Why Meadowbrook Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of specialty property and casualty insurer Meadowbrook Insurance Group (NYS: MIG) sank 11% on Friday after its current-quarter guidance came in below Wall Street expectations.

So what: Meadowbrook's outlook for the second quarter was so disappointing -- management expects to record a pre-tax expense of $28.2 million, or 13.3 combined ratio points -- that analysts have no choice but to lower their ratings on the stock. Management cited persistent loss cost trends related to its commercial automobile and general liability segments, reinforcing concerns over its underwriting profitability going forward.

Now what: For the full-year 2012, management now expects net operating income of $27 million-$30 million, a GAAP combined ratio of 101.5%-102.5%, and gross written premium in a range of $970 million-$990 million. "Although we are disappointed with our second quarter results, we believe our long-term track record of underwriting profitability shows that our business model which focuses on achieving more consistent results across market cycles is solid," President and CEO Robert Cubbin reassured investors. "Over the long-term, we also have achieved profitable growth as well as demonstrated the ability to remediate business that falls short of our targets." When you couple Meadowbrook's solid operating history with its cheapish forward P/E of 7, today's pullback might be providing bargain hunters with a good opportunity to pounce.

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The article Why Meadowbrook Shares Plunged originally appeared on Fool.com.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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