The National Security Group, Inc. (NASDAQ:NSEC) today reported
net income for the fourth quarter of 2014 of $2,886,000 and
$7,616,000 for the year ended December 31, 2014. Unaudited
consolidated financial results for the fourth quarter and twelve
month periods are summarized as follows:
Unaudited Consolidated
Financial Summary
Three months ended
December 31,
Year ended
December 31,
2014 2013 2014 2013 Gross premiums
written $ 14,300,000 $ 13,862,000 $ 65,453,000
$ 62,336,000 Net premiums written $ 12,428,000 $
11,787,000 $ 58,204,000 $ 53,808,000
Net premiums earned $ 14,355,000 $ 13,203,000 $ 56,653,000 $
52,366,000 Net investment income 936,000 1,005,000 3,738,000
3,746,000 Net realized investment (losses) gains (441,000 ) 85,000
100,000 4,439,000 Gain on company owned life insurance 1,635,000 —
3,256,000 — Other income 156,000 129,000 560,000
609,000
Total Revenues 16,641,000
14,422,000 64,307,000 61,160,000
Policyholder benefits and settlement expenses 6,691,000 6,223,000
30,882,000 31,146,000 Amortization of deferred policy acquisition
costs 873,000 854,000 3,590,000 3,613,000 Commissions 1,299,000
1,835,000 7,459,000 7,103,000 General and administrative expenses
3,185,000 2,361,000 9,343,000 8,443,000 Taxes, licenses and fees
572,000 448,000 2,137,000 1,846,000 Interest expense 373,000
375,000 1,521,000 1,686,000
Total Benefits,
Losses and Expenses 12,993,000 12,096,000
54,932,000 53,837,000
Income Before Income
Taxes 3,648,000 2,326,000 9,375,000
7,323,000 Income tax expense 762,000 563,000
1,759,000 1,665,000
Net Income $ 2,886,000
$ 1,763,000 $ 7,616,000 $ 5,658,000
Income Per Common Share $ 1.15 $ 0.71 $
3.04 $ 2.28
Reconciliation of Net Income to
non-GAAP Measurement Net income $ 2,886,000 $ 1,763,000 $
7,616,000 $ 5,658,000 Income tax expense 762,000 563,000 1,759,000
1,665,000 Realized investment losses (gains), net 441,000 (85,000 )
(100,000 ) (4,439,000 ) Gain on company owned life insurance
(1,635,000 ) — (3,256,000 ) —
Pretax Income From
Insurance Operations $ 2,454,000 $ 2,241,000 $
6,019,000 $ 2,884,000
Management Commentary on Results of Operations
Premium Revenue:
For the three months ended December 31, 2014, net premium
written premium was up 5.4% compared to the same period in 2013. A
3.2% increase in gross premiums written compared to the fourth
quarter of 2013 coupled with a 9.25% reduction in reinsurance cost
contributed to the increase in net premium written.
For the year ended December 31, 2014, net premium written was up
8.2% compared to 2013. Year over year growth in property insurance
gross premiums written of 5%, coupled with a reduction in
reinsurance cost of 15.3% were the factors contributing to the
increase in net premium earned.
Net Income:
For the three months ended December 31, 2014, the Company had
net income of $2,886,000, $1.15 per share, compared to $1,763,000,
$0.71 per share, for the same period in 2013, an increase of
$1,123,000. The primary factor contributing to the increase in net
income was a gain on company owned life insurance of $1,635,000,
which was partially offset by a realized investment loss for the
quarter of 2014 totaling $441,000. Results in the fourth quarter of
both 2014 and 2013 reflected very good results from core insurance
operations due to a low frequency of weather related property
losses.
For the year ended December 31, 2014, the Company had net income
of $7,616,000, $3.04 per share, compared to net income of
$5,658,000, $2.28 per share, for the same period in 2013, a year
over year increase of $1,958,000. Results for 2014 were reflective
of very good full year results from insurance operations coupled
with a gain on company owned life insurance of $3,256,000. Results
for 2013 were positively impacted by capital gains, which primarily
consisted of a gain on sale of a timber property investment, and
strong results in the second half of the year in our insurance
operations.
Pretax income from insurance operations:
A primary non-GAAP financial measure used by management is
pretax income from insurance operations. This measure consists of
net income before income taxes adjusted for realized investment
gains and losses and gain on company owned life insurance. This
measure provides a means of comparing the results of our core
insurance operations without the impact of items that are more
unpredictable and less consistent from year to year. A
reconciliation of pretax income from insurance operations is
presented in the table above.
For the three months ended December 31, 2014, pretax income from
insurance operations was $2,454,000 compared to $2,241,000 for the
same period in 2013, an increase of $213,000. Policyholder benefit
expenses were 46.6% of premium revenue in the fourth quarter of
2014, a slight improvement compared to the fourth quarter of 2013
at 47.1%. The moderate decline in policyholder benefits as a
percent of revenue coupled with a net decrease in other insurance
related expenses composed the $213,000 increase in pretax income
from insurance operations. Fourth quarter results for both years
were driven by a very low occurrence of storm related property and
casualty losses.
For the year ended December 31, 2014, pretax income from
insurance operations was $6,019,000 compared to $2,884,000 for the
same period in 2013, an increase of $3,135,000. The primary factor
contributing to an increase in pretax income from insurance
operations was a significant improvement in the loss ratio of
policyholder benefits as a percent of premium earned. Policyholder
benefits were 54.5% of premium revenue in 2014 compared to 59.5% in
2013, a reduction of five percentage points. This reduction in
incurred losses was primarily driven by reduced wind related
property losses, a calmer spring storm season and a second
consecutive year of no hurricane related losses.
Selected Balance Sheet Highlights
(Unaudited)
12/31/2014
12/31/2013 Invested Assets $ 109,549,000 $ 100,050,000 Cash
$ 6,426,000 $ 4,987,000 Total Assets $ 144,865,000 $ 133,980,000
Policy Liabilities $ 74,115,000 $ 71,671,000 Total Debt $
19,572,000 $ 22,755,000 Accumulated Other Comprehensive Income $
2,772,000 $ 936,000 Shareholders' Equity $ 42,757,000 $ 33,472,000
Book Value Per Share $ 17.05 $ 13.42
Management Commentary on Financial Position
Invested Assets:
Invested assets as of December 31, 2014 were $109,549,000 up
$9,499,000, or 9.5%, compared to December 31, 2013. This increase
in invested assets was primarily due to the investment of positive
cash flow from insurance operations coupled with increases in
market values of available for sale securities. The increase in
market value of available for sale securities also contributed to
the increase in accumulated other comprehensive income to
$2,772,000 as of December 31, 2014, up $1,836,000 compared to
December 31, 2013.
Cash:
The Company, primarily through its insurance subsidiaries, had
$6,426,000 in cash and cash equivalents at December 31, 2014,
compared to $4,987,000 at December 31, 2013. Significantly
improved performance in our insurance operations for the year ended
December 31, 2014, coupled with year over year growth in
premium revenue, contributed to $11,867,000 in positive cash flow
from operations for the year compared to cash provided by
operations the same period in the prior year totaling $2,659,000.
Cash flows from operations in the prior year were negatively
impacted by insured losses from spring storms incurred during the
first quarter.
Total Assets:
Total assets as of December 31, 2014 were $144,865,000 compared
to $133,980,000 at December 31, 2013. The increase in invested
assets and cash during 2014 were the primary contributors to the
increase in total assets.
Debt Outstanding:
Total debt at December 31, 2014 was $19,572,000 compared to
$22,755,000 at December 31, 2013. Debt was reduced $3,183,000
during the year in 2014. A significant improvement in profitability
strengthened the capital position of the insurance subsidiaries,
allowing the Company to reduce outstanding debt by 14%.
Shareholders' Equity:
Shareholders' equity as of December 31, 2014 was
$42,757,000 up $9,285,000 compared to December 31, 2013
Shareholders' equity of $33,472,000. Book value per share was
$17.05 per share at December 31, 2014 compared to $13.42 per
share at December 31, 2013, an increase of $3.63. The primary
factors contributing to the increase in Shareholders' equity were
net income of $7,616,000 and other comprehensive income of
$1,836,000. The increase in other comprehensive income was
primarily driven by the declining interest rate environment, which
increased the market value of our investments in fixed income
securities, and an increase in value of our equity investments.
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.
The National Security Group, Inc.Brian McLeod, Chief Financial
Officer, 334-897-2273
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