- Earnings from operations increased in 2011: fourth
quarter +53%, full year +14%
- Gross premiums written increased in 2011: fourth
quarter +9%, full year +20%
- ROE of 11% for 2011
National Interstate Corporation (Nasdaq:NATL) today reported
results for the 2011 fourth quarter and full year. Net after-tax
earnings from operations per share, diluted of $.56 for the 2011
fourth quarter and $1.78 for the 2011 full year increased compared
to the same prior year periods. Both investment and underwriting
income increased in the 2011 fourth quarter and the 2011 full year
reflected higher net investment income offset by lower underwriting
profits, compared to the same 2010 periods. Gross premiums written
of $114.7 million for the 2011 fourth quarter and $526.3 million
for the 2011 full year increased 9% and 20%, respectively, compared
to the same periods last year. Both 2011 periods reflect the
favorable impact of growth in existing businesses as well as the
Vanliner Insurance Company acquisition in 2010.
Earnings
The table below shows the Company's net income per share
determined in accordance with U.S. generally accepted accounting
principles (GAAP), reconciled between several non-GAAP financial
measures to better reflect the results related to the ongoing
business.
| |
Three Months
Ended December 31, |
|
Year Ended
December 31, |
| |
2011 |
2010 |
|
2011 |
2010 |
| |
(In thousands, except
per share data) |
|
(In thousands, except
per share data) |
| Net after-tax earnings from operations |
$ 10,887 |
$ 7,110 |
|
$ 34,644 |
$ 30,516 |
| After-tax net realized gain from
investments |
996 |
514 |
|
2,910 |
2,811 |
| After-tax impact from balance sheet guaranty
for Vanliner |
165 |
(2,081) |
|
(1,926) |
(2,081) |
| Gain on bargain purchase of Vanliner |
-- |
-- |
|
-- |
7,453 |
| Change in valuation allowance related to net
capital losses |
-- |
-- |
|
-- |
810 |
| Net
income |
$ 12,048 |
$ 5,543 |
|
$ 35,628 |
$ 39,509 |
| |
|
|
|
|
|
| Net after-tax earnings from operations per
share, diluted |
$ 0.56 |
$ 0.36 |
|
$ 1.78 |
$ 1.58 |
| After-tax net realized gain from investments
per share, diluted |
0.05 |
0.03 |
|
0.15 |
0.14 |
| After-tax impact from balance sheet guaranty
for Vanliner per share, diluted |
0.01 |
(0.11) |
|
(0.10) |
(0.11) |
| Gain on bargain purchase of Vanliner,
diluted |
-- |
-- |
|
-- |
0.38 |
| Change in valuation allowance related to net
capital losses per share, diluted |
-- |
-- |
|
-- |
0.04 |
| Net income per share,
diluted |
$ 0.62 |
$ 0.28 |
|
$ 1.83 |
$ 2.03 |
Net after-tax earnings from operations include underwriting
income and net investment income. After-tax realized gains from
investments, the after-tax impact on underwriting results related
to the balance sheet guaranty and the gain on bargain purchase from
the Vanliner acquisition are separately presented to better reflect
the results related to ongoing business.
Underwriting Results:
The following ratios exclude the impact from the balance sheet
guaranty associated with the Vanliner acquisition to reflect the
results of ongoing underwriting operations:
| |
Three Months
Ended December 31, |
|
Year Ended
December 31, |
| |
2011 (a) |
2010 (a) |
|
2011 (a) |
2010 (a) |
| Losses and loss adjustment expense ratio |
67.6% |
70.9% |
|
70.4% |
67.5% |
| Underwriting expense ratio |
24.7% |
25.2% |
|
24.0% |
24.6% |
| Combined ratio |
92.3% |
96.1% |
|
94.4% |
92.1% |
| |
|
|
|
|
|
| (a) These
underwriting ratios exclude the impact of the runoff of the
guaranteed Vanliner business based on premiums earned of $0.6
million and $25.7 million for the 2011 fourth quarter and full
year, respectively, and $24.6 million and $59.2 million for the
2010 fourth quarter and full year, respectively. |
The 2011 fourth quarter combined ratio of 92.3% improved
compared to 2010 due to favorable claims results, offsetting the
trend of higher combined ratios experienced in the first three
quarters of the year. The underwriting results for the full year of
2011 reflect higher claims costs and slightly lower underwriting
expenses when compared to 2010. The prolonged competitive
commercial market conditions contributed to rising loss and loss
adjustment expense (LAE) ratios in 2011.
Claims: The 2011 fourth quarter loss and LAE ratio improved 3.3
percentage points compared to the 2010 fourth quarter. Claims
results in the passenger transportation products, both Alternative
Risk Transfer and traditional, were improved in the quarter
reflecting lower frequency and severity. The Company has
experienced fewer large claims in its higher limit passenger
transportation business which was offset by higher claims costs in
several other products, including two products in the program
business portion of the Alternative Risk Transfer component,
one of which has recently undergone corrective underwriting
actions, with the other having been terminated in the 2011 fourth
quarter.
For the 2011 fourth quarter the Company had favorable
development from prior year claims of $1.4 million which reduced
the loss and LAE ratio by 1.3 percentage points. This compares to
1.4 percentage points of favorable development for the 2010 fourth
quarter.
Underwriting Expenses: The Company's quarterly underwriting
expense ratios often vary based on the mix of business written or
non-recurring items, but have remained relatively unchanged for the
past several years. The 2011 fourth quarter and full year
underwriting expense ratios were both within the expected range and
slightly improved compared to the same 2010 periods.
Dave Michelson, President and Chief Executive Officer said,
"Underwriting results for the 2011 fourth quarter bounced backed
nicely when compared to the up-tick in claims that we experienced
in the 2011 second and third quarters. We continually remind
investors that our quarterly results can vary because of the timing
of claims occurrences. We continue to target low to mid 90's
combined ratios in the current insurance environment. As noted last
quarter, the insurance markets remain competitive, but we are
seeing more instances of flat to slightly higher rates in our
traditional commercial markets."
Investments:
Net investment income for 2011 was higher in all quarters when
compared to 2010 which accounted for the increase in operating
income. Net investment income of $8.2 million for the 2011 fourth
quarter and $30.6 million for the 2011 full year increased 20% and
31%, respectively compared to the same 2010 periods. The increase
in net investment income was in part due to the addition of the
Vanliner portfolio. The Company also took advantage of the steep
yield curve and volatility in the fixed income sectors in 2011 to
reposition its portfolio into higher yielding investments resulting
in improved net investment income with minimal impact on the
duration and credit quality of the portfolio.
The Company had net realized gain from investments of $4.5
million for the 2011 full year primarily from security sales at
gains as part of the portfolio repositioning. The net realized
gains of $4.3 million for the 2010 full year were primarily from
sales to generate funds for the Vanliner acquisition.
The Company maintains a high quality and diversified portfolio
with approximately 94% of its fixed income portfolio rated NAIC 1
or 2 (investment grade) and an average duration of 4.1 years. The
fair value and unrealized gains (losses) of fixed maturities and
equity securities were as follows:
| |
December 31,
2011 |
| |
Fair Value |
|
Net Unrealized Gain
(Loss) |
| |
(In
thousands) |
| U.S government and agencies |
$ 104,007 |
|
$ 6,562 |
| Foreign government |
5,723 |
|
59 |
| State and local government |
340,247 |
|
12,788 |
| Mortgage backed securities |
248,510 |
|
1,446 |
| Corporate obligations |
229,519 |
|
5,956 |
| Preferred redeemable securities |
9,613 |
|
(555) |
| Total fixed maturities |
$ 937,619 |
|
$ 26,256 |
| |
|
|
|
| Equity securities |
$ 31,750 |
|
$ 763 |
| |
|
|
|
| Total fixed maturities and equity
securities |
$ 969,369 |
|
$ 27,019 |
Impact from the Vanliner Guaranteed Runoff Business and Deferred
Income Tax Valuation Allowance:
As previously disclosed, the seller of Vanliner provided
National Interstate with comprehensive financial guarantees related
to the runoff of Vanliner's final closing balance sheet whereby
both favorable and unfavorable balance sheet development inures to
the seller. Additionally, as a result of purchase accounting
requirements the Company determined the fair value of the future
economic benefit of the financial guarantees and acquired loss
reserves as of the date of acquisition and recorded it as a $7.5
million gain on bargain purchase in the 2010 third quarter, despite
the fact that actual gains and losses related to the financial
guaranty were reflected as incurred in periods following the
acquisition. As such, the gain on bargain purchase option and the
after-tax impact from the runoff business guaranteed by the seller
have been reported separately from the net after-tax earnings from
operations to reflect only those results of the ongoing
business.
In 2008, the Company established a valuation allowance on
deferred tax assets associated with its net realized investment
losses, primarily impairment charges during the financial crisis,
which increased the 2008 effective tax rate. Beginning in the 2009
first quarter and continuing through the 2010 first quarter, this
valuation allowance decreased resulting in a corresponding decrease
in the federal income tax expense. No valuation allowance against
deferred tax assets existed subsequent to March 31, 2010.
Gross Premiums Written
The table below summarizes gross premiums written by business
component:
| |
Three Months
Ended December 31, |
| |
2011 |
|
2010 |
| |
Amount |
Percent |
|
Amount |
Percent |
| |
(Dollars in
thousands) |
| Alternative Risk Transfer |
$ 62,541 |
54.6% |
|
$ 50,091 |
47.4% |
| Transportation |
36,358 |
31.7% |
|
38,374 |
36.3% |
| Specialty Personal Lines |
10,644 |
9.3% |
|
12,194 |
11.6% |
| Hawaii and Alaska |
3,465 |
3.0% |
|
3,669 |
3.5% |
| Other |
1,645 |
1.4% |
|
1,243 |
1.2% |
| Gross premiums written |
$ 114,653 |
100.0% |
|
$ 105,571 |
100.0% |
| |
|
|
|
|
|
| |
Year Ended
December 31, |
| |
2011 |
|
2010 |
| |
Amount |
Percent |
|
Amount |
Percent |
| |
(Dollars in
thousands) |
| Alternative Risk Transfer |
$ 285,351 |
54.2% |
|
$ 229,844 |
52.4% |
| Transportation |
162,870 |
30.9% |
|
123,752 |
28.2% |
| Specialty Personal Lines |
53,729 |
10.2% |
|
61,662 |
14.1% |
| Hawaii and Alaska |
18,137 |
3.5% |
|
18,104 |
4.1% |
| Other |
6,225 |
1.2% |
|
5,268 |
1.2% |
| Gross premiums written |
$ 526,312 |
100% |
|
$ 438,630 |
100% |
Alternative Risk Transfer (ART): The ART component grew 25% for
the 2011 fourth quarter and 24% for the 2011 full year compared to
the same 2010 periods. The growth in this component was
attributable to new programs initiated earlier in the year as well
as continuing very high customer retention and new customers in
existing programs. During 2011 the Company added new programs and
customers in moving and storage, trucking and passenger
transportation ART products and terminated a program in the fourth
quarter. The Company expects the ART component to continue to be a
primary growth source.
Transportation: The Transportation component growth of 32% in
2011 primarily occurred in the first half of the year from the
moving and storage business written through Vanliner. The
Transportation component would have been flat for the fourth
quarter excluding the premium that was part of the Vanliner balance
sheet guaranty which does not impact the Company's operating
results. The Company continues to experience competitive pricing
for the products in this component.
Specialty Personal Lines: Gross premiums written in the
specialty personal lines component have declined in each quarter of
2011 resulting in a decrease of 13% for the 2011 full year.
Underwriting and pricing actions in 2010 related to the commercial
vehicle product and a decline in the number of quotes and average
premium per policy in 2011 for the RV product have adversely
affected the top line for this component.
Hawaii and Alaska: Gross premiums written for the 2011 full year
were flat compared to 2010. After two consecutive quarters of
growth, the top line for this component decreased 6% in the 2011
fourth quarter as market conditions remain competitive.
Mr. Michelson commented, "We are pleased with the 20% increase
in gross premiums written which was the result of continued growth
in the ART component and a full year of Vanliner premium in 2011
compared to only the six months following the July 2010
acquisition. As we look ahead to 2012, we expect no worse than flat
rates in our traditional commercial businesses and ART growth from
both new opportunities and recently incepted programs, which could
be partially offset by the program that was discontinued in the
fourth quarter."
Summary Comments:
"In 2011 we successfully integrated Vanliner into our operations
and the excellent fourth quarter results concluded a solid year for
us both in terms of top line and profitability," stated Mr.
Michelson. "Our combined ratio of 94.4% is in the anticipated range
and investment income came in ahead of expectations. We again grew
shareholders value with 13% growth in our per share book value. We
are confident in our ability to continue to achieve similar results
in 2012."
Earnings Conference Call
The Company will hold a conference call to discuss the 2011
fourth quarter and full year results on Thursday, February 23, 2012
at 10:00 a.m. Eastern Time. There are two communication modes
available to listen to the call. Telephone access to the conference
call and Q and A session will be available by dialing 888-713-4213
and providing the confirmation code 94201526. Please dial in 5 to
10 minutes prior to the scheduled starting time. To pre-register
for the conference call, go to
https://www.theconferencingservice.com/prereg/key.process?key=PFQKGNDXG
and follow the instructions provided. The conference call will be
broadcast live over the Internet. To listen to the call via the
Internet, access our website at http://invest.natl.com and follow
the instructions at the web cast link. The archived web cast will
be available shortly after the call on our website.
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, any
weaknesses in the financial markets and other factors, including
prevailing interest rate levels and stock and credit market
performance which may affect or continue to affect (among other
things) our ability to sell our products and to collect amounts due
to us, our ability to access capital resources and the costs
associated with such access to capital and the market value of our
investments; our ability to manage our growth strategy, customer
response to new products and marketing initiatives; tax law and
accounting 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.
About National Interstate Corporation
An Insurance Experience Built Around You.
National Interstate Corporation (Nasdaq:NATL), founded in 1989,
is the holding company for a specialty property-casualty insurance
group which differentiates itself by offering products and services
designed to meet the unique needs of niche markets. Products
include insurance for passenger, truck, and moving and storage
transportation companies, alternative risk transfer, or captive
programs for commercial risks, specialty personal lines products
focused primarily on recreational vehicle owners and small
commercial vehicle accounts, and transportation and general
commercial insurance in Hawaii and Alaska. The Company's insurance
subsidiaries, including the three primary insurers, National
Interstate Insurance Company, Vanliner Insurance Company and
Triumphe Casualty Company, are rated "A" (Excellent) by A.M. Best
Company. Headquartered in Richfield, Ohio, National Interstate is
an independently operated subsidiary of Great American Insurance
Company, a property-casualty subsidiary of American Financial
Group, Inc. (NYSE:AFG) (Nasdaq:AFG).
| |
|
|
|
| NATIONAL INTERSTATE
CORPORATION SELECTED FINANCIAL DATA (In
thousands, except per share data) |
|
|
|
| |
|
|
|
| |
Three Months Ended
December 31, |
|
Year Ended December
31, |
| Operating Data: |
2011 |
2010 |
|
2011 |
2010 |
| Gross premiums written |
$ 114,654 |
$ 105,571 |
|
$ 526,313 |
$ 438,630 |
| |
|
|
|
|
|
| Net premiums written |
$ 96,465 |
$ 86,624 |
|
$ 442,200 |
$ 354,529 |
| |
|
|
|
|
|
| Premiums earned |
$ 110,396 |
$ 107,091 |
|
$ 429,946 |
$ 358,371 |
| Net investment income |
8,233 |
6,887 |
|
30,554 |
23,298 |
| Net realized gains on investments (*) |
1,533 |
790 |
|
4,477 |
4,324 |
| Gain on bargain purchase |
-- |
-- |
|
-- |
7,453 |
| Other |
711 |
856 |
|
3,541 |
3,680 |
| Total revenues |
120,873 |
115,624 |
|
468,518 |
397,126 |
| Losses and loss adjustment expenses |
74,741 |
82,068 |
|
308,357 |
256,408 |
| Commissions and other underwriting
expenses |
23,113 |
19,635 |
|
87,737 |
67,639 |
| Other operating and general expenses |
4,572 |
5,776 |
|
17,432 |
17,197 |
| Expense on amounts withheld |
1,182 |
875 |
|
3,910 |
3,450 |
| Interest expense |
131 |
59 |
|
298 |
294 |
| Total expenses |
103,739 |
108,413 |
|
417,734 |
344,988 |
| Income before income taxes |
17,134 |
7,211 |
|
50,784 |
52,138 |
| Provision for income taxes |
5,086 |
1,668 |
|
15,156 |
12,629 |
| Net income |
$ 12,048 |
$ 5,543 |
|
$ 35,628 |
$ 39,509 |
| |
|
|
|
|
|
| Per Share Data: |
|
|
|
|
|
| Net income per common share, basic |
$ 0.62 |
$ 0.29 |
|
$ 1.84 |
$ 2.04 |
| Net income per common share, assuming
dilution |
$ 0.62 |
$ 0.28 |
|
$ 1.83 |
$ 2.03 |
| |
|
|
|
|
|
| Weighted number of common shares outstanding,
basic |
19,383 |
19,357 |
|
19,371 |
19,343 |
| Weighted number of common shares outstanding,
diluted |
19,522 |
19,484 |
|
19,491 |
19,452 |
| |
|
|
|
|
|
| Cash dividend per common share |
$ 0.09 |
$ 0.08 |
|
$ 0.36 |
$ 0.32 |
| |
|
|
|
|
|
| (*) Consists of the
following: |
|
|
|
|
|
| Realized gains before
impairment losses |
$ 3,442 |
$ 834 |
|
$ 6,532 |
$ 4,666 |
| |
|
|
|
|
|
| Total losses on securities with
impairment charges |
(2,665) |
-- |
|
(2,811) |
(197) |
| Non-credit portion in other
comprehensive income |
756 |
(44) |
|
756 |
(145) |
| Net impairment charges
recognized in earnings |
(1,909) |
(44) |
|
(2,055) |
(342) |
| Net realized gains on
investments |
$ 1,533 |
$ 790 |
|
$ 4,477 |
$ 4,324 |
| |
|
|
|
|
|
| GAAP Ratios: |
|
|
|
|
|
| Losses and loss adjustment expense ratio |
67.7% |
76.6% |
|
71.7% |
71.5% |
| Underwriting expense ratio |
24.4% |
22.9% |
|
23.7% |
22.7% |
| Combined ratio |
92.1% |
99.5% |
|
95.4% |
94.2% |
| Return on equity (a) |
|
|
|
10.8% |
13.6% |
| Average shareholders' equity |
|
|
|
$ 330,084 |
$ 290,448 |
| |
|
|
|
|
|
| |
|
|
|
At December 31,
2011 |
At December 31, 2010
(b) |
| Balance Sheet Data
(GAAP): |
|
|
|
|
|
| Cash and invested assets |
|
|
|
$ 1,021,104 |
$ 965,204 |
| Reinsurance recoverable |
|
|
|
199,081 |
208,590 |
| Amounts refundable on purchase price of
Vanliner |
|
|
|
-- |
14,256 |
| Intangible assets |
|
|
|
8,660 |
8,972 |
| Total assets |
|
|
|
1,525,069 |
1,488,605 |
| Unpaid losses and loss adjustment
expenses |
|
|
|
776,576 |
798,645 |
| Long-term debt |
|
|
|
22,000 |
20,000 |
| Total shareholders' equity |
|
|
|
$ 350,590 |
$ 309,578 |
| Total shareholders' equity, excluding
unrealized gains/losses on fixed maturities |
|
|
|
$ 333,524 |
$ 305,441 |
| Book value per common share, basic (at period
end) |
|
|
|
$ 18.07 |
$ 15.99 |
| Book value per common share, excluding
unrealized gains/losses on fixed maturities (at period end) |
|
|
|
$ 17.19 |
$ 15.78 |
| Common shares outstanding at period end
(c) |
|
|
|
19,398 |
19,356 |
| |
|
|
|
|
|
| (a) The ratio of annualized net
income to average shareholders' equity at the beginning and end of
the period. |
| |
|
|
|
|
|
| (b) Certain line items and ratios
associated with the 2010 results have been impacted by the required
purchase accounting related to the Vanliner acquisition. |
| |
|
|
|
|
|
| (c) Common shares outstanding at
period end include all vested common shares. At December 31, 2011
and December 31, 2010 there were 73,800 and 88,500, respectively,
unvested common shares that were excluded from the common shares
outstanding calculation. These restricted shares will be included
in calculation upon vesting. |
CONTACT: Tanya Inama
National Interstate Corporation
877-837-0339
investorrelations@nationalinterstate.com
www.natl.com
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