Market Overview

The National Security Group, Inc. Releases Financial Results

Share:

The National Security Group, Inc. (NASDAQ:NSEC) results for the three
months and six months ended June 30, 2017 and 2016, based on US
generally accepted accounting principles, were reported today as follows:

   
Unaudited Consolidated Financial Summary Three months ended

June 30,

Six months ended

June 30,

2017   2016 2017   2016
Gross premiums written $ 18,538,000   $ 18,493,000   $ 35,707,000   $ 35,457,000  
Net premiums written $ 16,817,000   $ 16,773,000   $ 32,855,000   $ 32,710,000  
 
Net premiums earned $ 15,331,000 $ 15,227,000 $ 30,371,000 $ 30,392,000
Net investment income 930,000 1,029,000 1,856,000 2,020,000
Net realized investment gains 77,000 242,000 237,000 249,000
Other income 145,000   150,000   297,000   304,000  
Total Revenues 16,483,000   16,648,000   32,761,000   32,965,000  
 
Policyholder benefits and settlement expenses 12,581,000 8,862,000 23,727,000 17,909,000
Amortization of deferred policy acquisition costs 819,000 906,000 1,764,000 1,693,000
Commissions 1,758,000 2,117,000 3,851,000 4,225,000
General and administrative expenses 2,215,000 2,158,000 4,012,000 4,287,000
Taxes, licenses and fees 517,000 574,000 1,206,000 1,174,000
Interest expense 326,000   333,000   649,000   678,000  
Total Benefits, Losses and Expenses 18,216,000   14,950,000   35,209,000   29,966,000  
 
Income (Loss) Before Income Taxes (1,733,000 ) 1,698,000   (2,448,000 ) 2,999,000  
Income tax expense (benefit) (734,000 ) 402,000   (1,133,000 ) 762,000  
Net Income (Loss) $ (999,000 ) $ 1,296,000   $ (1,315,000 ) $ 2,237,000  
Income (Loss) Per Common Share $ (0.39 ) $ 0.52   $ (0.52 ) $ 0.89  
 
Reconciliation of Net Income (Loss) to non-GAAP Measurement
Net income (loss) $ (999,000 ) $ 1,296,000 $ (1,315,000 ) $ 2,237,000
Income tax expense (benefit) (734,000 ) 402,000 (1,133,000 ) 762,000
Realized investment gains, net (77,000 ) (242,000 ) (237,000 ) (249,000 )
Pretax Income (Loss) From Operations $ (1,810,000 ) $ 1,456,000   $ (2,685,000 ) $ 2,750,000  
 

Management Commentary on Results of Operations

Summary:

For the three months ended June 30, 2017, the Company had a net loss of
$999,000, $0.39 per share, compared to net income of $1,296,000, $0.52
per share, for the three months ended June 30, 2016. The pretax loss
from operations in second quarter of 2017 totaled $1,810,000 compared to
pretax income from operations of $1,456,000 in the second quarter of
2016. Results for the second quarter of 2017 were negatively impacted by
an increased frequency of severe thunderstorm activity which generated
widespread wind, hail and tornado damage to insured property across the
Southeastern United States. This increased frequency of severe
thunderstorm activity led to a $3,621,000 increase in quarterly P&C
segment catastrophe losses, compared to second quarter 2016. Total
catastrophe related losses in the second quarter of 2017 were $5,657,000
compared to $2,036,000 in the second quarter of 2016.

For the six months ended June 30, 2017, the Company had a net loss of
$1,315,000, $0.52 per share, compared to net income of $2,237,000, $0.89
per share, for the six months ended June 30, 2016, a period over period
decrease of $3,552,000. The year to date pretax loss from operations in
2017 totaled $2,685,000 compared to pretax income from operations of
$2,750,000 in 2016. Results for 2017 were negatively impacted by an
increased frequency of severe thunderstorm activity which generated
widespread wind, hail and tornado damage to insured property across the
Southeastern United States throughout the six month period. This
increased frequency of severe thunderstorm activity led to a $5,695,000
increase in P&C segment catastrophe losses, compared to 2016. Year to
date catastrophe related losses in 2017 were $9,178,000 compared to
$3,483,000 in 2016. Partially offsetting the increase in P&C segment
storm losses was a decline in non-cat wind and hail losses of $319,000
and a $79,000 reduction in fire losses in 2017 compared to the same
period last year.

Three month period ended June 30, 2017 compared to three month
period ended June 30, 2016

Premium Revenue:

For the quarter ended June 30, 2017, net premiums earned were up
$104,000 at $15,331,000 compared to $15,227,000 in the second quarter of
2016. The slight increase in net premium earned was due to a 0.7%
increase in gross premium earned in the P&C segment which was partially
offset by a 0.6% increase in ceded premium in the P&C segment. Net
premium earned was up 0.1% in the life segment for the second quarter of
2017 compared to the same period last year.

Net Income (Loss):

For the three months ended June 30, 2017, the Company had a net loss of
$999,000, $0.39 per share, compared to net income of $1,296,000, $0.52
per share, for the same period in 2016, a decrease of $2,295,000. As
discussed in the summary above, an increase in second quarter storm
losses in the P&C segment was the primary factor contributing to the
decline in net income.

Pretax Income (Loss) from Operations:

For the quarter ended June 30, 2017, pretax loss from operations was
$1,810,000 compared to pretax income of $1,456,000 for the quarter ended
June 30, 2016, a decrease of $3,266,000. Losses from storm related
catastrophe events totaled $5,657,000 in the second quarter of 2017
compared to $2,036,000 for the same period last year. The single largest
catastrophe event in the second quarter of 2017 was an early April
severe thunderstorm event that generated $768,000 in storm losses. In
comparison, the single largest catastrophe event in the second quarter
of 2016 was a late April severe thunderstorm event that totaled $546,000.

P&C Segment Combined Ratio:

The P&C segment ended the second quarter of 2017 with a combined ratio
of 113.3% with catastrophe losses totaling $5,657,000 and increasing the
combined ratio by 40.7 percentage points. In comparison, second quarter
2016 cat events added $2,036,000 to prior year policyholder benefits and
settlement expenses. The P&C segment ended the second quarter of 2016
with a combined ratio of 90.8% with catastrophe losses contributing 14.8
percentage points to the combined ratio.

Six month period ended June 30, 2017 compared to six month period
ended June 30, 2016

Premium Revenue:

For the six month period ended June 30, 2017, net premiums earned were
down $21,000 at $30,371,000 compared to $30,392,000 for the same period
in 2016. The slight decrease in net premium earned was due to a minimal
increase in gross premium earned in the P&C segment which was offset by
a 3.6% increase in ceded premium in the P&C segment. In addition, net
earned premium in the life segment was down 0.4% in 2017 compared to the
same period in 2016.

Net Income (Loss):

For the six month period ended June 30, 2017, the Company had a net loss
of $1,315,000, $0.52 per share, compared to net income of $2,237,000,
$0.89 per share, for the same period in 2016, a decrease of $3,552,000.
An increased frequency of catastrophe losses related to widespread
thunderstorm activity, which has persisted in the first six months of
2017, was the primary factor contributing to the decline in year to date
net income. We have incurred catastrophe losses from twenty-one cat
events in 2017 compared to losses from thirteen cat events in 2016.

Pretax Income (Loss) from Operations:

For the six month period ended June 30, 2017, pretax loss from
operations was $2,685,000 compared to pretax income of $2,750,000 for
the period ended June 30, 2016, a decrease of $5,435,000. Losses from
severe thunderstorm related catastrophe events totaled $9,178,000 in
2017 compared to $3,483,000 for the same period last year. The single
largest catastrophe event in 2017 was a January severe thunderstorm
event that heavily impacted Georgia along with several other states and
generated $2,125,000 in insured losses. In comparison, the single
largest catastrophe event in 2016 was a February severe thunderstorm
event that totaled $1,054,000 and primarily impacted the state of
Louisiana.

P&C Segment Combined Ratio:

The P&C segment ended the first six months of 2017 with a combined ratio
of 109.8% with catastrophe losses totaling $9,178,000 and increasing the
combined ratio by 33.3 percentage points. In comparison, 2016 cat events
added $3,483,000 to prior year policyholder benefits and settlement
expenses. The P&C segment ended the first six months of 2016 with a
combined ratio of 90.9% with catastrophe losses contributing 12.6
percentage points to the combined ratio.

Overview - Balance Sheet highlights at June 30, 2017 compared to
December 31, 2016

   
Selected Balance Sheet Highlights June 30,

2017

December 31,

2016

(UNAUDITED)
Invested Assets $ 112,038,000 $ 113,156,000
Cash $ 8,005,000 $ 7,368,000
Total Assets $ 149,602,000 $ 148,579,000
Policy Liabilities $ 78,909,000 $ 76,174,000
Total Debt $ 16,632,000 $ 17,126,000
Accumulated Other Comprehensive Income $ 1,963,000 $ 1,007,000
Shareholders' Equity $ 47,517,000 $ 48,052,000
Book Value Per Share $ 18.84 $ 19.09
 

Management Commentary on Financial Position

Invested Assets:

Invested assets as of June 30, 2017 were $112,038,000 down $1,118,000,
or 1.0%, compared to $113,156,000 as of December 31, 2016. Growth of
invested assets was adversely impacted by increased claim payments
associated with losses from catastrophe events in 2017, a decline in
cash flow from operations and the maintenance of higher levels of
liquidity due to the increase in P&C segment insurance claims throughout
the first half of 2017.

Cash:

The Company, primarily through its insurance subsidiaries, had
$8,005,000 in cash and cash equivalents at June 30, 2017 compared to
$7,368,000 at December 31, 2016. The moderate increase in cash was due
to an increase in cash flow provided from investments and delays in the
reinvestment of invested assets due to increased storm activity in the
second quarter of 2017.

Total Assets:

Total assets as of June 30, 2017 were $149,602,000 compared to
$148,579,000 at December 31, 2016. While total assets increased in 2017,
growth was negatively impacted by increased loss payments associated
with the higher frequency of catastrophe events.

Policy Liabilities:

Policy liabilities were $78,909,000 at June 30, 2017 compared to
$76,174,000 at December 31, 2016; an increase of $2,735,000 or 3.6%. The
primary reason for the increase in policy liabilities in 2017 compared
to 2016 was a $2,506,000 increase in unearned premiums. Due to the
timing of insurance renewals across our entire book of P&C segment
business, unearned premium tends to peak around mid year which is the
primary factor contributing to the increase in unearned premium at June
30, 2017 compared to December 31, 2016.

Debt Outstanding:

Total debt at June 30, 2017 was $16,632,000 compared to $17,126,000 at
December 31, 2016. Debt was reduced $494,000 during the first half of
2017 due to a reduction in short term debt. The improvement of balance
sheet strength through reduction of debt continues to be a primary focus
of management.

Shareholders' Equity:

Shareholders' equity as of June 30, 2017 was $47,517,000 down $535,000
compared to December 31, 2016 Shareholders' equity of $48,052,000. Book
value per share was $18.84 at June 30, 2017, compared to $19.09 per
share at December 31, 2016, a decrease of $0.25. Despite the adverse
impact of multiple catastrophe events in 2017, the Company had only a
1.3% decrease in book value per share and a 1.1% decrease in
Shareholders' Equity during the first six months of 2017. The primary
factor contributing to the decrease in Shareholders' equity was a net
loss of $1,315,000. In addition, Shareholders' equity was also reduced
by dividends paid of $252,000. Offsetting the decreases was an increase
in accumulated other comprehensive income of $956,000. The increase in
accumulated other comprehensive income was driven by increases in market
values of available-for-sale investment securities.

The National Security Group, Inc. (NASDAQ Symbol: NSEC), through its
property and 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 Comments and Join the Discussion!
 

Partner Center