SOURCE: Fremont Michigan InsuraCorp, Inc.

November 09, 2009 08:45 ET

Fremont Michigan InsuraCorp, Inc. Announces 3rd Quarter Earnings and Increased Quarterly Dividend

FREMONT, MI--(Marketwire - November 9, 2009) - Fremont Michigan InsuraCorp, Inc. (Fremont) (OTCBB: FMMH) today reported financial results for the quarter and nine months ended September 30, 2009 and announced that it is increasing its quarterly cash dividend.

--  Net income of $.82 per diluted share in third quarter / Net income of
    $1.31 per diluted share year to date
--  Combined ratio of 89.8% in third quarter / Combined ratio of 97.4%
    year to date
--  Book value per share increases to $25.54 at September 30, 2009, versus
    $22.59 at December 31, 2008

Richard E. Dunning, President and CEO, stated, "We are pleased to have generated a very good combined ratio of 89.8% during the quarter. This coupled with our investment income has produced solid operating performance for the quarter. Underwriting discipline and agency partnership are paramount during these times given the competitiveness of the Michigan market."

"Our investment portfolio has experienced a nice rebound from the lows experienced in the first quarter when there was significant disruption in both the fixed and equity markets," noted Kevin G. Kaastra, Vice President of Finance. "Profitable operations and good investment performance have boosted our book value to $25.54 per share. Since the end of 2004, our book value per share has experienced a compounded annual growth rate of 27.9%. As we look forward to the future, we will continue to focus on pricing and underwriting discipline, investment in our technology platform and maintaining a conservative investment portfolio."

"We are also excited with the recent upgrade to our A.M. Best Financial Strength Rating to an "A-" (Excellent) rating. The upgrade was an objective in our long-term strategic plan developed and approved during 2008 as well as the success received in the Pure Michigan corporate branding initiative as an independent Michigan exclusive organization," noted Dunning.

The Board of Directors has increased the Company's quarterly cash dividend from $.03 per share to $.04 per share, or 33%. The Company has declared a quarterly cash dividend of $.04 per share on the common stock of the Company payable on December 30, 2009 to shareholders of record on December 14, 2009.

In other Board action, on November 6, 2009, the Board of Directors of Fremont Michigan InsuraCorp, Inc. elected Mr. James P. Hallan as a director of the Company with his term as a director effective on November 6, 2009. Mr. Hallan is the President and Chief Executive Officer of the Michigan Retailers Association (MRA). He is also a member of MRA's Board of Directors. Hallan also serves as President and Chief Executive Officer of Retailers Mutual Insurance Company (RMIC). He is also a member of RMIC's Board of Directors. Mr. Hallan serves as Chair of the Board of Directors of Delta Dental Plans of Michigan, Ohio and Indiana and as a director of the Delta Dental Plan Foundation.

Consolidated     Three Months Ended             Nine Months Ended
 Highlights         September 30,                 September 30,
              ------------------------------ ------------------------------
(Unaudited)      2009        2008       %       2009        2008       %
 revenues     $14,310,809 $12,430,693  15.1% $41,804,308 $36,922,726  13.2%
Net income    $ 1,467,885 $ 1,301,866  12.8% $ 2,330,700 $ 3,523,306 -33.8%
 outstanding    1,746,202   1,771,044  -1.4%   1,749,718   1,777,364  -1.6%
 earnings per
 share        $      0.84 $      0.74  13.5% $      1.33 $      1.98 -32.8%
 earnings per
 share        $      0.82 $      0.72  13.9% $      1.31 $      1.94 -32.5%
 income (1)   $ 2,080,223 $ 2,281,000  -8.8% $ 2,997,078 $ 5,290,721 -43.4%
 income per
 share (1)    $      1.19 $      1.29  -7.8% $      1.71 $      2.98 -42.6%
 declared per
 share        $      0.03 $      0.03   0.0% $      0.09 $      0.03 200.0%
Book value
 per share    $     25.54 $     22.65  12.8% $     25.54 $     22.65  12.8%

(1) Please refer to the  Non-GAAP financial measures section of this
    release for further explanation of this measure.

Our net income was $1,468,000 or $.82 per diluted share in the third quarter of 2009 compared to $1,302,000, or $.72 per diluted share, for the same period a year ago. Operating income was $2,080,000, or $1.19 per share, compared to $2,281,000, or $1.29 per share, for the same period a year ago.

Net income for the nine months ended September 30, 2009 was $2,331,000 or $1.31 per diluted share compared to $3,523,000 or $1.94 per diluted share in 2008. Operating income was $2,997,000, or $1.71 per share, compared to $5,291,000, or $2.98 per share, for the same period a year ago.

Stockholder's equity increased $5.3 million or 13.5% in the first nine months of 2009 due to profitable results and appreciation in the fair value of our investment portfolio. Since December 31, 2008, the fair value of our investment portfolio has increased approximately $4.6 million ($3.0 million, net of tax). Book value per share has increased to $25.54 as of September 30, 2009 compared to $22.59 as of December 31, 2008, an increase of $2.95 or 13.1%.

During the third quarter, the Company repurchased 10,000 shares of its stock at a price of $15.60. Since first announcing the repurchase plan in May 2008, which authorized repurchasing up to 100,000 shares, the Company has repurchased 56,190 shares at an average price of $17.14.

Consolidated Statement
 of Income                 Three Months Ended         Nine Months Ended
(Unaudited)                   September 30,             September 30,
                        ------------------------  ------------------------
                            2009         2008         2009         2008
                        -----------  -----------  -----------  -----------
Direct premiums written $17,979,342  $16,620,491  $49,698,844  $45,132,718
                        ===========  ===========  ===========  ===========
Net premiums written    $15,120,470  $13,920,858  $41,473,505  $37,157,252
                        ===========  ===========  ===========  ===========
Net premiums earned     $13,561,708  $12,066,502  $39,580,197  $35,061,830
Loss and LAE              7,940,906    6,559,562   25,935,476   19,806,639
Policy acquisition and
 other underwriting
 expenses                 4,237,706    3,941,913   12,608,286   12,018,546
                        -----------  -----------  -----------  -----------
Underwriting gain         1,383,096    1,565,027    1,036,435    3,236,645
Other revenue items
  Net investment income     533,649      563,572    1,473,814    1,614,847
  Net realized gains
   (losses) on
   investments               51,974     (351,782)     263,468     (193,180)
  Other income              163,478      152,401      486,829      439,229
                        -----------  -----------  -----------  -----------
    Total other revenue
     items                  749,101      364,191    2,224,111    1,860,896
                        -----------  -----------  -----------  -----------
Income before federal
 income taxes             2,132,197    1,929,218    3,260,546    5,097,541
  Federal income tax
   expense                  664,312      627,352      929,846    1,574,235
                        -----------  -----------  -----------  -----------
Net income              $ 1,467,885  $ 1,301,866  $ 2,330,700  $ 3,523,306
                        ===========  ===========  ===========  ===========
Earnings per share
  Basic                 $       .84  $       .74  $      1.33  $      1.98
  Diluted               $       .82  $       .72  $      1.31  $      1.94
Loss and LAE ratio (1)         58.6%        54.4%        65.5%        56.5%
Policy acquisition &
 other underwriting
 expense ratio (1)             31.2%        32.7%        31.9%        34.3%
Combined ratio (1)             89.8%        87.1%        97.4%        90.8%

(1) Please refer to the  Non-GAAP financial measures section of this
    release for further explanation of this measure.

Direct premiums written increased 8.2% during the quarter as a result of growth in the personal (up 9.8%) and commercial (up 5.1%) segments. In the personal segment, direct premiums written for personal auto increased 16.2% due to our continued focus on targeting the companion auto policy when we already write the homeowner policy. Homeowner premiums increased 4.2% for the quarter; however, new business volume was down 9.1% due to a focus on stricter underwriting guidelines coupled with rate increases put into effect during the second and third quarters. The increase in commercial premiums is due to renewal premium growth of 11.9%. We continue to review all commercial renewals to ensure that we are retaining policies that are appropriately priced for the risk assumed. Year to date, direct premiums written increased 10.1% led by the personal (up 11.9%), farm (up 8.0%) and commercial (up 5.8%) segments. Renewal premiums are up 10.1% and new business premium volume is up 8.7%.

Our loss and LAE ratio was 58.6% during the third quarter compared to 54.4% in the 2008 quarter. The 4.2 percentage point increase was impacted by increased losses in the homeowners and workers compensation lines offset by a decrease in the loss and LAE ratio in the personal auto line. The homeowners line continues to be hindered by increased frequency and severity associated with fire losses while workers compensation experienced higher loss frequency during the 2009 quarter. Personal auto's loss and LAE declined during the 2009 quarter as result of a decrease in loss severity coupled with higher net premiums earned.

Year to date we generated a loss and LAE ratio of 65.5% which is up from 56.5% in the prior year period. The increase is a result of higher fire losses experienced in the personal, commercial and farm segments, an increase in weather related losses experienced during the first quarter of 2009 and higher loss frequency in the workers compensation line. Offsetting these factors is a decline in loss severity in the personal auto line.

The Company's expense ratio dropped to 31.2% in the third quarter of 2009 compared to 32.7% in the 2008 quarter. Year to date, the Company's expense ratio was 31.9% compared to 34.3% last year. The declining expense ratio is driven by growth in net premiums earned, operating efficiencies, lower assessments from state mandated pools and associations and lower depreciation expense in 2009.


Net investment income was down 5.3% in the third quarter of 2009 and 8.7% for the year to date period. The decline is due to the lower yield environment that exists today compared to a year ago. In addition, changes have been made to the fixed portfolio structure in order to mitigate interest rate and credit risk resulting in a shorter duration and a lower tax equivalent yield. The fixed portfolio's tax equivalent book yield and effective duration were 4.55% and 4.73, respectively, as of September 30, 2009 compared to 5.14% and 4.94, respectively, as of September 30, 2008.

During the second quarter 2009, the Company began adding to its equity portfolio via purchases of common stocks and mutual funds with an overall dividend component. Since March 31, 2009, the Company has added approximately $4,066,000 to the equity portfolio using a proven professional equity manager. Funding for the equity purchases has come from existing cash balances, operating cash flow and sales and maturities of fixed maturities.

Non-GAAP Financial Measures

We believe that disclosure of certain Non-GAAP financial measures enhances investor understanding of our financial performance. The following Non-GAAP financial measures are utilized in this release:

Operating income is income before federal income tax expense excluding net realized investment gains. Because our calculation may differ from similar measurements used by other companies, investors should be careful when comparing our measure of operating income to that of other companies. We include this measurement because we believe it illustrates the performance of normal, ongoing operations, which is important in understanding and evaluating the company's financial condition and results of operations.

Combined ratio is a commonly used financial measure of underwriting performance. A combined ratio below 100 percent generally indicates a profitable book of business. The combined ratio is the sum of two separately calculated ratios, the loss and loss adjustment expense ratio (referred to as the "loss and LAE ratio") and the expense ratio. When prepared in accordance with GAAP, the loss and LAE ratio is calculated by dividing the sum of losses and loss adjustment expenses by net premium earned. The expense ratio is calculated by dividing policy acquisition and other underwriting expenses by net premiums earned.

About Fremont Michigan InsuraCorp, Inc.

Fremont Michigan InsuraCorp, Inc. is the holding company for Fremont Insurance Company. Headquartered in Fremont, Michigan, the company provides property and casualty insurance to individuals, farms and small businesses exclusively in Michigan. Fremont Michigan InsuraCorp's common stock is listed on the OTC Bulletin Board (OTCBB) under the symbol "FMMH."

Certain of the statements contained herein (other than statements of historical facts) are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include estimates and assumptions related to economic, competitive and legislative developments. These forward-looking statements are subject to change and uncertainty that are, in many instances, beyond the company's control and have been made based upon management's expectations and beliefs concerning future developments and their potential effect on Fremont Michigan InsuraCorp, Inc. For a list of factors which could affect the Company's results, see the Company's filings with the Securities and Exchange Commission, including "Item 1A. Risk Factors," set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. There can be no assurance that future developments will be in accordance with management's expectations so that the effect of future developments on the Company will be those anticipated by management.

Consolidated Balance Sheets

                                                September 30, December 31,
                       Assets                        2009          2008
                                                ------------- ------------
  Fixed maturities available for sale, at fair
   value                                        $  56,436,776 $ 53,958,783
  Equity securities available for sale, at fair
   value                                           10,426,675    4,560,368
  Mortgage loans on real estate from related
   parties                                            241,063      247,000
                                                ------------- ------------
    Total investments                              67,104,514   58,766,151
Cash and cash equivalents                           6,763,491    6,576,564
Receivable from investments                            13,644            -
Premiums due from policyholders, net                9,999,994    8,888,334
Amounts due from reinsurers                         7,919,245    6,844,407
Prepaid reinsurance premiums                        2,055,485      465,006
Accrued investment income                             566,474      594,776
Deferred policy acquisition costs                   3,875,902    3,596,147
Deferred federal income taxes                       2,955,744    4,741,726
Property and equipment, net of accumulated
 depreciation                                       2,537,704    2,455,766
Other assets                                            7,409       30,670
                                                ------------- ------------
                                                $ 103,799,606 $ 92,959,547
                                                ============= ============
          Liabilities and Stockholders' Equity
  Losses and loss adjustment expenses           $  21,879,855 $ 21,369,524
  Unearned premiums                                27,358,865   25,455,624
  Reinsurance balances payable                         47,117      161,845
  Accrued expenses and other liabilities            9,894,326    6,657,625
                                                ------------- ------------
     Total liabilities                             59,180,163   53,644,618
                                                ------------- ------------
Commitments and contingencies
Stockholders' Equity
  Preferred stock, no par value, authorized
   4,500,000 shares, no shares
   issued and outstanding                                   -            -
  Class A common stock, no par value, authorized
   5,000,000 shares, 1,747,159 and 1,740,154 shares
   issued and outstanding at
   September 30, 2009 and December 31, 2008,
   respectively                                             -            -
  Class B common stock, no par
   value, authorized 500,000 shares,
   no shares issued and outstanding                         -            -
  Additional paid-in capital                        8,955,852    8,653,443
  Retained earnings                                34,521,250   32,507,143
  Accumulated other comprehensive income (loss)     1,142,341   (1,845,657)
                                                ------------- ------------
     Total stockholders' equity                    44,619,443   39,314,929
                                                ------------- ------------
     Total liabilities and stockholders' equity $ 103,799,606 $ 92,959,547
                                                ============= ============

Contact Information

  • Contact:
    Kevin Kaastra
    Vice President of Finance