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National Interstate Corp. Reports Operating Results (10-Q)

November 02, 2012 | About:
10qk

10qk

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National Interstate Corp. (NATL) filed Quarterly Report for the period ended 2012-09-30.

National Interstate Corporation has a market cap of $507 million; its shares were traded at around $26.28 with a P/E ratio of 15.6 and P/S ratio of 1.1. The dividend yield of National Interstate Corporation stocks is 1.5%. National Interstate Corporation had an annual average earning growth of 1.4% over the past 10 years.

Highlight of Business Operations:

Our net income for the three months ended September 30, 2012 was $9.0 million ($0.46 per share diluted) compared to $5.8 million ($0.30 per share diluted) for the same period in 2011, driven by improved underwriting results, as our loss and LAE ratio decreased 1.1 percentage point to 73.4% for the third quarter of 2012 from 74.5% in the third quarter of 2011. The favorable claims results were primarily attributable to improvement in several products which we previously reported as having performed poorly in recent periods, including recreational vehicle and the ART program where we took significant underwriting actions in 2011. The decrease in the loss and LAE ratio was also impacted by favorable loss experience in our higher limit passenger transportation business where we are experiencing fewer large claims, partially offset by the continued higher than average claims severity experienced in one of the historically profitable products within our Hawaii and Alaska component. Also contributing to the growth in net income for the third quarter of 2012 compared to the same period in 2011 was an increase in net investment income, mainly attributable to a shift into higher-yielding state and local government obligations and mortgage-backed securities that was concentrated in the second half of 2011.

We recorded after-tax net realized gains from investments of $0.6 million ($0.03 per share diluted) and $2.0 million ($0.10 per share diluted) for the third quarter and first nine months of 2012, respectively, compared to $0.3 million ($0.01 per share diluted) and $1.9 million ($0.10 per share diluted) for the comparative periods in 2011. Our after-tax net realized gains for both the three and nine months ended September 30, 2012 were primarily generated by sales or redemptions of securities and net gains associated with equity partnership investments, while the after-tax net realized gains for the comparable periods in 2011 related primarily to sales or redemptions of securities, partially offset by net losses associated with equity partnership investments.

Three months ended September 30, 2012 compared to September 30, 2011. Our consolidated loss and LAE ratio for the third quarter of 2012 decreased 1.1 percentage points to 73.4% compared to 74.5% in the same period in 2011. The loss and LAE ratio for our ongoing operations, which excludes the impact from the runoff of the guaranteed Vanliner business, was 73.4% for the three months ended September 30, 2012 compared to 74.4% for the same period in 2011. This decrease over the prior period is primarily attributable to improvement in the claims results of several products which we had previously reported as having performed poorly in recent periods, including recreational vehicle and one of the products in the program business portion of our ART component where we took significant underwriting actions in 2011. Also contributing to the improvement in the loss and LAE ratio was favorable loss experience in our higher limit passenger transportation business where we are experiencing fewer large claims. The improvement in the third quarter of 2012 loss results was partially offset by the continued higher than average claims severity experienced in one of the historically profitable products within our Hawaii and Alaska component. For the third quarter of 2012, we had favorable development from prior years loss reserves of $0.1 million, or 0.1 percentage points, compared to favorable development of $0.8 million, or 0.7 percentage points, in the third quarter of 2011. This favorable development was primarily related to settlements below the established case reserves and revisions to our estimated future settlements on an individual case by case basis. The prior years loss reserve development for both periods is not considered to be unusual or significant to prior years reserves based on the history of our business and the timing of events in the claims adjustment process.

2012 compared to 2011. Pre-tax net realized gains on investments were $0.9 million for the third quarter of 2012 compared to $0.4 million for the third quarter of 2011. For the nine months ended September 30, 2012 and 2011, pre-tax net realized gains were $3.0 million and $2.9 million, respectively. The pre-tax net realized gains for both the three and nine months ended September 30, 2012 were primarily generated from net realized gains associated with sales or redemptions of securities totaling $0.7 million and $2.9 million, respectively. Additionally, equity partnership investments produced net gains of $0.5 million for both the three and nine months ended September 30, 2012, respectively. Offsetting these gains were other-than-temporary impairment charges of $0.3 million and $0.4 million for the three and nine months ended September 30, 2012, respectively. The pre-tax net realized gains for both the three and nine months ended September 30, 2011 were primarily generated from net realized gains associated with sales or redemptions of securities totaling $1.5 million and $3.5 million, respectively. Offsetting these gains were net realized losses of $1.0 million and $0.5 million associated with equity partnership investments for the three and nine months ended September 30, 2011, respectively, and other-than-temporary impairment charges of $0.1 million for both the three and nine months ended September 30, 2011.

Net cash used in investing activities was $40.8 million for both the nine months ended September 30, 2012 and 2011. Included in the change in cash used in investing activities for the first nine months of 2012 compared to the same period in 2011 were decreases of $93.7 million and $19.3 million from the purchases of fixed maturity investments and equity securities, respectively, partially offset by a $73.2 million decrease in the proceeds from maturities and redemptions of fixed maturity investments and a $37.0 million decrease in the proceeds from sales of fixed maturities. The decreases in investment activity in 2012 were due to a large number of securities obtained as part of the Vanliner acquisition maturing during the first six months of 2011, and the subsequent reinvestment of the proceeds from those securities. The net purchases of fixed maturities during the first nine months of 2012 were primarily concentrated in state and local government obligations and commercial mortgage-backed securities, while the net sales of equity securities during the period were primarily concentrated in the exchange traded fund portion of our common stock portfolio. Included in the change in cash used in investing activities was the receipt of the $14.3 million refund in the first nine months of 2011 on the purchase price of Vanliner related to making the election under Section 338(h)(10) of the Internal Revenue Code and the finalization of the tangible book value. Also contributing to the change in cash used in investing activities was a $6.4 million increase in the proceeds from the sale of equity securities and a $6.3 million decrease in the purchases of other investments, which are comprised of limited partnership investments.

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