Mercer Insurance — KBW Investor Conference 2008
33 slides from Mercer Insurance's conference presentation, Sep 4, 2008
Slide 1: Mercer Insurance Group, Inc. KBW Investor Conference
Mercer Insurance Group, Inc. KBW Investor Conference September 4, 2008
Slide 2: Forward-looking statements
Mercer Insurance Group, Inc. (the "Company") may from time to time make written or oral "forward-looking statements," including statements contained in the Company's filings with the Securities and Exchange Commission, in its reports to shareholders and in other communications by the Company, which
Slide 3: Andrew Speaker, President & CEO
Andrew Speaker President & CEO
Slide 4: Company Profile
laa THE MERCER INSURANCE GROUP Company Profile
Slide 5: Mercer Insurance Group (NASDAQ: MIGP) overview
Mercer Insurance Group, Inc. (NASDAQ symbol "MIGP") Holding Company operating through 4 insurance carrier subsidiaries via mutual-to-stock conversion Steady growth in capital to $136 million as of June 30, 2008 "A" (Excellent) rated by A.M. Best
Slide 6: DWP by Line of Business
DWP by Line of Business Latest 12 Months Ending 6/30/08
Slide 7: Operating Territory
Actively writing property and casualty business Writing mail order surety (plus Alaska) Licensed but currently inactive Operating Territory
Slide 8: The Basics
The Basics Discipline, Diversity and Balance Focus on commercial insurance Evaluate strategic M&A
Slide 9: Performance
‘aay THE MERCER INSURANCE GROUP Performance
Slide 10: Dave Merclean, CFO
CR THE MERCER INSURANCE GROUP Dave Merclean CFO
Slide 11: Gross, Net & Ceded Premium Written (GAAP)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr East 20.4 27.4 90 20.4 West 30.6 38.6 34.6 31.6 North 45.9 46.9 45 43.9 Gross, Net & Ceded Premium Written GAAP presentation; excludes pre-acquisition premiums of Financial Pacific Insurance Company which was acquired October 1, 2005. 2003 2004 2005 2006 2007 6 Mos. 0
Slide 12: Gross, Net & Ceded Premium Written (Pro-forma non-GAAP)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr East 20.4 27.4 90 20.4 West 30.6 38.6 34.6 31.6 North 45.9 46.9 45 43.9 Gross, Net & Ceded Premium Written Pro-forma non-GAAP presentation; includes pre-acquisition premiums of Financial Pacific Insurance Company which was acquired October 1, 2005. 2003 2004 2005 2006
Slide 13: Commercial and Personal Lines NWP
Commercial and Personal Lines NWP $ in Millions, for the periods ended December 31 and June 30: $52.8 $59.5 $75.3 Commercial Lines CAGR 25% $145.8 $159.7 $78.3 $82.0 $30.3 $22.5 $36.5 $23.0 $52.3 $23.0 $123.5 $22.3 $139.4 $20.3 $71.9 $10.1 $68.7 $9.6 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 1
Slide 14: Mercer v. Industry Statutory Combined Ratio
Mercer v. Industry comparison 10 year Statutory Combined Ratio Source: Insurance Information Institute; MIGP 6 mos. 2008 actual vs. estimated full year 2008 for industry % MIGP 2007 combined ratio reduced by 2.4% due to non-recurring effect of retaliatory tax refund 90.0 95.0 100.0 105.0 110.0 115.0
Slide 15: Loss and Loss Adjustment Costs
Loss and Loss Adjustment costs Reserves reviewed semi-annually by consulting actuaries; annually by KPMG Net exposure to GAAP Stockholders' equity for the PML related to a 100 year storm is less than 6% Reinsurance retention underlying working layer - $850K
Slide 16: Historic ratios - year comparison
Historic ratios - 10 year comparison % - - Acquisition of Financial Pacific occurred 10/1/05, with increase / decrease effect on loss / expense ratios - - MIGP 2007 combined & expense ratio reduced by 2.4% due to non-recurring effect of retaliatory tax refund 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
Slide 17: Net Income, GAAP Combined Ratio and Shareholders Equity
Net Income, GAAP Combined Ratio and Ending GAAP Shareholders Equity (in $ millions) Ending GAAP Shareholders' Equity and combined ratio: $33M $35M $37M $98M $100M $103M $116M $133M $136M 93.2% 93.6% 96.4% 103.8% 98.8% 96.5% 97.0% 95.8% 98.2% Net income, in millions MIGP 2007 C/R reduced by 2.4%, NI
Slide 18: GAAP Book Value per Share
GAAP Book Value per share (12/31/03 - 6/30/08) $ in thousands $15.65 $16.49 $17.34 $19.06 $21.48 $21.78 $12.00 $14.00 $16.00 $18.00 $20.00 $22.00 $24.00 12/03 12/04 12/05 12/06 12/07 6/08 Book Value per share
Slide 19: Operating Cash Flow
5 Year Operating Cash Flow $ in thousands in millions $8.0 $8.8 $13.4 $50.7 $49.2 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0 $50.0 $55.0 $60.0 2003 2004 2005 2006 2007 Operating Cash Flow
Slide 20: Gross and Net Investment Income
5 Year Gross and Net Investment Income $ in thousands $4.4 52% in millions $2.9 $12.4 91% $15.1 22% $7.6 $7.7 $6.5 48% $1.7 $1.2 $2.9 $1.5 $4.5 $2.0 $10.1 $2.3 $13.1 $2.0 $6.7 $0.9 $6.7 $1.0 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 2003 2004 2005 2006 2007 6 Mos. '07 6 Mos. '08 Investm
Slide 21: Investment Portfolio (as of 6/30/08)
Investment Portfolio (as of 6/30/08) Fixed Maturities (in total) 83% AA rated or better 97% A rated or better Average rating of AA+ Effective portfolio duration 3.96 years Average yield 4.53% Tax-equivalent yield 5.28% Minimal exposure to sub-prime holdings
Slide 22: Investment Portfolio contd. Municipals
Investment Portfolio (as of 6/30/08) contd. Municipals - with credit enhancement $103M - 31% of fixed income portfolio Average credit quality with enhancement AA+ Average credit quality without enhancement AA Municipals - with no credit enhancement $47M - 14% of fixed income portfolio Average credit
Slide 23: Investment Portfolio contd. MBS and ABS
Investment Portfolio (as of 6/30/08) contd. Residential MBS $65M - 19% of fixed income portfolio 100% AAA rated ABS $16M - 5% of fixed income portfolio 93% AAA rated / 5% AA rated / 2% BB rated Commercial MBS $9M - 3% of fixed income portfolio 100% AAA rated
Slide 24: Investment Portfolio contd. Equity Securities
Investment Portfolio (as of 6/30/08) contd. Equity Securities 50+ issues diversified across many industries Large caps or well-known brands Common stocks approximately 5% of investment portfolio
Slide 25: Investment Portfolio including Cash & Equivalents
Investment Portfolio, including Cash & Equivalents at June 30, 2008 (in millions) Mortgage / Asset- backed $91 25% Corporates $69 19% Tax-exempts $150 40% Treasuries & Agencies $21 6% Cash $19 5% Equities $17 5% Cash Treasuries & Agencies Corporates Mortgage / Asset-backed Tax-exempts Equities
Slide 26: GAAP Capital, Book Value, and Insider Ownership
GAAP Capital, Book Value, and Insider Ownership Total assets Invested assets and operating cash Debt Shareholders' Equity Shares Outstanding Shareholders' Equity per share Shareholders' Equity per share less Goodwill Market price, August 21, 2008 Price to Shareholders' Equity per share Insider (Form
Slide 27: Capital management initiatives
Capital management initiatives 2004/05 - 500,000 share buyback authorized and completed for $6.3 million, or an average of $12.34 per share. 2008 - Authorized to repurchase 5% (328,000 shares); 25,000 shares purchased a/o 6/30/08. Quarterly dividends commenced in July, 2006. Dividend increased 6/08
Slide 28: Challenges and Plans
A THE MERCER INSURANCE GROUP Challenges and Plans
Slide 29: Soft Market Pricing competition continues
Soft Market Pricing competition continues Some competitors extending coverage with little to no premium charge Economic conditions exacerbate challenge Approximately 1/3 of gross premiums are tied to construction businesses Retention rate is strong but exposures are lower Business failures are risin
Slide 30: Investment in IT systems
Significant investment has been made in improving our IT systems Intended to improve the "ease of doing business" Complicated by the need to converge multiple platforms Updated portal has been implemented for personal automobile business Small commercial portal is in quality assurance testing Expect
Slide 31: Disciplined business approach will be maintained
Disciplined business approach will be maintained Major focus will continue to be commercial lines but we will focus on improving the profitability of personal lines Continue to evaluate strategic merger and acquisition opportunities Continue to evaluate reinsurance needs Retention increased to $850,
Slide 32: Summary
Summary Strong balance sheet with high quality investment portfolio and adequate loss reserves Steady profitability from a well underwritten book of business Quarterly shareholder dividend Stock trading at a discount to book as well as a discount to peers
Slide 33: Questions
ao) THE MERCER INSURANCE GROUP Questions
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