Meadowbrook Insurance Group Inc
Meadowbrook Insurance — Q2 2014 Earnings Presentation
27 slides from Meadowbrook Insurance's earnings presentation, Aug 28, 2014
Slide 1: Investor Supplement Second Quarter 2014 Update
Investor SupplementSecond Quarter 2014 Update
Slide 2: Forward-Looking Statements & Non-GAAP Financial Measures
* Forward-Looking Statements & Non-GAAP Financial Measures The Company’s investor presentation may include certain statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 193
Slide 3: Investments
Investments MEADOWBROOK~ INSURANCE GROUP
Slide 4: Investment Portfolio Review
* Investment Portfolio Review We maintain a high-quality, low-risk investment portfolio. Portfolio Allocation and Quality Low equity risk exposure93% fixed income 7% equityHigh credit quality99% of bonds are investment gradeAverage S&P rating of AA- / Moody’s of Aa3DurationFixed income effective dur
Slide 5: Conservative Investment Philosophy
* Conservative Investment Philosophy Our high quality investment portfolio is well matched to our loss reserves and generates a predictable stream of income. TTM 6/30/14 net investment income was $46M from $54M in 2010Invested asset base increased to $1.6B ($1.7B including cash & cash equivalents) a
Slide 6: Government and Agency – June 30, 2014
* Government and Agency – June 30, 2014 Profile Summary Profile $25.0 million market value; approximately 2% of the investment portfolio Rated Aaa by Moody’s and AA+ by S&PJune 30, 2014 net unrealized gain was $452KAverage investment book yield: 1.17% Government & Agency vs. Entire Portfolio Governm
Slide 7: Corporate Fixed Income – June 30, 2014
* Corporate Fixed Income – June 30, 2014 Profile Summary Profile $573.5 million market value; 36% of the investment portfolio June 30, 2014 net unrealized gain was $15.6 million.Average investment book yield: 2.90% Quality Indicators Corporate vs. Entire Portfolio Corporate Profile
Slide 8: Municipal Bonds – June 30, 2014
* Municipal Bonds – June 30, 2014 Profile Summary Profile $733.6 million market value; 46% of the investment portfolio June 30, 2014 net unrealized gain was $21.0 million consist of:Tax exempt $18.4 millionTaxable $2.6 millionAverage tax equivalent yield: 4.30% Quality Indicators & Geographic Distri
Slide 9: Mortgage & Asset Backed – June 30, 2014
* Mortgage & Asset Backed – June 30, 2014 Profile Summary Profile $156.4 million market value; 10% of the investment portfolioAs of June 30, 2014, unrealized gain of $1.4 million;Each sub-class within the structured group, (RMBS, ABS & CMBS) had minor amounts of unrealized gains;Average investment b
Slide 10: Equities – June 30, 2014
* Equities – June 30, 2014 Profile Summary Profile $105.3 million market value; 7% of the investment portfolio;June 30, 2014 net unrealized gain was $13.5 million;All composed of high dividend equities;Average tax equivalent yield: 4.07% Equities vs. Entire Portfolio Equity Mix
Slide 11: Convertible Debt Offering
Convertible Debt Offering MEADOWBROOK~ INSURANCE GROUP
Slide 12: $100M Convertible Debt Offering
* $100M Convertible Debt Offering $100 million Cash Convertible Senior NotesUnderlying “Equivalent” Shares – 10.9 million5.00% Cash Coupon37.5% Conversion Premium ($9.19 per share)75% High Call ($11.69 per share)Net share settlementMaturity of March 15, 2020No covenants Key Terms Use of Proceeds $10
Slide 13: MIG Convertible Note
* MIG Convertible Note We have issued debt with a 5.00% couponWe will pay additional cash if our share price exceeds the $9.19 lower strike price (on 10.9 million “equivalent” shares)We have bought a bond hedge requiring counter parties to pay us the same amount we pay to the note holders in B above
Slide 14: MIG Convertible Note Settlement
* MIG Convertible Note Settlement Stock Price at Maturity Payout at Maturity ($ in millions) < $9.19 > $11.69 MIG Convertible + Call Spread Due 2020 Example if share price = $14: 10.9m 'equivalent' shares x $2.31 ($14 market price less $11.69 higher strike price) = $25.1m divided by $14 share price
Slide 15: Accounting for Convertible Debt Offering
* Accounting for Convertible Debt Offering The following was recorded in Q1 2013 related to the convertible debt offering (in millions) * Gross proceeds of $100m was bifurcated into $87.1m of debt and $12.9m of derivative liability related to the conversion feature. The $12.9m will accrete to the $1
Slide 16: Reserve Supplements
Reserve Supplements MEADOWBROOK~ INSURANCE GROUP
Slide 17: Favorable development and reserve maturity
Favorable development of $0.8 million, or 0.2 combined ratio percentage pointsGrowth in recent years from rate increases and increase in the average program maturityMore certainty in estimating loss ultimates for mature businessAs programs and books of business mature, underlying claims patterns beg
Slide 18: Net Reserves by Line of Business - Overview
* Net Reserves by Line of Business - Overview Net reserves were $1.1B at June 30, 2014 and continue to show stability Workers CompensationCurrent accident year loss & LAE ratio selection reflects a more conservative expected loss ratio within the standard actuarial methods and consideration of the i
Slide 19: Reserve development by line of business
Workers’ Compensation (including residual markets)Favorable development of $9.3 million, primarily on California businessCumulative California rate increases of 75% since 2010, well in excess of loss trendsCMP / General LiabilityUnfavorable development of $7.1 million, primarily in the 2008-2011 acc
Slide 20: Reserve Development Shift – Emergence in 2012 and Stabilization in First Half of 2014
* Reserve Development Shift – Emergence in 2012 and Stabilization in First Half of 2014 Historic Calendar Year Reserve Development Percent of Prior Year Reserves 4.5 % (0.9 %) (9.7 %) (a) 2.3% 4.9% 4.6% Reserve Development :Favorable / (Adverse) ($m) (6.7%) (b) 0.1% (a) Calendar Year 2012 developmen
Slide 21: AY Loss & ALAE Ratio by Line of Business
AY Loss & ALAE Ratio Net Earned Premium On-going BusinessAY Loss & ALAE Ratio CA Workers’ Comp.* Non-CA Workers’ Comp.* Commercial Auto CMP / GL On-going book of business has generated attractive loss & ALAE ratios across all lines of business AY Loss and ALAE Ratio by LOB Summary * Note: Statutory
Slide 22: Terminated Business Statistics
* Terminated Business Statistics Reserves on terminated business have been strengthened and premium has largely run off
Slide 23: Net Reserve Distribution
($ in millions) * Net Reserve Distribution Reserves, net of reinsurance recoverables, totaled $1.1 billion at both December 31, 2013 and June 30, 2014
Slide 24: California Workers' Compensation
* California Workers’ Compensation
Slide 25: California Workers' Compensation Low Hazard Mix of Business
California Workers’ CompensationLow Hazard Mix of Business * How does our business mix compare to California workers’ compensation industry? Low hazard group mixWe write approximately 70% of our premium in hazard groups 1 & 2 vs. 55% for the industryAlmost no premium in hazard groups 6 & 7 vs. 5% fo
Slide 26: Low Hazard Mix of Business (Continued)
California Workers’ CompensationLow Hazard Mix of Business (Continued) We write our premium in less hazardous groups and more favorable CA WC industries Hazard Group Distribution Meadowbrook Industry * 6 & 7 1 & 2 3, 4 & 5 3, 4 & 5 1 & 2 6 & 7 NOTE: %’s above are approximate.
Slide 27: Low Hazard Mix of Business (Continued)
California Workers’ CompensationLow Hazard Mix of Business (Continued) We write our premium in less hazardous groups and more favorable CA WC industries Meadowbrook Industry Industry Group Distribution * Manufacturing Goods andServices Goods andServices Manufacturing Office & Clerical Office & Cleri
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