The National Security Group, Inc. (NASDAQ: NSEC) today reported
a net loss of $1,056,000 for the three months ended December 31,
2018 and net income of $779,000 for the year ended December 31,
2018. Fourth quarter and full year results were adversely impacted
by losses related to Hurricane Michael. Unaudited consolidated
financial results for the fourth quarter and full year of 2018 and
2017 are summarized as follows:
Unaudited Consolidated Financial Summary
Three months ended
December 31,
Year ended
December 31,
2018 2017 2018 2017 Gross premiums
written $ 14,787,000 $ 14,784,000 $ 67,174,000
$ 67,737,000 Net premiums written $ 13,027,000 $
13,034,000 $ 60,717,000 $ 61,388,000
Net premiums earned $ 15,092,000 $ 15,325,000 $ 60,856,000 $
61,163,000 Net investment income 768,000 852,000 3,567,000
3,647,000 Investment gains (losses) (303,000 ) (78,000 ) (178,000 )
234,000 Other income 155,000 149,000 612,000
596,000
Total Revenues 15,712,000 16,248,000
64,857,000 65,640,000 Policyholder benefits
and settlement expenses 11,385,000 7,958,000 40,409,000 42,869,000
Amortization of deferred policy acquisition costs 1,225,000
1,119,000 3,597,000 3,589,000 Commissions 1,760,000 1,776,000
7,555,000 7,723,000 General and administrative expenses 1,764,000
2,411,000 8,839,000 8,821,000 Taxes, licenses and fees 592,000
530,000 2,157,000 2,445,000 Interest expense 318,000 338,000
1,235,000 1,307,000
Total Benefits, Losses
and Expenses 17,044,000 14,132,000 63,792,000
66,754,000
Income (Loss) Before Income Taxes
(1,332,000 ) 2,116,000 1,065,000 (1,114,000 ) Income
tax expense (benefit) (276,000 ) 1,447,000 286,000
89,000
Net Income (Loss) $ (1,056,000 ) $ 669,000
$ 779,000 $ (1,203,000 )
Income (Loss) Per Common
Share $ (0.42 ) $ 0.26 $ 0.31 $ (0.48 )
Reconciliation of Net Income (Loss) to Non-GAAP Measurement
Net income (loss) $ (1,056,000 ) $ 669,000 $ 779,000 $ (1,203,000 )
Income tax expense (benefit) (276,000 ) 1,447,000 286,000 89,000
Investment (gains) losses 303,000 78,000 178,000
(234,000 )
Pretax Income (Loss) From Operations $
(1,029,000 ) $ 2,194,000 $ 1,243,000 $ (1,348,000 )
Management Commentary on Results of Operations
Three months ended December 31, 2018
compared to three months ended December 31, 2017:
Premium Revenue:
For the three months ended December 31, 2018, net premiums
earned were down $233,000 at $15,092,000 compared to $15,325,000
for the same period in 2017. The decrease in premium revenue was
primarily driven by a decline in net earned premium in the P&C
segment of $136,000. This decline was primarily attributable to a
decrease in our surplus lines business in coastal Louisiana.
Investment Gains (Losses):
In 2018, due to a change in Generally Accepted Accounting
Principles (GAAP), unrealized gains and losses on equity
investments are required to be reported as a component of
investment gains/losses on the income statement. These amounts were
previously reported as a component of Other Comprehensive Income.
For the three-month period ended December 31, 2018, investment
losses include a $260,000 decrease in accumulated gains on equity
securities held for investment. This decrease in accumulated gains
was driven by an overall decline in stock market values experienced
late in the fourth quarter of 2018.
Net Income (Loss):
For the three months ended December 31, 2018, the Company had a
net loss of $1,056,000, $0.42 loss per share, compared to net
income of $669,000, $0.26 income per share, for the same period in
2017. The primary reason for the $1,725,000 decline in our fourth
quarter 2018 earnings, compared to the same period last year, was
an increase in P&C segment claim activity due to Hurricane
Michael. Hurricane Michael made landfall in the panhandle of
Florida, as a Category 4 storm, on October 10, 2018. Hurricane
Michael primarily impacted our policyholders in Georgia; but also
affected policyholders in Alabama and South Carolina. The losses
incurred from Hurricane Michael reduced fourth quarter net income
by $3,160,000.
Pretax Income (Loss) from Operations:
A primary non-GAAP financial measure utilized by management is
pretax income (loss) from operations. This measure consists of net
income (loss) before income taxes adjusted for 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, 2018, the Company had a
pretax loss from operations of $1,029,000 compared to a pretax
income from operations of $2,194,000, for the three months ended
December 31, 2017. As mentioned previously, in the fourth quarter
of 2018, the P&C segment had an increase in catastrophe related
claims from Hurricane Michael. Losses from Hurricane Michael
decreased pretax income by $4,000,000, net of reinsurance.
P&C Segment Combined Ratio:
A measure used by management to analyze our P&C subsidiaries
underwriting performance is the GAAP basis combined ratio.
Maintaining a combined ratio below 100% indicates the Company is
making an underwriting profit. For the three months ended December
31, 2018, the P&C segment had a combined ratio of 114.0%. The
fourth quarter of 2018 had increased catastrophe losses, compared
to 2017, with Hurricane Michael adding 29.0 percentage points to
the P&C segment combined ratio. In comparison, the P&C
segment ended the fourth quarter of 2017 with a combined ratio of
83.7%. Catastrophe events added 10.5 percentage points to the
fourth quarter 2017 combined ratio.
Year ended December 31, 2018 compared
to year ended December 31, 2017:
Premium Revenue:
For the year ended December 31, 2018, net premiums earned were
down $307,000 at $60,856,000 compared to $61,163,000 in 2017. The
decrease in premium revenue was primarily driven by a decline in
net earned premium in the P&C segment of $207,000. This decline
was primarily attributable to a decrease in our surplus lines
business in coastal Louisiana.
Investment Gains (Losses):
In 2018, due to a change in GAAP, unrealized gains and losses on
equity investments are required to be reported as a component of
investment gains/losses on the income statement. These amounts were
previously reported as a component of Other Comprehensive Income.
For the year ended December 31, 2018, investment losses include a
$203,000 decrease in accumulated gains on equity securities held
for investment. This decrease in accumulated gains was driven by an
overall decline in stock market values experienced late in the
fourth quarter of 2018.
Net Income (Loss):
For the year ended December 31, 2018, the Company had net income
of $779,000, $0.31 income per share, compared to a net loss of
$1,203,000, $0.48 loss per share, for the same period in 2017. The
primary reason for the increase in 2018 year to date earnings
compared to 2017 was the reduction in retained catastrophe losses
over the twelve-month period in 2018. Also, results in 2017 were
adversely impacted by an increase in income tax expense due to
revaluation of deferred tax assets under the Tax Cuts and Jobs Act
(TCJA). Retained catastrophe losses (net of reinsurance recoveries)
were down $5,142,000 in 2018 compared to 2017. In addition, we had
a fourth quarter 2017 charge to income tax expense of $803,000 from
the net impact of recognition and revaluation of deferred tax
assets and liabilities due to enactment of the TCJA.
Pretax Income (Loss) from Operations:
For the year ended December 31, 2018, our pretax income from
operations was $1,243,000 compared to a pretax loss from operations
of $1,348,000 for the year ended December 31, 2017; an improvement
of $2,591,000. The primary reason for the pretax income from
operations in 2018 compared to the pretax loss from operations in
the prior year was a decrease in the frequency and severity of
catastrophe related claims in the P&C segment. While our
P&C segment was impacted by Hurricane Michael in the fourth
quarter of 2018 and Hurricane Irma in the third quarter of 2017,
our property and casualty subsidiary was also impacted by numerous
tornado and severe thunderstorm related catastrophe events in the
first half of 2017. The reduction in non-hurricane cat events in
2018 compared to the prior year was the primary reason for the
decrease in claims and improvement in pretax income from
operations.
P&C Segment Combined Ratio:
For the year ended December 31, 2018, the P&C segment had a
GAAP combined ratio of 102.4%. Reported claims from Hurricane
Michael coupled with reported claims from Hurricane Florence and 17
additional severe weather events in 2018 totaled $9,138,000 (net of
reinsurance recoveries) and increased the P&C segment combined
ratio by 16.7 percentage points. In comparison, for the year ended
December 31, 2017, the P&C segment had a GAAP combined ratio of
102.3%. Reported claims from Hurricane Irma and 25 additional
severe weather events in 2017 totaled $14,280,000 and increased the
P&C segment combined ratio by 25.7 percentage points. Partially
offsetting the 2018 decrease in catastrophe losses was an increase
in fire related losses compared to the prior year.
Management Commentary on Financial Position
Selected Balance Sheet Highlights
December 31,
2018
December 31,
2017
(UNAUDITED) Invested Assets $ 112,690,000 $ 114,731,000 Cash $
5,676,000 $ 6,644,000 Total Assets $ 144,231,000 $ 146,438,000
Policy Liabilities $ 77,988,000 $ 76,674,000 Total Debt $
14,352,000 $ 15,639,000 Accumulated Other Comprehensive Income $
(1,570,000 ) $ 2,646,000 Shareholders' Equity $ 45,866,000 $
47,625,000 Book Value Per Share $ 18.15 $ 18.88
Invested Assets:
Invested assets as of December 31, 2018 were $112,690,000
compared to $114,731,000 as of December 31, 2017. The primary
reason for the decline in invested assets was the increase in
market interest rates which reduced the market value of our bond
portfolio held for sale by $3,043,000.
Cash:
The Company, primarily through its insurance subsidiaries, had
$5,676,000 in cash and cash equivalents at December 31, 2018,
compared to $6,644,000 at December 31, 2017. The moderate
decline in cash for 2018 was primarily due to payment of claims
from Hurricane Michael which occurred in the fourth quarter of
2018.
Total Assets:
Total assets as of December 31, 2018 were $144,231,000 compared
to $146,438,000 at December 31, 2017. Asset growth in 2018 was
hindered by losses from Hurricane Michael along with a decrease in
value of our bond portfolio investments due to increases in market
interest rates.
Policy Liabilities:
Policy liabilities were $77,988,000 at December 31, 2018,
compared to $76,674,000 at December 31, 2017; an increase of
$1,314,000 or 1.7%. The primary reason for the increase in policy
liabilities in 2018 compared to the same period last year was a
$1,133,000 increase in P&C segment loss reserves.
Debt Outstanding:
Total debt at December 31, 2018 was $14,352,000 compared to
$15,639,000 at December 31, 2017. Debt was reduced $1,287,000
during 2018 primarily from the reduction of long-term debt in our
holding company. The improvement of balance sheet strength through
both capital growth and reduction of debt continues to be a primary
focus of management.
Shareholders' Equity:
Shareholders' equity as of December 31, 2018 was
$45,866,000, down $1,759,000 compared to December 31, 2017
Shareholders' equity of $47,625,000. Book value per share was
$18.15 at December 31, 2018, compared to $18.88 per share at
December 31, 2017, a decrease of $0.73 per share. The primary
factors contributing to the decrease in both book value per share
and Shareholders' equity were an accumulated other comprehensive
loss of $2,109,000, shareholder dividends of $505,000 and new
shares issued under our director compensation plan which totaled
$76,000. Partially offsetting these factors was net income of
$779,000. The accumulated other comprehensive loss was largely
driven by a $2,404,000 net of tax decline in market values in our
bond portfolio due to an increase in market interest rates.
The National Security Group, Inc. (NASDAQ Symbol: NSEC), through
its property & casualty (P&C) 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: https://www.businesswire.com/news/home/20190228006032/en/
The National Security Group, Inc.Brian McLeodChief Financial
Officer(334) 897-2273
National Security (NASDAQ:NSEC)
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