,132
1,063 Total expenses 52,530 44,493 138,405 119,969 Income before
income taxes 9,402 12,288 35,978 33,440 Provision for income taxes
2,859 4,040 11,706 11,082 Net income $6,543 $8,248 $24,272 $22,358
Per Share Data: Earnings per common share, basic $0.34 $0.43 $1.27
$1.20 Earnings per common share, assuming dilution $0.34 $0.43
$1.26 $1.18 Book value per common share, basic (at period end) 8.49
7.00 8.49 7.00 Weighted average number of common shares
outstanding, basic 19,146 18,985 19,128 18,634 Weighted average
number of common shares outstanding, diluted 19,354 19,229 19,292
18,885 Common shares outstanding at period end 19,155 19,024 19,155
19,024 Cash dividend per common share $0.04 $0.04 $0.12 $0.04 GAAP
Ratios: Losses and loss adjustment expense ratio 67.3% 62.9% 61.8%
61.1% Underwriting expense ratio 23.8% 19.6% 23.4% 21.3% Combined
ratio 91.1% 82.5% 85.2% 82.4% Return on equity (a) 21.4% 21.7%
Average shareholders' equity $151,109 $103,008 At September 30, At
December 31, 2006 2005 Balance Sheet Data (GAAP): Cash and
investments $388,315 $320,220 Reinsurance recoverable 88,901 77,834
Total assets 801,990 523,003 Unpaid losses and loss adjustment
expenses 263,033 223,207 Long-term debt 15,464 16,297 Total
shareholders' equity $162,685 $139,533 Statutory Data: (b)
Policyholder Surplus (Statutory) (c) $137,854 $122,825 (a) The
ratio of net income to the average of shareholders' equity at the
beginning and at end of the period. Return on Equity calculation is
completed for year-to-date results only. (b) While financial data
is reported in accordance with accounting principles generally
accepted in the United States, or GAAP, for shareholder and other
investment purposes, it is reported on a statutory basis for
insurance regulatory purposes. Certain statutory expenses differ
from amounts reported under GAAP. Specifically, under GAAP, premium
taxes and other variable costs incurred in connection with writing
new and renewal business are capitalized and amortized on a pro
rata basis over the period in which the related premiums are
earned. On a statutory basis, these items are expensed as incurred.
In addition, certain other expenses, such as those related to the
expensing or amortization of computer software, are accounted for
differently for statutory purposes than the treatment accorded
under GAAP. (c) The statutory policyholder surplus of National
Interstate Insurance Company, which includes the statutory
policyholder surplus of its subsidiaries, National Interstate
Insurance Company of Hawaii and Triumphe Casualty Company, Inc.
http://www.newscom.com/cgi-bin/prnh/20050114/NILOGO
http://photoarchive.ap.org/ DATASOURCE: National Interstate
Corporation CONTACT: Tanya Inama of National Interstate
Corporation, +1-877-837-0339, or Web site:
http://www.nationalinterstate.com/
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