SOUTHFIELD, Mich., April 30 /PRNewswire-FirstCall/ — First Mercury Financial Corporation (“First Mercury” or the “Company”) today announced results for the first quarter ended March 31, 2008.
Highlights for the quarter include:– Premiums produced growth of 26.5 percent– Annualized return on average stockholders equity of 16.6 percent– Combined ratio of 75.0 percent– Operating net income of $10.0 million– Net investment income growth of 47.3 percent– Diluted operating net income per share of $0.53– Successful completion of the acquisition of American ManagementCorporation (“AMC”)
“Our strategy to add complementary niche specialty underwriting platforms during 2007 was the primary driver of our growth this quarter as anticipated,” said Richard H. Smith, chairman and chief executive officer. Smith added, “We are also pleased to have successfully completed our acquisition of AMC during the quarter.”
For the three months ended March 31, 2008, premiums produced were $81.3 million, a 26.5 percent increase from premiums produced during the same period in 2007. Premiums produced consists of all of the premiums underwritten by the Company’s underwriting platforms including CoverX(R), First Mercury’s licensed wholesale insurance broker, for which the Company takes underwriting risk.
For the three months ended March 31, 2008, gross written premiums were $81.2 million, a 34.0 percent increase from the gross written premiums during the same period in 2007.
Net investment income earned during the three months ended March 31, 2008 was $4.9 million, up 47.3 percent from the same period of 2007.
Total operating revenues for the three months ended March 31, 2008 increased 4.7 percent to $55.5 million compared to $53.0 million for the same period of 2007.
Net income for the first quarter 2008 was $9.7 million compared to $10.0 million for the same period of 2007. Operating net income for the first quarter 2008 was $10.0 million compared to $9.9 million for the same period of 2007.
First Mercury’s combined ratio for the three months ended March 31, 2008 was 75.0 percent compared with 73.7 percent for the same period in 2007. The combined ratio for the three months ended March 31, 2008 includes a loss ratio of 53.8 percent and an expense ratio of 21.2 percent. These compare to a loss ratio of 53.3 percent and an expense ratio 20.4 percent for the comparable period in 2007. For the three months ended March 31, 2008, there was no development of prior years’ loss and loss adjustment expense reserves. For the three months ended March 31, 2007, there was $0.1 million of favorable development of prior years’ loss and loss adjustment reserves.
In early February 2008, as previously reported, the Company completed the acquisition of all of the outstanding stock of AMC for a purchase price of $38.5 million including $0.4 million of acquisition costs. AMC is a leading managing general agency (“MGA”) primarily focused on the niche fuel related marketplace for over 20 years. In addition, AMC owns American Underwriters Insurance Company (“AUIC”), a single state, non-standard auto insurance company domiciled in the state of the Arkansas. AMC produced approximately $95 million of premiums in 2007 with approximately 87 percent on an admitted basis. Premiums are currently written for third party carriers, except for the premiums underwritten for AUIC.
Smith concluded, “While we are not immune from the increasingly competitive property casualty insurance environment, we continue to be pleased with our underwriting performance. Our results this quarter were in line with our expectations and are a result of our low cost operating structure and our focus on underwriting specialty niche business which has a proven track record and which is written by underwriters who have experienced multiple market cycles.”
Conference Call Details
The Company will host a conference call on May 1, 2008 at 11:00 a.m. Eastern Time to discuss first quarter results. The call can be accessed live by dialing 800-762-9441 or by visiting the Company’s website at http://www.firstmercury.com/
Investors may access a replay by dialing 800-406-7325, passcode 3871381, which will be available through May 8, 2008. The webcast replay will also be archived in the “Investor Relations” section of the Company’s website.
About First Mercury Financial Corporation
First Mercury Financial Corporation markets and underwrites specialty commercial insurance products, focusing on niche and underserved segments where the Company has underwriting expertise and other competitive advantages. During the Company’s 34 years of underwriting risks, First Mercury has established CoverX(R) as a recognized brand among insurance agents and brokers. As primarily an excess and surplus (E&S) lines underwriter, First Mercury has developed the underwriting expertise and cost-efficient infrastructure which has enabled it to effectively underwrite such risks.
Non-GAAP Financial Measures
Operating net income and operating net income per share are non-GAAP financial measures, and management believes that investors’ understanding of core operating performance is enhanced by First Mercury’s disclosure of these financial measures. Operating net income consists of net income adjusted to exclude the impact of net realized gains (losses) on investments and the change in fair value of derivative instruments and taxes related to these adjustments. Definitions of these items may not be comparable to the definitions used by other companies. Net income and net income per share are the GAAP financial measures that are most directly comparable to operating net income and operating net income per share.
Safe Harbor Statement
This release contains forward-looking statements that relate to future periods and includes statements regarding our anticipated performance. Generally, the words “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,” “plans” and similar expressions identify forward- looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, uncertainties and other important factors include, among others: our ability to maintain or the lowering or loss of one of our financial or claims-paying ratings; our actual incurred losses exceeding our loss and loss adjustment expense reserves; the failure of reinsurers to meet their obligations; our inability to obtain reinsurance coverage at reasonable prices; the failure of any loss limitations or exclusions or changes in claims or coverage; our lack of long-term operating history in certain specialty classes of insurance; our ability to acquire and retain additional underwriting expertise and capacity; the concentration of our insurance business in relatively few specialty classes; competition risk; fluctuations and uncertainty within the excess and surplus lines insurance industry; the extensive regulations to which our business is subject and our failure to comply with these regulations; our ability to maintain our risk-based capital at levels required by regulatory authorities; our inability to realize our investment objectives; and the risks identified in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K. Given these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. We assume no obligation to update or revise them or provide reasons why actual results may differ.
For more information on the Company, please visit the Company’s website athttp://www.firstmercury.com/Financial Tables Follow …First Mercury Financial CorporationCondensed Consolidated Statements of Income(Unaudited)For the Three Months Ended March 31,———————————–20082007——————–(Dollars in thousands, exceptshare and per share data)Operating RevenueNet earned premiums$43,571$44,929Commissions and fees7,0294,657Net investment income4,8533,294Net realized gains on investments1135——————–Total Operating Revenues55,45453,015——————–Operating ExpensesLosses and loss adjustment expenses,net23,44423,954Amortization of deferred acquisitionexpenses8,2138,739Underwriting, agency and other expenses7,0523,730Amortization of intangible assets539307——————–Total Operating Expenses39,24836,730——————–Operating Income16,20616,285Interest Expense1,464982Change in Fair Value of DerivativeInstruments435107——————–Income Before Income Taxes14,30715,196Income Taxes4,5865,229——————–Net Income$9,721$9,967====================Net Income Per Share:Basic$0.54$0.58====================Diluted$0.52$0.55====================Weighted Average Shares Outstanding:Basic18,106,06317,331,901====================Diluted18,793,26418,183,841====================GAAP Underwriting Ratios:Loss ratio53.8%53.3%Expense ratio21.2%20.4%Combined ratio75.0%73.7%First Mercury Financial CorporationCondensed Consolidated Balance Sheets(Unaudited)March 31,December 31,20082007———————-(Unaudited)(Dollars in thousands, except shareASSETSand per share data)InvestmentsDebt securities$420,426$402,418Equity securities and other18,4314,529Short-term35,06552,341———————-Total Investments473,922459,288Cash and cash equivalents20,83618,432Premiums and reinsurance balancesreceivable59,29538,278Accrued investment income4,4344,481Accrued profit sharing commissions11,33114,220Reinsurance recoverable on paid andunpaid losses106,99496,995Prepaid reinsurance premiums47,74352,718Deferred acquisition costs19,31514,257Intangible assets, net of accumulatedamortization47,91236,651Goodwill25,080-Other assets14,80011,964———————-Total Assets$831,662$747,284======================LIABILITIES AND STOCKHOLDERS’ EQUITYLoss and loss adjustment expense reserves$301,314$272,365Unearned premium reserves134,005123,469Long-term debt67,01367,013Funds held under reinsurance treaties38,34635,799Premiums payable to insurance companies21,6362,163Reinsurance payable on paid losses4,8003,958Deferred federal income taxes3,913217Accounts payable, accrued expenses,and other liabilities21,14812,920———————-Total Liabilities592,175517,904———————-Stockholders’ EquityCommon stock, $0.01 par value; authorized100,000,000 shares; issued and outstanding18,275,313 and 17,972,353 shares183180Paid-in-capital166,681165,836Accumulated other comprehensive income1,2141,177Retained earnings71,90862,187Treasury stock; 33,600 and 0 shares(499)———————–Total Stockholders’ Equity239,487229,380———————-Total Liabilities and Stockholders’Equity$831,662$747,284======================Book Value Per Outstanding Share$13.10$12.76======================First Mercury Financial CorporationSummary Financial DataThree Months EndedMarch 31,———————-20082007——————–(Dollars in thousands, exceptshare and per share data)Premiums Produced:Security$17,899$17,345Specialty39,85640,731Contract Underwriting16,4676,184FM Emerald5,572-AUIC1,499———————Premiums Produced$81,293$64,260====================Gross Written Premiums:Security$17,899$17,262Specialty39,85640,731Contract Underwriting16,3802,607FM Emerald5,572-AUIC1,499———————Gross written premiums$81,206$60,600====================Net Written Premiums:Security$13,578$9,750Specialty31,50623,091Contract Underwriting10,1811,619FM Emerald1,739-AUIC1,499———————Net written premiums$58,503$34,460====================Commissions and Fees:Insurance underwriting commissions and fees$1,329$1,872Insurance services commissions andfees5,7002,785——————–Total commissions and fees$7,029$4,657====================Cash and Cash Equivalents:Net cash provided by operatingactivities$26,162$51,628Net cash used in investing activities(23,780)(56,396)Net cash provided by financingactivities22———————Net increase (decrease) in cash andcash equivalents$2,404$(4,768)====================Operating Net Income: (1)Net income$9,721$9,967Adjust for Net realized gains andlosses oninvestments, net of tax(1)(88)Adjust for Change in fair value ofderivativeinstruments, net of tax28370——————–Operating net income$10,003$9,949====================Operating Net Income Per Share: (1)Diluted$0.53$0.55====================FOOTNOTES(1) See discussion of use of non-GAAP financial measures above.
First Mercury Financial Corporation
CONTACT: Allison J. Roelofs, Manager – Corporate Financial Reporting, ofFirst Mercury Financial Corporation, +1-248-213-0430,[email protected]; or Leslie Loyet, Investor Inquiries, of FinancialRelations Board, +1-312-640-6672, [email protected], for First MercuryFinancial Corporation
Web site: http://www.firstmercury.com/