Fremont Michigan InsuraCorp, Inc. Announces Fourth Quarter and 2006 Results
Monday February 26, 7:30 am ET
FREMONT, Mich., Feb. 26 /PRNewswire-FirstCall/ -- Fremont Michigan InsuraCorp, Inc. (OTC Bulletin Board: FMMH - News), today announced its 2006 fourth- quarter and year-end operating results, highlighted by best-ever annual revenue and significant increases in quarterly and annual pre-tax income.
Fremont, a Michigan-based provider of property and casualty insurance, posted net income of $3.3 million, or $1.90 per diluted share, on revenue of $11 million for the fourth quarter ended Dec. 31, 2006. For the fiscal year 2006, the Company generated net income of $7.2 million, or $4.10 per diluted share, on record revenues of $42.1 million. Pre-tax income increased 43% to $4.9 million for the fourth quarter, and 35% to $10.7 million for the full year.
In the fourth quarter of 2005, Fremont posted net income of $2.3 million or $1.31 per diluted share on $10.6 million in revenues. For fiscal 2005, the Company reported net income of $9.1 million, or $5.24 per diluted share, on revenues of $41.5 million.
Fremont noted that their 2005 net income included a non-recurring federal income tax benefit of $3.8 million, or $2.23 per diluted share. In addition, revenue totals in the third and fourth quarters of 2005 included $1 million and $400,000, respectively, ($1.4 million total for 2005) in premium revenue relating to Fremont's quota share reinsurance agreement, which had previously been placed into runoff.
Excluding these extraordinary items realized in 2005, Fremont's fourth quarter 2006 results reflect a 65.8% increase in net income and an 8% increase in total revenues, and a 67.7% increase in net income and 5.1% increase in total revenues for the year.
Fremont continued to drive new business growth and maintain solid renewal rates across the majority of its product lines in 2006. Net premiums earned were up for the fourth quarter and year. Excluding the non-recurring 2005 quota-share impact, 2006 net premiums earned rose 7.3% for the quarter and 5.1% for the year. Direct premiums written increased 9.5% for the fourth quarter and 7.4% for the year, with the automobile product line continuing to lead the way with a 24% increase in 2006.
"We are pleased with our results for the fourth quarter and fiscal year, as it is clear that the disciplined growth strategy we established several years ago has served us well and remains the best path for continued success," said Richard E. Dunning, President and CEO of Fremont Michigan InsuraCorp, Inc. "We have established our current momentum by maintaining our discipline and avoiding the pricing battles that come with a softening market. We continue to focus our energy on product segments that offer the best sustainable return. This approach will help ensure that we remain efficient as an organization, in the market's continuing cycles."
The Company's fourth-quarter loss and loss adjusting expense (LAE) ratio (incurred losses and LAE divided by net premiums earned) dropped to 25.5% compared to 44.5% in the fourth quarter of 2005. For the year, Fremont's loss and LAE ratio dropped to 44.8% from 53.4% in 2005. The decrease was driven primarily by a drop in claim severity.
The 2006 expense ratio was 34.6% compared to 32.3 % in 2005. Excluding the non-recurring 2005 quota-share impact on net premiums earned, the 2005 expense ratio was 33.5%. The increase in the expense ratio was attributable to increased depreciation associated with the Company's web-based rating platform --Fremont Complete -- coupled with increased underwriting survey and inspection costs.
In the fourth quarter, the Company's combined ratio declined to 59.8%, down from 72.2% in the year-ago period. For the full-year 2006, the combined ratio declined to 79.4% from 85.7% in 2005. A combined ratio is the sum of net losses, loss adjustment expenses and policy acquisition and other underwriting expenses divided by net premiums earned. A key indicator of an insurer's financial health, a combined ratio of less than 100% means a company is making an underwriting profit.
"From an operating and finance perspective, the fourth quarter and fiscal year were excellent, both in terms of our record revenue and our ability to drop more of that revenue to the bottom line. If you remove the non-recurring gains in our 2005 results, the overall growth, efficiency and increased profitability generated in 2006 is even more apparent," said Kevin Kaastra, Vice President of Finance of Fremont Michigan InsuraCorp, Inc. "I would also note that our investment portfolio performed quite well and we continue to strengthen our balance sheet, increasing shareholders equity by more than 33% for the year."
Fremont ended the fourth quarter of 2006 with total investments of $56.9 million, up 10.7% for the year. The Company realized a 24.1% increase in net investment income for the fourth quarter and a 11.8% increase in net investment income in 2006 driven by growth in invested assets as well as increased yields in the fixed maturity portfolio. Stockholders' equity at year-end had increased 33% to $34.4 million, compared to $25.8 million as of December 31, 2005.
In October of 2006, Fremont executed a two-for-one stock split on its common stock in the form of a 100% stock dividend. As a result of the split, Fremont Michigan InsuraCorp, Inc. has approximately 1,725,000 shares outstanding. All share and per share numbers disclosed in this press release and the accompanying financial statements are presented post-split.
Key Highlights
* Pretax income increased 35% to $10.7 million in 2006 from $7.9 million
in 2005.
* For 2006, Fremont generated net income of $7.2 million, or $4.10 per
diluted share and 2006 revenues were $42.1 million, the highest in
Company history.
* 2005 net income included a one-time tax benefit of $3.8 million, or
$2.23 per diluted share. Revenue in 2005 included $1.4 million in
premium revenue relating to a quota share reinsurance agreement, which
had previously been placed into runoff.
* Excluding non-recurring items in 2005, Fremont posted a 67.7% increase
in net income and 5.1% increase in total revenues for 2006.
* Direct premiums written increased 9.5% for the fourth quarter and 7.4%
for the year, with the automobile product line continuing to lead the
way with a 24% increase in 2006.
* During 2006, shareholders' equity increased 33% to $34.4 million, up
from $25.8 million in 2005. Shareholders' equity has almost doubled
since 2004.
* For the year-end 2006, total assets increased 13% to $85.9 million,
while total liabilities increased 2.6% to $51.4 million.
Certain of the statements contained herein (other than statements of historical facts) are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include estimates and assumptions related to economic, competitive and legislative developments. These forward- looking statements are subject to change and uncertainty that are, in many instances, beyond the company's control and have been made based upon management's expectations and beliefs concerning future developments and their potential effect on Fremont Michigan InsuraCorp, Inc.
There can be no assurance that future developments will be in accordance with management's expectations so that the effect of future developments on Fremont Michigan InsuraCorp, Inc. will be those anticipated by management. Actual financial results including premium growth and underwriting results could differ materially from those anticipated by Fremont Michigan InsuraCorp, Inc. depending on the outcome of certain factors, which may include changes in property and casualty loss trends and reserves; catastrophe losses; the insurance product pricing environment; changes in applicable law; government regulation and changes therein that may impede the ability to charge adequate rates; change in accounting principles; performance of the financial markets; fluctuations in interest rates; availability and price of reinsurance; and the status of the labor markets in which the company operates.
FREMONT MICHIGAN INSURACORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
Revenues
Net premiums earned $10,109,076 $9,820,257 $39,249,248 $38,755,853
Net investment
income 582,583 469,415 1,887,719 1,688,853
Net realized gains
on investments 224,341 220,813 519,835 608,819
Other income,
net 111,940 100,729 417,392 397,673
Total revenues 11,027,940 10,611,214 42,074,194 41,451,198
Expenses:
Losses and loss
adjustment expenses,
net 2,580,772 4,373,726 17,564,611 20,703,929
Policy acquisition
and other underwriting
expenses 3,467,668 2,711,930 13,599,846 12,508,098
Interest expense 50,580 76,653 228,403 308,805
Total expenses 6,099,020 7,162,309 31,392,860 33,520,832
Income before
federal income tax
expense 4,928,920 3,448,905 10,681,334 7,930,366
Federal income tax
expense (benefit) 1,576,441 1,162,620 3,466,001 (1,151,903)
Net income $3,352,479 $2,286,285 $7,215,333 $9,082,269
Net income per
common share
Basic $1.94 $1.33 $4.18 $5.27
Diluted $1.90 $1.31 $4.10 $5.24
FREMONT MICHIGAN INSURACORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
December 31, December 31,
Assets 2006 2005
Investments:
Fixed maturities available for
sale, at fair value $44,959,266 $41,644,429
Equity securities available
for sale, at fair value 11,689,756 9,508,185
Mortgage loans on real estate
from related parties 260,808 262,294
Total investments 56,909,830 51,414,908
Cash and cash equivalents 4,598,843 1,542,581
Premiums due from policyholders,
net 7,528,683 7,143,537
Amounts due from reinsurers 7,883,153 7,286,936
Prepaid reinsurance premiums 404,016 212,291
Accrued investment income 447,411 402,937
Deferred policy acquisition costs 3,235,383 3,092,618
Deferred federal income taxes 3,070,713 3,774,445
Property and equipment, net of
accumulated depreciation 1,771,323 1,082,547
Other assets 28,078 7,827
$85,877,433 $75,960,627
Liabilities and Stockholders' Equity
Liabilities:
Losses and loss adjustment expenses $20,176,555 $18,866,814
Unearned premiums 21,463,019 20,437,157
Reinsurance funds withheld and
premiums ceded payable 50,313 1,026,340
Accrued expenses and other
liabilities 6,867,081 6,903,968
Surplus notes 2,890,288 2,890,288
Total liabilities 51,447,256 50,124,567
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value,
authorized 4,500,000 shares,
no shares issued and outstanding -- --
Class A common stock, no par
value, authorized 5,000,000 shares,
1,725,456 and 1,724,256 shares
issued and outstanding at
December 31, 2006 and 2005, respectively -- --
Class B common stock, no par
value, authorized 500,000 shares,
no shares issued and outstanding -- --
Additional paid-in capital 7,605,096 7,550,304
Retained earnings 25,511,413 18,296,080
Accumulated other comprehensive income 1,313,668 (10,324)
Total stockholders' equity 34,430,177 25,836,060
Total liabilities and stockholders'
equity $85,877,433 $75,960,627
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Source: Fremont Michigan InsuraCorp, Inc.
