Meadowbrook CEO: Company on Track to Deliver on 2014 Guidance
The efforts undertaken by Meadowbrook Insurance Group in the past couple of years to improve its underwriting performance and profitability appear to be working.
In a conference call to discuss results for the first quarter of 2014, Robert S. Cubbin, president and CEO of the Southfield, Mich.-based insurer, said the company achieved “modest favorable reserve developments, increased statutory surplus and increases in both net income and net operating income,” during the quarter.
“While we still have work to do, our results for the quarter combined with our outlook for the year give us confidence that we remain on track to deliver on the 2014 guidance,” Cubbin said. “We remain focused on our key priorities, including improving our risk profile, obtaining stability in our loss reserves, strengthening our capital position, and continuing to serve our customers and support our partners and agents.”
Cubbin has previously said that in early 2012 the company began fortifying its surplus through a combination of underwriting discipline, exiting under-performing classes of business and raising rates.
Still, A.M. Best in October 2012 placed Meadowbrook’s ratings under review with negative implications and in August 2013 downgraded the company’s financial strength rating (FSR) from “A-” to “B++.” A.M. Best affirmed the “B++” rating in February 2014.
Meadowbrook achieved significant rate increases throughout 2012 and continued to increase rates in 2013 and 2014. Cubbin said the company expects an increase in net earned premiums for the full year 2014 of roughly 8 percent.
In a release outlining the results for the first quarter of 2014, Meadowbrook reported a net income of $10.4 million, or $0.21 per diluted share, compared with net income of $7.1 million, or $0.14 per diluted share, for the same period in 2013. The first quarter 2014 results include $2 million, or $0.04 per diluted share, of after-tax realized gains, compared to $0.2 million, or less than $0.01 per diluted share, for the same period in 2013.
Gross written premium in Q1 2014 decreased to $201.7 million, compared with $267.7 million in the same period in 2013. Meadowbrook expected this decline in premium due to the termination of, or the reduction of premium, in certain under-performing programs, the company said in its earnings statement.
Meadowbrook saw an improvement in its combined ratio in Q1 2014 compared with the same period in the previous year.
“Our accident year combined ratio excluding the impact of the policy issuance fee was 98.3. based on the cumulative impact of the actions we have taken to achieve rate increases, improve our underwriting and terminating under-performing business, our accident loss and LAE ratio improved 5.4 percentage points … compared to the first quarter of last year,” Cubbin said. “While this improvement in the 2014 accident year loss ratio is tempered by a more conservative selection within the standard actuarial method, it represents an initial indicator that our efforts are having the desired impact — a return to underwriting profitability.”
Cubbin said Meadowbrook has experienced a “modest, favorable reserve development” in its workers’ compensation book of business, led by the California business segment.
In addition, the “2013 accident year reserves for all lines also show favorable signs,” Cubbin said.
Reserve indications for the 2014 accident year “reflect additional measurable improvements beyond the 2013 accident year,” he said. And “reserves on the terminated business remained stable in the quarter.”
Cubbin said the company remains “willing to walk away from business where appropriate.” But, he said, Meadowbrook is “gratified by the loyalty exhibited by our production partners. This loyalty has resulted in our ability to stabilize our premium level, secure rate increases where needed, and continue to see new business in mature, proven programs.”
For the full year 2014, the company expects gross written premiums to be between $775 and $800 million, Cubbin said, with a combined ratio between 99 and 100. The expense ratio will include 2 percentage points related to the cost of an arrangement with a non-affiliated carrier for policy issuance.
Net operating income for all of 2014 is expected to be between $25 and $35 million or between 50 cents and 70 cents per share, he said.