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CST: 15/11/2019 18:06:41   

Protective Insurance Corporation Announces First Quarter 2019 Results

192 Days ago

CARMEL, Ind., May 07, 2019 (GLOBE NEWSWIRE) -- Protective Insurance Corporation (NASDAQ: PTVCA, PTVCB) today reported results for the first quarter of 2019.  The Company produced  first quarter net income of $2.7 million, or $0.18 per share, which compares to net income of $0.3 million, or $0.02 per share, for the prior year’s first quarter. 

  • Book value per share increased by $0.68 per share to $24.63 during the first quarter of 2019, an increase of 2.8% in the quarter and total value creation of 3.3% including the $0.10 per share dividend paid to shareholders during the first quarter of 2019.
  • Net investment income increased 34.4% for the first quarter of 2019 compared to the prior year.
  • Combined ratio of 108.0% for the first quarter of 2019, down from 112.2% for the fourth quarter of 2018.
  • Repurchased $3.5 million (197,397 shares) since January 1, 2019.  These purchases are immediately accretive to book value, given an average repurchase price of 72% of March 31, 2019 book value ($3.0 million of the $3.5 million in repurchases occurred after March 31, 2019).

Net premiums earned for the first quarter of 2019 increased to $110.0 million, up 4.3% compared to the prior year period.  Gross premiums written for the first quarter of 2019 were flat at $148.9 million compared to $148.8 million written during the prior year period.  The higher net premiums earned is attributable to changes to the Company’s reinsurance structure for commercial automobile coverages.

Underwriting operations produced a combined ratio of 108.0% during the first quarter of 2019 compared to a combined ratio of 99.8% for the prior year period.  The first quarter 2019 increase in the combined ratio reflects an increase in the current accident-year loss ratio related to severe commercial automobile losses, including continued emergence of severity.  Adverse prior year development, including variable premium adjustment provisions in our historical reinsurance treaties, was $0.5 million (the net of $1.6 million of additional ceded premium from commercial automobile coverages offset by $1.1 million of favorable prior year reserve development primarily from workers’ compensation and independent contractor coverages).  The Company continues to maintain current accident-year loss ratios at a level consistent with rising severity expectations in commercial automobile.  In our agency placed commercial automobile excess and medium fleet product lines the Company attained double-digit rate increases during the first quarter of 2019.  As a result, the premium retention rate achieved in these product lines was 66%, resulting from our commitment to remain disciplined in our underwriting and create long-term value for our stakeholders. 

Commercial automobile products covered by our reinsurance treaties are subject to an aggregate stop-loss provision. Once this aggregate stop-loss level is reached, for every $100 of additional loss, the Company is responsible only for its $25 retention.  The following table illustrates the financial impact of a further 5% or 10% increase in ultimate losses for each of the five most recent reinsurance treaty years (2014-2018) covering these commercial automobile products:

  5% Increase in Ultimate Loss Ratio   10% Increase in Ultimate Loss Ratio
Gross loss expense from further strengthening current reserve position $   35.3   $   70.7
Net financial loss   9.2     18.1
$/share (after tax) $ 0.49   $ 0.96

Net investment income for the first quarter of 2019 increased 34.4% to $6.2 million compared to $4.6 million in the prior year period.  The increase reflects: higher average funds invested resulting from positive cash flow, as well as a reallocation from equity investments held in limited partnerships into short duration, high quality bonds.  Our fixed income investment portfolio continues to emphasize shorter-duration instruments. If there was a hypothetical increase in interest rates of 100 basis points, the price of our bonds at March 31, 2019 would be expected to fall by approximately 2.7%.   Credit quality remains high with a weighted average rating of AA-, including cash. 

During the first quarter of 2019, the Company reallocated approximately $31.1 million of equity securities, including distributions from limited partnerships, into short-duration, high quality bonds.  This reallocation was consistent with investment activity throughout 2018 where approximately $122 million of equity securities were reallocated to short-duration treasuries.  These equity sales further solidified the conservative nature of our high quality, short-duration investment portfolio; opportunistically utilized the lower corporate tax rate of 21%, which was beneficial given the low tax basis of many of these equity positions; and were accretive to income.

The Company continues to focus on our operating initiative of expense discipline, reflected in the 2.4% decline in the expense ratio during the first quarter of 2019 when compared to the first quarter of 2018.  We will continue to manage our expense base, particularly as we gain greater clarity on the impact of continuing to attain increasing premium rates, and the influence of increased rates upon the retention of renewing policies.

Book value per share as of March 31, 2019 was $24.63, an increase of $0.68 per share during the first quarter, after the payment of cash dividends to shareholders totaling $0.10 per share.

The Company's net income, determined in accordance with U.S. generally accepted accounting principles (GAAP) includes items that may not be indicative of ongoing operations. The following table reconciles income before federal income tax expense (benefit) to underwriting income (loss), a non-GAAP financial measure that is a useful tool for investors and analysts in analyzing ongoing operating trends.

   
  Three Months Ended
  March 31
    2019       2018  
       
Income before federal income tax expense (benefit) $   3,514     $   314  
Less: Net realized gains (losses) on investments   (299 )     376  
Less: Net unrealized gains (losses) - equity securities and limited partnerships   6,327       (4,909 )
Less: Goodwill impairment charge included in Other operating expenses   0         -  
Income (loss) from core business operations $   (2,514 )   $   4,847  
Less: Net investment income   6,232       4,636  
Underwriting income (loss) $   (8,746 )   $   211  
       

Loss from core business operations, before federal income tax expense, was $2.5 million for the first quarter of 2019 compared to income from core business operations, before federal income tax expense, of $4.8 million during the first quarter of 2018.

The Company’s management uses the term income (loss) from core business operations, a non-GAAP financial measure, which is defined as income before federal income tax expenseexcluding pre-tax realized and unrealized investment gains and losses.  This financial measure is used to evaluate the Company’s operating performance because the recognition of realized investment gains and losses, and occurrence of unrealized gains, could distort analysis of trends in the core underwriting business.

The combined ratios and the components, as presented herein, are commonly used in the property/casualty insurance industry and are applied to the Company’s GAAP underwriting results.

Conference Call Information:

Protective Insurance Corporation has scheduled its quarterly conference call for Wednesday, May 8, 2019, at 11:00 AM EST to discuss results for the first quarter ended March 31, 2019.

To participate via teleconference, investors may dial 1-877-705-6003 (U.S./Canada) or 1-201-493-6725 (International or local) at least five minutes prior to the beginning of the call.  A replay of the call will be available through May 15, 2019 by calling 1-844-512-2921 or 1-412-317-6671 and referencing passcode 13689060.  Investors and interested parties may also listen to the call via a live webcast, accessible on the company’s web site via a link at the top of the main Investor Relations page.  To participate in the webcast, please register at least fifteen minutes prior to the start of the call.  The webcast will be archived on this site until November 8, 2019.  The webcast may be accessed directly at: http://public.viavid.com/index.php?id=133750

Also available on the investor relations section of our web site is an investor presentation providing additional information to be reviewed in conjunction with our earnings call.  We have also made available complete interim financial statements and copies of our filings with the Securities and Exchange Commission.

The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q but do not include all of the information and footnotes as disclosed in the Company’s annual audited financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. 

Forward-looking statements in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Investors are cautioned that such forward-looking statements involve inherent risks and uncertainties.  Readers are encouraged to review the Company's annual report for its full statement regarding forward-looking information.

 

Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
         
(in thousands, except per share data)  
         
         
         
    March 31   December 31
     2019     2018  
Assets        
Investments 1:      
  Fixed income securities (2019: $669,128; 2018: $600,504) $ 671,973   $   592,645  
  Equity securities   68,956     66,422  
  Limited partnerships, at equity   38,239     55,044  
  Commercial mortgage loans    7,844     6,672  
  Short-term 2   1,000     1,000  
      788,012     721,783  
Cash and cash equivalents   117,418     163,996  
Restricted cash and cash equivalents   15,888     6,815  
Accounts receivable    108,974     102,972  
Reinsurance recoverable   404,424     392,436  
Other assets   95,572     88,426  
Current federal income taxes   6,025     7,441  
Deferred federal income taxes   3,478     6,262  
    $ 1,539,791   $ 1,490,131  
         
Liabilities and shareholders' equity  
Reserves for losses and loss expenses $ 894,221   $   865,339  
Reserves for unearned premiums   80,332     71,625  
Borrowings under line of credit   20,000     20,000  
Accounts payable and other liabilities   179,168     177,085  
Current federal income taxes   -     -  
Deferred federal income taxes   -     -  
      1,173,721     1,134,049  
Shareholders' equity:      
  Common stock-no par value   634     634  
  Additional paid-in capital   55,049     54,720  
  Accumulated other comprehensive income ( loss)   1,416     (7,347 )
  Retained earnings   308,971     308,075  
      366,070     356,082  
    $ 1,539,791   $ 1,490,131  
         
Number of common and common    
  equivalent shares outstanding   14,865     14,869  
Book value per outstanding share $   24.63   $   23.95  
         
1 2019 & 2018 cost in parentheses  
2 Approximates cost      
 


Protective Insurance Corporation and Subsidiaries  
Unaudited Condensed Consolidated Statements of Operations
           
(in thousands, except per share data)    
           
    Three Months Ended  
    March 31  
      2019       2018    
Revenues          
Net premiums earned $ 110,013     $   105,462    
Net investment income   6,232       4,636    
Commissions and other income   2,064       1,814    
Net realized gains (losses) on investments, excluding impairment losses   (39 )     376    
Other-than-temporary impairment losses on investments     (260 )     -    
Net unrealized gains (losses) on equity securities and limited partnership investments     6,327       (4,909 )  
Net realized and unrealized gains (losses) on investments     6,028       (4,533 )  
      124,337       107,379    
Expenses          
Losses and loss expenses incurred   87,122       72,298    
Other operating expenses   33,701       34,767    
      120,823       107,065    
Income before federal income tax expense (benefit)     3,514       314    
Federal income tax expense (benefit)   766       (16 )  
Net income   $   2,748     $   330    
           
Per share data - diluted:      
Income (loss) before net gains (losses) on investments $   (.14)   $  .22  
Net gains (losses) on investments .32   (.20)  
Net income   $   .18   $  .02  
           
Dividends   $   .10   $  .28  
           
Reconciliation of shares outstanding:    
Average shares outstanding - basic   14,848       15,010    
Dilutive effect of share equivalents     30         24    
Average shares outstanding - diluted   14,878       15,034    
           

  

Protective Insurance Corporation and Subsidiaries        
Unaudited Condensed Consolidated Statements of Cash Flows      
           
(in thousands)        
           
      Three Months Ended
      March 31
        2019       2018  
           
Net cash provided by op erating activities   $   11,405     $   8,027  
Investing activities:        
  Purchases of available-for-sale investments     (140,645 )     (140,820 )
  Purchases of limited partnership interests     -       (200 )
  Proceeds from sales or maturities        
  of available-for-sale investments     68,975       103,657  
  Proceeds from sales of equity securities       9,169       59,757  
  Net purchases of short-term investments     -       -  
  Purchase of insurance company-owned life insurance     -       (10,000 )
  Purchase of commercial mortgage loans     (1,172 )     -  
  Distributions from limited partnerships     17,214       -  
  Other investing activities     (797 )     (1,214 )
Net cash provided by (used in) investing activities       (47,256 )     11,180  
Financing activities:        
  Dividends paid to shareholders     (1,493 )     (4,229 )
  Drawings on line of credit       -       0  
  Repayment on line of credit       -         -  
  Drawings on margin account       -         -  
  Repurchase of common shares     (468 )     (235 )
  Proceeds from sales of common stock       -         -  
Net cash used in financing activities       (1,961 )     (4,464 )
           
Effect of foreign exchange rates on cash and cash equivalents       307       (223 )
           
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents       (37,505 )     14,520  
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period     170,811       68,713  
Cash, cash equivalents and restricted cash and cash equivalents at end of period   $ 133,306     $   83,233  
           

 

Financial Highlights (unaudited)    
Protective Insurance Corporation and Subsidiaries      
(In thousands, except p er share data) Three Months Ended
    March 31
      2019       2018  
         
Annualized      
Book value per share beginning of period $   23.95     $   27.83  
Book value per share end of period   24.63       27.38  
Change in book value per share $   0.68     $   (0.45 )
Dividends paid   0.10       0.28  
Change in book value per share plus dividends paid $   0.78     $   (0.17 )
Total value creation 1   13.0 %     (2.4 %)
         
         
Return on average shareholders' equity:  
Average shareholders' equity   361,076       415,311  
         
Net income   2,748       330  
Less: Net realized gains (losses) on investments, net of tax   4,762       (3,581 )
Net operating income (loss)   (2,014 )     3,911  
         
Return on net income 2   3.0 %     0.3 %
Return on net operating income (loss) 2   (2.2 %)     3.8 %
         
         
Loss and LAE expenses incurred $   87,122     $   72,298  
Net premiums earned   110,013       105,462  
  Loss and LAE ratio   79.2 %     68.6 %
         
Other operating expenses $   33,701     $   34,767  
Less: Commissions and other income   2,064       1,814  
Other operating expenses, less commissions and other income   $   31,637     $   32,953  
Net premiums earned   110,013       105,462  
  Expense ratio   28.8 %     31.2 %
         
  Combined ratio 3   108.0 %     99.8 %
         
         
Gross premiums written     $ 148,893     $   148,823  
Net premiums written       115,322       113,434  
         
1 Total Value Creation equals change in book value plus dividends paid, divided by beginning book value. Quarterly amounts have been annualized.
2 Quarterly amounts have been annualized.        
3 The combined ratio is calculated as ratio of losses and loss expenses incurred, plus other operating expenses, less commission and other income to net premiums earned.  
         

Investor Contact:  William Vens
investors@protectiveinsurance.com 
(317) 429-2554

 

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