The Midland Company Unveils Q2 Numbers

The Midland Company, an Ohio-based provider of specialty insurance products and services, reported record results for the second quarter ended June 30, 2004.

Net income per share was 58 cents, which included 2 cents in realized capital gains. That compares with a net loss of 6 cents per share in last year’s second quarter, which included 10 cents in realized capital gains. Revenue for the quarter increased 9.5 percent to a record $195.6 million, compared with $178.6 million in last year’s second quarter. All per share amounts are on an after-tax, diluted basis.

John Hayden, Midland president and chief executive officer, said, “Two
consecutive quarters of record results clearly underscore our commitment to leverage the profitability of our core lines of business while mastering those products that have not met our performance expectations in recent years.

“While we benefited from more favorable weather conditions than a year ago, the more important factors in our record quarter centered on the continued improvement of underwriting results in our manufactured housing and other specialty lines of business,” Hayden said. “We saw significant quarter-over-quarter improvement in our site-built dwelling and motorcycle lines and the improved weather conditions resulted in reduced catastrophe losses of 29 cents per share compared to 71 cents per share in last year’s second quarter.”

Midland’s wholly owned insurance subsidiary, American Modern Insurance Group, specializes in providing insurance products and services for niche markets such as manufactured housing, site-built dwelling, motorcycle, watercraft, snowmobile, recreational vehicle and credit life and related products. American Modern’s products and services are offered through diverse distribution channels.

American Modern’s second quarter gross written premium benefited from the assumption of a $17.6 million book of business that the company obtained the rights to during the period. Hayden added, “This book of business was a strategic fit with our current financial services lines of business and demonstrates our commitment to serving the specialty markets for banks and other financial institutions.” For the second quarter, American Modern’s
property and casualty gross written premiums grew 13.7 percent to
$205.7 million.

American Modern’s core manufactured housing gross written premiums increased 3.1 percent to $87.8 million in the second quarter. “American Modern’s ability to increase manufactured housing premium despite difficult general market conditions is a noteworthy achievement. This growth is primarily due to rate increases approved last year as well as our focus on retention and unyielding dedication to serving our policyholders,” Hayden noted.

Gross written premium from the other property and casualty specialty lines – such as site-built dwelling, motorcycle, excess and surplus lines, collateral protection, mortgage fire, recreational vehicle and collector automobile products – collectively grew 23.1 percent in the second quarter to $117.8 million (including the $17.6 million in assumed premium from the new book of business referenced above). “We are proud of the premium growth from our other property and casualty lines, which included a 12.2 percent increase in site-built dwelling premiums,” Hayden added.

American Modern’s property and casualty combined ratio (losses and
expenses as a percent of earned premium) was 96.5 percent in the second quarter, compared with 111.2 percent a year ago. This trend was largely driven by more favorable weather patterns, stronger pricing and improved underwriting results from specialty products such as manufactured housing, site-built dwelling, motorcycle and watercraft. Excluding catastrophe losses, American Modern’s second quarter combined ratio was 91.4 percent, compared with 98.5 percent in the same period of 2003.

“All in all, our specialty products performed very well in the second
quarter,” Hayden said. “In particular, manufactured housing and site-built dwelling produced terrific results and also benefited from the more mild weather conditions.” The manufactured housing combined ratio was 93.6 percent for the second quarter compared to 105.9 percent in the second quarter of 2003 with the manufactured housing catastrophe loss ratio decreasing by 9.1 percentage points. Additionally, the manufactured housing fire loss ratio returned to a more favorable level of 16.0 percent for the quarter, compared to 19.6 percent recorded in last year’s second quarter and 23.6 percent in the
first quarter of 2004.

Hayden commented, “Site-built dwelling also delivered much improved
results for the quarter. The site-built dwelling combined ratio was 88.9
percent, down from 115.1 percent in last year’s second quarter. The
profitable swing in this line was attributable to mild weather conditions, as the second quarter catastrophe loss ratio decreased by 15.2 percentage points over the previous year as well as a decrease in fire losses, which decreased 10.6 percentage points from the second quarter of 2003.”

Hayden added that the company is encouraged with the results from the motorcycle line. The net loss in this line improved by 46.7 percent, on a quarter-over-quarter basis, coming in at 8 cents per share for the quarter as compared to 15 cents per share in the second quarter of 2003. The company naturally expects the loss ratio to be higher in the second and third quarters as these time periods represent the peak motorcycle riding season. “As the motorcycle results have been better than expected thus far in 2004, we continue to have confidence that the motorcycle product will meet our previously announced full year 2004 expected combined ratio objective of 115.9 percent,” Hayden said.

The loss development from American Modern’s exited commercial liability lines was also favorable during the quarter and positively impacted earnings by 5 cents per share, compared to a negative impact of 15 cents per share in the second quarter of 2003.

“For the claims that were settled during the quarter, we experienced a moderate level of reserve redundancy. We also experienced a significant decline in the number of new claims reported relative to the second quarter of 2003,” Hayden said. “We will continue to closely monitor the results emanating from this line for the remainder of 2004.”