* 2008 full year net income from operations of $1.69 per share (15.3% ROE) * Combined ratio of 80.9% for 2008 fourth quarter and 89.4% for 2008 full year * Gross premiums written of $380.3 million for 2008 full year; up 10% * After-tax charges for realized losses from investments of $1.14 per share for 2008 full year
RICHFIELD, Ohio, Feb. 18, 2009 (GLOBE NEWSWIRE) -- National Interstate Corporation (Nasdaq:NATL) today reported net income of $0.9 million ($.05 per share diluted) and $10.7 million ($.55 per share diluted) for the 2008 fourth quarter and full year, respectively. Net income for 2008 includes higher realized losses on investments reflecting charges for other-than-temporary impairments. Net income for the 2007 fourth quarter and full year were $11.1 million ($.57 per share diluted) and $43.6 million ($2.25 per share diluted), respectively.
Net income from operations for the 2008 fourth quarter of $12.9 million ($.66 per share diluted) reflects strong underwriting results for the quarter and contributed to net income from operations of $32.8 million ($1.69 per share diluted) for the 2008 full year. Net income from operations was $11.5 million ($.59 per share diluted) and $44.0 million ($2.27 per share diluted) for the 2007 fourth quarter and full year, respectively.
The table below shows the Company's net income determined in accordance with generally accepted accounting principles (GAAP), reconciled between net income from operations and net realized losses from investments, both of which are non-GAAP financial measures:
Three Months Ended Year Ended December 31, December 31, ------------------- ------------------ 2008 2007 2008 2007 --------- -------- -------- -------- (In thousands, except per share data) Pretax income from operations $ 19,132 $ 18,174 $ 48,112 $ 66,018 Provision for federal income taxes 6,274 6,648 15,351 21,992 --------- -------- -------- -------- Net income from operations 12,858 11,526 32,761 44,026 ========= ======== ======== ======== Per share $ 0.66 $ 0.59 $ 1.69 $ 2.27 Pretax net realized losses from investments $(11,626) $ (606) $(22,394) $ (653) Provision (benefit) for federal income taxes 285 (212) (293) (229) --------- -------- -------- -------- Net realized losses from investments (11,911) (394) (22,101) (424) ========= ======== ======== ======== Per share $ (0.61) $ (0.02) $ (1.14) $ (0.02) Pretax income from operations $ 19,132 $ 18,174 $ 48,112 $ 66,018 Pretax net realized losses from investments (11,626) (606) (22,394) (653) --------- -------- -------- -------- Pretax income (loss) 7,506 17,568 25,718 65,365 Provision for income taxes 6,559 6,436 15,058 21,763 --------- -------- -------- -------- Net income (loss) 947 11,132 10,660 43,602 ========= ======== ======== ======== Per share $ 0.05 $ 0.57 $ 0.55 $ 2.25
Operations
Gross premiums written of $68.1 million for the 2008 fourth quarter were 4.3% below the $71.1 million reported for the 2007 fourth quarter. For the 2008 full year, gross premiums written of $380.3 million increased 9.9% compared to $346.0 million for the 2007 full year. For the 2008 full year, growth in the Alternative Risk Transfer (ART) and Specialty Personal Lines components was offset by lower premiums in the Transportation and Hawaii and Alaska components.
The table below summarizes gross premiums written by business component:
Three Months Ended December 31, ----------------------------------------- 2008 2007 ---- ---- Amount Percent Amount Percent -------- -------- -------- -------- (Dollars in thousands) Alternative Risk Transfer $ 34,318 50.4% $ 34,851 49.0% Transportation 15,511 22.8% 18,154 25.5% Specialty Personal Lines 12,265 18.0% 11,423 16.1% Hawaii and Alaska 4,762 7.0% 5,292 7.4% Other 1,193 1.8% 1,416 2.0% -------- -------- -------- -------- Gross Premiums Written $ 68,049 100.0% $ 71,136 100.0% ======== ======== ======== ======== Year Ended December 31, ----------------------------------------- 2008 2007 ---- ---- Amount Percent Amount Percent -------- -------- -------- -------- (Dollars in thousands) Alternative Risk Transfer $206,342 54.3% $167,717 48.5% Transportation 87,246 22.9% 90,984 26.3% Specialty Personal Lines 59,065 15.5% 55,169 15.9% Hawaii and Alaska 22,489 5.9% 25,126 7.3% Other 5,154 1.4% 7,010 2.0% -------- -------- -------- -------- Gross Premiums Written $380,296 100.0% $346,006 100.0% ======== ======== ======== ========
The ART component grew 23.0% for the 2008 full year compared to 2007 and represented over 50% of the Company's gross premiums written. Because of the size and common renewal dates of the programs, gross premiums written for the ART component vary quarter to quarter. In the 2008 fourth quarter, growth in the truck group captive programs was offset by the non-renewal of two smaller programs resulting in a slight decrease compared to the 2007 fourth quarter. The commercial vehicle product which provides vehicle insurance to small business operators contributed to the approximately 7% growth in the Specialty Personal Lines component for both the 2008 fourth quarter and full year. The Company currently offers this product in three states and anticipates further expansion in 2009. Gross premiums written for the Transportation and Hawaii and Alaska components decreased in both the 2008 fourth quarter and full year compared to 2007.
"The ART component continues to fuel our growth and we see potential in the commercial vehicle product although it is still relatively small as a percentage of our overall premium. We are maintaining our underwriting standards and appropriate rate levels in all our businesses, which have affected the top line growth for the Transportation and Hawaii and Alaska components," commented Dave Michelson, President and Chief Executive Officer.
The Company's net income from operations, which includes underwriting and investment income, improved in the 2008 fourth quarter compared to the first three quarters of 2008 and the 2007 fourth quarter. The combined ratio of 80.9% for the 2008 fourth quarter improved the 2008 full year combined ratio to 89.4%. The Company's underwriting expenses continue to be within expected ranges, fluctuating primarily due to the mix of business written. The underwriting expense ratio for the 2008 full year was 24.7% compared to 22.9% for the 2007 full year.
The improvement in operating results was primarily attributable to fewer large claims which returned to normal levels in the 2008 fourth quarter. The timing of large claims is unpredictable and the Company's loss and loss adjustment expenses can be significantly affected by the activity in a given period. Responding to the elevated number of large claims in the first three quarters, the Company completed a comprehensive review of their entire charter transportation book of business and identified specific accounts that required action. The Company experienced favorable development from prior year reserves which reduced the loss and loss adjustment ratio by 2.3 percentage points for the 2008 fourth quarter and 0.3 percentage points for the 2008 full year.
Net investment income of $5.7 million for the 2008 fourth quarter and $22.5 million for the 2008 full year were flat compared to the same 2007 periods. Lower yields in 2008 offset growth in the portfolio. The Company's tax equivalent yield on their fixed income, preferred stock, and short-term portfolios of 5.25% at December 31, 2008 was 18 basis points lower than December 31, 2007. Additionally, the Company maintained higher cash balances throughout 2008 when compared to 2007. Cash and cash equivalents of $77.2 million comprised 13.7% of cash and invested assets at December 31, 2008.
Mr. Michelson said, "We continually remind our investors that our results can vary quarter to quarter because of the potential impact from claims on our higher limit policies. We are pleased that we experienced fewer large claims during the 2008 fourth quarter than we experienced in the earlier quarters of the year. The improvements we made related to our disciplined underwriting practices, particularly for small fleet charter risks, and the addition of new analytical tools will benefit us going forward."
Investments
The 2008 fourth quarter and full year results were adversely impacted by net realized losses from investments including write-downs required by the other-than-temporary impairment accounting guidelines as follows:
Three Months Year Ended Ended Dec. Dec. 31, 31, 2008 2008 --------------------------- (In thousands) Write-off -Fannie Mae, Freddie Mac, Lehman $ 243 $ 7,006 Write-down - ETF's and other common stock 8,721 8,721 Write-down - Bonds and preferred stock 652 3,264 Write-down -Securities Lending 32 1,173 Net loss on sales and equity partnership 1,978 2,230 --------------------------- Realized losses from investments $ 11,626 $ 22,394 ===========================
The majority of the 2008 fourth quarter impairment relates to the Company's holdings in Exchange Traded Funds that are part of its common stock portfolio. The Exchange Traded Funds have traded significantly below cost for most of 2008, including further declines in the 2008 fourth quarter. Despite recording these realized losses in accordance with other-than-temporary impairment accounting guidelines, the Company believes that an economic loss is still not certain and intends to maximize future potential recoveries related to these investments. The two largest components of the 2008 full year impairment were the Exchange Traded Funds and write-offs related to Fannie Mae, Freddie Mac and Lehman Brothers taken in the 2008 third quarter. The Company was unable to recognize a tax benefit in the current year related to the 2008 fourth quarter and full year realized investments losses which adversely impacted net income.
Pre-tax unrealized investment losses at December 31, 2008 were as follows:
December 31, 2008 ------------------------- Unrealized Fair Value Gain (Loss) ------------------------- (In thousands) U.S. government and agencies $ 202,277 $ 3,070 State and local government 125,079 (233) Agency backed MBS/CMO 78,568 1,398 Corporate debt 42,014 (4,928) ----------- ----------- Total fixed maturities $ 447,938 $ (693) Preferred stock 17,039 (5,542) Common stock 21,493 -- ----------- ----------- Total equity securities $ 38,532 $ (5,542) Cash and short-term investments $ 77,244 $ -- Securities lending $ 84,670 $ (9,985) ----------- ----------- Total $ 648,384 $ (16,220) =========== ===========
The Company has historically maintained a conservative, diversified, and high quality investment portfolio. Cash equivalents, short-term, investment grade fixed income, and investment grade preferred stock investments comprised 95.2% of the investment and securities lending portfolios at December 31, 2008.
Summary Comments
Mr. Michelson stated, "Despite the turmoil in the financial markets, continued soft commercial insurance pricing, and a concentration of large claims in the first three quarters of the year, our ROE was 5.0%. While this is less than our objective of 15% plus inflation, this return is evidence of the strength of our business. Even in these challenging times, we did grow the business with favorable underwriting results and our book value increased slightly in 2008. Looking ahead to 2009 we are optimistic that we can continue to sustain growth, remain confident that our disciplined underwriting will continue to produce favorable combined ratios, and believe our investment portfolio is properly positioned."
Conference Call
The Company will hold a conference call to discuss the 2008 fourth quarter and full year results at 10:00 a.m. Eastern Standard Time tomorrow, February 19, 2009. There are two communication modes available to listen to the call. Telephone access to the conference call and Q and A session will be available by dialing (888) 713-4215 and providing the confirmation code 25646674. Please dial in 5 to 10 minutes prior to the scheduled starting time. To pre-register for the conference call, go to https://www.theconferencingservice.com/prereg/key.process?key=P8PCRXDDD and follow the instructions provided. The conference call will be broadcast live over the Internet. To listen to the call via the Internet, access our website at http://invest.natl.com and follow the instructions at the web cast link. The archived web cast will be available shortly after the call on our website.
Merrill Lynch Insurance Investor Conference
Company management will make a presentation at the Merrill Lynch Insurance Investor Conference at Merrill Lynch's 250 Vesey Street headquarters in New York City, on Tuesday, February 24, 2009 at 2:35 p.m. Eastern Standard Time. The presentation will be broadcast live over the Internet and can be accessed via the Company's Investor Relations website at http://invest.natl.com.
About National Interstate Corporation
National Interstate Corporation (Nasdaq:NATL), founded in 1989, is a specialty property and casualty insurance holding company with a niche orientation and focus on the transportation industry. We differentiate ourselves by offering insurance products and services designed to meet the unique needs of targeted insurance buyers. Our products include insurance for transportation companies, alternative risk transfer, or captive insurance programs for commercial risks, specialty personal lines consisting of insurance products focused primarily on recreational vehicle owners and small commercial vehicle accounts, and transportation and general commercial insurance in Hawaii and Alaska. We offer our insurance products through multiple distribution channels including independent agents and brokers, affiliated agencies and agent Internet initiatives. Our insurance subsidiaries are rated "A" (Excellent) by A.M. Best Company. Headquartered in Richfield, Ohio, National Interstate is an independently operated subsidiary of Great American Insurance Company, a property-casualty subsidiary of American Financial Group, Inc. (NYSE:AFG) (Nasdaq:AFG).
Forward-Looking Statements
This document, including any information incorporated by reference, contains "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995). All statements, trend analyses and other information contained in this press release relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as "may," "target," "anticipate," "believe," "plan," "estimate," "expect," "intend," "project," and other similar expressions, constitute forward-looking statements. We made these statements based on our plans and current analyses of our business and the insurance industry as a whole. We caution that these statements may and often do vary from actual results and the differences between these statements and actual results can be material. Factors that could contribute to these differences include, among other things: general economic conditions and other factors, including prevailing interest rate levels and stock and credit market performance which may affect (among other things) our ability to sell our products, our ability to access capital resources and the costs associated with such access to capital and the market value of our investments; customer response to new products and marketing initiatives; tax law changes; increasing competition in the sale of our insurance products and services and the retention of existing customers; changes in legal environment; regulatory changes or actions, including those relating to regulation of the sale, underwriting and pricing of insurance products and services and capital requirements; levels of natural catastrophes, terrorist events, incidents of war and other major losses; adequacy of insurance reserves; and availability of reinsurance and ability of reinsurers to pay their obligations. The forward-looking statements herein are made only as of the date of this document. The Company assumes no obligation to publicly update any forward-looking statements.
NATIONAL INTERSTATE CORPORATION SELECTED FINANCIAL DATA (In thousands, except per share data) Three Months Ended Year Ended December 31, December 31, ------------------ ------------------ 2008 2007 2008 2007 -------- -------- -------- -------- Operating Data: Gross premiums written $ 68,049 $ 71,136 $380,296 $346,006 ======== ======== ======== ======== Net premiums written $ 58,508 $ 59,109 $298,081 $272,142 ======== ======== ======== ======== Premiums earned $ 76,220 $ 67,819 $290,741 $257,561 Net investment income 5,708 5,720 22,501 22,141 Net realized losses on investments (11,626) (606) (22,394) (653) Other 669 753 2,868 4,137 -------- -------- -------- -------- Total revenues 70,971 73,686 293,716 283,186 Losses and loss adjustment expenses 44,034 36,937 188,131 149,501 Commissions and other underwriting expenses 15,445 14,574 62,130 50,922 Other operating and general expenses 2,819 3,150 12,605 12,140 Expense on amounts withheld 1,038 1,067 4,299 3,708 Interest expense 129 390 833 1,550 -------- -------- -------- -------- Total expenses 63,465 56,118 267,998 217,821 -------- -------- -------- -------- Income before income taxes 7,506 17,568 25,718 65,365 Provision for income taxes 6,559 6,436 15,058 21,763 -------- -------- -------- -------- Net income $ 947 $ 11,132 $ 10,660 $ 43,602 ======== ======== ======== ======== Per Share Data: Net income per common share, basic $ 0.05 $ 0.58 $ 0.55 $ 2.27 Net income per common share, assuming dilution $ 0.05 $ 0.57 $ 0.55 $ 2.25 Weighted average number of common shares outstanding, basic 19,295 19,205 19,285 19,193 Weighted average number of common shares outstanding, diluted 19,377 19,477 19,366 19,348 Cash dividend per common share $ 0.06 $ 0.05 $ 0.24 $ 0.20 GAAP Ratios: Losses and loss adjustment expense ratio 57.8% 54.5% 64.7% 58.0% Underwriting expense ratio 23.1% 25.0% 24.7% 22.9% -------- -------- -------- -------- Combined ratio 80.9% 79.5% 89.4% 80.9% ======== ======== ======== ======== Return on equity(a) 5.0% 22.6% Average shareholders' equity $214,440 $193,285
At Dec. 31, At Dec. 31, Balance Sheet Data (GAAP): 2008 2007 ----------- ----------- Cash and investments $ 563,714 $ 492,916 Securities lending collateral 84,670 139,305 Reinsurance recoverable 150,791 98,091 Total assets 990,812 898,634 Unpaid losses and loss adjustment expenses 400,001 302,088 Long-term debt 15,000 15,464 Total shareholders' equity $ 216,074 $ 212,806 Book value per common share, basic (at year end) $ 11.20 $ 11.08 Common shares outstanding at year end(b) 19,295 19,205 (a) The ratio of net income to the average of shareholders' equity at the beginning and end of the year (b) Common shares outstanding at year end include all vested common shares. At December 31, 2008 and December 31, 2007 there were 99,000 and 106,500, respectively, unvested common shares that were excluded from the common shares outstanding calculation. These restricted shares will be included in the calculation upon vesting.