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, 2018 and 2017, based on accounting
principles generally accepted in the United States of America, were
reported today as follows:

       
Unaudited Consolidated Financial Summary

Three months ended
June 30,

Six months ended
June 30,

2018   2017 2018   2017
Gross premiums written $ 18,244,000   $ 18,538,000   $ 35,209,000   $ 35,707,000  
Net premiums written $ 16,481,000   $ 16,818,000   $ 32,261,000   $ 32,856,000  
 
Net premiums earned $ 15,260,000 $ 15,331,000 $ 30,319,000 $ 30,371,000
Net investment income 998,000 930,000 1,779,000 1,856,000
Net realized investment (losses) gains (203,000 ) 77,000 (328,000 ) 237,000
Other income 148,000   145,000   309,000   297,000  
Total Revenues 16,203,000   16,483,000   32,079,000   32,761,000  
Policyholder benefits and settlement expenses 9,772,000 12,581,000 19,199,000 23,727,000
Amortization of deferred policy acquisition costs 787,000 819,000 1,590,000 1,764,000
Commissions 1,732,000 1,758,000 3,792,000 3,851,000
General and administrative expenses 2,668,000 2,215,000 4,671,000 4,012,000
Taxes, licenses and fees 349,000 517,000 998,000 1,206,000
Interest expense 309,000   326,000   611,000   649,000  
Total Benefits, Losses and Expenses 15,617,000   18,216,000   30,861,000   35,209,000  
Income (Loss) Before Income Taxes 586,000   (1,733,000 ) 1,218,000   (2,448,000 )
Income tax expense (benefit) 129,000   (734,000 ) 290,000   (1,133,000 )
Net Income (Loss) $ 457,000   $ (999,000 ) $ 928,000   $ (1,315,000 )
Income (Loss) Per Common Share $ 0.18   $ (0.39 ) $ 0.37   $ (0.52 )
Reconciliation of Net Income (Loss) to non-GAAP Measurement
Net income (loss) $ 457,000 $ (999,000 ) $ 928,000 $ (1,315,000 )
Income tax expense (benefit) 129,000 (734,000 ) 290,000 (1,133,000 )
Realized investment losses (gains), net 203,000   (77,000 ) 328,000   (237,000 )
Pretax Income (Loss) From Operations $ 789,000   $ (1,810,000 ) $ 1,546,000   $ (2,685,000 )
 

Management Commentary on Results of Operations

Summary:

For the three months ended June 30, 2018, the Company had net income of
$457,000, $0.18 income per share, compared to a net loss of $999,000,
$0.39 loss per share, for the three months ended June 30, 2017. The
pretax income from operations in the second quarter of 2018 totaled
$789,000 compared to pretax loss from operations of $1,810,000 in the
second quarter of 2017. During the second quarter of 2018, claim
activity related to catastrophe events was significantly less compared
to the same period last year. For the three months ended June 30, 2018,
the P&C segment had $1,714,000 in reported losses and loss adjustment
expenses (LAE) from cat events (including development from first quarter
2018 cat events). In the second quarter of 2017, financial results 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 $5,657,000 in reported
losses and LAE from cat events (including development from first quarter
2017 cat events) during the second quarter of 2017.

For the six months ended June 30, 2018, the Company had net income of
$928,000, $0.37 income per share, compared to a net loss of $1,315,000,
$0.52 loss per share, for the six months ended June 30, 2017. The year
to date pretax income from operations in 2018 totaled $1,546,000
compared to a pretax net loss from operations of $2,685,000 in 2017. The
reduction in reported losses from catastrophe events in 2018 compared to
2017 was the primary reason for the improved results in the current year
compared to the same period last year. Reported claims from cat events
in 2018 totaled $2,472,000 compared to $9,178,000 in 2017; a reduction
of 73.1%.

Three-month period ended June 30, 2018 compared to three-month
period ended June 30, 2017

Premium Revenue:

For the three-month period ended June 30, 2018, net premiums earned were
down $71,000 at $15,260,000 compared to $15,331,000 during the same
period in 2017. The decrease in premium revenue was primarily
attributable to a 2.1% decrease in net premiums earned in the life
segment along with a marginal decrease in premium earned in the P&C
segment.

Net Income (Loss):

For the quarter ended June 30, 2018, the Company had net income of
$457,000, $0.18 income per share, compared to a net loss of $999,000,
$0.39 loss per share, for the same period in 2017, an increase of
$1,456,000. As discussed above, a decrease in frequency of severe
thunderstorm related losses was the primary factor contributing to the
increase in net income in the second quarter of the current year
compared to the same period last year.

Pretax Income (Loss) from Operations:

For the three months ended June 30, 2018, our pretax income from
operations was $789,000 compared to a pretax loss from operations of
$1,810,000 for the three months ended June 30, 2017; an increase of
$2,599,000. A decrease in severe thunderstorm activity during the second
quarter of 2018 compared to the same period last year was the primary
factor contributing to the improvement in pretax income from operations.
During the second quarter of 2018, the P&C segment was impacted by eight
cat events with reported losses and LAE totaling $1,188,000 compared to
13 cat events totaling $4,774,000 during the second quarter of 2017. The
second quarter of 2017 was plagued with an unusually high frequency of
severe thunderstorm activity due to much warmer temperatures in the
early part of the year.

P&C Segment Combined Ratio:

The P&C segment ended the second quarter of 2018 with a GAAP basis
combined ratio of 92.9%. Reported catastrophe losses totaled $1,714,000
for the quarter and added 12.4 percentage points to the combined ratio.
In comparison, the P&C segment ended the second quarter of 2017 with a
GAAP basis combined ratio of 113.3% with catastrophe losses increasing
the combined ratio by 40.7 percentage points. Partially offsetting the
reduction in catastrophe losses in the second quarter of 2018; fire
losses were up $225,000 in 2018 compared to last year. Reported fire
losses for the second quarter of 2018 totaled $3,610,000 and added 26.0
percentage points to the second quarter 2018 combined ratio. In
comparison, second quarter 2017 reported fire losses totaled $3,385,000
and added 24.4 percentage points to the second quarter 2017 combined
ratio.

Six-month period ended June 30, 2018 compared to six-month period
ended June 30, 2017

Premium Revenue:

For the six-month period ended June 30, 2018, net premiums earned were
down $52,000 at $30,319,000 compared to $30,371,000 for the same period
in 2017. The decrease in net premium earned was due to a 1.8% decline in
net premium earned in the life segment. A combination of company efforts
to improve risk adjusted pricing in our P&C segment coupled with
increased competition in many of our markets are contributing to the
slow down in new business production.

Net Income (Loss):

For the six-month period ended June 30, 2018, the Company had net income
of $928,000, $0.37 income per share, compared to a net loss of
$1,315,000, $0.52 loss per share, for the same period in 2017, an
increase of $2,243,000. Decreased frequency of catastrophe losses was
the primary factor contributing to the increase in year to date net
income. We have incurred catastrophe losses from 11 cat events in 2018
compared to losses from 21 cat events in 2017.

Pretax Income (Loss) from Operations:

For the six-month period ended June 30, 2018, pretax income from
operations was $1,546,000 compared to a pretax loss from operations of
$2,685,000 for the period ended June 30, 2017, an increase of
$4,231,000. The primary reason for the increase in pretax income from
operations in 2018 compared to 2017 was the significant reduction in
reported catastrophe losses in the current year compared to the same
period in the prior year. Losses and LAE reported from catastrophe
events totaled $2,472,000 in 2018 compared to $9,178,000 for the same
period last year. The single largest catastrophe event in 2018 was a
severe thunderstorm, tornado and hail event in mid-March which generated
$1,100,000 in insured losses from 207 reported claims. Claims reported
in Alabama accounted for 87.1% of all reported losses from this cat
event. In comparison, the single largest catastrophe event in 2017 was a
January severe thunderstorm, tornado and hail event that totaled
$2,125,000 from 367 claims. Claims reported in Georgia were the primary
source of losses and accounted for 52.7% of all claims from this cat
event.

P&C Segment Combined Ratio:

The P&C segment ended the first six months of 2018 with a combined ratio
of 92.8% with reported catastrophe losses totaling $2,472,000 and added
9.0 percentage points to the combined ratio. In comparison, 2017
reported cat event losses added $9,178,000 to prior year policyholder
benefits and settlement expenses. The P&C segment ended the first six
months of 2017 with a combined ratio of 109.8% with catastrophe losses
contributing 33.3 percentage points to the combined ratio. Partially
offsetting the reduction in catastrophe losses in 2018 was a $1,435,000
increase in reported fire losses, in the current year, compared to the
same period last year. Fire losses reported in 2018 totaled $8,341,000
and added 30.3 percentage points to the 2018 combined ratio. In
comparison, 2017 reported file losses totaled $6,906,000 and added 25.1
percentage points to the 2017 combined ratio.

Management Commentary on Financial Position

   
Selected Balance Sheet Highlights June 30, 2018

December 31,
2017

(UNAUDITED)
Invested Assets $ 114,946,000 $ 114,731,000
Cash $ 4,543,000 $ 6,644,000
Total Assets $ 146,299,000 $ 146,438,000
Policy Liabilities $ 78,698,000 $ 76,674,000
Total Debt $ 15,145,000 $ 15,639,000
Accumulated Other Comprehensive (Loss) Income $ (1,441,000 ) $ 2,646,000
Shareholders' Equity $ 46,397,000 $ 47,625,000
Book Value Per Share $ 18.36 $ 18.88
 

Invested Assets:

Invested assets as of June 30, 2018 were $114,946,000 up $215,000, or
0.2%, compared to $114,731,000 as of December 31, 2017. The primary
changes in invested assets were associated with changes in the bond
portfolio. Positive cash flow from operations led to a $3.7 million
increase in bond investment purchases during the first six months of
2018; however, this increase in new bond investments were partially
offset by an increase in market interest rates which reduced the market
value of our bond portfolio by $2.8 million.

Cash:

The Company, primarily through its insurance subsidiaries, had
$4,543,000 in cash and cash equivalents at June 30, 2018, compared to
$6,644,000 at December 31, 2017. The decrease in cash was primarily due
to an increase in investments in fixed income securities and debt
reduction.

Total Assets:

The Company had no material change in total assets as of June 30, 2018
compared to December 31, 2017. Total assets as of June 30, 2018 were
$146,299,000 compared to $146,438,000 at December 31, 2017.

Policy Liabilities:

Policy liabilities were $78,698,000 at June 30, 2018 compared to
$76,674,000 at December 31, 2017; an increase of $2,024,000 or 2.6%. The
primary reason for the increase in policy liabilities in 2018 compared
to 2017 was an increase in unearned premium. This increase in unearned
premium is seasonal as we typically issue and renew a larger number of
insurance contracts in the P&C segment during the first and second
quarters of each year compared to the remainder of the year leading to a
seasonal peak in unearned premium around mid-year.

Debt Outstanding:

Total debt at June 30, 2018 was $15,145,000 compared to $15,639,000 at
December 31, 2017. The pay down of a bank credit line was the primary
reason for the $494,000 or 3.2% decrease in total debt.

Shareholders' Equity:

Shareholders' equity as of June 30, 2018 was $46,397,000, down
$1,228,000 compared to December 31, 2017 Shareholders' equity of
$47,625,000. Book value per share was $18.36 at June 30, 2018, compared
to $18.88 per share at December 31, 2017, a decrease of $0.52. The
primary reason for the decrease in Shareholders' Equity was a decrease
in market value of available for sale investment securities which
declined $2.2 million. This decrease was primarily due to an increase in
market interest rates which reduced the market value of our fixed income
investments. Partially offsetting these factors was net income of
$928,000.

 

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 Comments and Join the Discussion!