AFG American Financial Group

RICHFIELD, Ohio, Aug. 15 /PRNewswire-FirstCall/ -- National Interstate Corporation (NASDAQ:NATL) today reported net income for the second quarter ended June 30, 2005 of $7.0 million ($.36 per share diluted) compared to $6.4 million ($.42 per share diluted) for the 2004 second quarter. The 8.5% increase in net earnings for the 2005 second quarter reflects an increase in net investment income of $1.1 million or 51.7%. Net income for the first six months of 2005 increased by $2.7 million to $14.1 million ($0.75 per share diluted) compared to $11.4 million ($.74 per share diluted) for the same period of 2004. The per share comparisons for both periods are affected by increased shares outstanding in 2005 resulting from the Initial Public Offering completed in February 2005. (Logo: http://www.newscom.com/cgi-bin/prnh/20050114/NILOGO ) The GAAP combined ratio was 84.1% for the second quarter of 2005 and 81.4% for the same period in 2004. Slight variances in both our loss and loss adjustment expenses and our underwriting expenses contributed to the 2.7 point increase in the 2005 combined ratio. The GAAP combined ratio for the first six months of 2005 was 82.4%, comparable to 82.5% for the same period of 2004. Commenting on the results, Alan Spachman, Chairman and President of National Interstate Corporation, said, "We remain satisfied with our year to date performance which is in line with our expectations. We have been successful in growing our business and maintaining pricing discipline in a softening commercial insurance environment. We appreciate the loyalty and support our Company and products continue to receive from the customers we serve." Mr. Spachman continued, "During our transition to public company status we have been challenged by the expanded accounting and reporting requirements. Deficiencies in our internal controls and procedures have been identified. Adjustments were recorded in the second quarter that were not material to 2005 interim results. These deficiencies and adjustments are referenced in Item 4. of our Form 10-Q. We will continue to focus on improving these functions with a clear objective of preparing our organization and processes to meet all internal control standards and to maintain the positive sales and earnings momentum we have generated." About National Interstate Corporation National Interstate Corporation (NASDAQ:NATL), founded in 1989, is a specialty property and casualty insurance company with a niche orientation and focus on the transportation industry. National Interstate differentiates itself within its 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 core products include property and casualty insurance for transportation companies, group captive insurance programs for transportation companies that we refer to as our alternative risk transfer operations, specialty personal lines, primarily recreational vehicle coverage, and transportation and general commercial insurance in Hawaii. We offer our products through multiple distribution channels including independent agents and brokers, affiliated agencies and the Internet. Our insurance subsidiaries are rated "A" (Excellent) by A.M. Best Co. Ohio-based National Interstate, a subsidiary of American Financial Group, Inc. (NYSE:AFG) Nasdaq, is headquartered in Richfield, Ohio, near Cleveland, Ohio. Forward Looking Statements This release may contain forward-looking statements that are subject to risks and uncertainties. Although National Interstate Corporation believes that the expectations reflected in its forward-looking statements are reasonable, actual results could differ materially from those expectations. Important cautionary statements and risk factors that could affect actual results are discussed in materials filed by National Interstate Corporation with the Securities and Exchange Commission. Contact: Mike Bourgon VP - Investor Relations (330) 659-8900 NATIONAL INTERSTATE CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) Three months ended Six months ended June 30, June 30, 2005 2004 (a) 2005 2004 (a) Operating Data: Gross premiums written $72,136 $60,465 $175,713 $149,405 Net premiums written $57,274 $47,560 $130,903 $104,052 Premiums earned $46,423 $40,418 $89,600 $73,414 Net investment income 3,140 2,070 5,807 3,827 Net realized gains 191 464 306 1,156 Other income 407 455 915 908 Total revenues 50,161 43,407 96,628 79,305 Losses and loss adjustment expenses 27,720 23,454 53,787 43,352 Commissions and other underwriting expense 9,478 7,908 16,730 14,458 Other operating and general expenses 2,252 2,010 4,236 3,629 Interest expense 322 274 723 528 Total expenses 39,772 33,646 75,476 61,967 Income before income taxes 10,389 9,761 21,152 17,338 Provision for income taxes 3,434 3,350 7,042 5,944 Net income $6,955 $6,411 $14,110 $11,394 Per Share Data: Earnings per common share, basic $0.37 $0.43 $0.76 $0.76 Earnings per common share, assuming dilution $0.36 $0.42 $0.75 $0.74 Book value per common share, basic (at period end) 6.69 3.87 6.69 3.87 Weighted average number of common shares outstanding, basic 18,965 15,024 18,456 15,024 Weighted average number of common shares outstanding, diluted 19,223 15,396 18,710 15,396 Common shares outstanding at period end 18,965 15,024 18,965 15,024 GAAP Ratios: Losses and loss adjustment expense ratio 59.7 % 58.0 % 60.0 % 59.1 % Underwriting expense ratio 24.4 % 23.4 % 22.4 % 23.4 % Combined ratio 84.1 % 81.4 % 82.4 % 82.5 % Return on equity (c) 22.7 % 45.1 % 28.3 % 42.2 % Average shareholders' equity $122,554 $56,870 $99,852 $53,948 At June 30, 2005 At December 31,2004 Balance Sheet Data (GAAP): Cash and investments $301,305 $238,951 Reinsurance recoverable 70,106 63,128 Total assets 540,537 401,236 Unpaid losses and loss adjustment expenses 197,296 171,031 Long-term debt (b) 16,922 32,547 Total shareholders' equity $126,915 $72,789 Statutory Data: (d) Policyholder Surplus (Statutory) (e) $104,991 $92,124 (a) 2004 net income and earnings per share reflect a correction from amounts previously disclosed (refer to June 30, 2005 Form 10-Q). (b) Long-term debt at December 31, 2004 includes a $15 million loan from Great American Insurance Company that was paid in full in February 2005. (c) The ratio of net income to the average of shareholders' equity at the beginning and at end of the period. (d) 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. (e) The statutory policyholder surplus of National Interstate Insurance Company, which includes the statutory policyholder surplus of its subsidiary, National Interstate Insurance Company of Hawaii. AP Archive: http://photoarchive.ap.org PRN Photo Desk, photodesk@prnewswire.com http://www.newscom.com/cgi-bin/prnh/20050114/NILOGODATASOURCE: National Interstate Corporation CONTACT: Mike Bourgon, VP - Investor Relations of National Interstate Corporation, +1-330-659-8900, or Web site: http://www.nationalinterstate.com/

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