SOUTHFIELD, Mich., Nov. 2 /PRNewswire-FirstCall/ -- First Mercury
Financial Corporation (NYSE:FMR) ("First Mercury" or the "Company")
today announced results for the third quarter and nine months ended
September 30, 2009. Highlights for the third quarter 2009 include:
-- Gross written premium growth of 6.2 percent -- Net income of
$15.6 million, or $0.89 per diluted share -- Operating net income
of $6.8 million, or $0.39 per diluted share -- Book value per share
of $17.90, an increase of 22.0 percent from December 31, 2008 --
Commission and fee income growth of 56.5 percent -- Net investment
income growth of 35.3 percent -- Repurchase of 413,665 shares of
common stock for $5.4 million at an average cost of $13.06 per
share -- Authorization of a new Share Repurchase Program for up to
1,000,000 shares -- Second consecutive quarterly dividend of $0.025
per share "We are pleased with another solid quarter," said Richard
H. Smith, Chairman, President and Chief Executive Officer. "Our new
initiatives resulted in gross written premium growth of 6.2
percent, while we maintained underwriting discipline as
demonstrated by our underwriting results. Our continued positive
investment performance and underwriting results contributed to a
22.0 percent increase in book value per share to $17.90 since year
end," continued Smith. Net income for the third quarter of 2009 was
$15.6 million compared to $0.1 million for the same period of 2008.
Net income for the first nine months of 2009 was $35.9 million
compared to $38.5 million for the same period of 2008. Net income
for the nine months ended September 30, 2008 included $23.1 million
of income from discontinued operations, which includes a gain on
the sale of ARPCO of $20.9 million. Operating net income for the
third quarter of 2009 was $6.8 million compared to $7.4 million for
the same period of 2008. Operating net income for the first nine
months of 2009 was $19.6 million compared to $23.5 million for the
same period of 2008. For the three months ended September 30, 2009,
gross written premiums were $81.8 million, a 6.2 percent increase
from the gross written premiums during the same period in 2008. For
the nine months ended September 30, 2009, gross written premiums
were $242.2 million, a 1.7 percent increase from the gross written
premiums during the same period in 2008. Net earned premiums during
the three months ended September 30, 2009 were $51.5 million, a 4.9
percent increase from the same period of 2008. For the nine months
ended September 30, 2009, net earned premiums were $155.5 million,
a 11.7 percent increase from the same period in 2008. Net
investment income earned during the three months ended September
30, 2009 was $7.5 million, up 35.3 percent from the same period of
2008. Net investment income earned during the nine months ended
September 30, 2009 was $21.1 million, up 35.0 percent from the same
period of 2008. Net realized gains on investments during the three
months ended September 30, 2009 were $13.8 million compared to net
realized losses on investments of $7.1 million during the same
period of 2008. Net realized gains on investments during the nine
months ended September 30, 2009 were $25.2 million compared to net
realized losses on investments of $8.7 million during the same
period of 2008. The net realized gains for the three and nine
months ended September 30, 2009 included mark-to-market adjustments
of $12.4 million and $21.1 million, respectively, on the Company's
convertible securities portfolio, high yield convertible fund and
structured finance fund. Other-than-temporary impairment losses on
investments during the three months ended September 30, 2009 were
$0.3 million compared to other-than-temporary impairment losses on
investments of $3.5 million during the same period of 2008.
Other-than-temporary impairment losses on investments during the
nine months ended September 30, 2009 were $0.4 million compared to
other-than-temporary impairment losses on investments of $3.7
million during the same period of 2008. In addition, the Company
recorded $18.2 million of pretax net unrealized gains on its
available for sale investment portfolio during the three months
ended September 30, 2009. The Company recorded $32.5 million of
pretax net unrealized gains on its available for sale investment
portfolio during the nine months ended September 30, 2009. Total
operating revenues for the three months ended September 30, 2009
increased 63.8 percent to $80.0 million compared to $48.8 million
for the same period of 2008. Total operating revenues for the nine
months ended September 30, 2009 increased 42.3 percent to $225.3
million compared to $158.3 million for the same period of 2008. The
combined ratio for the three months ended September 30, 2009 was
92.5 percent compared to 86.3 percent for the same period of 2008.
The combined ratio for the three months ended September 30, 2009
includes a loss ratio of 58.9 percent and an expense ratio of 33.6
percent. These compare to a loss ratio of 56.1 percent and an
expense ratio of 30.2 percent for the comparable period in 2008.
The combined ratio for the nine months ended September 30, 2009 was
93.5 percent compared to 82.0 percent for the same period of 2008.
The combined ratio for the nine months ended September 30, 2009
includes a loss ratio of 61.9 percent and an expense ratio of 31.6
percent. These compare to a loss ratio of 55.1 percent and an
expense ratio of 26.9 percent for the comparable period in 2008.
The higher than anticipated property losses the Company experienced
during the three months ended June 30, 2009 did not recur during
the three months ended September 30, 2009. The Company's property
underwriting results for the nine months ended September 30, 2009
include the previously disclosed $2.4 million, or $0.09 per diluted
share, net of taxes, of storm losses and $5.2 million, or $0.19 per
diluted share, net of taxes, of higher than expected commercial
property fires and other losses and loss adjustment expenses
recorded during the second quarter of 2009. During the three and
nine months ended September 30, 2008, the Company recorded $2.9
million of net losses from Hurricane Ike. During the three months
ended September 30, 2009, there was $1.3 million, or $0.05 per
diluted share, net of taxes, of favorable development of prior
years' loss and loss adjustment expense reserves. For the nine
months ended September 30, 2009, there was $5.7 million, or $0.21
per diluted share, net of taxes, of favorable development of prior
years' loss and loss adjustment expense reserves. For the three and
nine months ended September 30, 2008, there was $4.8 million of
favorable development of prior years' loss and loss adjustment
expense reserves. During the three months ended September 30, 2009,
the Company repurchased 413,665 shares of common stock for $5.4
million at an average cost of $13.06 per share. During the nine
months ended September 30, 2009, the Company repurchased 801,423
shares of common stock for $10.5 million at an average cost of
$13.09 per share. The Company fulfilled 100 percent of the
authorization under the Company's August 2008 Share Repurchase
Program. On August 20, 2009, the Company's Board of Directors
approved a new Share Repurchase Program to repurchase up to
1,000,000 shares of outstanding common stock through August 20,
2010. As of September 30, 2009, the Company has not repurchased any
shares under the new authorization. The Company paid a quarterly
cash dividend of $0.025 per share on September 30, 2009. This
represents the Company's second consecutive quarterly dividend.
Smith concluded, "We believe we have good visibility on the fourth
quarter given the normalizing of our property results. As such, we
are narrowing the range of our guidance of operating net income per
diluted share from between $1.30 to $1.60 to between $1.45 to $1.55
for the full year 2009." Conference Call Details The Company will
host a conference call on November 3, 2009 at 11:00 a.m. Eastern
Time to discuss third quarter results. The call can be accessed
live by dialing 888-219-1420 or by visiting the Company's website
at http://www.firstmercury.com/. Investors may access a replay by
dialing 888-203-1112, passcode 5117848, which will be available
through November 10, 2009. 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 provides insurance products and services primarily to
the specialty commercial insurance markets, focusing on niche and
underserved segments where we believe that we have underwriting
expertise and other competitive advantages. During the Company's 36
years of underwriting risks, First Mercury has developed the
underwriting expertise and cost-efficient infrastructure which has
enabled us to effectively underwrite such risks. Our risk-taking
subsidiaries offer insurance products through our distribution
subsidiaries: CoverX®, FM Emerald and AMC, which are recognized
brands among insurance producers. 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,
other-than-temporary impairment losses on investments, the change
in fair value of derivative instruments, income from discontinued
operations, 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: recent and future events and circumstances
impacting financial, stock, and capital markets, and the responses
to such events by governments and the financial communities; the
impact of catastrophic events and the occurrence of significant
severe weather conditions on our operating results; 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 estimates for accrued
profit sharing commissions are based on loss ratio performance and
could be reduced if the underlying loss ratios deteriorate; 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; the
increasingly competitive property and casualty marketplace;
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; an economic downturn or other economic conditions
adversely affecting our financial position; 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.
The Company uses the Investor Relations page of its website at
http://www.firstmercury.com/ to make information available to its
investors and the public. Financial Tables Follow... First Mercury
Financial Corporation Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended Nine Months Ended September 30,
September 30, ---------------- ---------------- 2009 2008 2009 2008
---- ---- ---- ---- (Dollars in thousands, except share and per
share data) Operating Revenue Net earned premiums $51,512 $49,092
$155,539 $139,222 Commissions and fees 7,445 4,757 23,916 15,896
Net investment income 7,540 5,571 21,105 15,635 Net realized gains
(losses) on investments 13,766 (7,128) 25,204 (8,714)
Other-than-temporary impairment losses on investments (292) (3,476)
(426) (3,701) ---- ------ ---- ------ Total Operating Revenues
79,971 48,816 225,338 158,338 ------ ------ ------- -------
Operating Expenses Losses and loss adjustment expenses, net 30,345
27,537 96,301 76,713 Amortization of deferred acquisition expenses
13,960 10,798 40,889 28,107 Underwriting, agency and other expenses
10,169 8,999 28,919 26,599 Amortization of intangible assets 559
553 1,709 1,466 --- --- ----- ----- Total Operating Expenses 55,033
47,887 167,818 132,885 ------ ------ ------- ------- Operating
Income 24,938 929 57,520 25,453 Interest Expense 1,446 1,440 4,278
4,380 Change in Fair Value of Derivative Instruments (171) (64)
(401) 110 ---- --- ---- --- Income (Loss) from Continuing
Operations Before Income Taxes 23,663 (447) 53,643 20,963 Income
Taxes 8,018 (948) 17,707 5,592 ----- ---- ------ ----- Income from
Continuing Operations 15,645 501 35,936 15,371 Income (Loss) from
Discontinued Operations, Net of Income Taxes - (447) - 23,106 ---
---- --- ------ Net Income $15,645 $54 $35,936 $38,477 ======= ===
======= ======= Basic Net Income Per Share: Income from Continuing
Operations $0.90 $0.03 $2.03 $0.84 Income (Loss) from Discontinued
Operations - (0.02) - 1.27 --- ----- --- ---- Total $0.90 $0.01
$2.03 $2.11 ===== ===== ===== ===== Diluted Net Income Per Share:
Income from Continuing Operations $0.89 $0.03 $1.99 $0.82 Income
(Loss) from Discontinued Operations - (0.02) - 1.23 --- ----- ---
---- Total $0.89 $0.01 $1.99 $2.05 ===== ===== ===== ===== Weighted
Average Shares Outstanding: Basic 17,144,077 18,206,904 17,537,754
18,190,915 ========== ========== ========== ========== Diluted
17,486,020 18,726,246 17,877,126 18,778,070 ========== ==========
========== ========== GAAP Underwriting Ratios: Loss ratio 58.9%
56.1% 61.9% 55.1% Expense ratio 33.6% 30.2% 31.6% 26.9% ---- ----
---- ---- Combined ratio 92.5% 86.3% 93.5% 82.0% ==== ==== ====
==== First Mercury Financial Corporation Condensed Consolidated
Balance Sheets (Unaudited) September 30, December 31, 2009 2008
---- ---- ASSETS (Dollars in thousands, except share and per share
data) Investments Debt securities $631,033 $495,799 Equity
securities and other 32,224 15,089 Short-term 10,754 32,142 ------
------ Total Investments 674,011 543,030 Cash and cash equivalents
16,205 31,833 Premiums and reinsurance balances receivable 52,468
56,398 Accrued investment income 5,940 5,400 Accrued profit sharing
commissions 13,841 11,315 Reinsurance recoverable on paid and
unpaid losses 167,802 135,617 Prepaid reinsurance premiums 59,784
48,921 Deferred acquisition costs 26,310 27,369 Intangible assets,
net of accumulated amortization 37,642 39,351 Goodwill 25,483
25,483 Deferred federal income taxes - 2,161 Other assets 23,771
16,775 ------ ------ Total Assets $1,103,257 $943,653 ==========
======== LIABILITIES AND STOCKHOLDERS' EQUITY Loss and loss
adjustment expense reserves $448,265 $372,721 Unearned premium
reserves 150,655 147,849 Long-term debt 67,013 67,013 Funds held
under reinsurance treaties 67,093 49,419 Premiums payable to
insurance companies 31,363 27,831 Reinsurance payable on paid
losses 1,179 1,167 Deferred federal income taxes 14,504 - Accounts
payable, accrued expenses, and other liabilities 15,713 16,016
------ ------ Total Liabilities 795,785 682,016 ------- -------
Stockholders' Equity Common stock, $0.01 par value; authorized
100,000,000 shares; issued and outstanding 17,174,906 and
17,836,337 shares 172 178 Paid-in-capital 153,752 161,957
Accumulated other comprehensive income (loss) 16,306 (3,027)
Retained earnings 139,090 103,028 Treasury stock; 130,600 and
33,600 shares (1,848) (499) ------ ---- Total Stockholders' Equity
307,472 261,637 ------- ------- Total Liabilities and Stockholders'
Equity $1,103,257 $943,653 ========== ======== Book Value Per Share
$17.90 $14.67 ====== ====== First Mercury Financial Corporation
Summary Financial Data Three Months Ended Nine Months Ended
September 30, September 30, ------------- ------------- 2009 2008
2009 2008 ---- ---- ---- ---- (Dollars in thousands, except per
share data) Gross Written Premiums: Security $14,991 $15,004
$43,835 $49,864 Specialty 30,053 33,566 90,887 111,000 Contract
Underwriting 15,336 15,290 48,745 47,092 FM Emerald 13,024 11,294
43,613 25,268 Professional Liability 6,094 - 8,491 - Hospitality 99
- 99 - AUIC 2,211 1,845 6,537 4,895 ----- ----- ----- ----- Gross
written premiums $81,808 $76,999 $242,207 $238,119 ======= =======
======== ======== Net Written Premiums: Security $9,487 $10,405
$28,346 $35,985 Specialty 19,758 23,922 59,824 82,332 Contract
Underwriting 8,555 7,929 32,166 27,276 FM Emerald 3,898 5,445
18,858 9,803 Professional Liability 2,349 - 3,794 - Hospitality 67
- 67 - AUIC 2,211 1,845 6,537 4,895 ----- ----- ----- ----- Net
written premiums $46,325 $49,546 $149,592 $160,291 ======= =======
======== ======== Commissions and Fees: Insurance underwriting
commissions and fees $1,272 $(619) $3,989 $2,136 Insurance services
commissions and fees 6,173 5,376 19,927 13,760 ----- ----- ------
------ Total commissions and fees $7,445 $4,757 $23,916 $15,896
====== ====== ======= ======= Cash and Cash Equivalents: Net cash
provided by operating activities - continuing operations $7,531
$33,089 $66,606 $91,712 Net cash provided by (used in) operating
activities - discontinued operations - (447) - 1,928 Net cash used
in investing activities - continuing operations (11,507) (27,614)
(72,513) (128,185) Net cash provided by investing activities -
discontinued operations - - - 41,830 Net cash used in financing
activities (3,393) (3,223) (9,721) (3,122) ------ ------ ------
------ Net increase (decrease) in cash and cash equivalents
$(7,369) $1,805 $(15,628) $4,163 ======= ====== ========= ======
Operating Net Income: (1) Net Income $15,645 $54 $35,936 $38,477
Adjust for Net realized gains and losses on investments, net of tax
(8,948) 4,633 (16,383) 5,664 Adjust for Other-than-temporary
impairment losses on investments, net of tax 190 2,260 277 2,406
Adjust for Change in fair value of derivative instruments, net of
tax (111) (42) (261) 72 Adjust for Discontinued operations, net of
tax - 447 - (23,106) --- --- --- ------- Operating net income
$6,776 $7,352 $19,569 $23,513 ====== ====== ======= =======
Operating Net Income Per Share: (1) Diluted $0.39 $0.39 $1.09 $1.25
===== ===== ===== ===== FOOTNOTES (1) See discussion of use of
non-GAAP financial measures above. DATASOURCE: First Mercury
Financial Corporation CONTACT: Edward A. LaFramboise, Vice
President - Finance of First Mercury Financial Corporation,
+1-248-213-0406, Web Site: http://www.firstmercury.com/
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