The National Security Group, Inc. (NASDAQ: NSEC) today reported
a net loss for the fourth quarter of 2016 of $104,000 and net
income for the year ended December 31, 2016 of $3,063,000.
Unaudited consolidated financial results based on US Generally
Accepted Accounting Principles (GAAP) for the three month and
twelve month periods are summarized as follows:
Unaudited Consolidated Financial Summary
Three months ended
December 31,
Year ended
December 31,
2016 2015 2016 2015 Gross premiums
written $ 14,801,000 $ 14,772,000 $ 67,424,000
$ 66,809,000 Net premiums written $ 13,175,000 $
12,866,000 $ 61,525,000 $ 60,389,000
Net premiums earned $ 15,331,000 $ 14,772,000 $ 61,398,000 $
59,462,000 Net investment income 867,000 910,000 3,892,000
3,462,000 Net realized investment gains (losses) 462,000 (14,000 )
998,000 503,000 Other income 149,000 155,000 605,000
623,000
Total Revenues 16,809,000
15,823,000 66,893,000 64,050,000 Policyholder
benefits and settlement expenses 10,856,000 8,281,000 38,847,000
34,148,000 Amortization of deferred policy acquisition costs
1,055,000 788,000 3,506,000 3,510,000 Commissions 1,581,000
1,722,000 7,894,000 7,952,000 General and administrative expenses
2,683,000 2,739,000 8,996,000 8,615,000 Taxes, licenses and fees
501,000 445,000 2,204,000 2,086,000 Interest expense 335,000
374,000 1,352,000 1,392,000
Total Benefits,
Losses and Expenses 17,011,000 14,349,000
62,799,000 57,703,000
Income (Loss) Before Income
Taxes (202,000 ) 1,474,000 4,094,000 6,347,000
Income tax expense (benefit) (98,000 ) 324,000
1,031,000 1,650,000
Net Income (Loss) $
(104,000 ) $ 1,150,000 $ 3,063,000 $ 4,697,000
Income (Loss) Per Common Share $ (0.04 ) $ 0.46 $
1.22 $ 1.87
Reconciliation of Net Income
(Loss) to non-GAAP Measurement Net income (loss) $ (104,000 ) $
1,150,000 $ 3,063,000 $ 4,697,000 Income tax expense (benefit)
(98,000 ) 324,000 1,031,000 1,650,000 Realized investment (gains)
losses, net (462,000 ) 14,000 (998,000 ) (503,000 )
Pretax Income (Loss) From Operations $ (664,000 ) $
1,488,000 $ 3,096,000 $ 5,844,000
Management Commentary on Results of Operations
Three months ended December 31, 2016
compared to three months ended December 31, 2015:
Premium Revenue:For the three months ended December 31,
2016, net premiums earned were up $559,000 at $15,331,000 compared
to $14,772,000 for the same period in 2015; an increase of 3.8%.
The primary reasons for the increase were a 15.3% reduction in
catastrophe reinsurance premium ceded coupled with an increase in
gross earned premium of 1.8%. The increase in gross earned premium
was due to growth in P&C segment gross earned premium revenue
of 1.9% during the fourth quarter of 2016 compared to the same
period in 2015.
Net Income (Loss):For the three months ended December 31,
2016, the Company had a net loss of $104,000, $0.04 per share,
compared to net income of $1,150,000, $0.46 per share, for the same
period in 2015, a decrease of $1,254,000. The primary factor
contributing to the net loss during the fourth quarter of 2016 was
P&C segment claims incurred from Hurricane Matthew which struck
the Atlantic Coast impacting our policyholders in Georgia and South
Carolina. Insured claims from Hurricane Matthew reduced fourth
quarter earnings by $2,640,000.
Additional commentary on Hurricane Matthew:On a gross
basis (before reinsurance recoveries), the P&C segment reported
claims from Hurricane Matthew totaled $8,444,000 at December 31,
2016. Net of reinsurance, Hurricane Matthew reduced fourth quarter
pretax income by $4,000,000. Through December 31, 2016, we had
1,928 reported claims from Hurricane Matthew and at year end, 95%
of reported claims had been settled. Our estimated cost per
reported claim is approximately $4,400. Under our catastrophe
reinsurance coverage, we retain 100% of losses up to $4,000,000
from a single event. After exceeding our retention, losses are 100%
re-insured up to $72,500,000 under our catastrophe reinsurance
program. Any additional reported losses from Hurricane Matthew are
expected to be well within the limits of our catastrophe
reinsurance coverage.
Pretax income (loss) from operations:A primary non-GAAP
financial measure used by management is pretax income (loss) from
operations. This measure consists of net income (loss) before
income taxes adjusted for realized investment gains and losses.
This measure provides a means of comparing the results of our core
operations without the impact of items that are more unpredictable
and less consistent from year to year. A reconciliation of pretax
income (loss) from operations is presented in the table above.
For the three months ended December 31, 2016, the Company had a
pretax loss from operations of $664,000 compared to pretax income
from operations of $1,488,000 for the three months ended December
31, 2015, a decrease of $2,152,000. The primary reason for the
pretax loss from operations in the fourth quarter of 2016 compared
to pretax income in the fourth quarter of 2015 was an increase in
catastrophe related claims from Hurricane Matthew in the P&C
segment. Hurricane Matthew added $4,000,000, net of reinsurance, to
policyholder benefits and expenses.
P&C segment combined ratio:
A measure used to analyze property/casualty insurers
underwriting performance is the GAAP based combined ratio.
Maintaining a combined ratio below 100% indicates the Company is
making an underwriting profit. For the three months ended December
31, 2016, the P&C segment had a combined ratio of 104.1%. As
mentioned previously, the losses incurred from Hurricane Matthew
negatively impacted fourth quarter results and added 28.5
percentage points to the combined ratio for the quarter; thus
leading to a combined ratio greater than 100%. In comparison, the
P&C segment ended the fourth quarter of 2015 with a combined
ratio of 93.3% with catastrophe losses contributing 17.4 percentage
points to the combined ratio. The most significant was an early
October cat event in South Carolina which generated $1,575,000 in
incurred catastrophe losses during the fourth quarter of 2015.
Twelve months ended December 31, 2016
compared to twelve months ended December 31, 2015:
Premium Revenue:For the year ended December 31, 2016, net
premiums earned were up $1,936,000 at $61,398,000 compared to
$59,462,000 in 2015. The primary reasons for the increase were a
8.1% reduction in catastrophe reinsurance costs coupled with
increases in gross earned premium. The increase in gross earned
premium was due to growth in P&C segment premium revenue of
2.5% in 2016 compared to 2015.
Our primary focus over the last four years has been rate
adequacy, capital growth and improved management of risk
concentrations, particularly in our property and casualty segment.
While this focus has been successful, these actions have led to
rate increases in several states in which we operate and thus has
reduced our growth rate. We are implementing plans to increase top
line growth; however, implementation of these plans to increase
written premium will be deliberate as we do not intend to sacrifice
long term underwriting profitability.
Net Income:For the year ended December 31, 2016, the
Company had net income of $3,063,000, $1.22 per share, compared to
net income of $4,697,000, $1.87 per share, for the same period in
2015, a decrease of $1,634,000. The primary reason for the decline
in 2016 year to date earnings compared to 2015 was the adverse
impact of losses incurred from Hurricane Matthew, which reduced
full year earnings by $2,640,000.
Pretax income from operations:For the year ended December
31, 2016, pretax income from operations was $3,096,000 compared to
$5,844,000 for the year ended December 31, 2015, a decrease of
$2,748,000. The primary reason for the decline in pretax income
from operations in 2016 compared to pretax income from operations
in 2015 was an increase in catastrophe related claims in the
P&C segment from Hurricane Matthew. In addition to Hurricane
Matthew, the P&C segment was impacted by numerous non-hurricane
catastrophe events in 2016. In total, catastrophe losses, net of
reinsurance recoveries, (including Hurricane Matthew) increased
policyholder benefits and settlements expenses $4,617,000 in
2016.
P&C segment combined ratio:
For the year ended December 31, 2016, the P&C segment had a
GAAP combined ratio of 94.6%. Hurricane Matthew reported claims (on
a net basis) coupled with non-hurricane cat event reported claims
totaled $9,742,000 and increased the P&C segment combined ratio
17.5 percentage points. In comparison, during 2015, the P&C
segment had reported cat event claims totaling $5,373,000 which
added 10 percentage points to the prior year combined ratio. The
most significant cat event in 2015 was an early October event in
South Carolina which generated $1,575,000 in incurred catastrophe
losses.
As discussed above, management has made underwriting
profitability a primary focus over the past four years and we have
seen the success of this undertaking in our results. Not only did
the Company end 2016 with an underwriting profit despite the
negative impact of Hurricane Matthew in the P&C segment, 2016
was the fourth consecutive year the Company had a combined ratio
below 100%. Efforts to continue improving processes, rate adequacy
and ultimately underwriting profitability will continue to be a
primary focus for management in the future.
Management Commentary on Financial Position
Selected Balance Sheet Highlights
December 31,
2016
December 31,
2015
(UNAUDITED) Invested Assets $ 113,156,000 $ 112,557,000 Cash $
7,368,000 $ 6,763,000 Total Assets $ 148,579,000 $ 147,841,000
Policy Liabilities $ 76,174,000 $ 77,043,000 Total Debt $
17,126,000 $ 17,957,000 Accumulated Other Comprehensive Income $
1,007,000 $ 525,000 Shareholders' Equity $ 48,052,000 $ 44,883,000
Book Value Per Share $ 19.09 $ 17.87
Invested Assets:Invested assets as of December 31, 2016
were $113,156,000 up $599,000, or 0.5%, compared to $112,557,000 as
of December 31, 2015. Although invested assets had a slight
increase in 2016 compared to 2015, growth of invested assets was
adversely impacted by increased claim payments associated with
Hurricane Matthew in the fourth quarter of 2016.
Cash:The Company, primarily through its insurance
subsidiaries, had $7,368,000 in cash and cash equivalents at
December 31, 2016, compared to $6,763,000 at December 31,
2015. Cash remained relatively stable, up 8.9%, in 2016 compared to
the same period in 2015.
Total Assets:Total assets as of December 31, 2016 were
$148,579,000 compared to $147,841,000 at December 31, 2015. While
total assets increased year over year, 2016 total assets were
negatively impacted by increased fourth quarter loss payments
associated with Hurricane Matthew.
Policy Liabilities:Policy liabilities were $76,174,000 at
December 31, 2016 compared to $77,043,000 at December 31, 2015; a
decrease of $869,000 or 1.1%. The primary reason for the decrease
in policy liabilities in 2016 compared to the same period last year
was a $2,114,000 decline in property and casualty loss reserves.
Property and casualty loss reserves were down 21.9% in 2016
compared to 2015 primarily due to a lower year end claims
inventory. While the property and casualty subsidiary did incur
more claims in the fourth quarter of 2016 due to Hurricane Matthew,
over 95% of Matthew claims were settled by December 31, 2016.
Debt Outstanding:Total debt at December 31, 2016 was
$17,126,000 compared to $17,957,000 at December 31, 2015. Debt was
reduced $831,000 during 2016 with the primary reason being the
reduction of long term debt in our holding company. The reduction
of debt continues to be a primary focus of management.
Shareholders' Equity:Shareholders' equity as of
December 31, 2016 was $48,052,000 up $3,169,000 compared to
December 31, 2015 Shareholders' equity of $44,883,000. Book
value per share was $19.09 at December 31, 2016, compared to
$17.87 per share at December 31, 2015, an increase of $1.22.
Despite the adverse impact of Hurricane Matthew, the Company had a
6.8% increase in book value per share and a 7.1% increase in
Shareholders' Equity in 2016 compared to 2015. The primary factor
contributing to the increase in Shareholders' equity was net income
of $3,063,000. In addition, new shares issued under our director
compensation plan totaled $76,000 in 2016. Furthermore, accumulated
other comprehensive income increased $482,000. The increase in
accumulated other comprehensive income was driven by increases in
market values of available-for-sale investment securities.
Offsetting the increases in Shareholders' equity were dividends
paid of $452,000.
The National Security Group, Inc. (NASDAQ Symbol: NSEC), through
its property & casualty and life insurance subsidiaries, offers
property, casualty, life, accident and health insurance in ten
states. The Company writes primarily personal lines property
coverage including dwelling fire and windstorm, homeowners, and
mobile homeowners lines of insurance. The Company also offers life,
accident and health, supplemental hospital and cancer insurance
products. The Company was founded in 1947 and is based in Elba,
Alabama. Additional information about the Company, including
additional details of recent financial results, can be found on our
website: www.nationalsecuritygroup.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20170228006870/en/
The National Security Group, Inc.Brian McLeod, Chief Financial
Officer, 334-897-2273
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