Baldwin & Lyons, Inc. Announces Fourth Quarter and Full Year Results

  • Net income of $16.5 million, or $1.10 per share for the fourth quarter of 2017 compared to net income of $4.9 million, or $0.32 per share, for the prior year
  • Net income during the fourth quarter of 2017 included an estimated tax benefit from reduced corporate tax rates of $9.6 million, or $0.64 per share
  • Gross premiums written during 2017 increased 25.2% to $504.7 million compared to $403.0 million during 2016.
  • Combined ratio during the fourth quarter of 2017 was 99.3%, compared to 104.5% during the fourth quarter of 2016.

CARMEL, Ind., Feb. 15, 2018 (GLOBE NEWSWIRE) — Baldwin & Lyons, Inc. (NASDAQ:BWINA) (NASDAQ:BWINB) today reported results for the fourth quarter and twelve months of 2017. The Company produced fourth quarter net income of $16.5 million, or $1.10 per share, which compares to net income of $4.9 million, or $0.32 per share, for the prior year’s fourth quarter.  For the full year of 2017, net income totaled $18.3 million, or $1.21 per share, which compares to net income of $28.9 million, or $1.92 per share, for the prior year. 

Net premiums earned for the fourth quarter of 2017 increased 40.4% to $97.1 million compared to the prior year period. For full year 2017, net premiums earned increased 18.9% to $328.1 million. The continued growth in the Company’s commercial automobile and workers’ compensation products as well as growth in the Company’s programs book of business contributed to the increase in premiums earned. 

Gross premiums written for the fourth quarter of 2017 increased 37.5% to $144.2 million compared to $104.9 million written during the prior year period.  Gross premiums written for full year 2017 increased 25.2% to $504.7 million compared to $403.0 million written during the prior year.  The increases were primarily driven by continued growth in the Company’s commercial automobile and workers’ compensation products as well as growth in the Company’s programs book of business. 

Net investment income for the fourth quarter of 2017 increased 42.2% to $5.7 million compared to $4.0 million in the prior year period. Full year 2017 net investment income increased 24.9% to $18.1 million, compared to $14.5 million in prior year. The increase reflects higher interest rates, higher reinvestment yields for core fixed income securities, increased dividends from equity securities, and an increase in average funds invested resulting from positive cash flow. 

Underwriting operations produced a combined ratio of 99.3% during the fourth quarter of 2017 compared to a combined ratio of 104.5% for the prior year period. The fourth quarter 2017 combined ratio includes $2.7 million (2.8 percentage points) of unfavorable prior year reserve development, predominately related to legacy business lines which are now in run-off, compared to unfavorable prior year development of $3.4 million (5.0 percentage points) during the prior year period. The combined ratio difference between the fourth quarter of 2017 and 2016 reflects adverse development during the fourth quarter of 2016 related to a number of infrequent, but severe Public Transportation charter bus claims. For full year 2017, the combined ratio was 108.4% compared to a combined ratio of 98.1% for the prior year with the difference primarily related to reserve strengthening in the second quarter of 2017. Prior year unfavorable reserve development in 2017 totaled $19.2 million compared to $13.8 million for the full year 2016.    

Book value per share as of December 31, 2017 was $27.83, an increase of $0.90 per share during the fourth quarter, after the payment of cash dividends to shareholders totaling $0.27 per share. For full year 2017, book value per share increased $1.02 after the payment of cash dividends to shareholders totaling $1.08 per share. The combination of the year-to-date increase in book value of $1.02, plus dividends paid to shareholders of $1.08, represents an annualized total value creation of 7.8% on beginning book value for the full year 2017. 

The Company’s net income, determined in accordance with U.S. generally accepted accounting principles (GAAP) includes items that may not be indicative of ongoing operations. The following table reconciles income before federal income taxes to underwriting income (loss), a non-GAAP financial measure that is a useful tool for investors and analysts in analyzing ongoing operating trends.  

 

                 
  Three Months Ended   Twelve Months Ended  
  December 31   December 31  
    2017       2016       2017       2016    
                 
Income before federal income taxes $   10,506     $   7,067     $   10,122     $   43,054    
Less: Net realized gains on investments   4,152       6,204       19,686       23,228    
Income (loss) from core business operations $   6,354     $   863     $   (9,564 )   $   19,826    
Less: Net investment income   5,661       3,982       18,095       14,483    
Underwriting income (loss) $   693     $   (3,119 )   $   (27,659 )   $   5,343    
                 

Income (loss) from core business operations, before federal income taxes, was $6.4 million for the fourth quarter of 2017 compared to income (loss) from core business operations, before federal income taxes, of $0.9 million during the fourth quarter of 2016.  Income (loss) from core business operations, before federal income tax benefits, was ($9.6 million) for the full year 2017 compared to income (loss) from core business operations, before federal income taxes, of $19.8 million during the prior year. 

The Company’s management uses the term income (loss) from core business operations, a non-GAAP financial measure, which is defined as income before federal income taxes excluding pre-tax realized investment gains and losses.  This financial measure is used to evaluate the Company’s performance because the recognition of investment gains and losses in any given period is largely discretionary as to timing and could distort the analysis of trends. The Company believes equity analysts exclude gains and losses on investments in their analysis of the Company’s results.

The combined ratios and the components, as presented herein, are commonly used in the property/casualty insurance industry and are applied to the Company’s GAAP underwriting results.

Conference Call Information:
Baldwin & Lyons, Inc. has scheduled its quarterly conference call for Thursday, February 15, 2018, at 11:00 AM EST to discuss results for the fourth quarter ended December 31, 2017.

To participate via teleconference, investors may dial 1-877-705-6003 (U.S./Canada) or 1-201-493-6725 (International or local) at least five minutes prior to the beginning of the call. A replay of the call will be available through February 22, 2018 by calling 1-844-512-2921 or 1-412-317-6671 and referencing passcode 13674841. Investors and interested parties may also listen to the call via a live webcast, accessible on the company’s web site via a link at the top of the main Investor Relations page. To participate in the webcast, please register at least fifteen minutes prior to the start of the call. The webcast will be archived on this site until August 15, 2018. The webcast may be accessed directly at: http://public.viavid.com/index.php?id=127689.

Also available on the investor relations section of our web site are complete interim financial statements and copies of our filings with the Securities and Exchange Commission.

 _____________________________________________________________

The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-K but do not include all of the information and footnotes as disclosed in the Company’s annual audited financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. 

Forward-looking statements in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Investors are cautioned that such forward-looking statements involve inherent risks and uncertainties.  Readers are encouraged to review the Company’s annual report for its full statement regarding forward-looking information.

 

Baldwin & Lyons, Inc. and Subsidiaries          
Unaudited Consolidated Balance Sheets          
(in thousands, except per share data)          
           
           
           
    December 31   December 31  
      2017     2016  
Assets          
Investments 1:          
  Fixed maturities ($521,017)   $   521,853   $   491,904  
  Equity securities ($130,751)     201,763     119,945  
  Limited partnerships, at equity     70,806     76,469  
  Short-term 2     1,000     1,500  
      795,422     689,818  
Cash and cash equivalents     64,680     62,976  
Accounts receivable      87,551     64,984  
Reinsurance recoverable     318,331     255,024  
Other assets     72,691     78,732  
Current federal income taxes     6,938     2,603  
    $   1,345,613   $   1,154,137  
           
Liabilities and shareholders’ equity          
Reserves for losses and loss expenses   $   680,274   $   576,330  
Reserves for unearned premiums     53,085     21,694  
Borrowings under line of credit     20,000     20,000  
Accounts payable and other liabilities     159,085     120,356  
Deferred federal income taxes     14,358     11,412  
      926,802     749,792  
Shareholders’ equity:          
  Common stock-no par value     642     644  
  Additional paid-in capital     55,078     54,286  
  Unrealized net gains on investments     46,700     34,051  
  Retained earnings     316,391     315,364  
      418,811     404,345  
    $   1,345,613   $   1,154,137  
           
Number of common and common          
  equivalent shares outstanding     15,047     15,084  
Book value per outstanding share   $   27.83   $   26.81  
           
1 2017 cost in parentheses          
2 Approximates cost          
   

                 
Baldwin & Lyons, Inc. and Subsidiaries                
Unaudited Consolidated Statements of Operations                
(in thousands, except per share data)                
                 
  Three Months Ended   Twelve Months Ended  
  December 31   December 31  
    2017       2016     2017       2016  
Revenues                
Net premiums earned $   97,075     $   69,141   $   328,145     $   276,011  
Net investment income   5,661       3,982     18,095       14,483  
Net realized gains on investments   4,152       6,204     19,686       23,228  
Commissions and other income   1,520       1,241     5,308       5,275  
    108,408       80,568     371,234       318,997  
Expenses                
Losses and loss expenses incurred   66,492       48,366     247,518       186,481  
Other operating expenses   31,410       25,135     113,594       89,462  
    97,902       73,501     361,112       275,943  
Income before federal income taxes (benefits)   10,506       7,067     10,122       43,054  
Federal income taxes (benefits)   (5,970 )     2,203     (8,201 )     14,109  
Net income $   16,476     $   4,864   $   18,323     $   28,945  
                 
Per share data – diluted:                
Income before net gains on investments $  .92   $  .06   $  .37   $  .92  
Net gains on investments .18   .26   .84     1.00  
Net income $   1.10     $  .32   $   1.21     $   1.92  
                 
Dividends $  .27   $  .26   $   1.08     $   1.04  
                 
Reconciliation of shares outstanding:                
Average shares outstanding – basic   15,010       15,084     15,065       15,072  
Dilutive effect of share equivalents     35         –       42         12  
Average shares outstanding – diluted   15,045       15,084     15,107       15,084  
                 

 

       
Baldwin & Lyons, Inc. and Subsidiaries      
Unaudited Consolidated Statements of Cash Flows      
(in thousands)      
         
    Twelve Months Ended
    December 31
      2017       2016  
         
Net cash provided by operating activities $   91,865     $   32,368  
Investing activities:      
  Purchases of available-for-sale investments   (410,140 )     (400,670 )
  Purchases of limited partnership interests   (1,097 )      
  Proceeds from sales or maturities      
  of available-for-sale investments   325,086       367,254  
  Net sales of short-term investments   500       11,258  
  Distributions from limited partnerships   19,230       1,462  
  Other investing activities   (6,080 )     (6,666 )
Net cash used in investing activities     (72,501 )     (27,362 )
Financing activities:      
  Dividends paid to shareholders   (16,302 )     (15,803 )
  Drawings on line of credit           0  
  Repayment on line of credit             –  
  Drawings on margin account             –  
  Repurchase of common shares   (1,880 )       –  
  Proceeds from sales of common stock             –  
Net cash used in financing activities     (18,182 )     (15,803 )
         
Effect of foreign exchange rates on cash and cash equivalents     522       235  
         
Increase (decrease) in cash and cash equivalents     1,704       (10,562 )
Cash and cash equivalents at beginning of period   62,976       73,538  
Cash and cash equivalents at end of period $   64,680     $   62,976  
               

 

 

                 
Financial Highlights (unaudited)                
Baldwin & Lyons, Inc. and Subsidiaries                
(In thousands, except per share data)   Three Months Ended   Twelve Months Ended
    December 31   December 31
      2017       2016       2017       2016  
                 
Annualized                
Book value per share beginning of period   $   26.93     $   26.98     $   26.81     $   26.25  
Book value per share end of period     27.83       26.81       27.83       26.81  
Change in book value per share   $   0.90     $   (0.17 )   $   1.02     $   0.56  
Dividends paid     0.27       0.26       1.08       1.04  
Total value creation 1     17.4 %     1.3 %     7.8 %     6.1 %
                 
                 
Return on average shareholders’ equity:                
                 
Net operating income     15.1 %     0.9 %     1.5 %     3.8 %
                 
Net income     18.0 %     5.3 %     4.9 %     8.0 %
                 
                 
Loss and LAE expenses incurred   $   66,492     $   48,366     $ 247,518     $   186,481  
Net premiums earned     97,075       69,141       328,145       276,011  
  Loss and LAE ratio     68.5 %     70.0 %     75.4 %     67.6 %
                 
Other operating expenses   $   31,410     $   25,135     $ 113,594     $   89,462  
Less: Commissions and other income     1,520       1,241       5,308       5,275  
Other operating expenses, less commission and other income   $   29,890     $   23,894     $ 108,286     $   84,187  
Net premiums earned     97,075       69,141       328,145       276,011  
  Expense ratio     30.8 %     34.5 %     33.0 %     30.5 %
                 
  Combined ratio 2     99.3 %     104.5 %     108.4 %     98.1 %
                 
                 
Gross premiums written   $ 144,179     $   104,884     $ 504,737     $   403,004  
Net premiums written     106,930       68,988       353,389       271,752  
                 
1 Total Value Creation equals change in book value plus dividends paid, divided by beginning book value. Quarterly amounts have been annualized
2 The combined ratio is calculated as ratio of losses and loss expenses incurred, plus other operating expenses, less commission and other income to net premiums earned. 
 

Investor Contact: William Vens
investors@baldwinandlyons.com 
(317) 429-2554