First Mercury Financial Corp. Q1 2010 Earnings Call Transcript

First Mercury Financial Corp. Q1 2010 Earnings Call Transcript
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First Mercury Financial Corp. (FMR)

Q1 2010 Earnings Call

May 04, 2010 11:00 am ET

Executives

Richard Smith - President & CEO

John Marazza - EVP & CFO

Ed LaFramboise - VP of Finance

Jim Thomas - SVP of Product Management

Leslie Loyet - Financial Relations Board

Analysts

Keith Alexander - JPMorgan

Paul Newsome - Sandler O’Neill

Doug Mewhirter - RBC Capital Markets

Bob Farnam - Keefe, Bruyette & Woods

Morse Williams - Williams & Company

Caroline Steers - Macquarie

Presentation

Operator

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Previous Statements by FMR
» First Mercury Financial Corp. Q2 2009 Earnings Call.
» First Mercury Financial Q1 2009 Call Transcript
» First Mercury Financial Corporation, Q4 2008 Earnings Call Transcript

Greetings and welcome to the First Mercury Financial Corporation first quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a remainder this conference is being recorded.

It is now my pleasure to introduce your host, Leslie Loyet of the Financial Relations Board. Thank you Ms. Loyet, you may begin.

Leslie Loyet

Thank you. I’d like to thank everyone for joining us today. Yesterday, we sent out a press release outlining the results for the first quarter 2010. If anyone has not received the release, please visit the Investor Relations page on the company’s website at www.firstmercury.com to retrieve a copy. Management will provide an overview of the quarter, and then we’ll open the call up to your questions.

Please be advised that this call may involve forward-looking statements, as discussed in the May 3, 2010 press release. Risks associated with these statements can be found in the company’s latest SEC filings. Additionally, we want to remind participants that the information contained in this call is current only as of the day of this call, May 4, 2010 and the company assumes no obligation to update any statements, including forward-looking statements made during this call. Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statement.

Joining us today from management of First Mercury are Richard Smith, President and Chief Executive Officer; John Marazza, Executive Vice President and Chief Financial Officer; Ed LaFramboise, Vice President of Finance; and Jim Thomas, Senior Vice President, Product Management.

At this point, I’d like to turn the call over to Richard for his open remarks. Please go ahead.

Richard Smith

Thanks Leslie. Welcome to the First Mercury Financial Corp. first quarter earnings call. Probably the biggest headline for our first quarter is no surprises. Gross written premium was well within our expectation. We expected property production to be down as we continued refine our underwriting approach for that line.

We also expected growth in the excess and umbrella line of the professional I look building lines is our new those lines continued to get traction in the marketplace. The competitive position seems to see as bumping along at our market bottom as we continue to see rate decline in aggregate in the very low single digits. I’ve described in previous quarters’ completion continues to be much greater for our accounts and we continue to see pressure for admitted carrier as they offer significant competitions. Generally, terms, condition informed continued to hold.

We continue to see a good supply for our new opportunities, probably more than we see in a couple of years, and we’ll closely scrutinize these to evaluate the opportunity to add to shareholders value. As disclosed in the full-year earnings release and again in the first quarter earnings release, we completed a cost reduction action during the first quarter that reduced annual costs by approximately $4.5 million.

When we continue to look for opportunities to further reduce cost going forward, for example, we’re taking advantage of a very competitive commercial real estate market in Southeast Michigan by consolidating operations at one location that will say that immediately about $100,000 a year and as much as $1 million a year going forward.

AMC continues to grow their business and improve their contribution to profit and we continue to see their business as a good source of growth for the first mark going forward. We did see pressure on the loss ratio on the quarter, primarily because of a self deterioration within the loss results of a legal liability program we’ve been writing for five years. Because of the experience and the market condition, the Program Manager noticed that a combination of effective no later than early September, however we have been given noted that the program will move to another carrier effective July 1 of this year, continued to be very pleased with the performance of the investment portfolio is our conservative investment strategy we continued to reward as very well.

I will now turn it over to John Marazza, our Executive Vice President and Chief Financial Officer.

John Marazza

Thanks Richard. Since everyone has had the opportunity to review the press release that went out last night, I’ll focus my comments on the financial highlights for the quarter. You’ll note this quarter, that we changed our presentation of gross and net premium in the summary financial data table on the earnings release from an underwriting platform presentation to a product line presentation, for those you who have asked, we will post a supplemental schedule later today to the Investor Relations Page of our website that provide this to say historical information for 2008 and 2009 by product line for consistency.

On my first quarter 2010 calendar enacting a loss issue was 65.8% we had no net reserve development on prior accounting year reserves during the quarter, compared to $755 million of favorable development in the first quarter of last year.

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