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"I am pleased to report strong results in our operating segments for the second quarter of 2009, despite a continuing difficult economic environment," said Bruce M. Eckert, Chief Executive Officer. "Our combined ratio for the three months ended June 30, 2009 in our workers' compensation insurance and group benefits insurance segments were 84.9 percent and 99.0 percent, respectively, and our consolidated combined ratio was 95.2 percent. Our favorable results were driven by solid growth in workers' compensation insurance direct written premiums, improved workers' compensation reinsurance terms, aggressive expense management initiatives and disciplined underwriting in an environment with high unemployment. Second quarter, year over year workers' compensation insurance direct written premium increased by 10.5 percent to $24.9 million as a result of solid premium renewal retention ratios, new business writings in the Southeast and the acquisition of Employers Security Insurance Company in September 2008. Additional premium received as a result of payroll audits remained positive during the quarter and aggregated approximately $352,000 for the six months ended June 30, 2009. Competitive pressures remain strong across all geographic sectors, however, again during the quarter, we were able to place 90.0 percent of our policies into non-dividend paying plans. Reported and open lost-time workers' compensation claims were in line with the previous years' second quarter claims. Our extensive claims management and cost containment initiatives continue to successfully manage medical inflation. Also, we believe our strong claim closing patterns mitigate the negative effects of recessionary employment trends. We did experience favorable loss reserve development from accident years prior to 2009 in the amount of $750,000 for the three months ended June 30, 2009 in our workers' compensation insurance segment. The results in our group benefits insurance segment improved in the second quarter of 2009 driven primarily by the return to normalcy of our life loss ratio. We continue to produce solid new sales in the group benefits insurance segment and prioritize bottom-line underwriting profitability over top-line growth. I was particularly pleased with the responsiveness of our group benefits team to opportunities presented by a market dislocation in the Southeast. As I previously reported, we recently revisited all areas of expenses during the first and second quarters of 2009. I am very pleased to report that our consolidated expense ratio decreased to 32.8 percent for the three months ended June 30, 2009 compared to 34.6 percent for the same period in 2008." Eckert added, "Our diluted book value per share increased to $14.82 per share during the second quarter of 2009 driven by favorable operating results and an increase in after-tax accumulated other comprehensive income related to our investment portfolio of $3.5 million. We continue to execute on our 2009 strategic initiatives, including geographic expansion of our workers' compensation insurance products and the implementation of ParallelPay, our 'pay-as-you-go' workers' compensation insurance product. Direct written premium from our ParallelPay product contributed to our solid year-over-year growth adding $1.6 million during the second quarter of 2009, the initial quarter this product was offered. This product continues to be favorably received by the marketplace. We are now licensed to write business in 23 states and are currently evaluating new territories to expand our very profitable workers' compensation insurance business." Consolidated highlights for the second quarter include:
-- Revenue for the second quarter of 2009 increased to $36.2 million,
compared to $36.1 million for the same period in 2008. The increase in
revenue is due primarily to an increase in net premiums earned and
income from limited partnerships, offset by a decrease in investment
income and a change from net realized investment gains in 2008 to net
realized investment losses in 2009;
-- Net premiums earned increased $800,000 to $34.0 million in the second
quarter of 2009 from $33.2 million during the same period in 2008. Net
premiums earned increased 2.4 percent due primarily to the growth in
workers' compensation insurance premium and the acquisition of
Employers Security Insurance Company partially offset by the termination
of the reinsurance treaty effective July 1, 2008 that comprised the
run-off specialty reinsurance segment;
-- Net investment income decreased $700,000 to $1.7 million ($1.3 million
after-tax) for the three months ended June 30, 2009, compared to $2.4
million ($1.7 million after-tax) for the same period in 2008. The
decrease in net investment income is due primarily to a decrease in
overall invested assets;
-- The change in equity interest in limited partnerships increased $801,000
to income of $444,000 ($302,000 after-tax) for the three months ended
June 30, 2009, compared to a loss of $357,000 ($232,000 after-tax) for
the same period in 2008;
-- Net realized investment losses, excluding the segregated portfolio cell
reinsurance segment, were $209,000 ($220,000 after-tax) for the three
months ended June 30, 2009, compared to net realized investment gains of
$385,000 ($250,000 after-tax) for the same period in 2008. Net realized
investment losses for the three months ended June 30, 2009 include $1.5
million ($1.0 million after-tax) of other-than-temporary impairments,
primarily on equity securities;
-- $750,000 ($488,000 after-tax) of favorable loss reserve development on
prior accident years was recorded in the workers' compensation
insurance segment for the three months ended June 30, 2009, compared to
$1.0 million ($650,000 after-tax) for the same period in 2008; and
-- After-tax intangible asset amortization expense of $281,000 was recorded
for the three months ended June 30, 2009, compared to $213,000 for the
second quarter of 2008.
Weighted average fully diluted shares considered outstanding used to calculate diluted earnings per share for the three months ended June 30, 2009 and 2008 consisted of the following:
2009 2008
---- ----
Shares issued on June 16, 2006 10,603,548 10,603,548
Weighted average ESOP shares 218,106 143,357
Weighted average restricted stock shares 98,779 91,699
Weighted average treasury shares
purchased (2,091,757) (1,941,263)
Weighted average stock warrants
exercised(1) 180,291 -
Stock warrants(1) - 306,099
--- -------
Total 9,008,967 9,203,440
========= =========
(1) 306,099 warrants were outstanding as of January 1, 2009 of which
244,879 warrants were earned. The remaining 61,220 warrants will not
be earned. On March 10, 2009, the 244,879 warrants were exercised.
EIHI retained 64,588 warrants as payment of the exercise price.
Segment Operating Results Workers' Compensation Insurance EIHI's workers' compensation insurance segment reported net income of $2.1 million for the second quarter of 2009, compared to $3.0 million for the second quarter of 2008. Highlights for the second quarter include:
-- Direct written premiums increased to $24.9 million for the three months
ended June 30, 2009, compared to $22.5 million for the same period in
2008, an increase of 10.5 percent;
-- Net premiums earned increased to $18.9 million for the second quarter of
2009, compared with $15.4 million for the second quarter of 2008, an
increase of 22.7 percent;
-- Audit premium, which results from an examination of the
policyholders' payroll and other records, resulted in the Company
recording additional premium of $69,000 for the second quarter of 2009,
compared to return premium to policyholders of $163,000 for the same
period in 2008;
-- Net investment income was $817,000 for the second quarter of 2009,
compared to $944,000 for the same period in 2008. The decrease in net
investment income is due primarily to a decrease in the invested asset
base;
-- The change in equity interest in limited partnerships was income of
$274,000 for the three months ended June 30, 2009, compared to a loss of
$480,000 for the same period in 2008;
-- After-tax net realized investment losses of $524,000 were recorded for
the three months ended June 30, 2009, compared to after-tax net realized
investment gains of $4,000 for the same period in 2008;
-- The combined ratio was 84.9 percent for the second quarter of 2009,
compared to 74.2 percent for the same period last year;
-- The accident year loss and LAE ratio was 64.5 percent and 58.0 percent
for the three months ended June 30, 2009 and 2008, respectively. For the
three months ended June 30, 2009, $750,000 of favorable loss reserve
development on prior accident years was recorded, which decreased the
2009 loss ratio by 4.0 percentage points compared to favorable loss
reserve development on prior accident years of $1.0 million in the
second quarter of 2008, which decreased the 2008 loss ratio by 6.5
percentage points; and
-- The expense ratio was 25.4 percent for the three months ended June 30,
2009, compared to 23.6 percent for the same period in 2008. The increase
in the expense ratio is primarily due to increased corporate expense
allocations from EIHI, start-up costs associated with EIHI's
expansion into the Southeast and the Company's state licensing
initiatives.
Segregated Portfolio Cell Reinsurance As previously reported, the segregated portfolio cell reinsurance segment has fifteen active programs, which produce fee-based revenue for EIHI's other business segments. Prospecting activity in this segment has increased despite current economic trends, largely as a result of our expansion into the Southeast and Midwest markets. Group Benefits Insurance EIHI's group benefits insurance segment reported net income of $977,000 for the three months ended June 30, 2009, compared to $676,000 for the same period in 2008. Highlights for the second quarter include:
-- Net premiums earned were $8.9 million for the second quarter of 2009,
compared to $9.1 million in 2008;
-- Net investment income was $415,000 for the second quarter of 2009,
compared to $694,000 for the second quarter of 2008. The decrease in net
investment income is due primarily to a decrease in the invested asset
base;
-- The change in equity interest in limited partnerships was income of
$131,000 for the three months ended June 30, 2009, compared to income of
$73,000 for the same period in 2008;
-- After-tax net realized investment gains of $540,000 were recorded for
the three months ended June 30, 2009, compared to $14,000 for the same
period in 2008;
-- The combined ratio was 99.0 percent for the second quarter of 2009,
compared to 98.4 percent for the same period last year;
-- The calendar year loss and LAE ratio was 66.8 percent for the three
months ended June 30, 2009, compared to 69.1 percent for the same period
in 2008. The decrease in the calendar year loss and LAE ratio is
primarily due to a decrease in the life accident year loss ratio
reflective of a reduction in death claims; and
-- The expense ratio was 32.2 percent for the three months ended June 30,
2009, compared to 29.3 percent for the same period in 2008.
Run-Off Specialty Reinsurance Prior to July 1, 2008, business in the run-off specialty reinsurance segment was assumed through participation in a reinsurance treaty with an unaffiliated ceding company related to an underground storage tank insurance program, referred to as "EnviroGuard," and a non-hazardous waste transportation product, referred to as "EIA Liability." Effective July 1, 2008, EIHI terminated the reinsurance treaty that comprised the run-off specialty reinsurance segment. EIHI's run-off specialty reinsurance segment reported net income of $6,000 for the second quarter of 2009, compared to a net loss of $1.1 million for the same period last year. Highlights for the second quarter include:
-- Net premiums earned were $224,000 for the second quarter of 2009,
compared to $3.1 million in 2008. The decrease in net premiums earned is
due to the July 1, 2008 termination of the reinsurance treaty that
comprised the run-off specialty reinsurance segment;
-- Net investment income was $169,000 for the three months ended June 30,
2009, compared to $313,000 for the same period last year;
-- The change in equity interest in limited partnerships was income of
$39,000 for the three months ended June 30, 2009, compared to income of
$50,000 for the same period in 2008; and
-- After-tax net realized investment losses of $241,000 were recorded for
the three months ended June 30, 2009, compared to after-tax net realized
investment gains of $114,000 for the same period in 2008.
Corporate and Other The corporate and other segment primarily includes corporate expenses and EIHI's third party administration business. The corporate and other segment recorded a net loss of $108,000 for the three months ended June 30, 2009, compared to $1.0 million for the same period in 2008. 2009 net income includes the reversal of a deferred tax valuation allowance for realized and unrealized capital losses of $438,000, which increased net income for the three months ended June 30, 2009. Financial Condition Total assets were $386.6 million as of June 30, 2009. Shareholders' equity was $143.9 million as of June 30, 2009. As of June 30, 2009, EIHI's book value per share and diluted book value per share were $14.85 and $14.82, respectively. Outstanding shares used to calculate book value per share and diluted book value per share were 9,691,257 and 10,340,445, respectively, as of June 30, 2009. The basic book value per share calculation includes the impact of restricted stock awards of 251,675 shares and warrants exercised of 180,291. The diluted book value per share calculation includes the additional impact of stock options to purchase 649,188 common shares, which have a weighted average exercise price of $14.36. Conference Call with Investors EIHI will hold a conference call with investors beginning at 10:00 a.m. Eastern Time on Friday, August 7, 2009 to review the Company's 2009 second quarter results. The conference call will be available via a live webcast accessed through the Investor Relations section of www.easterninsuranceholdings.com. The dial-in numbers for the conference call are as follows:
Live Call
---------
800-860-2442 (Domestic)
412-858-4600 (International)
A replay of the conference call will be available through August 17, 2009, at 877-344-7529 (domestic) and 412-317-0088 (international). The replay conference number for the conference call is 432400. An online archive of the webcast will be available on the Investor Relations section of www.easterninsuranceholdings.com. Consolidated Financial Results Set forth in the tables below are the unaudited consolidated balance sheets as of June 30, 2009 and December 31, 2008 and unaudited statements of income for the three and six months ended June 30, 2009 and 2008.
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share data)
June 30 December 31
2009 2008
------- -----------
ASSETS
Investments:
Fixed income securities, at estimated fair
value (amortized cost, $163,108; $180,102) $167,111 $183,136
Convertible bonds, at estimated fair value
(amortized cost, $14,914; $13,783) 14,708 12,346
Equity securities, at estimated fair value
(cost, $19,015; $22,287) 19,015 17,162
Other long-term investments, at estimated fair
value (cost, $10,607; $10,586) 9,333 9,519
----- -----
Total investments 210,167 222,163
Cash and cash equivalents 68,539 52,875
Accrued investment income 1,616 2,058
Premiums receivable (net of allowance, $583;
$581) 36,146 29,615
Reinsurance recoverable on paid and unpaid
losses and loss adjustment expenses 27,590 29,637
Deferred acquisition costs 6,936 5,760
Deferred income taxes, net 5,555 6,281
Federal income taxes recoverable 439 16
Intangible assets 8,313 9,179
Goodwill 10,752 10,752
Other assets 10,566 8,975
------ -----
Total assets $386,619 $377,311
======== ========
LIABILITIES
Reserves for unpaid losses and loss adjustment
expenses $155,349 $159,117
Unearned premium reserves 50,086 42,365
Advance premium 1,523 1,594
Accounts payable and accrued expenses 12,424 13,136
Ceded reinsurance balances payable 6,881 6,886
Federal income taxes payable - -
Benefit plan liabilities 499 497
Segregated portfolio cell dividend payable 13,947 13,140
Loan payable 1,963 2,439
----- -----
Total liabilities $242,672 $239,174
-------- --------
SHAREHOLDERS' EQUITY
Series A preferred stock, par value $0, auth.
shares - 5,000,000; no shares issued and
outstanding - -
Common capital stock, par value $0, auth.
shares - 20,000,000; issued - 11,783,014 and
11,602,723, respectively; outstanding -
9,691,257 and 9,512,366, respectively - -
Unearned ESOP compensation (5,235) (5,606)
Additional paid in capital 112,350 111,772
Treasury stock, at cost (2,091,757 and
2,090,357 shares, respectively) (32,666) (32,655)
Retained earnings 68,376 66,492
Accumulated other comprehensive loss, net 1,122 (1,866)
----- ------
Total shareholders' equity 143,947 138,137
------- -------
Total liabilities and shareholders' equity $386,619 $377,311
======== ========
EASTERN INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
Three Months Ended Six Month Ended
------------------ ---------------
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
-------- -------- -------- --------
Revenue:
Net premiums earned $34,018 $33,242 $67,756 $66,245
Net investment income 1,727 2,430 3,672 4,995
Change in equity
interest in limited
partnerships 444 (357) 277 (308)
Net realized investment
gains (140) 598 (1,739) 305
Other revenue 124 139 363 355
--- --- --- ---
Total revenue 36,173 36,052 70,329 71,592
------ ------ ------ ------
Expenses:
Losses and loss
adjustment expenses
incurred 21,297 20,698 43,884 40,413
Acquisition and other
underwriting expenses 4,376 4,716 8,956 9,636
Other expenses 6,344 6,466 12,876 12,529
Amortization of
intangible assets 433 328 866 656
Policyholder dividends (62) (9) 123 (72)
Segregated portfolio
dividend expense 87 1,639 (652) 2,573
-- ----- ---- -----
Total expenses 32,475 33,838 66,053 65,735
------ ------ ------ ------
Income before income
taxes 3,698 2,214 4,276 5,857
Income tax expense 721 711 1,854 1,780
--- --- ----- -----
Net income $2,977 $1,503 $2,422 $4,077
====== ====== ====== ======
Earnings per share
(EPS):
Basic shares outstanding 9,008,967 8,854,976 8,931,101 9,140,295
Basis EPS $0.32 $0.17 $0.27 $0.44
Diluted shares
outstanding 9,008,967 9,203,440 9,046,738 9,496,135
Diluted EPS $0.32 $0.16 $0.26 $0.42
Cautionary Statement Some of the statements contained in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "project," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of these terms or other similar terminology. Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. No assurance can be given that management's expectations, beliefs or projections will occur or be achieved or accomplished. Factors that could affect the Company's actual results include, among others, the fact that our loss reserves are based on estimates and may be inadequate to cover our actual losses; the uncertain effects of emerging claim and coverage issues on our business; an inability to obtain or collect on our reinsurance protection; a downgrade in the A.M. Best rating of our insurance subsidiaries; the impact of extensive regulation of the insurance industry and legislative and regulatory changes; a failure to realize our growth strategies and investment objectives; the further deterioration in the fixed income and equity security markets, the effects of intense competition; the loss of one or more principal employees; the geographic concentration of our business; the failure of independent insurance brokers to adequately market our products; and other factors described in our filings with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance upon these forward-looking statements, which speak only as of the date of this release. The Company undertakes no obligation to update any forward-looking statements. SOURCE Eastern Insurance Holdings, Inc. http://www.easterninsuranceholdings.com For full details for EIHI click here.
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