Penn Millers Reports on Second Quarter Results Ended June 30, 2011

WILKES-BARRE, Pa.--([ BUSINESS WIRE ])--Penn Millers Holding Corporation (NASDAQ: PMIC) (aPenn Millersa or athe Companya) reported today its financial results for the second quarter and six months ended June 30, 2011. For the three months ended June 30, 2011, Penn Millers reported a net loss of $4.4million, or $0.98 per diluted share, compared to a net loss of $1.3 million, or $0.27 per diluted share for the second quarter of 2010. For the six months ended June 30, 2011, Penn Millers reported a net loss of $2.5 million, or $0.56 per diluted share, compared to a net loss of $1.5 million, or $0.32 per diluted share for the six months ended June 30, 2010. Key highlights for the second quarter and year to date periods are:

Total consolidated revenues for the second quarter of 2011 were $18.3 million, compared to $19.5 million for the same quarter in 2010. For the six month period, total consolidated revenues were $37.6 million in 2011, compared to $38.6 million in 2010. The net decrease in the three and six month periods resulted primarily from a lower level of realized investment gains.
- Investment income continues to be impacted by declining investment yields in this low interest rate environment.
- Net premiums written for the second quarter of 2011 were $0.8 million lower than the second quarter of 2010. For the first six months of 2011, net premiums written were $1.2 million lower than the first six months of 2010. The declines in both the three and six month periods were in the Commercial Business segment, and resulted from the financial underwriting and pricing actions being taken on the Solutions product. Penn Millersa� Agribusiness segment had increases in 2011 net premiums written of $0.5 million in the second quarter, and $1.1 million in the six months ended June 30^th, versus the comparable periods of 2010.
Penn Millersa� combined ratio for the second quarter of 2011 was 138.7%, compared to 130.4% for the second quarter of 2010. On a year to date basis, the Companya�s combined ratio was 119.3% in 2011 and 121.9% in 2010.
- The Company was adversely impacted by unprecedented catastrophe losses in the second quarter of 2011 that accounted for approximately 40 loss ratio points of its 101.1% second quarter loss ratio. The catastrophe losses resulted from multiple tornadoes, wind storms and hail storms, mostly in the Midwest and Southeast that affected policyholders primarily in the Companya�s Agribusiness segment. Over the last five years, the loss ratio from catastrophes in the second quarter of the year has averaged about 13 points.
- Excluding the catastrophe losses reported for 2011 and 2010, the six month combined ratio of the Companya�s Agribusiness segment improved by 10.4 points compared to 2010. The six month period combined ratio for the Commercial Business segment increased from 122.1% in 2010 to 126.3% in 2011, and was unfavorably impacted by the decline in earned premium and several large fire losses in 2011.
- The loss ratios for both segments in the quarter and year to date periods were positively impacted by net favorable loss development on prior accident year reserves.
Book value per share decreased by $0.58 per share compared to December 31, 2010, and was $20.27 per share at June 30, 2011.
Shareholdersa� equity decreased from $93.0 million at December 31, 2010 to $91.7 million at June 30, 2011, primarily as a result of the net loss for the year to date period.

Douglas A. Gaudet, President and Chief Executive Officer, commented on the Companya�s results, aThe impact of the second quarter storms surpassed the catastrophe losses we experienced in the second quarter of 2010, which at the time, was an unprecedented quarter of catastrophe losses for us. Notwithstanding the negative impact on our results from these storms, our underlying results are showing improvement. Our Agribusiness segment continues to show written premium growth, and outstanding loss ratios excluding catastrophe losses. Our Commercial Business segment continues to experience favorable reserve development and we are achieving price increases and renewal retention rates that are above our expectations. As we run off the less desirable business in that segment, we believe our specialty PennEdge product will produce underwriting results much more in line with our agribusiness operation."

Penn Millers management will host an investor conference call and webcast on August 16, 2011 at 10:00 a.m. Eastern Time to discuss second quarter 2011 results. Registration for the event can be accessed via the Companya�s website at [ www.pennmillers.com ] located under Investor News. The conference call will be available for replay through August 31, 2011 through the Companya�s website, [ www.pennmillers.com ].

The Company provides property and casualty insurance through its wholly owned subsidiary, Penn Millers Insurance Company. Penn Millers Insurance Company provides agribusiness insurance and commercial lines insurance in 34 states. Penn Millers Insurance Company is rated aA-a (Excellent) by A.M. Best Company, Inc. The Company is located at 72 North Franklin Street in Wilkes-Barre, PA. The Companya�s web address is [ http://www.pennmillers.com ].

Some of the statements contained herein are aforward-looking statementsa within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as amay,a awill,a ashould,a aexpect,a aplan,a aintend,a aanticipate,a abelieve,a aestimate,a apredict,a apotentiala or acontinue,a or the negative of these terms or other 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. Factors that could affect the Companya�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, including the effects of climate change; the geographic concentration of 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 investment objectives; the effects of intense competition; the loss of one or more principal employees; the inability to acquire additional capital on favorable terms; a failure of independent insurance brokers to adequately market our products; and the effects of acts of terrorism or war. More information about these and other factors that potentially could affect our financial results is included in our Annual Report on Form 10-K, filed with the SEC and in our other public filings with the SEC. 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.


PENN MILLERS HOLDING CORPORATION AND SUBSIDIARY
Financial Highlights

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010

U.S. GAAP ratios:
Loss and loss adjustment expense ratio	101.1	%	95.2	%	80.8	%	86.7	%
Underwriting expense ratio	37.6	%	35.2	%	38.5	%	35.2	%
Combined ratio	138.7	%	130.4	%	119.3	%	121.9	%

Return on average shareholders' equity (1)	-17.7	%	-5.1	%	-5.4	%	-3.1	%

Basic net loss per common share	($0.98	)	($0.27	)	($0.56	)	($0.32	)

Diluted net loss per common share	($0.98	)	($0.27	)	($0.56	)	($0.32	)

Net book value per share					$20.27		$21.44

(1)Return on average shareholders' equity is annualized.


PENN MILLERS HOLDING CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2011 and December 31, 2010
(Dollars in thousands, except share data)

		June 30,		December 31,
		2011		2010
Assets		(Unaudited)
Investments:
Fixed maturities:
Available for sale, at fair value (amortized cost $156,970 in 2011 and $158,193 in 2010)	$	162,096		162,771
Equity Securities:
Available for sale, at fair value (cost $11,274 in 2011 and $10,885 in 2010)		11,382		10,874
Cash and cash equivalents		4,732		6,510
Premiums and fees receivable		24,339		28,394
Reinsurance receivables and recoverables		20,906		24,912
Deferred policy acquisition costs		8,821		9,735
Prepaid reinsurance premiums		3,737		4,320
Accrued investment income		1,581		1,621
Property and equipment, net of accumulated depreciation		3,145		3,323
Income taxes receivable		783		1,253
Other		3,001		1,008
Total assets	$	244,523		254,721
Liabilities and Shareholders' Equity
Liabilities:
Losses and loss adjustment expense reserves	$	106,630		109,973
Unearned premiums		38,254		42,807
Accounts payable and accrued expenses		7,917		8,913
Total liabilities		152,801		161,693
Shareholders' equity:
Preferred stock, no par value, authorized 1,000,000; no shares issued or outstanding		a"		a"
Common stock, $0.01 par value, authorized 10,000,000; issued 2011, 5,444,022 and 2010, 5,444,022; outstanding 2011, 4,524,415 shares and 2010, 4,462,131 shares		54		54
Additional paid-in capital		51,169		51,068
Accumulated other comprehensive income		2,522		2,054
Retained earnings		48,487		50,993
Unearned ESOP, 449,999 and 476,999 shares		(4,500	)	(4,770	)
Treasury stock, at cost, 469,608 and 504,892 shares		(6,010	)	(6,371	)
Total shareholders' equity		91,722		93,028
Total liabilities and shareholders' equity	$	244,523		254,721


PENN MILLERS HOLDING CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, 2011 and 2010
(Dollars in thousands, except share data)

		2011		2010
Revenues:
Premiums earned	$	16,808		16,679
Investment income, net of investment expense		1,404		1,452
Realized investment gains, net:
Total other-than-temporary impairment losses		a"		a"
Portion of loss recognized in other comprehensive income		a"		a"
Other realized investment gains, net		64		1,294
Total realized investment gains, net		64		1,294
Other income		70		88
Total revenues		18,346		19,513
Losses and expenses:
Losses and loss adjustment expenses		16,990		15,885
Amortization of deferred policy acquisition costs		4,965		5,159
Underwriting and administrative expenses		1,349		712
Interest expense		1		a"
Other expense, net		8		37
Total losses and expenses		23,313		21,793
Loss before income taxes		(4,967	)	(2,280	)
Income tax expense benefit		(555	)	(1,005	)

Net loss	$	(4,412	)	(1,275	)


Earnings per share:
Basic net loss per common share	$	(0.98	)	(0.27	)

Diluted net loss per common share	$	(0.98	)	(0.27	)


PENN MILLERS HOLDING CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Six Months Ended June 30, 2011 and 2010
(Dollars in thousands, except share data)

		2011		2010
Revenues:
Premiums earned	$	33,722		33,735
Investment income, net of investment expense		2,845		3,024
Realized investment gains, net:
Total other-than-temporary impairment losses		a"		a"
Portion of loss recognized in other comprehensive income		a"		a"
Other realized investment gains, net		852		1,666
Total realized investment gains, net		852		1,666
Other income		156		180
Total revenues		37,575		38,605
Losses and expenses:
Losses and loss adjustment expenses		27,263		29,257
Amortization of deferred policy acquisition costs		9,740		10,036
Underwriting and administrative expenses		3,249		1,831
Interest expense		16		a"
Other expense, net		54		70
Total losses and expenses		40,322		41,194
Loss before income taxes		(2,747	)	(2,589	)
Income tax expense benefit		(241	)	(1,072	)

Net loss	$	(2,506	)	(1,517	)


Earnings per share:
Basic net loss per common share	$	(0.56	)	(0.32	)

Diluted net loss per common share	$	(0.56	)	(0.32	)

Reconciliation of non-GAAP Measures

The Company uses a non-GAAP financial measure called aoperating income (loss) from operationsa which excludes realized investment gains or losses. Management believes this is useful to investors because investment gains and losses could distort the analysis of insurance operating trends. While these measures are utilized by investors to evaluate performance, they are not a substitute for the U.S. GAAP financial measure of anet income (loss).a Therefore, a reconciliation of these non-GAAP financial measures to the U.S. GAAP financial measure of anet income (loss)a is provided below:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(dollars in thousands)

Operating loss from operations	$	(4,454	)		(2,129	)	$	(3,068	)		(2,617	)
Net realized investment gains, net of income taxes		42			854			562			1,100
Net loss	$	(4,412	)		(1,275	)	$	(2,506	)		(1,517	)

Contributing Sources

Market Wire

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Penn Millers Reports on Second Quarter Results Ended June 30, 2011