Meadowbrook Reports $2.8M Profit, Expenses Options

Michigan-based Meadowbrook Insurance Group’s quarterly profit grew more than 200 percent to $2.8 million, or 9 cents per share, compared to $910,000, or 11 cents per share in 2002. The improvement in net income reflects an increase in fee-for-service revenue, a reduction in interest expense, and overall expense improvements.

Meadowbrook’s board of directors also named Karen Spaun chief financial officer and Gregory Wilde vice president, and announced the adoption of the practice of expensing stock options in accordance with SFAS 148.

CEO Robert Cubbin said Meadowbrook’s growth reflected its strategy of maintaining underwriting discipline and growing profitable programs.

During the first quarter of 2003, gross written premium increased
$11.3 million, or 19.6 percent, to $68.8 million, from $57.5 million in the comparable period in 2002. This increase reflects the anticipated growth from premium rate increases, conversion of existing controlled programs to the company’s own insurance company subsidiaries and the result of the previously announced renewal rights contract in Missouri.

The decline in gross written premium in 2002 included planned reductions to reduce leverage ratios. The prior year reduction in gross written premium is now reflected in reduced revenue and premium earned in the current quarter.

Revenues decreased $6.7 million, or 13.1 percent, to $44.3 million in the first quarter of 2003 from $51.0 million for the comparable period in 2002.

Net earned premium decreased $11.3 million, or 29.2 percent, to $27.4 million in the first quarter of 2003, from $38.7 million during the same period of 2002. The decreases reflect the planned reduction in premium from programs previously discontinued, partially offset by the elimination of the surplus relief treaty, in which a portion of the 2002 net earned premium was ceded to an “A+”-rated reinsurer.

Net commissions and fees increased $4.4 million, or 49.0 percent, to $13.4 million in the first quarter of 2003, from $9.0 million during the same period of 2002. This increase includes $4.7 million from new fee-for-service contracts.

During the quarter, the board of directors approved the adoption of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation.” Stock options will be expensed using the prospective method, which expenses options granted after the beginning of the year of adoption. In the first quarter of 2003, the company recorded compensation expense of $86,000 relating to stock options granted in 2003.

Shareholders’ equity increased to $149.8 million, or $5.10 per common share, at March 31, 2003, compared to $147.4 million, or $4.98 per common share, at Dec. 31, 2002. The increase in shareholders’ equity reflects first quarter net income, share repurchases and unrealized appreciation in the investment portfolio. During the first quarter of 2003, the Company repurchased and retired 227,800 shares.

Statutory surplus was $90.5 million at the end of the first quarter.