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Penn Millers Reports on Third Quarter Results Ended September 30, 2011 and Impact of October Grain Elevator Loss

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^{Published in Business and Finance on Thursday, November 10th 2011 at 6:37 GMT by Market Wire}  

WILKES-BARRE, Pa.--([ BUSINESS WIRE ])--Penn Millers Holding Corporation (NASDAQ: PMIC) (aPenn Millersa or athe Companya) reported today its financial results for the third quarter and nine months ended September 30, 2011. For the three months ended September 30, 2011, Penn Millers reported a net loss of $2.8million, or $0.62 per diluted share, compared to a net loss of $3.2 million, or $0.71 per diluted share for the third quarter of 2010. For the nine months ended September 30, 2011, Penn Millers reported a net loss of $5.3 million, or $1.18 per diluted share, compared to a net loss of $4.7 million, or $1.02 per diluted share for the nine months ended September 30, 2010. Key highlights for the third quarter and year to date periods are:

• Total consolidated revenues for the third quarter of 2011 were $19.2 million, flat compared to $19.2 million for the same quarter in 2010. For the nine month period, total consolidated revenues were $56.8 million in 2011, compared to $57.8 million in 2010.
  • Net premiums written for the third quarter of 2011 were $1.1 million higher than the third quarter of 2010. Penn Millersa Agribusiness segment had increases in 2011 net premiums written of $2.5 million in the third quarter, which was offset by declines in the Commercial Business segment of $1.4 million. Net premiums written for the nine month period of 2011 were $0.1 million lower than the nine month period of 2010. The Agribusiness segment had increases in 2011 net premiums written of $3.6 million, or 10.6%, which was more than offset by declines in the Commercial Business segment. The declines in both the three and nine month periods in the Commercial Business segment were due to the financial underwriting and pricing actions being taken on the Solutions product.
  • Realized gains were $0.5 million lower in the 2011 third quarter compared to 2010. In the third quarter of 2010, the Company sold investments and recognized $0.6 million of pre-tax capital gains in order to recapture some of the tax benefits on capital losses taken in 2008.
• Penn Millersa combined ratio for the third quarter of 2011 was 120.3%, compared to 114.4% for the third quarter of 2010. On a year to date basis, the Companyas combined ratio was 119.4% in 2011 and 119.3% in 2010.
  • Penn Millers was adversely impacted by catastrophe losses in the third quarter of 2011 that accounted for approximately 19 loss ratio points of its 86.0% third quarter loss ratio. Hurricane Irene contributed approximately $2.4 million, or 13.3 loss ratio points, to the total catastrophe losses, with the remainder mostly attributable to various flooding, hail and wind events in the Midwest. In addition to the third quarter catastrophe losses, other weather-related losses were $3.5 million, or approximately 20 loss ratio points. These weather losses were mostly concentrated in five large claims over a diverse geographic area.
  • Excluding the catastrophe and other weather-related losses reported for 2011 and 2010, the nine month combined ratio of the Companyas Agribusiness segment improved by nearly 9 points compared to 2010. Excluding the catastrophe and other weather-related losses reported for 2011 and 2010, the nine month period combined ratio for the Commercial Business segment decreased from 121.1% in 2010 to 102.5% in 2011.
  • The loss ratios for both the quarter and year to date periods were positively impacted by net favorable loss development on prior accident year reserves of $3.6 million and $7.9 million, respectively.
• In the third quarter of 2010, Penn Millers recorded a tax valuation allowance against its net deferred tax assets, which was the primary cause of the $2.7 million of income tax expense for that quarter.
• Book value per share decreased by $1.21 per share compared to December 31, 2010, and was $19.64 per share at September 30, 2011.
• Shareholdersa equity decreased from $93.0 million at December 31, 2010 to $89.1 million at September 30, 2011, primarily as a result of the net loss for the year to date period.

Also the Company announced that on October 30, 2011, the Company received the first notice of a severe explosion that occurred at an insured grain elevator on October 29, 2011. The Company carried only the property coverage for the insured location and is in the process of estimating the total incurred loss, with current estimates in a range of $4.0 million to $6.0 million.Under the terms of its property reinsurance treaty, the Company retains the first $1 million of any one loss.However, the claim is likely to trigger reinstatement premiums owed under the treaty, which the Company currently estimates to be in a range of $3.7 million to $4.8 million.

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 Companyas web address is [ http://www.pennmillers.com ].

Important Information for Investors and Shareholders

In connection with the previously announced proposed merger between the Company and ACE American Insurance Company (the aMergera), the Company has filed a proxy statement with the Securities and Exchange Commission (the aSECa). INVESTORS AND SHAREHOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER.

Investors and shareholders may obtain free copies of the proxy statement and other documents filed by the Company at the SECas web site at http://www.sec.gov or at the Companyas web site at http://www.pennmillers.com. The proxy statement and such other documents may also be obtained at no cost from the Company by directing such request to Penn Millers Holding Corporation, 72 North Franklin Street, P.O. Box P, Wilkes-Barre, Pennsylvania 18773-0016, or by telephone at (800) 233-8347.

The Company and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from the Companyas shareholders in connection with the proposed Merger. Information concerning the interests of those persons is set forth in the Companyas proxy statement relating to the special meeting of shareholders.

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 astand to,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 Companyas actual results include, among others, the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; the inability to obtain the Company shareholder approval or the failure to satisfy other conditions to completion of the proposed Merger, including receipt of regulatory approvals; risks that the proposed Merger disrupts current plans and operations; the ability to retain key personnel through the closing of the Merger; the ability to recognize the benefits of the proposed Merger; the amount of the costs, fees, expenses and charges related to the proposed Merger, 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. Investors and shareholders are cautioned not to place undue reliance upon these forward-looking statements, which speak only as of the date of this disclosure. The Company undertakes no obligation to update any forward-looking statements.

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: