The National Security Group, Inc. (NASDAQ:NSEC) results for the
three months ended March 31, 2020 and 2019, based on U.S. generally
accepted accounting principles, were reported today as follows:
Unaudited Consolidated Financial
Summary
Three months ended March 31,
2020
2019
Gross premiums written
$
17,131,000
$
16,936,000
Net premiums written
$
15,331,000
$
15,600,000
Net premiums earned
$
14,955,000
$
14,718,000
Net investment income
964,000
962,000
Net investment gains (losses)
(990,000
)
2,120,000
Other income
145,000
146,000
Total Revenues
15,074,000
17,946,000
Policyholder benefits and settlement
expenses
10,583,000
9,023,000
Amortization of deferred policy
acquisition costs
1,065,000
980,000
Commissions
2,075,000
2,033,000
General and administrative expenses
1,394,000
2,332,000
Taxes, licenses and fees
721,000
687,000
Interest expense
261,000
295,000
Total Benefits, Losses and
Expenses
16,099,000
15,350,000
Income (Loss) Before Income
Taxes
(1,025,000
)
2,596,000
Income tax expense (benefit)
(165,000
)
153,000
Net Income (Loss)
$
(860,000
)
$
2,443,000
Income (Loss) Per Common Share
$
(0.34
)
$
0.97
Reconciliation of Net Income (Loss) to
non-GAAP Measurement
Net income (loss)
$
(860,000
)
$
2,443,000
Income tax expense (benefit)
(165,000
)
153,000
Investment (gains) losses, net
990,000
(2,120,000
)
Pretax Income (Loss) From
Operations
$
(35,000
)
$
476,000
Management Commentary on Results of Operations
Three months ended March 31, 2020 compared to three months
ended March 31, 2019
For the three months ended March 31, 2020, the Company had a net
loss of $860,000, $0.34 loss per share, compared to net income of
$2,443,000, $0.97 income per share, for the three months ended
March 31, 2019; a decrease of $3,303,000. Results for the first
quarter of 2020 were negatively impacted by investment losses and
increased claim activity in the P&C segment. Results for the
first quarter of 2019 were positively impacted by investment gains
of $2,120,000.
For the three months ended March 31, 2020, the Company had
investment losses of $990,000 compared to investment gains of
$2,120,000 for the same period last year; a decrease of $3,110,000.
The primary reason for the investment losses, in the first quarter
of 2020, was a $599,000 loss due to change in value of equity
securities compared to a gain due to change in value of equity
securities of $126,000 for the same period last year. In addition,
the change in surrender value of our company owned life insurance
(COLI) added $251,000 in investment losses, in the first quarter of
2020, compared to a gain of $189,000 in the first quarter of 2019.
During the first quarter of 2019, we had a gain on our COLI
totaling $1,792,000 which was the primary contributor to investment
gains for the three months ended March 31, 2019. During the first
quarter of 2020, we also recognized an other-than-temporary
impairment totaling $238,000. We did not have any
other-than-temporary impairments in the first quarter of 2019.
The Company ended the first quarter of 2020 with claims totaling
$10,583,000 compared to $9,023,000 for the same period last year.
The P&C segment was the primary source of this increase with
claims up $1,609,000, in first quarter 2020, compared to first
quarter 2019. The primary component of this increase was claims
reported from catastrophe events which increased $1,297,000, in the
first quarter of 2020 compared to the first quarter of 2019.
Partially offsetting the increases mentioned above was a decrease
in general and administrative expenses. The Company ended the first
quarter of 2020 with a decrease in general and administrative
expenses of $938,000. The primary reason for this decrease was a
decline in the company's liability in deferred compensation
plans.
We provide a reconciliation of net income to the non-GAAP
measurement "pretax income (loss) from operations". The purpose of
this reconciliation is to provide investors with information
routinely utilized by management in analyzing and comparing the
performance of our insurance operations between periods. This
information reflects the financial performance of our insurance
operations without the impact of realized capital gains/losses on
investments and unrealized capital gains on equity securities which
are now required to be included as a component of net income under
GAAP. We typically invest in equity securities with a long-term
view. Short-term volatility due to changes in market value of
equity securities, along with realized investment gains/losses, can
mask both the positive or negative performance of our insurance
operations from period to period.
Premium Revenue:
For the three months ended March 31, 2020, net premiums earned
were up $237,000 at $14,955,000 compared to $14,718,000 during the
same period last year. The increase in premium revenue was
primarily driven by an increase in net earned premium, in the
P&C segment, of $261,000 or 2.0%. The increase in P&C
segment net earned premium was primarily attributable to a 4.0%
increase in gross earned premium in our dwelling fire program due
to rate increases in the program over the past twelve months. With
the increased frequency of weather events over the past five years,
the Company continues to increase rates in states and programs that
have been most impacted by this persistent pattern of severe
weather.
Investment Gains (Losses):
Investment losses for the three-month period ended March 31,
2020 were $990,000 compared to investment gains of $2,120,000 for
the same period last year. Investment gains in 2019 were positively
impacted by a gain on COLI benefit of $1,792,000. Contributing to
the first quarter 2020 loss, we had a decline in value of our
equity investments totaling $599,000 compared to unrealized gains
in equity investments of $126,000, in the first quarter of 2019. In
the first quarter of 2020, we also recognized a decline in
surrender value of our COLI of $251,000 and an other-than-temporary
impairment loss on corporate bonds of $238,000. The investment
losses in the first quarter of 2020 were primarily driven by
overall declines in corporate debt and equity securities in March
of 2020 due to rapid changes in worldwide economic conditions from
the global spread of COVID-19.
Net Income (Loss):
For the three months ended March 31, 2020, the Company had a net
loss of $860,000, $0.34 loss per share, compared to net income of
$2,443,000, $0.97 income per share, for the same period last year.
As mentioned previously, the primary reasons for the first quarter
2020 net loss, compared to the first quarter 2019 net income, was
an increase in investment related losses and higher property and
casualty insured losses. The increase in P&C subsidiary losses
was primarily driven by an increase in insured losses from weather
events in January and February.
Pretax Income (Loss) from Operations:
For the three months ended March 31, 2020, our pretax loss from
operations was $35,000 compared to a pretax income from operations
of $476,000 for the three months ended March 31, 2019; a decrease
of $511,000. As discussed above, an increase in claim activity in
our P&C segment was the primary reason for the loss from
operations, in the first quarter of 2020, compared to the same
period last year.
P&C Segment Combined Ratio:
The P&C segment ended the first quarter of 2020 with a GAAP
basis combined ratio of 107.6%. Reported catastrophe losses totaled
$2,252,000 for the quarter and added 16.5 percentage points to the
combined ratio. In comparison, the P&C segment ended the first
quarter of 2019 with a GAAP basis combined ratio of 98.1% with
$955,000 in reported catastrophe losses increasing the combined
ratio by 7.1 percentage points. Partially offsetting the increase
in reported catastrophe losses in the first quarter of 2020 was a
reduction in reported non-catastrophe wind and hail losses of
$471,000. Reported non-catastrophe wind and hail losses for the
first quarter of 2020 totaled $1,610,000 and added 11.8 percentage
points to the first quarter 2020 combined ratio. In comparison,
first quarter 2019 reported non-catastrophe wind and hail losses
totaled $2,081,000 and added 15.5 percentage points to the first
quarter 2019 combined ratio.
Management Commentary on Financial Position
Selected Balance Sheet
Highlights
March 31, 2020
December 31, 2019
UNAUDITED
Invested Assets
$
120,248,000
$
118,969,000
Cash
$
5,869,000
$
11,809,000
Total Assets
$
150,486,000
$
153,934,000
Policy Liabilities
$
78,559,000
$
78,472,000
Total Debt
$
14,167,000
$
14,164,000
Accumulated Other Comprehensive Income
(Loss)
$
(42,000
)
$
2,443,000
Shareholders' Equity
$
49,958,000
$
53,461,000
Book Value Per Share
$
19.74
$
21.12
Invested Assets:
Invested assets as of March 31, 2020 were $120,248,000 compared
to $118,969,000 as of December 31, 2019; an increase of 1.1%. The
increase in invested assets was primarily due to the purchase of
additional securities in the bond investment portfolio during the
first quarter of 2020. While invested assets increased for the
quarter, the market value of our available-for-sale fixed maturity
securities and equity securities decreased $2,456,000 and was the
primary contributor to the accumulated other comprehensive loss for
the quarter.
Cash:
The Company, primarily through its insurance subsidiaries, had
$5,869,000 in cash and cash equivalents at March 31, 2020, compared
to $11,809,000 at December 31, 2019. Cash declined in the first
quarter of 2020 primarily due to an increase in weather related
losses in our P&C subsidiary and an increase of investments in
fixed maturity securities in our investment portfolio.
Total Assets:
Total assets as of March 31, 2020 were $150,486,000 compared to
$153,934,000 at December 31, 2019. As mentioned previously, the
market value of our available-for-sale fixed maturity securities
and equity securities decreased $2,456,000 and was the primary
contributor to the $3,448,000 decrease in total assets in the first
quarter of 2020 compared to total assets at December 31, 2019.
Policy Liabilities:
Policy related liabilities were $78,559,000 at March 31, 2020,
compared to $78,472,000 at December 31, 2019; an increase of
$87,000 or 0.1%. An increase in P&C segment unearned premiums
was partially offset by a decrease in P&C segment loss reserves
leading to a marginal increase in policy liabilities.
Debt Outstanding:
Total debt at March 31, 2020 was virtually unchanged at
$14,167,000 compared to $14,164,000 at December 31, 2019.
Shareholders' Equity:
Shareholders' equity as of March 31, 2020 was $49,958,000, down
$3,503,000, compared to December 31, 2019 Shareholders' equity of
$53,461,000. Book value per share was $19.74 at March 31, 2020,
compared to $21.12 per share at December 31, 2019; a decline of
6.5% or $1.38 per share. The primary factors contributing to the
decrease in both book value per share and Shareholders' equity were
a net loss of $860,000, an accumulated other comprehensive loss of
$2,485,000 and shareholder dividends paid of $152,000. The
accumulated comprehensive loss was primarily driven by decreases in
market value of our corporate bond investments available for
sale.
Release of information on Second Quarter Events - April
Catastrophe Claims:
In addition to our first quarter earnings release, we are
releasing our preliminary loss estimates from April catastrophe
(cat) events which will impact our second quarter earnings. We
emphasize that no provision for losses from April cat claims have
been made in our first quarter results presented above as these
events occurred in the second quarter of 2020.
April of 2020 was our most active month of any spring storm
season since 2011, with six catastrophe (cat) events occurring
during the month. These six cat events impacted policyholders in
every state in which NSFC operates and generated $6,998,000 in
insured losses during the month of April from 1,030 reported claims
to date. For comparison, in April of 2019 we incurred losses
totaling $1,179,000 from 251 claims. While catastrophe losses are
highly variable over the course of any given year and are driven by
frequency and severity of both hurricane and severe thunderstorm
activity over any 12 month period, the significant increase in
storm activity in April of 2020 will materially impact our second
quarter and full year results of operations.
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/20200514005832/en/
Brian McLeod - Chief Financial Officer @ (334) 897-2273
National Security (NASDAQ:NSEC)
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