ELBA, Ala.--(BUSINESS WIRE)--The National Security Group, Inc. (NASDAQ: NSEC) results for the three months and nine months ended September 30, 2018 and 2017, based on accounting principles generally accepted in the United States of America, were reported today as follows:
Unaudited Consolidated Financial Summary |
Three months ended September 30, |
Nine months ended September 30, |
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2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
Gross premiums written | $ | 17,178,000 | $ | 17,246,000 | $ | 52,387,000 | $ | 52,953,000 | ||||||||||||||
Net premiums written | $ | 15,429,000 | $ | 15,499,000 | $ | 47,690,000 | $ | 48,354,000 | ||||||||||||||
Net premiums earned | $ | 15,445,000 | $ | 15,467,000 | $ | 45,764,000 | $ | 45,838,000 | ||||||||||||||
Net investment income | 1,020,000 | 939,000 | 2,799,000 | 2,795,000 | ||||||||||||||||||
Net realized investment gains | 453,000 | 75,000 | 125,000 | 312,000 | ||||||||||||||||||
Other income | 148,000 | 150,000 | 457,000 | 447,000 | ||||||||||||||||||
Total Revenues | 17,066,000 | 16,631,000 | 49,145,000 | 49,392,000 | ||||||||||||||||||
Policyholder benefits and settlement expenses | 9,825,000 | 11,184,000 | 29,024,000 | 34,911,000 | ||||||||||||||||||
Amortization of deferred policy acquisition costs | 782,000 | 706,000 | 2,372,000 | 2,470,000 | ||||||||||||||||||
Commissions | 2,003,000 | 2,096,000 | 5,795,000 | 5,947,000 | ||||||||||||||||||
General and administrative expenses | 2,404,000 | 2,398,000 | 7,075,000 | 6,410,000 | ||||||||||||||||||
Taxes, licenses and fees | 567,000 | 709,000 | 1,565,000 | 1,915,000 | ||||||||||||||||||
Interest expense | 306,000 | 320,000 | 917,000 | 969,000 | ||||||||||||||||||
Total Benefits, Losses and Expenses | 15,887,000 | 17,413,000 | 46,748,000 | 52,622,000 | ||||||||||||||||||
Income (Loss) Before Income Taxes | 1,179,000 | (782,000 | ) | 2,397,000 | (3,230,000 | ) | ||||||||||||||||
Income tax expense (benefit) | 272,000 | (225,000 | ) | 562,000 | (1,358,000 | ) | ||||||||||||||||
Net Income (Loss) | $ | 907,000 | $ | (557,000 | ) | $ | 1,835,000 | $ | (1,872,000 | ) | ||||||||||||
Income (Loss) Per Common Share | $ | 0.36 | $ | (0.22 | ) | $ | 0.73 | $ | (0.74 | ) | ||||||||||||
Reconciliation of Net Income (Loss) to non-GAAP Measurement | ||||||||||||||||||||||
Net income (loss) | $ | 907,000 | $ | (557,000 | ) | $ | 1,835,000 | $ | (1,872,000 | ) | ||||||||||||
Income tax expense (benefit) | 272,000 | (225,000 | ) | 562,000 | (1,358,000 | ) | ||||||||||||||||
Realized investment losses (gains), net | (453,000 | ) | (75,000 | ) | (125,000 | ) | (312,000 | ) | ||||||||||||||
Pretax Income (Loss) From Operations | $ | 726,000 | $ | (857,000 | ) | $ | 2,272,000 | $ | (3,542,000 | ) | ||||||||||||
Management Commentary on Results of Operations
Summary:
For the three months ended September 30, 2018, the Company had net income of $907,000, $0.36 income per share, compared to a net loss of $557,000, $0.22 loss per share, for the three months ended September 30, 2017. The pretax income from operations in the third quarter of 2018 totaled $726,000 compared to pretax loss from operations of $857,000 in the third quarter of 2017. During the third quarter of 2018, claim activity related to catastrophe events was significantly less compared to the same period last year. For the three months ended September 30, 2018, the P&C segment had $1,906,000 in reported losses and loss adjustment expenses (LAE) from cat events (including development from first and second quarter 2018 cat events). This includes $819,000 in reported losses and LAE from Hurricane Florence, which made landfall on September 14, 2018 and primarily impacted our policyholders in South Carolina. For the three months ended September 30, 2017, the P&C segment had $3,626,000 in reported losses and LAE from cat events (including development from first and second quarter 2017 cat events). Results for the third quarter of 2017 were negatively impacted by losses reported from Hurricane Irma. On September 10, 2017, Hurricane Irma made U.S. landfall in the Florida Keys and impacted our policyholders in Alabama, Georgia, South Carolina and Tennessee. Georgia was the primary state in our coverage area impacted by Hurricane Irma comprising over 85% of reported claims. The impact of this catastrophe led to $2,718,000 in reported losses and LAE for the quarter.
For the nine months ended September 30, 2018, the Company had net income of $1,835,000, $0.73 income per share, compared to a net loss of $1,872,000, $0.74 loss per share, for the nine months ended September 30, 2017. The year to date pretax income from operations in 2018 totaled $2,272,000 compared to a pretax loss from operations of $3,542,000 in 2017. The reduction in reported losses from catastrophe events in 2018 compared to 2017 was the primary reason for the improved results in the current year compared to the same period last year. Reported claims from cat events in 2018 totaled $4,378,000 compared to $12,804,000 in 2017; a reduction of $8,426,000. Results for 2017 were negatively impacted by an increased frequency of severe thunderstorm activity, which generated widespread wind, hail and tornado damage to insured property across the Southeastern United States throughout the nine-month period. In addition, our P&C segment was negatively impacted by losses reported from Hurricane Irma.
Three-month period ended September 30, 2018 compared to three-month period ended September 30, 2017
Premium Revenue:
For the three-month period ended
September 30, 2018, net premiums earned were down $22,000 at $15,445,000
compared to $15,467,000 during the same period in 2017. The decrease in
premium revenue was primarily attributable to a 0.5% decrease in net
premiums earned in the P&C segment.
Net Income (Loss):
For the quarter ended September
30, 2018, the Company had net income of $907,000, $0.36 income per
share, compared to a net loss of $557,000, $0.22 loss per share, for the
same period in 2017, an increase of $1,464,000. As discussed above, a
decrease in frequency of severe thunderstorm related losses was the
primary factor contributing to the increase in net income in the third
quarter of the current year compared to the same period last year.
Pretax Income (Loss) from Operations:
For the three
months ended September 30, 2018, our pretax income from operations was
$726,000 compared to a pretax loss from operations of $857,000 for the
three months ended September 30, 2017; an increase of $1,583,000. A
decrease in severe thunderstorm activity during the third quarter of
2018 compared to the same period last year was the primary factor
contributing to the improvement in pretax income from operations. During
the third quarter of 2018, the P&C segment was impacted by three cat
events with reported losses and LAE totaling $1,198,000 compared to
three cat events totaling $3,126,000 during the third quarter of 2017.
P&C Segment Combined Ratio:
The P&C segment ended
the third quarter of 2018 with a GAAP basis combined ratio of 96.5%.
Reported catastrophe losses totaled $1,906,000 for the quarter and added
13.7 percentage points to the combined ratio. In comparison, the P&C
segment ended the third quarter of 2017 with a GAAP basis combined ratio
of 105.9%, with reported catastrophe losses totaling $3,626,000, and
increasing the combined ratio by 25.8 percentage points. In addition to
the reduction in catastrophe losses in the third quarter of 2018, fire
losses were down $140,000 in the third quarter of 2018 compared to the
same period last year. Reported fire losses for the third quarter of
2018 totaled $2,809,000 and added 20.1 percentage points to the third
quarter 2018 combined ratio. In comparison, third quarter 2017 reported
fire losses totaled $2,949,000 and added 21.0 percentage points to the
third quarter 2017 combined ratio.
Nine-month period ended September 30, 2018 compared to nine-month period ended September 30, 2017
Premium Revenue:
For the nine-month period ended
September 30, 2018, net premiums earned were down $74,000 at $45,764,000
compared to $45,838,000 for the same period in 2017. The decrease in net
premium earned was due to a 0.2% decline in net premium earned in the
P&C segment.
Net Income (Loss):
For the nine-month period ended
September 30, 2018, the Company had net income of $1,835,000, $0.73
income per share, compared to a net loss of $1,872,000, $0.74 loss per
share, for the same period in 2017; an increase of $3,707,000. Decreased
frequency of catastrophe losses was the primary factor contributing to
the increase in year to date net income. We have incurred catastrophe
losses from 14 cat events in the first nine months of 2018 compared to
losses from 24 cat events during the same period in 2017.
Pretax Income (Loss) from Operations:
For the
nine-month period ended September 30, 2018, pretax income from
operations was $2,272,000 compared to a pretax loss from operations of
$3,542,000 for the period ended September 30, 2017, an increase of
$5,814,000. The primary reason for the increase in pretax income from
operations in 2018 compared to 2017 was the significant reduction in
reported catastrophe losses in the current year compared to the same
period in the prior year. Losses and LAE reported from catastrophe
events totaled $4,378,000 in the first nine months of 2018 compared to
$12,804,000 for the same period last year. The single largest
catastrophe event in 2018 was a severe thunderstorm, tornado and hail
event in mid-March which generated $1,136,000 in insured losses from 211
reported claims. Claims reported in Alabama accounted for 87.4% of all
reported losses from this cat event. In addition, the P&C segment had
reported losses totaling $819,000 from Hurricane Florence (as well as an
additional $681,000 in incurred but not reported [IBNR] losses) in
September 2018. In comparison, the single largest catastrophe event in
2017 was Hurricane Irma that totaled $2,718,000 from 832 claims. Claims
reported in Georgia were the primary source of losses and accounted for
84.1% of all claims from this cat event.
P&C Segment Combined Ratio:
The P&C segment ended
the first nine months of 2018 with a combined ratio of 94.0%. Reported
catastrophe losses totaled $4,378,000 and added 10.5 percentage points
to the combined ratio. In comparison, 2017 reported cat event losses
added $12,804,000 to prior year policyholder benefits and settlement
expenses. The P&C segment ended the first nine months of 2017 with a
combined ratio of 108.5% with reported catastrophe losses contributing
30.8 percentage points to the combined ratio. Partially offsetting the
reduction in catastrophe losses in 2018 was a $1,295,000 increase in
reported fire losses, in the current year, compared to the same period
last year. Fire losses reported in 2018 totaled $11,150,000 and added
26.9 percentage points to the 2018 combined ratio. In comparison, 2017
reported file losses totaled $9,855,000 and added 23.7 percentage points
to the 2017 combined ratio.
Management Commentary on Financial Position |
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Selected Balance Sheet Highlights | September 30, 2018 | December 31, 2017 | |||||||||||
(UNAUDITED) | |||||||||||||
Invested Assets | $ | 116,390,000 | $ | 114,731,000 | |||||||||
Cash | $ | 5,154,000 | $ | 6,644,000 | |||||||||
Total Assets | $ | 147,720,000 | $ | 146,438,000 | |||||||||
Policy Liabilities | $ | 79,491,000 | $ | 76,674,000 | |||||||||
Total Debt | $ | 15,148,000 | $ | 15,639,000 | |||||||||
Accumulated Other Comprehensive (Loss) Income | $ | (1,778,000 | ) | $ | 2,646,000 | ||||||||
Shareholders' Equity | $ | 46,840,000 | $ | 47,625,000 | |||||||||
Book Value Per Share | $ | 18.54 | $ | 18.88 | |||||||||
Invested Assets:
Invested assets as of September 30,
2018 were $116,390,000 up $1,659,000, or 1.4%, compared to $114,731,000
as of December 31, 2017. The primary changes in invested assets were
associated with changes in the bond portfolio. Positive cash flow from
operations led to a $3.7 million increase in bond investment purchases
during the first nine months of 2018; however, this increase in new bond
investments were partially offset by an increase in market interest
rates which reduced the market value of our bond portfolio by $3.3
million.
Cash:
The Company, primarily through its insurance
subsidiaries, had $5,154,000 in cash and cash equivalents at September
30, 2018, compared to $6,644,000 at December 31, 2017. The decrease in
cash was primarily due to an increase in investments in our bond
portfolio and reduction of debt.
Total Assets:
Total assets as of September 30, 2018
were $147,720,000 compared to $146,438,000 at December 31, 2017. The
increase in total assets was primarily due to an increase in investments
in our bond portfolio.
Policy Liabilities:
Policy liabilities were
$79,491,000 at September 30, 2018 compared to $76,674,000 at December
31, 2017; an increase of $2,817,000 or 3.7%. The primary reason for the
increase in policy liabilities in 2018 compared to 2017 was an increase
in unearned premium. Due to the timing of insurance renewals and new
business issuance across our entire book of P&C segment business,
unearned premium tends to peak during the second and third quarters and
decline during the fourth quarter when new policy issuance reaches a
seasonal low. This is the primary factor contributing to the increase in
unearned premium at September 30, 2018 compared to December 31, 2017.
Debt Outstanding:
Total debt at September 30, 2018
was $15,148,000 compared to $15,639,000 at December 31, 2017. The pay
down of a bank credit line was the primary reason for the $491,000 or
3.1% decrease in total debt.
Shareholders' Equity:
Shareholders' equity as of
September 30, 2018 was $46,840,000, down $785,000 compared to
December 31, 2017 Shareholders' equity of $47,625,000. Book value per
share was $18.54 at September 30, 2018, compared to $18.88 per share at
December 31, 2017, a decrease of $0.34. The primary reason for the
decrease in Shareholders' Equity was a decrease in market value of
available for sale investment securities which declined $3.9 million.
This decrease was primarily due to an increase in market interest rates
which reduced the market value of our fixed income investments.
Partially offsetting these factors was net income of $1,835,000.
Update on 4th Quarter Event - Hurricane Michael:
In addition to our third quarter earnings release, we are updating our loss estimates from Hurricane Michael which will impact our fourth quarter earnings. We emphasize that no provision for losses from Hurricane Michael has been made in our third quarter financial results presented herein as Michael occurred early in the fourth quarter of 2018.
Net of re-insurance, management estimates that Hurricane Michael will reduce our fourth quarter and full year pretax income by $4,000,000. Management estimates that Hurricane Michael will reduce fourth quarter and full year net income by $3,160,000 and will reduce earnings per share by $1.25. Based on our analysis of historical reporting patterns, post event model output and assessment of early reports of claims to date, we estimate our ultimate gross losses from Hurricane Michael (before re-insurance recoveries) to be in the range of $11,000,000 to $14,000,000. Under our catastrophe reinsurance coverage, we retain 100% of losses up to $4,000,000 from a single event. After exceeding our retention, losses are 100% re-insured up to $72,500,000 under our catastrophe reinsurance program.
The National Security Group, Inc. (NASDAQ Symbol: NSEC), through its property & casualty (P&C) and life insurance subsidiaries, offers property, casualty, life, accident and health insurance in ten states. The Company writes primarily personal lines property coverage including dwelling fire and windstorm, homeowners, and mobile homeowners lines of insurance. The Company also offers life, accident and health, supplemental hospital and cancer insurance products. The Company was founded in 1947 and is based in Elba, Alabama. Additional information about the Company, including additional details of recent financial results, can be found on our website: www.nationalsecuritygroup.com. |