ELBA, Ala.–(BUSINESS WIRE)–The National Security Group, Inc. (NASDAQ:NSEC) results for the three
months ended March 31, 2019 and 2018, based on U.S. generally accepted
accounting principles, were reported today as follows:

Management Commentary on Results of Operations

Summary:

For the three months ended March 31, 2019, net income for the Company
totaled $2,443,000, $0.97 income per share, compared to net income of
$471,000, $0.19 income per share, for the three months ended March 31,
2018; a year over year increase of $1,972,000. The increase in net
income was primarily driven by an increase in investment gains on our
investment in company owned life insurance. Pretax income from
operations for the first quarter of 2019 totaled $476,000 compared to a
pretax income from operations of $896,000 in the first quarter of 2018.
The primary reason for the $420,000 decrease in pretax income from
operations in the first quarter of 2019, compared to the same period in
2018, was a $341,000 decrease in net premiums earned. The decline in net
premiums earned was due to an increase in ceded premium related to
higher cost of catastrophe reinsurance in our P&C segment.

Premium Revenue:

For the three-month period ended March 31, 2019, net premiums earned
were down $341,000 at $14,718,000 compared to $15,059,000 during the
same period in 2018. The decrease in premium revenue was primarily
driven by a decline in net earned premium in the P&C segment of
$270,000. The decline in gross earned premium was primarily attributable
to a decrease in our surplus lines business in coastal Louisiana. In
addition, as mentioned previously, ceded premium was up $144,000 or
8.9%, in the first quarter of 2019, compared to the same period in 2018
due to an increase in cost of our catastrophe reinsurance.

Investment Gains (Losses):

Investment gains for the three-month period ended March 31, 2019 were
$2,120,000 compared to investment losses of $264,000 for the three-month
period ended March 31, 2018. The primary reason for the increase in
first quarter 2019 investment gains compared to the first quarter 2018
investment loss was a gain on company owned life insurance (COLI) of
$1,792,000.

In 2018, due to a change in GAAP, unrealized gains and losses on equity
investments are required to be reported as a component of investment
gains/losses on the statement of operations. These amounts were
previously reported as a component of Other Comprehensive Income. For
the three months ended March 31, 2019, investment losses include a
$126,000 increase in accumulated gains on equity securities held for
investment. This increase in accumulated gains was driven by an overall
improvement in stock market values experienced in the first quarter of
2019.

Net Income:

For the quarter ended March 31, 2019, the Company had net income of
$2,443,000, $0.97 income per share, compared to net income of $471,000,
$0.19 income per share, for the same period in 2018. The primary reason
for the increase in first quarter 2019 earnings compared to first
quarter 2018 earnings was the gain on company owned life insurance
mentioned previously.

Pretax Income from Operations:

For the three-month period ended March 31, 2019, our pretax income from
operations was $476,000 compared to a pretax income from operations of
$896,000 for the three-month period ended March 31, 2018; a decrease of
$420,000. The primary reason for the decrease in pretax income from
operations in the first quarter of 2019 compared to the same period in
2018 was a decrease in net premiums earned driven by an increase in
ceded premium related to our catastrophe reinsurance.

P&C Segment Combined Ratio:

For the quarter ended March 31, 2019, the P&C segment had a GAAP
combined ratio of 99.1%. Reported claims from cat events totaling
$955,000 combined with reported claims from non-catastrophe wind and
hail totaling $2,081,000 increased the P&C segment combined ratio in the
first quarter of 2019 by 22.9 percentage points. In comparison, for the
quarter ended March 31, 2018, the P&C segment had a GAAP combined ratio
of 97.0%. Reported claims from cat events totaling $758,000 combined
with reported claims from non-catastrophe wind and hail totaling
$1,159,000 increased the P&C segment combined ratio in the first quarter
of 2018 by 14.2 percentage points. Partially offsetting the increase in
catastrophe losses and non-cat wind and hail losses in the first quarter
of 2019 was a decrease in fire related losses of $1,289,000 compared to
the same period in the prior year.

Management Commentary on Financial Position

Invested Assets:

Invested assets as of March 31, 2019 were $116,690,000 compared to
$112,690,000 as of December 31, 2018. The increase in invested assets
was primarily due to $1,709,000 in cash flow from operating activities
enabling additional investment in the fixed income investment portfolio.

Cash:

The Company, primarily through its insurance subsidiaries, had
$7,418,000 in cash and cash equivalents at March 31, 2019, compared to
$5,676,000 at December 31, 2018. The increase in cash in the first
quarter of 2019, compared to 2018, was due to positive cash flow from
insurance operations.

Total Assets:

Total assets as of March 31, 2019 were $149,839,000 compared to
$144,231,000 at December 31, 2018. Positive cash flow from insurance
operations contributed to an increase in purchases of fixed maturity
securities and increases in market value of or portfolio of fixed
maturity securities further contributed to the increase in total assets
for the first quarter of 2019.

Policy Liabilities:

Policy related liabilities were $78,635,000 at March 31, 2019, compared
to $77,988,000 at December 31, 2018; an increase of $647,000 or 0.8%.
The primary reason for the increase in policy liabilities in the first
quarter of 2019 compared to 2018 was an increase in unearned premium.
This increase in unearned premium is seasonal as we typically issue and
renew a larger number of annual insurance contracts during the first and
second quarters of each year compared to the remainder of the year.

Debt Outstanding:

Total debt at March 31, 2019 was virtually unchanged at $14,355,000
compared to $14,352,000 at December 31, 2018.

Shareholders’ Equity:

Shareholders’ equity as of March 31, 2019 was $49,942,000, up $4,076,000
compared to December 31, 2018 Shareholders’ equity of $45,866,000. Book
value per share was $19.76 at March 31, 2019, compared to $18.15 per
share at December 31, 2018, an increase of $1.61 per share. The primary
factors contributing to the increase in both book value per share and
Shareholders’ equity were net income of $2,443,000 and accumulated other
comprehensive income of $1,759,000. Offsetting the increase in
Shareholders’ equity was shareholder dividends of $126,000.

Contacts

Brian McLeod – Chief Financial Officer @ (334) 897-2273.