Eastern Insurance Holdings, Inc. Announces First Quarter 2012 Results

LANCASTER, Pa., May 3, 2012 /PRNewswire/ -- Eastern Insurance Holdings, Inc. ("EIHI" or the "Company") (NASDAQ: EIHI) today reported net income for the three months ended March 31, 2012 of $2.9 million, or $0.37 per diluted share, compared to net income of $1.9 million, or $0.22 per diluted share, for the same period in 2011.  EIHI's net income for the three months ended March 31, 2012 and 2011 includes net realized investment gains of $0.10 per diluted share and $0.06 per diluted share, respectively.  EIHI's diluted book value per share and tangible diluted book value per share were $16.02 and $14.49, respectively, as of March 31, 2012 compared to $15.24 and $13.67, respectively, as of March 31, 2011.

"The first quarter was a strong start to 2012 for EIHI," said Michael L. Boguski, President and Chief Executive Officer.  "I was particularly pleased with our 2012 first quarter consolidated and workers' compensation insurance segment combined ratios of 94.3 percent and 91.6 percent, respectively, compared to 97.8 percent and 92.3 percent, respectively, for the same period in 2011. The favorable results were driven by solid growth in workers' compensation insurance direct written premiums, positive audit premium, renewal rate increases and a reduction in our consolidated expense ratio.  Workers' compensation insurance direct written premium increased by 19.4 percent to $55.7 million for the three months ended March 31, 2012 compared to $46.6 million for the same period in 2011, driven by growth in each of our Mid-Atlantic, Southeast and Midwest regional offices.  During the first quarter of 2012, the Company recorded additional audit premium of $1.1 million compared to $272,000 for the same period in 2011, an increase of $807,000.  We secured renewal rate increases of 4.0 percent in 2012 compared to 3.9 percent in 2011.  Our consolidated expense ratio was 31.0 percent for the first quarter of 2012, which included a 2.0 point increase attributable to the change in accounting for deferred acquisition costs, compared to 32.0 percent for the same period in 2011.  The reduction in the consolidated expense ratio is primarily attributable to growth in net earned premium, prudent expense management strategies, and an increase in Alternative Markets fee-based revenue, which is recorded as a reduction to underwriting expenses, partially offset by the 2.0 point increase attributable to the change in accounting for deferred acquisition costs."

Boguski continued, "Our diluted book value per share was $16.02 as of March 31, 2012 compared to $15.89 per share as of December 31, 2011, an increase of 0.8 percent.  The slight increase in diluted book value per share during the quarter was primarily due to favorable workers' compensation insurance operating results, partially offset by the granting of restricted stock awards and stock options during the quarter."

Boguski added, "We are off to a solid start in 2012 with respect to our strategic business plan which will continue to focus on organic growth and geographic diversification initiatives.  "ParallelPay," the Company's pay-as-you-go initiative, continues to post impressive production results at favorable loss ratios.  ParallelPay's direct written premium was $7.5 million for the first quarter of 2012 compared to $4.3 million for the same period in 2011."

Net income (loss) and diluted earnings per share for the three months ended March 31, 2012 and 2011 consisted of the following (in thousands, except per share data):

Weighted average fully diluted shares considered outstanding used to calculate diluted earnings per share for the three months ended March 31, 2012 and 2011 were 7,729,488 and 8,431,455, respectively.

Consolidated highlights for the first quarter include:

• Revenue for the first quarter of 2012 increased to $39.5 million compared to $32.5 million for the same period in 2011.  Net premiums earned were $36.5 million for the first quarter of 2012 compared to $29.9 million for the same period in 2011. The increase in revenue and net premiums earned is due primarily to an increase in direct written premium production.
• Net investment income was $950,000 ($652,000 after-tax) for the three months ended March 31, 2012, compared to $1.0 million ($708,000 after-tax) for the same period in 2011.
• The change in equity interest in limited partnerships was income of $330,000 ($239,000 after-tax) for the three months ended March 31, 2012, compared to income of $551,000 ($387,000 after-tax) for the same period in 2011, a decrease of $221,000.
• Net realized investment gains, excluding the segregated portfolio cell reinsurance segment, were $1.2 million ($802,000 after-tax) for the three months ended March 31, 2012 compared to $793,000 ($515,000 after-tax) for the same period in 2011, including convertible bond investment portfolio after-tax net realized investment gains of $664,000 and $274,000 for the three months ended March 31, 2012 and 2011, respectively.  The Company accounts for changes in the estimated fair value of its convertible bond portfolio as a realized gain or loss.

Segment Operating Results

Workers' Compensation Insurance

EIHI's workers' compensation insurance segment reported net income of $3.1 million for the first quarter of 2012, compared to $2.7 million for the first quarter of 2011. Highlights for the first quarter include:

• Direct written premiums increased to $55.7 million for the three months ended March 31, 2012, compared to $46.6 million for the same period in 2011, an increase of 19.4 percent.  Direct written premium includes premium ceded to the segregated portfolio cell reinsurance segment of $13.2 million and $11.2 million for the three months ended March 31, 2012 and 2011, respectively.
• Audit premium, which results from an examination of the policyholders' payroll and other records, resulted in the recording of additional premium to the Company which increased net premiums earned by $1.1 million for the three months ended March 31, 2012 compared to $272,000 for the same period in 2011.
• The combined ratio was 91.6 percent for the first quarter of 2012, compared to 92.2 percent for the same period last year.
• The calendar period loss and LAE ratio was 64.0 percent and 66.3 percent for the three months ended March 31, 2012 and 2011, respectively.  The calendar period loss and LAE ratio was impacted by additional audit premium to the Company of $1.1 million for the three months ended March 31, 2012, which decreased the 2012 loss and LAE ratio by 2.5 points compared to additional audit premium to the Company of $272,000 for the same period in 2011, which decreased the 2011 loss and LAE ratio by 0.8 points.  There was no loss reserve development recorded on prior accident years in the workers' compensation insurance segment for the three months ended March 31, 2012 and 2011.
• The expense ratio was 27.0 percent for the three months ended March 31, 2012, which included a 2.5 point increase attributable to the change in accounting for deferred acquisition costs, compared to 24.6 percent for the same period in 2011.

Segregated Portfolio Cell Reinsurance

The segregated portfolio cell reinsurance segment has fifteen active programs.  These programs produce fee-based revenue and segregated portfolio cell dividends for EIHI's other business segments.  Highlights for the first quarter include:

• Direct premium assumed from the workers' compensation insurance segment increased to $13.2 million for the three months ended March 31, 2012, compared to $11.2 million for the same period in 2011, an increase of 17.3 percent.
• Fee-based revenue generated for EIHI's other business segments by the segregated portfolio cell reinsurance segment was $2.0 million and $1.7 million for the three months ended March 31, 2012 and 2011, respectively.
• The segregated portfolio cell dividend income for programs in which EIHI has an ownership interest was $289,000 for the three months ended March 31, 2012, compared to segregated portfolio cell dividend income of $269,000 for the same period in 2011.

Corporate and Other

The corporate and other segment primarily includes corporate expenses and EIHI's third party administration business. The corporate and other segment recorded a net loss of $226,000 for the three months ended March 31, 2012, compared to a net loss of $776,000 for the three months ended March 31, 2011.  The decrease in the net loss is due primarily to a change in the Company's internal organizational structure and a decrease in stock compensation expense. Effective January 1, 2012, expenses related to the Company's executive officers are included in the workers' compensation insurance segment. Executive expenses included in the corporate/other segment for the three months ended March 31, 2011 totaled approximately $660,000. Stock compensation expense totaled $386,000 for the three months ended March 31, 2012, compared to $583,000 for the same period in 2011.

Financial Condition

Total assets were $364.6 million as of March 31, 2012. Shareholders' equity was $131.8 million as of March 31, 2012.  There were no purchases of our common stock during the three months ended March 31, 2012. As of March 31, 2012, EIHI's book value per share and diluted book value per share were $16.34 and $16.02, respectively. Outstanding shares used to calculate book value per share and diluted book value per share were 8,064,146 and 9,142,834, respectively, as of March 31, 2012. The basic book value per share calculation includes the impact of restricted stock awards of 383,375 shares and warrants exercised of 180,291. The diluted book value per share calculation includes the additional dilutive impact of stock options to purchase 1,078,688 common shares, which have a weighted average exercise price of $13.60.

Conference Call with Investors

EIHI will hold a conference call with investors beginning at 10:00 a.m. Eastern Time on Friday, May 4, 2012 to review the Company's 2012 first quarter results. The conference call will be available via a live webcast accessed through the Investor Relations section of www.eihi.com.  The dial-in numbers for the conference call are as follows:

A replay of the conference call will be available through May 21, 2012, at 877-344-7529 (domestic) and 412-317-0088 (international).  The replay conference number for the conference call is 10012493.  An online archive of the webcast will be available on the Investor Relations section of www.eihi.com.

Consolidated Financial Results

Set forth in the tables below are the unaudited consolidated balance sheets as of March 31, 2012 and December 31, 2011 and unaudited statements of income for the three months ended March 31, 2012 and 2011.

Cautionary Statement

Some of the statements contained in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended.  In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "project," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of these terms or other similar terminology.  Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements.  No assurance can be given that management's expectations, beliefs or projections will occur or be achieved or accomplished.  Factors that could affect the Company's actual results include, among others, the fact that our loss reserves are based on estimates and may be inadequate to cover our actual losses; the uncertain effects of emerging claim and coverage issues on our business; an inability to obtain or collect on our reinsurance protection; a downgrade in the A.M. Best rating of our insurance subsidiaries; the impact of extensive regulation of the insurance industry and legislative and regulatory changes; a failure to realize our growth strategies and investment objectives; the further deterioration in the fixed income and equity security markets, the effects of intense competition; the loss of one or more principal employees; the geographic concentration of our business; the failure of independent insurance brokers to adequately market our products; and other factors described in our filings with the U.S. Securities and Exchange Commission.  Readers are cautioned not to place undue reliance upon these forward-looking statements, which speak only as of the date of this release.  The Company undertakes no obligation to update any forward-looking statements.

SOURCE Eastern Insurance Holdings, Inc.

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