Protective Insurance Corporation
Q4 2016 Earnings Call Transcript

Published: 16 Feb 2017

[Operator:]

Greetings and welcome to Baldwin & Lyons Fourth Quarter and Year-End 2016 Earnings Conference Call. At this time all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Han Huie. Thank you Han, you may begin.

[Han Huie:]

Thank you. And thank you all for joining us this morning for the Baldwin & Lyons fourth quarter 2016 conference call. If you did not receive a copy of the press release, you may access it online at the company's website, which is www.baldwinandlyons.com. I would like to remind everyone that we are hosting a live webcast for the call which may be accessed at the company’s website as well. At this time, management would like me to inform you that certain statements made during this conference call and in the press release, which are not historical, maybe deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Baldwin & Lyons believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause the actual results to differ materially from expectations are detailed in the press release and from time-to-time with the company’s filings with the SEC. Now, I would like to introduce Randall Birchfield, CEO and President of Baldwin & Lyons, and turn the call over to him. Please go ahead.

[Randall Birchfield:]

Thanks, Han. And welcome to our conference call reporting results for the fourth quarter and full year of 2016. Joining me is William Vens, our Chief Financial Officer; and Michael Case, our Chief Operating Officer. I will give an update on our current insurance operations for the quarter and full year and then turn the presentation over to Michael and William. Michael will provide information related to the execution of our business strategy and William will follow with comments regarding our investments and some details behind our company's financial position. Upon completion of those comments, we will answer questions. As indicated in our press release fourth quarter net income was $4.9 million or $0.32 per share which compares to net income of $3.5 million or $0.24 per share for the prior year's fourth quarter. Net income for the full year of 2016 totaled $28.9 million or $1.92 per share compared to $23.3 million or a $1.55 per share for the prior year. Gross premiums written for the current quarter was a record $104.9 million, 7.2% higher than the $97.8 million written during the fourth quarter of 2015. The increase was driven by the continued strong performance of the company’s core fleet transportation products. Gross premiums written for the year-ended December 31, 2016 totaled a record $403 million, 5.1% higher than the previous record of $383.6 million written during 2015. P&C Insurance operations produced an underwriting loss of $2.9 million, resulting in a combined ratio for the fourth quarter of $104.3%. The fourth quarter of 2016 was negatively impacted by adverse development related to a limited number of infrequent, but severe public transportation charter bus claims. For the year-ended December 31, 2016, the combined ratio was 95.3% producing $12.4 million in pre-tax underwriting income. As mentioned in previous calls, reinsurance operations is a discontinued line of business and continues to shrink as a percentage of total premiums. Reinsurance operations produced an underwriting loss of $0.5 million for the quarter for the year-ended December 31, 2016 reinsurance operations produced an underwriting loss of $8.2 million. We are pleased with the progress we are making and the continuing execution of our operating strategies of brand, distribution, product and operations that are enabling us to connect with and know our customers, say yes more often provide the best products at competitive price and do more and better with less. Our distribution partners and clients are responding positively to key initiatives that are enabling these strategies and as a result the company is in a favorable position where our distribution partners are providing a good flow of new business submissions, our renewal retention rate remain at or above targets, rate levels for our key commercial auto lines are stable and we continue to be highly selective in our portfolio management. Michael will now provide you with additional details related to the execution of our business strategy. Michael?

[Michael Case:]

Thank you, Randy. As I mentioned last quarter our mission is to deliver the highest quality, customized insurance products and services. With this in mind, the management team at Baldwin & Lyons is fully committed at executing our strategic plan, which focuses on distribution, product, operations and brand. During the fourth quarter, we continued strengthening our distribution strategy by enhancing our primary distribution infrastructure, all with an eye towards avoiding channel conflicts. A few enhancements worth mentioning include; one, the continued growth of our agency distribution business; and two, the addition of new program business opportunities that will allow us to serve customers with common operation. Both of these channels are successfully expanding the sources of our new business production. Furthermore this strategy is allowing us to say yes more often and grow premiums, while maintaining pricing discipline. It is also allowing us to diversify our business across a broader base of clients, products and market segments. It is also important to note that our growth plans will be primarily driven by our core lines in the transportation and contractor segments of the economy. Our core lines include commercial auto, independent contractor coverages and workers' compensation. This allows us to leverage our core competencies such as our proven claims handling ability, our consistent and exceptional underwriting practices and our proactive and leading loss prevention services. By focusing our core growth in areas that benefit from our core competency, we are strengthening our long-term earning power and sustainability, while leveraging our fixed expenses. Another key part of our strategic growth plan is updating and transforming our systems environment. These transformations include our ongoing effort to implement a state-of-the-art policy administration and billing systems and deploy even more enhanced business intelligence and data warehouse capabilities. These investments will provide better customer service, lower our expenses, reduce our time to market and help drive our sustainable business plan well into the future. I'll conclude my comments by mentioning that we implemented our new workers' compensation, multi-company capability during the fourth quarter. This will allow us to be more competitive in the marketplace, with better rating flexibility and expanded underwriting appetite with a balanced risk approach that will grow our business, while protecting returns. William will now provide you with additional details related to our investments and overall financial condition. William?

[William Vens:]

Thank you, Michael. Over the past few years, the company has implemented a program of measured portfolio realignment, designed to increased investment income, while still maintaining the conservative character of our investment portfolio. This effort is continuing to result in improved investment income. Fourth quarter net investment income increased 5.6%, compared to the fourth quarter of 2015 and net investment income for the full year of 2016 increased 15.9% compared to 2015. We expect future increases to be more modest. However we still expect the increase in net investment income from full continued portfolio realignment and increased invested assets from anticipated positive cash flows. Over the past year our fixed maturities have remained level at an effective duration of approximately 2.0 years. Security valuation changes during the fourth quarter were favorable with realized gains of $6.2 million and unrealized losses of $5.2 million. Moving to where financial position stands as of year-end 2016, operating cash flow was flat during the fourth quarter resulting in $32.4 million of positive operating cash flow for the full year 2016. Book value per share on December 31, 2016 was $26.81, a decrease of $0.17 per share during the fourth quarter after the payment of cash dividends to shares totaling $0.26 per share. For the year ended December 31, 2016 book value per share has increased $0.56, again after the payment of cash dividends to shareholders totaling $1.04 per share. This combination of an increase in book value plus dividends paid represents a 6.1% total return on beginning book value for the full year of 2016. As a reminder we've posted our press release and the quarterly financial statements on our website at baldwinandlyons.com. This concludes our formal presentation. At this time we'd be delighted to answer any questions.

[Randall Birchfield:]

Okay. Thank you. This is Randall Birchfield, thank you once again for your interest in our company. We look forward to our next communication related to the 2017 first quarter results.

[Operator:]

Thank you. You may disconnect your lines at this time. Thank you for your participation.