The National Security Group, Inc. Releases Third Quarter Earnings

The National Security Group, Inc. (the Company) (Nasdaq: NSEC), today reported results for the quarter and nine months ended September 30, 2011 and 2010, based on accounting principles generally accepted in the United States of America, as follows:

For the three-months ended September 30, 2011, the Company had a net loss of $650,000, $0.26 loss per share, compared to net income of $223,000, $0.09 per share, for the same period last year. The primary reason for the net loss during the third quarter of 2011 was adverse loss development in the property and casualty subsidiaries, primarily in the non-standard auto line of business.

The Company ended the first nine months of 2011 with a net loss of $4,600,000, $1.86 loss per share, compared to net income of $2,931,000, $1.19 per share, for the same period last year. The primary reason for the decline in net income was a $5,419,000 increase in policyholder benefits combined with a $3,658,000 decrease in net premiums earned. The 18.3% increase in policyholder benefits paid was largely related to a $5,487,000 increase in net incurred losses and adjustment expenses in the P&C segment as a result of several severe weather related events during the second quarter of 2011. Net premiums earned were down due to a reduction in premium from the non-standard automobile program and the payment of $1,600,000 in catastrophe reinstatement premium triggered by April 2011 catastrophe storm losses.

For the nine-months ended September 30, 2011, losses incurred in the P&C segment from severe tornado, wind and hail weather events totaled $13,677,000 on a gross basis compared to $1,705,000 for the same period last year. After reinsurance recoveries, net losses totaled $7,686,000 excluding reinstatement premium.

Premium revenue for the three-months ended September 30, 2011, decreased $908,000 compared to the same period last year. The decrease was primarily driven by declines in net premiums earned in the P&C segment due to a moderate decline in homeowners business and a decrease in automobile policies in-force.

Premium revenue for the nine-months ended September 30, 2011, decreased $3,658,000 compared to the same period last year. The primary reason for the decrease in net premiums earned was an increase in ceded premium from catastrophe reinstatement. Catastrophe reinstatement premium ceded related to spring tornado losses totaled $1,600,000. Also impacting the decline were decreases in the homeowners and personal lines automobile business.

Shareholders’ equity as of September 30, 2011 was $37,999,000 compared to $43,710,000 down $5,711,000 compared to December 31, 2010. Book value per share declined $2.31 per share for the period ended September 30, 2011 to $15.41 per share compared to $17.72 per share at December 31, 2010. Factors contributing to the change in equity were a year-to-date net loss of $4,600,000, recoveries in market values of fixed maturities and equity securities of $590,000, a net loss on interest rate swaps of $591,000 and dividends paid of $1,110,000.

The National Security Group, Inc., through its property & casualty and life insurance subsidiaries, offers property, casualty, life, accident and health insurance in twelve states. For more financial information please visit the investor section our website www.nationalsecuritygroup.com.