The National Security Group, Inc. (NASDAQ:NSEC) results for the
three months and six months ended June 30, 2019 and 2018, based on
U.S. generally accepted accounting principles, were reported today
as follows:
Unaudited Consolidated Financial
Summary
Three months ended
June 30,
Six months ended
June 30,
2019
2018
2019
2018
Gross premiums written
$
18,290,000
$
18,244,000
$
35,226,000
$
35,209,000
Net premiums written
$
16,348,000
$
16,481,000
$
31,948,000
$
32,261,000
Net premiums earned
$
14,990,000
$
15,260,000
$
29,708,000
$
30,319,000
Net investment income
957,000
995,000
1,919,000
1,915,000
Net investment gains (losses)
117,000
(200,000
)
2,237,000
(464,000
)
Other income
146,000
148,000
292,000
309,000
Total Revenues
16,210,000
16,203,000
34,156,000
32,079,000
Policyholder benefits and settlement
expenses
10,900,000
9,772,000
19,923,000
19,199,000
Amortization of deferred policy
acquisition costs
839,000
787,000
1,819,000
1,590,000
Commissions
1,978,000
1,732,000
4,011,000
3,792,000
General and administrative expenses
2,416,000
2,668,000
4,748,000
4,671,000
Taxes, licenses and fees
599,000
349,000
1,286,000
998,000
Interest expense
291,000
309,000
586,000
611,000
Total Benefits, Losses and
Expenses
17,023,000
15,617,000
32,373,000
30,861,000
Income (Loss) Before Income
Taxes
(813,000
)
586,000
1,783,000
1,218,000
Income tax expense (benefit)
(226,000
)
129,000
(73,000
)
290,000
Net Income (Loss)
$
(587,000
)
$
457,000
$
1,856,000
$
928,000
Income (Loss) Per Common Share
$
(0.23
)
$
0.18
$
0.73
$
0.37
Reconciliation of Net Income (Loss) to
non-GAAP Measurement
Net income (loss)
$
(587,000
)
$
457,000
$
1,856,000
$
928,000
Income tax expense (benefit)
(226,000
)
129,000
(73,000
)
290,000
Investment (gains) losses, net
(117,000
)
200,000
(2,237,000
)
464,000
Pretax Income (Loss) From
Operations
$
(930,000
)
$
786,000
$
(454,000
)
$
1,682,000
Management Commentary on Results of Operations
Summary:
For the three months ended June 30, 2019, the Company had a net
loss of $587,000, $0.23 loss per share, compared to net income of
$457,000, $0.18 income per share, for the three months ended June
30, 2018; a quarterly decline of $1,044,000. The decrease in net
income was driven by an increase in claims; primarily in the
P&C segment. Pretax loss from operations for the second quarter
of 2019 totaled $930,000 compared to a pretax income from
operations of $786,000 in the second quarter of 2018. The primary
reason for the $1,716,000 decline in pretax income from operations
in the second quarter of 2019, compared to the same period in 2018,
was a $1,128,000 increase in policyholder claims coupled with a
$270,000 decrease in net premiums earned. The decline in net
premiums earned was due to an increase in ceded premium related to
higher cost of catastrophe reinsurance in our P&C segment.
For the six months ended June 30, 2019, the Company had net
income of $1,856,000, $0.73 income per share, compared to a net
income of $928,000, $0.37 income per share, for the six months
ended June 30, 2018. The year to date pretax loss from operations
in 2019 totaled $454,000 compared to a pretax income from
operations of $1,682,000 in 2018. The primary reason for the
$2,136,000 decrease in pretax income from operations in 2019,
compared to the same period in 2018, was a $724,000 increase in
policyholder benefits (primarily driven by an increase in claims in
the P&C segment) coupled with a $611,000 decrease in net
premiums earned. The decline in net premiums earned was due to an
10.1% increase in ceded premium related to higher cost of
catastrophe reinsurance in our P&C segment.
Three-month period ended June 30, 2019 compared to
three-month period ended June 30, 2018
Premium Revenue:
For the three-month period ended June 30, 2019, net premiums
earned were down $270,000 at $14,990,000 compared to $15,260,000
during the same period in 2018. The decrease in premium revenue was
primarily attributable to a 1.8% decrease in net premiums earned in
the P&C segment coupled with a 1.7% decrease in net premiums
earned in the life segment.
Investment Gains (Losses):
Investment gains for the three-month period ended June 30, 2019
were $117,000 compared to investment losses of $200,000 for the
three-month period ended June 30, 2018. The primary reason for the
$317,000 increase in second quarter investment gains compared to
the second quarter of 2018 investment losses was an increase in
value of equity investments held for sale.
Net Income (Loss):
For the quarter ended June 30, 2019, the Company had a net loss
of $587,000, $0.23 loss per share, compared to net income of
$457,000, $0.18 income per share, for the same period in 2018; a
decline of $1,044,000. As discussed above, an increase in frequency
of severe thunderstorm related losses was the primary factor
contributing to the net loss in the second quarter of the current
year compared to net income for the same period last year.
Pretax Income (Loss) from Operations:
For the three months ended June 30, 2019, our pretax loss from
operations was $930,000 compared to pretax income from operations
of $786,000 for the three months ended June 30, 2018; a decrease of
$1,716,000. An increase in severe thunderstorm activity during the
second quarter of 2019 compared to the same period last year was
the primary factor contributing to the pretax loss from operations.
During the second quarter of 2019, the P&C segment was impacted
by 11 cat events (including development from three first quarter
2019 cat events) with reported losses and LAE totaling $1,908,000
compared to eight cat events (including development from three
first quarter 2018 cat events) totaling $1,714,000 during the
second quarter of 2018. In addition, reported losses from
non-catastrophe related severe thunderstorm activity was also up
during the second quarter of 2019 compared to the same period last
year. Non-catastrophe wind and hail claims reported during the
second quarter of 2019 totaled $3,103,000 compared to $2,118,000
during the second quarter of 2018; an increase of $985,000.
P&C Segment Combined Ratio:
The P&C segment ended the second quarter of 2019 with a GAAP
basis combined ratio of 109.5%. Reported catastrophe losses totaled
$1,908,000 for the quarter and added 14.0 percentage points to the
combined ratio. In comparison, the P&C segment ended the second
quarter of 2018 with a GAAP basis combined ratio of 96.6% with
catastrophe losses increasing the combined ratio by 12.4 percentage
points. Partially offsetting the increase in reported catastrophe
losses in the second quarter of 2019 was a reduction in reported
fire losses of $107,000 in the second quarter of 2019 compared to
the second quarter of 2018. Reported fire losses for the second
quarter of 2019 totaled $3,503,000 and added 25.7 percentage points
to the second quarter 2019 combined ratio. In comparison, second
quarter 2018 reported fire losses totaled $3,610,000 and added 26.0
percentage points to the second quarter 2018 combined ratio.
Six-month period ended June 30, 2019 compared to six-month
period ended June 30, 2018
Premium Revenue:
For the six-month period ended June 30, 2019, net premiums
earned were down $611,000 at $29,708,000 compared to $30,319,000
during the same period in 2018. The decrease in premium revenue was
primarily driven by a decline in net earned premium in the P&C
segment of $514,000. The decline in gross earned premium was
primarily attributable to a decrease in our surplus lines business
in coastal Louisiana. In addition, P&C segment ceded premium
was up $336,000 or 10.5%, in 2019, compared to the same period in
2018 due to an increase in cost of our catastrophe reinsurance.
Investment Gains (Losses):
Investment gains for the six-month period ended June 30, 2019
were $2,237,000 compared to investment losses of $464,000 for the
six-month period ended June 30, 2018. The primary reason for the
increase in 2019 investment gains compared to the 2018 investment
losses was a gain on our company owned life insurance (COLI)
investment of $1,792,000.
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 statement of operations. These
amounts were previously reported as a component of Other
Comprehensive Income. For the six months ended June 30, 2019,
investment gains include a $152,000 increase in accumulated gains
on equity securities held for investment. This increase in
accumulated gains was driven by an overall improvement in stock
market returns experienced in the second quarter of 2019.
Net Income:
For the six months ended June 30, 2019, the Company had net
income of $1,856,000, $0.73 income per share, compared to net
income of $928,000, $0.37 income per share, for the same period in
2018. The primary reason for the increase in 2019 earnings compared
to 2018 earnings was the gain on company owned life insurance
mentioned previously.
Pretax Income (Loss) from Operations:
For the six-month period ended June 30, 2019, our pretax loss
from operations was $454,000 compared to a pretax income from
operations of $1,682,000 for the six-month period ended June 30,
2018; a decrease of $2,136,000. The primary reasons for the pretax
loss from operations in the 2019 compared to the pretax income from
operations for same period in 2018 was a $724,000 increase in
claims coupled with a decrease of $611,000 in net premiums earned
driven by an increase in ceded premium related to our catastrophe
reinsurance cost.
P&C Segment Combined Ratio:
For the six months ended June 30, 2019, the P&C segment had
a GAAP combined ratio of 103.8%. Reported claims from cat events
totaling $2,863,000 combined with reported claims from
non-catastrophe wind and hail totaling $5,184,000 increased the
P&C segment combined ratio in 2019 by 29.8 percentage points.
In comparison, for the six months ended June 30, 2018, the P&C
segment had a GAAP combined ratio of 96.2%. Reported claims from
cat events totaling $2,472,000 combined with reported claims from
non-catastrophe wind and hail totaling $3,277,000 increased the
P&C segment combined ratio in 2018 by 20.9 percentage points.
Partially offsetting the increase in catastrophe losses and non-cat
wind and hail losses in 2019 was a decrease in reported fire losses
of $1,396,000 compared to the same period in the prior year.
Management Commentary on Financial Position
Selected Balance Sheet
Highlights
June 30, 2019
December 31, 2018
(UNAUDITED)
Invested Assets
$
120,547,000
$
112,690,000
Cash
$
5,627,000
$
5,676,000
Total Assets
$
151,858,000
$
144,231,000
Policy Liabilities
$
79,432,000
$
77,988,000
Total Debt
$
14,358,000
$
14,352,000
Accumulated Other Comprehensive Income
(Loss)
$
1,961,000
$
(1,570,000
)
Shareholders' Equity
$
51,053,000
$
45,866,000
Book Value Per Share
$
20.16
$
18.15
Invested Assets:
Invested assets as of June 30, 2019 were $120,547,000 compared
to $112,690,000 as of December 31, 2018; an increase of 7.0%. The
increase in invested assets was due to reinvestment of $1,456,000
in positive cash flow from operating activities coupled with a
$4,412,000 increase in market value of fixed income securities
available for sale. Significant declines in market interest rates
over the past six months was the primary driver of the increase in
market value of fixed income securities.
Cash:
The Company, primarily through its insurance subsidiaries, had
$5,627,000 in cash and cash equivalents at June 30, 2019, virtually
unchanged compared to $5,676,000 at December 31, 2018.
Total Assets:
Total assets as of June 30, 2019 were $151,858,000 compared to
$144,231,000 at December 31, 2018. Positive cash flow from
insurance operations contributed to an increase in purchases of
fixed maturity securities and a $4,412,000 increase in market value
of our portfolio of fixed maturity securities further contributed
to the increase in total assets for the first six months of
2019.
Policy Liabilities:
Policy related liabilities were $79,432,000 at June 30, 2019,
compared to $77,988,000 at December 31, 2018; an increase of
$1,444,000 or 1.9%. The primary reason for the increase in policy
liabilities in 2019 compared to 2018 was an increase in unearned
premium. This increase in unearned premium is seasonal as we
typically issue and renew a larger number of annual insurance
contracts during the first and second quarters of each year
compared to the remainder of the year.
Debt Outstanding:
Total debt at June 30, 2019 was virtually unchanged at
$14,358,000 compared to $14,352,000 at December 31, 2018. We expect
to retire the remaining $2,200,000 in short-term debt in November
of 2019.
Shareholders' Equity:
Shareholders' equity as of June 30, 2019 was $51,053,000, up
$5,187,000 compared to December 31, 2018 Shareholders' equity of
$45,866,000. Book value per share was $20.16 at June 30, 2019,
compared to $18.15 per share at December 31, 2018; an increase of
11.1% or $2.01 per share. The primary factors contributing to the
increase in both book value per share and Shareholders' equity were
net income of $1,856,000 and accumulated other comprehensive income
of $3,531,000. Offsetting the increase in Shareholders' equity was
shareholder dividends paid of $253,000.
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190813005655/en/
Brian McLeod - Chief Financial Officer @ (334) 897-2273
National Security (NASDAQ:NSEC)
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