SOUTHFIELD, Mich., Nov. 3 /PRNewswire-FirstCall/ --
- Gross Written Premium up 48.2% - Net Operating Income of $0.23 per diluted share - Net income of $0.09 per diluted share - Combined Ratio of 96.7% - Declared Quarterly Dividend of $0.02 per share Third Quarter Overview:
Meadowbrook Insurance Group, Inc. reported net operating income, a non GAAP measure, of $10.9 million or $0.23 per diluted share and net income of $4.2 million, or $0.09 per diluted share for the quarter ended September 30, 2008. Third quarter net income includes the after-tax impacts of Hurricanes Gustav and Ike, which are now estimated at $5.4 million, or $0.11 per diluted share, and an after-tax realized capital loss of $6.7 million, or $0.14 per diluted share. The realized capital loss was primarily due to the other than temporary impairments of Freddie Mac, Fannie Mae and Lehman Brothers preferred stock.
The 2008 third quarter GAAP combined ratio was 96.7%, including 8.1 percentage points of property catastrophe losses from the above mentioned hurricanes. This compares to a combined ratio of 93.8% for the third quarter of 2007. The loss ratio for the third quarter of 2008 was 65.7% including the 8.1 percentage points from the two hurricanes, compared to 59.9% for the third quarter of 2007. The 2008 third quarter combined ratio includes an expense ratio of 31.0% compared to 33.9% for the same period in 2007. The expense ratio improvement is due primarily to the reduction of fronting fees and the Company's ability to leverage fixed costs across a larger earned premium base.
Commenting on the Company's results, Meadowbrook President and Chief Executive Officer Robert S. Cubbin stated, "While our net income was adversely impacted by the unanticipated crisis in the financial markets and the two hurricanes, we are pleased with our core operating results. Gross written premium grew by 48.2% to $134.4 million, which includes $37.8 million from ProCentury for the two months following the closing on the merger. Excluding ProCentury, gross written premium grew by 6.5%. Our operating profitability continued despite a competitive market and the $5.4 million after-tax impact of the two hurricanes, with only two months of premium from ProCentury. New business initiatives from 2007 and 2008 have gained traction while we continue to be selective in our growth and disciplined in our underwriting. We are diligently monitoring achieved rates and see signs of a near term change to more adequate pricing levels as the multiple negative impacts from recent events are being realized. Our balance sheet remains under-levered and we are well capitalized to grow our premium writings without the need to raise new equity. The elimination of fronting fees and our ability to further leverage fixed costs have contributed to the continuing improvement in the expense ratio."
Net operating income was adversely impacted by an after-tax realized loss of $6.7 million, or $0.14 per diluted share, which consists of the previously announced realized losses from preferred stock holdings of Fannie Mae, Freddie Mac and Lehman Brothers. There was also some modest decline in the debt security investment portfolio, primarily from GMAC and Lehman Brothers bonds that have become impaired.
Commenting on the investment portfolio, Meadowbrook Chief Financial Officer Karen M. Spaun stated, "Meadowbrook maintains a conservative investment portfolio, which focuses on high quality fixed income securities and an appropriate level of liquidity. Consequently, the recent financial crisis and its impact on Fannie Mae, Freddie Mac and Lehman Brothers only had a 1.5% impact on our book value. We closely match the duration of our assets to our liabilities and we have historically had and anticipate future positive operating cash flows which allow us to hold securities to maturity and avoid any forced sales to meet liquidity requirements. At September 30, 2008, 98.5% of our bonds are investment grade."
The effective tax rate for the third quarter of 2008 was 44.5%. The unusually high effective tax rate for the quarter reflects the impact of establishing a $2.0 million deferred tax valuation allowance relating to the previously mentioned other than temporary impairments of Freddie Mac, Fannie Mae and Lehman Brothers preferred stock. The valuation allowance was established based upon our expectation that we will not recognize taxable capital gains to offset the tax benefits from these capital losses. Our investment and tax strategies reflect our intent and ability to hold our debt securities to maturity.
Year-to-Date Overview:
Net operating income for the nine months ended September 30, 2008 was $26.5 million, or $0.65 per diluted share and net income was $19.7 million, or $0.48 per share. The after-tax impact of catastrophe losses for the nine months ended September 30, 2008 was $5.4 million, or $0.13 per diluted share.
The year to date GAAP combined ratio for 2008 was 94.0% and includes 3.3 percentage points of catastrophe losses, compared to a combined ratio of 95.7% for the same period in 2007. The loss ratio for the nine months ended September 30, 2008 was 63.2% compared to 61.7% for the same period in 2007. The combined ratio for the nine months ended September 30, 2008 includes an expense ratio of 30.8% compared to 34.0% for the same period in 2007.
The year to date net operating income of $26.5 million was impacted by after-tax realized losses of $6.9 million, or $0.17 per diluted share, due primarily to the realized investment losses recorded in the third quarter. Amortization expense for the nine months ended September 30, 2008, was $4.6 million, or $0.11 per diluted share.
Other Matters ProCentury's Results:
Meadowbrook's results for the three and nine months ended September 30, 2008 included only two months of ProCentury's results because the effective date for the closing of the merger was July 31, 2008.
Shareholders' Equity:
Shareholders' equity was $422.6 million, or $7.33 per common share at September 30, 2008 on a substantially greater number of shares outstanding, compared to $301.9 million, or $8.16 per common share, at December 31, 2007.
Common stock shares outstanding at September 30, 2008 increased to 57,644,022 from 36,980,070 shares outstanding at September 30, 2007. During the quarter, we issued 21.1 million shares or $122.5 million of new equity in conjunction with the ProCentury merger. The total consideration for the transaction was $220.2 million resulting in estimated goodwill of $48.8 million and an increase in other intangible assets of $30.6 million.
At September 30, 2008, our debt-to-equity ratio was 34.0%, compared to 18.5% at December 31, 2007. Debt to equity excluding debentures was 14.8% at September 30, 2008 compared to zero at December 31, 2007.
Dividend and Share Repurchases:
On October 31, 2008, our Board of Directors declared a quarterly dividend of $0.02 per share payable on December 1, 2008, to shareholders of record as of November 14, 2008.
During the third quarter of 2008, we repurchased 500,000 shares at a cost of $7.01 per share. The total repurchase authorization is 3,000,000 shares and 2,500,000 shares remain under the authorization.
Also on October 31, 2008, our Board of Directors elected two former ProCentury board members, Robert F. Fix and Jeffrey A. Maffett, to our Board.
2008 and 2009 Expectations
We have revised our 2008 earnings guidance to include the effect of the ProCentury merger. We now expect 2008 net operating income to be between $37.0 million and $38.0 million, or $0.82 to $0.84 per diluted share. Our 2008 expectations include full year amortization expense of approximately $6.0 million.
For 2009, we expect net operating income to be in a range of $46 million to $52 million. Gross written premium should be in a range of $725 million to $740 million. Our combined ratio should be in a range of 95.0% to 97.0%.
Commenting on the 2009 outlook Mr. Cubbin stated, "Achieving these goals would result in net operating income of $0.80 to $0.90 per diluted share, and net operating income, excluding amortization expense of between $0.90 and $1.00 per diluted share, with approximately 57.6 million shares outstanding. We view 2009 as a transitional year for the insurance market, and we are positioning the company to take advantage of price stabilization and then firming. We have confidence in the revenue synergies that are developing from the ProCentury merger and expect meaningful value to emerge in the latter part of 2009 and into 2010. We believe that the newly expanded Meadowbrook will be well positioned to take advantage of opportunities in the changing specialty insurance environment."
About Meadowbrook Insurance Group
Following the recent merger with ProCentury Corporation, Meadowbrook today includes several agencies, claims and loss prevention facilities, self-insured management organizations and seven property and casualty insurance underwriting companies, including one in Bermuda. Meadowbrook has twenty-six locations in the United States. A leader in the specialty program management market, Meadowbrook is a risk management organization, specializing in alternative risk management solutions for agents, professional and trade associations. Meadowbrook Insurance Group, Inc. common shares are listed on the New York Stock Exchange under the symbol "MIG." For further information, please visit Meadowbrook's corporate web site at http://www.meadowbrook.com/ .
Certain statements made by Meadowbrook Insurance Group, Inc. in this release may constitute forward-looking statements including, but not limited to, those statements that include the words "believes," "expects," "anticipates," "estimates," or similar expressions. Please refer to the Company's most recent 10-K, 10-Q, and other Securities and Exchange Commission filings for more information on risk factors. Actual results could differ materially. These forward-looking statements involve risks and uncertainties including, but not limited to the following: the frequency and severity of claims; uncertainties inherent in reserve estimates; catastrophic events; a change in the demand for, pricing of, availability or collectibility of reinsurance; increased rate pressure on premiums; obtainment of certain rate increases in current market conditions; investment rate of return; changes in and adherence to insurance regulation; actions taken by regulators, rating agencies or lenders; obtainment of certain processing efficiencies; changing rates of inflation; and general economic conditions. Meadowbrook is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED BALANCE SHEET INFORMATION SEPTEMBER 30, DECEMBER 31, (In Thousands, Except Per Share Data) 2008 2007 BALANCE SHEET DATA ASSETS Cash and invested assets $1,054,837 $651,601 Premium & agents balances 130,536 87,341 Reinsurance recoverable 257,749 199,514 Deferred policy acquisition costs 58,033 26,926 Prepaid reinsurance premiums 35,869 17,763 Goodwill 108,590 43,497 Other assets 161,314 87,324 Total Assets $1,806,928 $1,113,966 LIABILITIES Loss and loss adjustment expense reserves $879,712 $540,002 Unearned premium reserves 293,236 153,927 Debt 62,625 -- Debentures 80,930 55,930 Other liabilities 67,840 62,213 Total Liabilities 1,384,343 812,072 STOCKHOLDERS' EQUITY Common stockholders' equity 422,585 301,894 Total Liabilities & Stockholders' Equity $1,806,928 $1,113,966 Book value per common share $7.33 $8.16 Book value per common share excluding unrealized gain/loss on available for sale securities, net of deferred taxes $7.57 $8.07 MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED INCOME STATEMENT INFORMATION (In Thousands, Except FOR THE QUARTER FOR THE NINE MONTHS Share & Per Share Data) ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, SUMMARY DATA 2008 2007 2008 2007 Gross written premiums $134,418 $90,729 $319,256 $258,233 Net written premiums 112,465 73,203 259,935 210,845 REVENUES Net earned premiums $104,243 $67,337 $247,296 $199,732 Net commissions and fees 12,309 13,319 33,972 35,613 Net investment income 10,622 6,788 24,687 19,173 Net realized losses (7,290) (200) (7,467) (186) Total Revenues 119,884 87,244 298,488 254,332 EXPENSES Net losses & loss adjustment expenses(1) 63,932 37,015 145,135 113,368 Salaries & employee benefits 17,056 15,750 43,954 42,181 Interest expense 2,333 1,476 4,898 4,631 Policy acquisition and other underwriting expenses(1) 19,470 12,927 45,333 39,739 Amortization expense 1,531 622 4,645 1,309 Other administrative expenses 8,055 8,890 24,847 23,882 Total Expenses 112,377 76,680 268,812 225,110 INCOME BEFORE INCOME TAXES AND EQUITY EARNINGS 7,507 10,564 29,676 29,222 Income tax expense 3,338 3,219 10,128 8,829 Equity earnings of affiliates 26 210 143 271 NET INCOME $4,195 $7,555 $19,691 $20,664 NET OPERATING INCOME(2) $10,938 $7,685 $26,549 $20,785 Amortization expense 1,531 622 4,645 1,309 NET OPERATING INCOME, excluding amortization expense(3) $12,469 $8,307 $31,194 $22,094 Diluted earnings per common share Net income $0.09 $0.21 $0.48 $0.65 Net operating income $0.23 $0.22 $0.65 $0.65 Net operating income, excluding amortization expense $0.26 $0.23 $0.77 $0.70 Diluted weighted average common shares outstanding 47,595,572 35,378,119 40,657,894 31,761,244 GAAP ratios: Loss & LAE ratio 65.7% 59.9% 63.2% 61.7% Other underwriting expense ratio 31.0% 33.9% 30.8% 34.0% GAAP combined ratio 96.7% 93.8% 94.0% 95.7%
(1) Both the loss and loss adjustment and expense ratios are calculated based upon the unconsolidated insurance company operations. The following supplemental information sets forth the intercompany fees, which are eliminated upon consolidation.
(2) While net operating income is a non-GAAP disclosure, management believes this information is beneficial to reviewing the financial statements. Net operating income is net income less realized gains (losses) net of taxes associated with such gains (losses).
(3) While net operating income, excluding amortization expense, is a non- GAAP disclosure, management believes this information is beneficial to reviewing the financial statements. Management believes this information is beneficial as amortization expense reflects an interim non-cash charge and in the long-term cash earnings will reflect GAAP earnings as we complete the amortization periods associated with current acquisitions. Net operating income, excluding amortization expense, is net income less realized gains (losses) net of taxes associated with such gains (losses) and less amortization expense.
MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED UNCONSOLIDATED GAAP DATA FOR THE QUARTER FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, (In Thousands) 2008 2007 2008 2007 Unconsolidated GAAP data -- Ratio Calculation Table: Net earned premiums $104,243 $67,337 $247,296 $199,732 Consolidated net loss and LAE(1) $63,932 $37,015 $145,135 $113,368 Intercompany claim fees 4,508 3,297 11,243 9,945 Unconsolidated net loss and LAE $68,440 $40,312 $156,378 $123,313 GAAP loss and LAE ratio 65.7% 59.9% 63.2% 61.7% Consolidated policy acquisition and other underwriting expenses (1) $19,537 $12,927 $45,400 $39,739 Intercompany administrative and other underwriting fees 12,821 9,916 30,741 28,246 Unconsolidated policy acquisition and other underwriting expenses $32,358 $22,843 $76,141 $67,985 GAAP other underwriting expense ratio 31.0% 33.9% 30.8% 34.0% GAAP combined ratio 96.7% 93.8% 94.0% 95.7% 2008 2007 2008 2007 Unconsolidated GAAP data -- Gross Commissions and Fees: Managed programs: Management fees $6,972 $8,376 $17,178 $18,663 Claims fees 2,304 2,337 6,789 6,788 Loss control fees 467 489 1,602 1,632 Reinsurance brokerage 177 185 571 603 Total managed programs 9,920 11,387 26,140 27,686 Agency commissions 2,631 2,329 8,640 9,074 Intersegment revenue (241) (397) (807) (1,147) Net commissions and fees 12,310 13,319 33,973 35,613 Intercompany commissions and fees 17,329 13,213 41,984 38,191 Gross commissions and fees $29,639 $26,532 $75,957 $73,804 Fee-for-service pre-tax income, excluding amortization $5,780 $2,787 $10,026 $10,024 Pre-tax margin on fee-for- service income 19.5% 10.5% 13.2% 13.6%
(1) Both the loss and loss adjustment and expense ratios are calculated based upon the unconsolidated insurance company operations. The above table sets forth the intercompany fees, which are eliminated in consolidation. The GAAP combined ratio is the sum of the GAAP loss and loss adjustment expense ratio and the GAAP expense ratio. The GAAP loss and loss adjustment expense ratio is the unconsolidated net loss and loss adjustment expense in relation to net earned premium. The GAAP expense ratio is the unconsolidated policy acquisition and other underwriting expenses in relation to net earned premium.
MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED ADJUSTED GAAP EXPENSE RATIO SUMMARY FOR THE QUARTER FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, (In Thousands) 2008 2007 2008 2007 Net earned premiums $104,243 $67,337 $247,296 $199,732 Less: Unconsolidated net loss and LAE 68,440 40,312 156,378 123,313 Unconsolidated policy acquisition and other underwriting expenses 32,358 22,843 76,141 67,985 Underwriting income $3,445 $4,182 $14,777 $8,434 GAAP combined ratio as reported 96.7% 93.8% 94.0% 95.7% Specialty risk management operations pre-tax income $12,166 $13,700 $40,695 $35,867 Less: Underwriting income 3,445 4,182 14,777 8,434 Net investment income and capital losses 3,332 6,588 17,220 18,987 Fee-based operations pre-tax income 5,389 2,930 8,698 8,446 Agency operations pre-tax income 391 (143) 1,328 1,578 Total fee-for-service pre-tax income $5,780 $2,787 $10,026 $10,024 GAAP expense ratio as reported 31.0% 33.9% 30.8% 34.0% Adjustment to include pre-tax income from total fee-for-service income (1) 5.5% 4.1% 4.1% 5.0% GAAP expense ratio as adjusted (2) 25.5% 29.8% 26.7% 29.0% GAAP loss and LAE ratio as reported 65.7% 59.9% 63.2% 61.7% GAAP combined ratio as adjusted 91.2% 89.7% 89.9% 90.7% Reconciliation of consolidated pre-tax income: Specialty risk management operations pre-tax income: Fee-based operations pre-tax income $5,389 $2,930 $8,698 $8,446 Underwriting income 3,445 4,182 14,777 8,434 Net investment income and capital losses 3,332 6,588 17,220 18,987 Total specialty risk management operations pre-tax income 12,166 13,700 40,695 35,867 Agency operations pre-tax income 391 (143) 1,328 1,578 Less Holding company: expenses 1,184 895 2,804 2,283 Interest expense 2,333 1,476 4,898 4,631 Amortization expense 1,531 622 4,645 1,309 Consolidated pre-tax income $7,509 $10,564 $29,676 $29,222
(1) Adjustment to include pre-tax income from total fee-for-service income is calculated by dividing total fee-for-service income by net earned premiums.
(2) While the adjusted GAAP expense ratio is a non-GAAP disclosure, management believes this information is beneficial to reviewing the financial statements. The adjusted GAAP expense ratio is the GAAP expense ratio, as reported, less the adjustment to include pre-tax income from total fee-for- service income. Management believes this information is beneficial as our GAAP expense ratio includes the impact of the margin associated with our fee-based operations. If the profit margin from our fee-for-service business is recognized as an offset to our underwriting expense, a more realistic picture of our operating efficiency emerges.
MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION (In Thousands, Except Share & Per Share Data) 2005A 2006A SUMMARY DATA Gross written premiums $332,209 $330,872 Net written premiums 258,134 262,668 INCOME STATEMENT REVENUES Net earned premiums $249,959 $254,920 Commissions and fees (net) 35,916 41,172 Net investment income 17,975 22,075 Net realized gains (losses) 167 69 Total Revenues 304,017 318,236 EXPENSES Net losses & loss adjustment expenses 151,542 146,293 Policy acquisition and other underwriting expenses 44,439 50,479 Other administrative expenses 26,810 28,824 Salaries & employee benefits 51,331 54,569 Amortization expense 373 590 Interest expense 3,856 5,976 Total Expenses 278,351 286,731 INCOME BEFORE TAXES AND EQUITY EARNINGS 25,666 31,505 Income tax expense 7,757 9,599 Equity earnings of affiliates 1 128 NET INCOME $17,910 $22,034 Net realized capital gain (loss), net of tax 109 45 OPERATING INCOME $17,801 $21,989 Amortization expense 373 590 OPERATING INCOME, excluding amortization expense $18,174 $22,579 Weighted average common shares outstanding 29,653,067 29,566,141 Shares O/S at end of the period 28,672,009 29,107,818 PER SHARE DATA (Diluted) Net income $0.60 $0.75 Net realized gain (loss), net of tax $-- $0.01 Operating income $0.60 $0.74 Operating income, excluding amortization expense $0.61 $0.76 OPERATING RATIO ANALYSIS GAAP Loss & LAE ratio 65.2% 62.3% GAAP Expense ratio 33.5% 34.5% GAAP Combined ratio 98.7% 96.8% Unconsolidated GAAP data - Ratio Calculation Table: Net earned premiums $249,959 $254,920 Consolidated net loss and LAE $151,542 $146,293 Intercompany claim fees 11,523 12,553 Unconsolidated net loss and LAE $163,065 $158,846 GAAP Net loss and LAE ratio 65.2% 62.3% Consolidated Policy acquisition and other underwriting expenses $44,439 $50,479 Intercompany administrative and other underwriting fees 39,231 37,442 Unconsolidated policy acquisition and other underwriting expenses $83,670 $87,921 GAAP Expense ratio 33.5% 34.5% GAAP Combined Ratio 98.7% 96.8% Unconsolidated Commissions & Fees Managed programs: Management fees $16,741 $18,714 Claims fees 7,113 8,776 Loss control fees 2,260 2,216 Reinsurance brokerage 660 735 Total managed programs 26,774 30,441 Agency commissions 11,304 12,285 Intersegment commissions and fees (2,162) (1,554) Net Commissions and fees 35,916 41,172 Intercompany commissions and fees 50,754 49,995 Gross commissions and fees $86,670 $91,167 MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION (In Thousands, Except Share & Per Share Data) Q107A Q207A Q307A Q407A SUMMARY DATA Gross written premiums $89,504 $78,000 $90,729 $88,218 Net written premiums 71,972 65,670 73,203 69,366 INCOME STATEMENT REVENUES Net earned premiums $65,204 $67,191 $67,337 $68,465 Commissions and fees (net) 11,551 10,743 13,319 10,375 Net investment income 6,156 6,229 6,788 7,227 Net realized gains (losses) (6) 20 100 36 Total Revenues 82,905 84,183 87,544 86,103 EXPENSES Net losses & loss adjustment expenses 36,646 39,707 37,015 37,601 Policy acquisition and other underwriting expenses 13,643 13,169 12,927 13,978 Other administrative expenses 7,394 7,598 9,190 8,087 Salaries & employee benefits 13,532 12,900 15,750 14,251 Amortization expense 144 543 622 621 Interest expense 1,487 1,667 1,476 1,400 Total Expenses 72,846 75,584 76,980 75,938 INCOME BEFORE TAXES AND EQUITY EARNINGS 10,059 8,599 10,564 10,165 Income tax expense 3,149 2,461 3,219 2,897 Equity earnings of affiliates 13 48 210 60 NET INCOME $6,923 $6,186 $7,555 $7,328 Net realized capital gain (loss), net of tax (4) 13 65 23 OPERATING INCOME $6,927 $6,173 $7,490 $7,305 Amortization expense 144 543 622 621 OPERATING INCOME, excluding amortization expense $7,071 $6,716 $8,112 $7,926 Weighted average common shares outstanding 29,465,807 30,350,553 35,378,119 37,074,978 Shares O/S at end of the period 29,539,236 30,529,260 36,980,070 36,996,287 PER SHARE DATA (Diluted) Net income $0.23 $0.20 $0.21 $0.20 Net realized gain (loss), net of tax $- $- $- $- Operating income $0.23 $0.20 $0.21 $0.20 Operating income, excluding amortization expense $0.24 $0.22 $0.23 $0.21 OPERATING RATIO ANALYSIS GAAP Loss & LAE ratio 61.3% 64.1% 59.9% 59.5% GAAP Expense ratio 35.0% 33.3% 33.9% 34.5% GAAP Combined ratio 96.3% 97.4% 93.8% 94.0% Unconsolidated GAAP data -- Ratio Calculation Table: Net earned premiums $65,204 $67,191 $67,337 $68,465 Consolidated net loss and LAE $36,646 $39,707 $37,015 $37,601 Intercompany claim fees 3,295 3,353 3,297 3,113 Unconsolidated net loss and LAE $39,941 $43,060 $40,312 $40,714 GAAP Net loss and LAE ratio 61.3% 64.1% 59.9% 59.5% Consolidated Policy acquisition and other underwriting expenses $13,643 $13,169 $12,927 $13,978 Intercompany administrative and other underwriting fees 9,152 9,178 9,916 9,644 Unconsolidated policy acquisition and other underwriting expenses $22,795 $22,347 $22,843 $23,622 GAAP Expense ratio 35.0% 33.3% 33.9% 34.5% GAAP Combined Ratio 96.3% 97.4% 93.8% 94.0% Unconsolidated Commissions & Fees Managed programs: Management fees $4,875 $5,412 8,376 5,300 Claims fees 2,204 2,247 2,337 2,237 Loss control fees 599 544 489 519 Reinsurance brokerage 333 85 185 326 Total managed programs 8,011 8,288 11,387 8,382 Agency commissions 3,885 2,860 2,329 2,242 Intersegment commissions and fees (345) (405) (397) (249) Net Commissions and fees 11,551 10,743 13,319 10,375 Intercompany commissions and fees 12,447 12,531 13,213 12,757 Gross commissions and fees $23,998 $23,274 $26,532 $23,132 MEADOWBROOK INSURANCE GROUP, INC. FINANCIAL INFORMATION SUPPLEMENT TO THE EARNINGS RELEASE UNAUDITED HISTORICAL INCOME STATEMENT INFORMATION (In Thousands, Except Share & Per Share Data) 2007A Q108A Q208A Q308A SUMMARY DATA Gross written premiums $346,451 $90,468 $94,370 $134,418 Net written premiums 280,211 71,399 76,071 112,465 INCOME STATEMENT REVENUES Net earned premiums $268,197 $66,022 $77,031 $104,243 Commissions and fees (net) 45,988 12,031 9,632 12,309 Net investment income 26,400 7,148 6,917 10,622 Net realized gains (losses) 150 (31) (146) (7,290) Total Revenues 340,735 85,170 93,434 119,884 EXPENSES Net losses & loss adjustment expenses 150,969 37,661 43,542 63,932 Policy acquisition and other underwriting expenses 53,717 13,147 12,716 19,470 Other administrative expenses 32,269 8,832 7,961 8,055 Salaries & employee benefits 56,433 12,755 14,143 17,056 Amortization expense 1,930 1,551 1,563 1,531 Interest expense 6,030 1,311 1,254 2,333 Total Expenses 301,348 75,257 81,179 112,377 INCOME BEFORE TAXES AND EQUITY EARNINGS 39,387 9,913 12,255 7,507 Income tax expense 11,726 2,911 3,879 3,338 Equity earnings of affiliates 331 56 61 26 NET INCOME $27,992 $7,058 $8,437 $4,195 Net realized capital gain (loss), net of tax 97 (20) (95) (6,743) OPERATING INCOME $27,895 $7,078 $8,532 $10,938 Amortization expense 1,930 1,551 1,563 1,531 OPERATING INCOME, excluding amortization expense $29,825 $8,629 $10,095 $12,469 Weighted average common shares outstanding 33,101,965 37,103,270 37,126,911 47,595,572 Shares O/S at end of the period 36,996,287 37,021,032 37,021,032 57,644,022 PER SHARE DATA (Diluted) Net income $0.85 $0.19 $0.23 $0.09 Net realized gain (loss), net of tax $0.01 $- $- $(0.14) Operating income $0.84 $0.19 $0.23 $0.23 Operating income, excluding amortization expense $0.90 $0.23 $0.27 $0.26 OPERATING RATIO ANALYSIS GAAP Loss & LAE ratio 61.2% 61.7% 61.2% 65.7% GAAP Expense ratio 34.2% 32.2% 29.3% 31.0% GAAP Combined ratio 95.4% 93.9% 90.5% 96.7% Unconsolidated GAAP data -- Ratio Calculation Table: Net earned premiums $268,197 $66,022 $77,031 $104,243 Consolidated net loss and LAE $150,969 $37,661 $43,542 $63,932 Intercompany claim fees 13,058 3,106 3,629 4,508 Unconsolidated net loss and LAE $164,027 $40,767 $47,171 $68,440 GAAP Net loss and LAE ratio 61.2% 61.7% 61.2% 65.7% Consolidated Policy acquisition and other underwriting expenses $53,717 $13,147 $12,716 $19,537 Intercompany administrative and other underwriting fees 37,890 8,088 9,832 12,821 Unconsolidated policy acquisition and other underwriting expenses $91,607 $21,235 $22,548 $32,358 GAAP Expense ratio 34.2% 32.2% 29.3% 31.0% GAAP Combined Ratio 95.4% 93.9% 90.5% 96.7% Unconsolidated Commissions & Fees Managed programs: Management fees $23,963 $6,032 $4,174 $6,972 Claims fees 9,025 2,180 2,305 2,304 Loss control fees 2,151 510 625 467 Reinsurance brokerage 929 296 98 177 Total managed programs $36,068 9,018 7,202 9,920 Agency commissions 11,316 3,328 2,681 2,631 Intersegment commissions and fees (1,396) (315) (251) (241) Net Commissions and fees 45,988 12,031 9,632 12,310 Intercompany commissions and fees 50,948 11,194 13,461 17,329 Gross commissions and fees $96,936 $23,225 $23,093 $29,639
