Meadowbrook Insurance Group Inc
Meadowbrook Insurance — Q3 2014 Earnings Presentation
26 slides from Meadowbrook Insurance's earnings presentation, Nov 18, 2014
Slide 1: Investor Supplement Third Quarter 2014 Update
Investor SupplementThird Quarter 2014 Update
Slide 2: Forward-Looking Statements & Non-GAAP Financial Measures
2 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: Drivers of Return on Average Equity (ROAE)
3 Drivers of Return on Average Equity (“ROAE”) * 2014 Forecast and 2015 Plan reflect mid-point of current guidance** 2015 decrease in investment leverage primarily driven by large increase in unrealized gains between December 31, 2013 and September 30, 2014*** 2015 Planned HDEs are zero as we do not
Slide 4: Investments
MEADOWBROOK™ NSURANCE GROUP Investments
Slide 5: Investment Portfolio Review
5 Investment Portfolio Review We maintain a high-quality, low-risk investment portfolio. Portfolio Allocation and QualityAs of September 30, 2014 High quality portfolio93% of portfolio invested in high quality bonds 99% of bonds are investment gradeAverage S&P rating of AA- / Moody’s of Aa3Equity po
Slide 6: Conservative Investment Philosophy
6 Conservative Investment Philosophy Our high quality investment portfolio is well matched to our loss reserves and generates a predictable stream of income. TTM 9/30/14 net investment income was $45M from $54M in 2010Invested asset base increased to $1.6B ($1.7B including cash & cash equivalents) a
Slide 7: Government and Agency – September 30, 2014
7 Government and Agency – September 30, 2014 Profile Summary Profile $24.8 million market value; approximately 2% of the investment portfolio Rated Aaa by Moody’s and AA+ by S&PNet unrealized gain is $385KAverage investment book yield: 1.18% Government & Agency vs. Entire Portfolio Government & Agen
Slide 8: Corporate Fixed Income – September 30, 2014
8 Corporate Fixed Income – September 30, 2014 Profile Summary Profile $582.9 million market value; 37% of the investment portfolio Net unrealized gain was $11.0 million.Average investment book yield: 2.88% Quality Indicators Corporate vs. Entire Portfolio Corporate Profile
Slide 9: Municipal Bonds – September 30, 2014
9 Municipal Bonds – September 30, 2014 Profile Summary Profile $726.6 million market value; 46% of the investment portfolioNet unrealized gain was $23.4 million consist of:Tax exempt $20.7 millionTaxable $2.7 millionAverage tax equivalent yield: 4.29% Quality Indicators & Geographic Distribution Mun
Slide 10: Structured Securities – September 30, 2014
10 Structured Securities – September 30, 2014 Profile Summary Profile $145.8 million market value; 9% of the investment portfolioMinimal net unrealized loss of $54,000 consisting of the following sub-class:RMBS – unrealized loss of ($500k);ABS – unrealized gain of $555k;CMBS – unrealized loss of ($1
Slide 11: Equities – September 30, 2014
11 Equities – September 30, 2014 Profile Summary Profile $106.8 million market value; $94.2 million book value; 7% of the investment portfolio;Net unrealized gain is $12.7 million;All composed of high dividend equities;Average tax equivalent yield: 4.14% Equities vs. Entire Portfolio Equity Industry
Slide 12: Convertible Debt Offering
12 Convertible Debt Offering
Slide 13: $100M Convertible Debt Offering
13 $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 $1
Slide 14: MIG Convertible Note
14 MIG Convertible Note We have issued debt with a 5.00% couponWe will pay additional cash if our share price exceeds the $9.19 lower strike price (on 10.9 million “equivalent” shares)We have bought a bond hedge requiring counter parties to pay us the same amount we pay to the note holders in B abov
Slide 15: MIG Convertible Note Settlement
15 MIG Convertible Note Settlement Stock Price at Maturity Payout at Maturity ($ 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 16: Accounting for Convertible Debt Offering
16 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 $
Slide 17: Reserve Supplements
MEADOWBROOK™ INSURANCE GROUP Reserve Supplements
Slide 18: Favorable development and reserve stabilization
Favorable development of $1.0 million, or 0.2 combined ratio percentage pointsGrowth in recent years from rate increases and increase in the average program maturityMore certainty in estimating loss ultimates for mature businessAs programs and books of business mature, underlying claims patterns beg
Slide 19: Reserve Development Shift – Emergence in 2012 and Stabilization in 2014
19 Reserve Development Shift – Emergence in 2012 and Stabilization in First Nine Months of 2014 Historic Calendar Year Reserve Development Percent of Prior Year Reserves 4.5 % (0.9 %) (9.7 %) (a) 2.3% 4.9% 4.6% Reserve Development :Favorable / (Adverse) ($m) (6.7%) (b) 0.2% (a) Calendar Year 2012 de
Slide 20: 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 20 Note: Statutory
Slide 21: Terminated Business Statistics
21 Terminated Business Statistics Reserves on terminated business have been strengthened and premium has largely run off
Slide 22: Net Reserve Distribution
($ in millions) 22 Net Reserve Distribution Reserves, net of reinsurance recoverables, totaled $1.1 billion at both December 31, 2013 and September 30, 2014
Slide 23: California Workers' Compensation
23 California Workers’ Compensation
Slide 24: California Workers' Compensation Low Hazard Mix of Business
California Workers’ CompensationLow Hazard Mix of Business 24 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% f
Slide 25: Low Hazard Mix of Business (Continued): Hazard Group Distribution
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 25 6 & 7 1 & 2 3, 4 & 5 3, 4 & 5 1 & 2 6 & 7 NOTE: %’s above are approximate.
Slide 26: Low Hazard Mix of Business (Continued): Industry Group Distribution
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 26 Manufacturing Goods andServices Goods andServices Manufacturing Office & Clerical Office & Cler
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