The National Security Group, Inc. (NASDAQ:NSEC) results for the
three months and nine months ended September 30, 2021 and 2020,
based on U.S. generally accepted accounting principles, were
reported today as follows:
Unaudited Consolidated Financial
Summary
Three months ended September
30,
Nine months ended September
30,
2021
2020
2021
2020
Gross premiums written
$
18,504,000
$
17,618,000
$
57,732,000
$
53,806,000
Net premiums written
$
15,949,000
$
15,605,000
$
50,191,000
$
48,188,000
Net premiums earned
$
15,681,000
$
15,289,000
$
45,557,000
$
45,416,000
Net investment income
852,000
884,000
2,523,000
2,809,000
Net investment gains
11,000
1,430,000
752,000
988,000
Other income
127,000
162,000
394,000
450,000
Total Revenues
16,671,000
17,765,000
49,226,000
49,663,000
Policyholder benefits and settlement
expenses
11,773,000
13,303,000
32,785,000
40,622,000
Amortization of deferred policy
acquisition costs
855,000
836,000
2,656,000
2,749,000
Commissions
2,066,000
1,493,000
5,901,000
5,615,000
General and administrative expenses
1,983,000
2,312,000
6,853,000
6,199,000
Taxes, licenses and fees
632,000
604,000
1,796,000
1,919,000
Interest expense
171,000
200,000
462,000
660,000
Total Benefits, Losses and
Expenses
$
17,480,000
$
18,748,000
$
50,453,000
$
57,764,000
Loss Before Income Taxes
(809,000
)
(983,000
)
(1,227,000
)
(8,101,000
)
Income tax benefit
(165,000
)
(205,000
)
(266,000
)
(1,737,000
)
Net Loss
$
(644,000
)
$
(778,000
)
$
(961,000
)
$
(6,364,000
)
Loss Per Common Share
$
(0.25
)
$
(0.30
)
$
(0.38
)
$
(2.51
)
Reconciliation of Net Loss to non-GAAP
Measurement
Net loss
$
(644,000
)
$
(778,000
)
$
(961,000
)
$
(6,364,000
)
Income tax benefit
(165,000
)
(205,000
)
(266,000
)
(1,737,000
)
Investment gains, net
(11,000
)
(1,430,000
)
(752,000
)
(988,000
)
Pretax Loss From Operations
$
(820,000
)
$
(2,413,000
)
$
(1,979,000
)
$
(9,089,000
)
Management Commentary on Results of Operations
Summary:
For the three months ended September 30, 2021, the Company had a
net loss of $644,000, $0.25 loss per share, compared to a net loss
of $778,000, $0.30 loss per share, for the three months ended
September 30, 2020; a quarter over quarter improvement of $134,000.
Pretax loss from operations for the third quarter of 2021 totaled
$820,000 compared to a pretax loss from operations of $2,413,000 in
the third quarter of 2020. Results for the third quarter of 2021
were positively impacted by a $1,530,000 decrease in claims and was
the primary reason for the $1,593,000 improvement in pretax loss
from operations in the third quarter of 2021, compared to the same
period in 2020.
For the three months ended September 30, 2021, the Company had
investment gains of $11,000 compared to investment gains of
$1,430,000 for the three months ended September 30, 2020. The
primary reason for the decrease in third quarter 2021 investment
gains, compared to third quarter 2020 investment gains, was a
$1,091,000 decline in realized gains on fixed maturities. In 2020,
fixed maturity investments were sold to provide liquidity for
multiple hurricane events which was the primary factor contributing
to the higher prior year investment gains.
In the third quarter of 2021, the Company incurred claims, net
of reinsurance recoveries, totaling $11,773,000 compared to
$13,303,000 for the same period last year. The P&C segment was
the primary source of the decrease with overall claims down
$1,414,000 in the third quarter of 2021 compared to the third
quarter of 2020. The primary component of the decline was claims
associated with weather related events which declined $1,497,000,
in the third quarter of 2021, compared to the same period last
year. During the third quarter of 2021, the P&C segment was
impacted by Hurricane Ida. Reported losses from this catastrophe
event totaled $4,000,000, net of reinsurance. In comparison, the
P&C segment was impacted by Hurricane Laura and Hurricane Sally
during the third quarter of 2020 with reported losses totaling
$2,072,000 and $2,000,000, respectively, net of reinsurance.
Partially offsetting the decreases in weather related claims was an
increase of $202,000 in reported fire losses for the third quarter
of 2021 compared to the same period last year.
For the nine months ended September 30, 2021, the Company had a
net loss of $961,000, $0.38 loss per share, compared to a net loss
of $6,364,000, $2.51 loss per share, for the nine months ended
September 30, 2020; a year to date improvement of $5,403,000
compared to last year. Pretax loss from operations for 2021 totaled
$1,979,000 compared to a pretax loss from operations of $9,089,000
in 2020. Results for 2021 were positively impacted by a $7,837,000
decrease in claims and was the primary reason for the $7,110,000
improvement in pretax loss from operations in 2021, compared to the
same period in 2020. While the P&C segment incurred losses from
one hurricane during 2021, the P&C segment was impacted by
multiple tornado events during the second quarter of 2020 coupled
with two hurricanes during the third quarter of 2020. The decreased
frequency of storm activity in 2021 was the primary reason for the
improvement compared to last year.
For the nine months ended September 30, 2021, the Company had
investment gains of $752,000 compared to investment gains of
$988,000 for the same period in 2020; a decrease of $236,000. The
primary reason for the decrease in 2021 investment gains, compared
to 2020 investment gains, was a $1,001,000 decline in realized
gains on fixed maturities. Partially offsetting the decrease in
realized investment gains on fixed maturities was a realized gain
on equity securities totaling $357,000, in 2021, compared to no
gains on equity securities in 2020 as well as an increase in fair
value of equity securities of $516,000.
For the nine months ended September 30, 2021, the Company
incurred claims, net of reinsurance, totaling $32,785,000 compared
to $40,622,000 for the same period last year. The P&C segment
was the primary source of this decrease with claims down $8,163,000
in 2021, compared to 2020. The primary component of this decrease
was claims reported from weather related events which declined
$8,098,000 for the nine months ended September 30, 2021, compared
to the same period in 2020. During 2021, the P&C segment was
impacted by Hurricane Ida which lead to reported losses totaling
$4,000,000, net of reinsurance. In comparison, the P&C segment
was impacted by Hurricane Laura and Hurricane Sally, in 2020, with
reported losses before reinsurance totaling $2,072,000 and
$2,000,000, respectively, net of reinsurance. Partially offsetting
the decreases in weather related claims was an increase of $637,000
in reported fire losses in 2021 compared to the same period last
year.
The Company ended the first nine months of 2021 with an increase
in general and administrative expenses of $654,000 compared to the
same period last year. The primary reasons for this increase were
cost associated with the acceleration of multiple rate filings
completed and submitted during the first nine months of 2021,
additional cost associated with re-underwriting our P&C
business with a primary focus on property valuations, and an
increase in litigation reserves. Rate adjustments approved in the
first nine months of 2021 resulted in an average overall 10.5%
increase in rates across all P&C programs. Rate increases will
be implemented as policies renew over the next twelve months and
will improve margins which have been adversely impacted by the
increased frequency of weather related losses and increased
reinsurance cost. As of September 30, 2021, our re-underwriting
project was approximately 90% complete and the additional cost from
this project began to decline in the third quarter of 2021 and
should contribute to improvement in our attritional/non-cat loss
ratio. The early improvement in premium revenue gains from the
re-underwriting and rate adjustment efforts are reflected in gross
and net premiums written in the table above and will lead to
further increases in earned premium into mid-2022.
Three-month period ended September 30, 2021 compared to
three-month period ended September 30, 2020
Premium Revenue:
For the three months ended September 30, 2021, net premiums
earned were up $392,000 at $15,681,000 compared to $15,289,000
during the same period last year. The increase in net premium
earned was due to a 3.3% increase in net premium earned in the
P&C segment. The increase in P&C segment net earned premium
was primarily attributable to a 10.9% increase in gross earned
premium in our dwelling fire program. The increase in P&C net
earned premium was partially offset by a 27.0% increase in
reinsurance premium ceded due to an increase in reinsurance costs
related to our 2021 catastrophe reinsurance contract renewal. It
should be noted that reinsurance cost is partially driven by total
insured value which has a seasonal peak at mid-year. Our full year
reinsurance cost is expected to be up approximately 30% in 2021
compared to last year.
We have implemented multiple rate increases to help offset the
29.4% reinsurance rate increase incurred with the 2021 renewal of
our catastrophe reinsurance placement. We have focused on
implementing rate increases in the states and programs most
impacted by the increase in catastrophe reinsurance cost, primarily
states with costal/hurricane exposure. With the rising costs of
reinsurance taking effect on January 1, 2021, we have worked
diligently to incorporate these increases into our rate filings as
quickly as possible in 2021. We have completed and implemented all
of the current year rate filings for most of our states and
programs as of September 30, 2021 with increases taking effect at
each annual policy renewal over the subsequent twelve months of
renewals in each program. The average increase across all P&C
states and programs is approximately 10.5%.
In addition to the rate increases, a re-underwriting project in
our P&C subsidiary began during the fourth quarter of 2020 for
policy renewals beginning in January 2021. In order to mitigate the
impact of an increase in average claim cost due to inflation
associated with increasing cost of home repairs and construction
materials, we are currently re-underwriting our book of P&C
business. We are placing particular focus on adequacy of property
valuations to better reflect an increase in our average claim cost
due to increases in building material and labor cost. Through this
process of re-underwriting, we will work through substantially all
of our annual policy renewals by December 31, 2021. The renewal
rate on policies renewing in the first nine months of 2021 was
approximately 91%, which is in line with our five year average
renewal rate. While our policy risk count as of September 30, 2021
is down approximately 8.5% compared to September 30, 2020, P&C
segment gross written premium is up 5.6% for the three months ended
September 30, 2021 compared to the same period last year reflecting
a higher average premium per policy. With the current expanded
re-underwriting process just taking effect at 2021 policy renewal
dates, this increase in written premium is expected to lead to
increasing quarter over quarter earned premium through the fourth
quarter of 2021 as the project nears completion.
Investment Gains:
Investment gains, for the three months ended September 30, 2021,
were $11,000 compared to investment gains of $1,430,000 for the
same period last year. For the three months ended September 30,
2021, realized gains on fixed maturities decreased $1,091,000 and
was the primary reason for the $1,419,000 decrease in third quarter
2021 investment gains compared to third quarter 2020 investment
gains.
Net Loss:
For the three months ended September 30, 2021, the Company had a
net loss of $644,000, $0.25 loss per share, compared to a net loss
of $778,000, $0.30 loss per share, for the same period last year.
The primary reason for the $134,000 improvement in third quarter
2021 net loss, compared to the third quarter 2020 net loss, was a
decrease in property and casualty insured losses. The $1,497,000
reduction in weather related claims in the P&C segment during
the third quarter of 2021, compared to the third quarter of 2020,
was the primary reason for the decline in claims.
Pretax Loss from Operations:
For the three months ended September 30, 2021, our pretax loss
from operations was $820,000 compared to a pretax loss from
operations of $2,413,000 for the three months ended September 30,
2020; an improvement of $1,593,000. As discussed above, a decrease
in weather related claim activity in our P&C segment was the
primary reason for the decrease in the loss from operations in the
third quarter of 2021, compared to the same period last year.
However, 2021 weather related losses were still elevated compared
to historical averages, contributing to our year to date net
loss.
P&C Segment Combined Ratio:
The P&C segment ended the third quarter of 2021 with a GAAP
basis combined ratio of 108.8%. Reported catastrophe losses totaled
$4,990,000 and added 34.7 percentage points to the combined ratio.
In comparison, the P&C segment ended the third quarter of 2020
with a GAAP basis combined ratio of 118.7% with $5,319,000 in
reported catastrophe losses increasing the combined ratio by 38.1
percentage points. Non-catastrophe wind and hail losses were down
$1,168,000 for the three months ended September 30, 2021 compared
to the same period in 2020. Reported non-catastrophe wind and hail
losses, in the third quarter of 2021, totaled $1,808,000 and added
12.6 percentage points to the third quarter 2021 combined ratio. In
comparison, non-catastrophe wind and hail losses reported in the
third quarter of 2020 totaled $2,976,000 and added 21.3 percentage
points to the third quarter 2020 combined ratio. Partially
offsetting the decreases in reported weather related claims was an
increase in reported fire losses of $202,000 during the third
quarter of 2021 compared to the third quarter of 2020. Reported
fire losses totaled $2,573,000, for the three months ended
September 30, 2021, and added 17.9 percentage points to the 2021
combined ratio. In comparison, in the third quarter of 2020,
reported fire losses totaled $2,371,000 and added 17.0 percentage
points to the 2020 combined ratio.
Nine-month period ended September 30, 2021 compared to
nine-month period ended September 30, 2020
Premium Revenue:
For the nine-month period ended September 30, 2021, net premiums
earned were up $141,000 at $45,557,000 compared to $45,416,000
during the same period last year. The 4.6% increase in P&C
segment gross earned premium was primarily attributable to an 8.4%
increase in gross earned premium in the dwelling fire program in
our P&C segment. Partially offsetting the increase in P&C
segment gross earned premium was a 34.6% increase in reinsurance
premium ceded due to an increase in reinsurance costs related to
our 2021 catastrophe reinsurance contract renewal. As mentioned
previously, the increased frequency of weather related losses over
the past five years has driven the need to increase rates in states
and programs that have been most impacted by this persistent
pattern of severe weather to help offset our increased reinsurance
cost.
Investment Gains:
Investment gains for the nine-month period ended September 30,
2021 were $752,000 compared to investment gains of $988,000 for the
same period last year. The primary reason for the decline in
investment gains, in 2021 compared to 2020, was a decrease in
realized gains on fixed maturity investments of $1,001,000.
Partially offsetting the decrease in realized investment gains on
fixed maturities was a realized gain on equity securities totaling
$357,000, in 2021, compared to no gains on equity securities in
2020 as well as an increase in fair value of equity securities of
$516,000.
Net Loss:
For the nine months ended September 30, 2021, the Company had a
net loss of $961,000, $0.38 loss per share, compared to a net loss
of $6,364,000, $2.51 loss per share, for the same period last year.
As mentioned previously, while we ended the first nine months of
2021 with a net loss, the primary reason for the improved results
compared to the 2020 net loss, was a significant decrease in
property and casualty insured losses. The decrease in P&C
subsidiary losses was primarily driven by a decline in catastrophe
losses from severe weather events.
Pretax Loss from Operations:
For the nine months ended September 30, 2021, our pretax loss
from operations was $1,979,000 compared to a pretax loss from
operations of $9,089,000 for the nine months ended September 30,
2020; a decrease in pretax loss of $7,110,000. As discussed above,
a decrease in claim activity in our P&C segment was the primary
reason for the improvement in our loss from operations, in the
first nine months of 2021, compared to the same period last year.
However, weather related claims remained elevated, particularly in
the third quarter of 2021, due to the impact of Hurricane Ida as
mentioned previously.
P&C Segment Combined Ratio:
The P&C segment ended the first nine months of 2021 with a
GAAP basis combined ratio of 107.3%. Reported catastrophe losses
totaled $10,679,000 and added 25.7 percentage points to the
combined ratio. In comparison, the P&C segment ended the first
nine months of 2020 with a GAAP basis combined ratio of 126.4% with
$17,310,000 in reported catastrophe losses increasing the combined
ratio by 41.8 percentage points. In addition, reported
non-catastrophe wind and hail losses were down $1,467,000 in 2021
compared to 2020. Reported non-catastrophe wind and hail losses for
the first nine months of 2021 totaled $5,097,000 and added 12.2
percentage points to the 2021 combined ratio. In comparison,
non-catastrophe wind and hail losses reported during the first nine
months of 2020 totaled $6,564,000 and added 15.8 percentage points
to the 2020 combined ratio. Partially offsetting the decline in
reported weather related claims was an increase in reported fire
losses totaling $637,000. Reported fire losses for the first nine
months of 2021 totaled $9,567,000 and added 23.0 percentage points
to the 2021 combined ratio. In comparison, fire losses reported
during the first nine months of 2020 totaled $8,930,000 and added
21.5 percentage points to the 2020 combined ratio.
Management Commentary on Financial Position
Selected Balance Sheet
Highlights
September 30, 2021
December 31, 2020
Unaudited
Invested Assets
$
113,195,000
$
99,150,000
Cash
$
9,285,000
$
19,887,000
Total Assets
$
163,259,000
$
150,540,000
Policy Liabilities
$
97,188,000
$
82,869,000
Total Debt
$
13,686,000
$
13,677,000
Accumulated Other Comprehensive Income
$
2,628,000
$
3,585,000
Shareholders' Equity
$
43,018,000
$
45,366,000
Book Value Per Share
$
16.98
$
17.93
Invested Assets:
Invested assets at September 30, 2021 were $113,195,000 compared
to $99,150,000 at December 31, 2020; an increase of 14.2%. The
increase in invested assets was primarily due to an increase in new
investments of positive cash flow from operations and partial
re-investment of December 31, 2020 available cash. This was
partially offset by a decline, primarily in market value of
available-for-sale fixed maturity investments, of $1,830,000. This
decline in market value of fixed maturity investments was primarily
driven by an increase in intermediate and long-term market interest
rates during 2021.
Cash:
The Company, primarily through its insurance subsidiaries, had
$9,285,000 in cash and cash equivalents at September 30, 2021,
compared to $19,887,000 at December 31, 2020. Cash decreased
$10,602,000 in 2021 primarily due to the purchase of fixed maturity
securities in our P&C subsidiary investment portfolio.
Total Assets:
Total assets at September 30, 2021 were $163,259,000 compared to
$150,540,000 at December 31, 2020. Positive cash flow from
insurance operations contributed to an increase in purchases of
fixed maturity securities. Due to an increase in market interest
rates, fixed maturity investments classified as available-for-sale
decreased in market value, partially offsetting the increase in new
investments in 2021.
Policy Liabilities:
Policy related liabilities were $97,188,000 at September 30,
2021, compared to $82,869,000 at December 31, 2020; an increase of
$14,319,000 or 17.3%. The primary reason for the increase in policy
liabilities was a $5,148,000 increase in P&C segment unearned
premium, in the first nine months of 2021, compared to the same
period in 2020. The increase in unearned premium was primarily
driven by a 8.1% increase in P&C segment gross written premium
in 2021. This increase in gross written premium was primarily due
to the impact of increased average policy premium as we began
re-underwriting our P&C in-force policies starting with January
1, 2021 renewals, coupled with the implementation of rate increases
across our core P&C product lineup.
Debt Outstanding:
Total debt was virtually unchanged at September 30, 2021 at
$13,686,000 compared to $13,677,000 at December 31, 2020. Our debt
is held at the holding company level.
Shareholders' Equity:
Shareholders' equity as of September 30, 2021 was $43,018,000,
down $2,348,000, compared to December 31, 2020 Shareholders' equity
of $45,366,000. Book value per share was $16.98 at September 30,
2021, compared to $17.93 per share at December 31, 2020; a decline
of 5.3% or $0.95 per share. The primary factors contributing to the
decrease in both book value per share and Shareholders' equity were
a decrease in accumulated other comprehensive income of $957,000
and shareholder dividends paid of $456,000 as well as the net loss
of $961,000.
The National Security Group, Inc. (NASDAQ: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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211112005856/en/
Brian McLeod - Chief Financial Officer @ (334) 897-2273
National Security (NASDAQ:NSEC)
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