[0] PAULA Financial Reports Fourth Quarter Operating Results.Business Editors/Insurance Writers PASADENA, Calif.--(BUSINESS WIRE)--March 7, 2000 PAULA Financial (Nasdaq:PFCO) today announced an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $3.15 per share for the fourth quarter of 1999 compared to operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before of $0.08 per share for the 1998 period. For the year the Company reported an operating loss of $2.12 per share compared to a loss of $0.96 for the 1998 period. Operating earnings per share exclude the impact of realized investment gains and losses and the impact of gains and losses of unconsolidated affiliates. Including the impact of realized investment gains and losses and the impact of gains and losses of unconsolidated affiliates, net loss for the fourth quarter of 1999 was $3.15 per share compared to net income of $0.08 per share for the 1998 period. For the year the Company reported a net loss of $2.35 per share compared to a loss of $0.78 per share for the 1998 period. As previously announced on Jan. 31, 2000, effective Sept. 30, 1999, the Company reached an agreement with Reliance Insurance Company to settle and commute TO COMMUTE. To substitute one punishment in the place of another. For example, if a man be sentenced to be hung, the executive may, in some states, commute his punishment to that of imprisonment. various reinsurance treaties Reinsurance Treaty (June 18, 1887) Secret agreement between Germany and Russia. Arranged by Otto von Bismarck after the collapse of the Three Emperors' League, it provided that each party would remain neutral if either became involved in a war with a third nation, and that , which became effective in the fourth quarter of 1998. Because the treaties were settled effective the end of the third quarter, the Company's 1999 fourth quarter results do not include the benefit of these treaties. The settlement of these treaties resulted in a pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charge of less than $1 million, which is reflected in the Company's fourth quarter 1999 results. The $42.0 million cash settlement was received by the Company in January January: see month. 2000. On Jan. 31, 2000, the Company also announced that it would take a pre-tax charge of $23.7 million to strengthen reserves. The reserve action principally related to California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). reserves for the 1997 and 1998 accident years. The reserve strengthening is reflected in the Company's fourth quarter 1999 results. The Company's insurance subsidiaries' GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). calendar year net combined ratio for 1999 was 135.3% compared to 115.8% in 1998. After the impact of the fourth quarter reserve strengthening, PAULA Insurance Company's GAAP accident year net combined ratios for 1999 and 1998 were 114.4% and 114.1%, respectively. Jeff Snider, Chairman and Chief Executive Officer, stated: "Throughout most of 1999, the California workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. marketplace continued to see declining rates. PAULA, as we have previously reported, continued to pursue rate increases. The efforts to achieve net rate improvement in 1999 on California business resulted in average rate increases in the mid-single digits -- a poor showing -- but indicative of marketplace capacity for soft pricing. "In 1999 we saw demand for PAULA services at all time highs measured in terms of submission activity. We also experienced a persistency rate drop of a full 20 points. Our pushback push·back n. 1. A device or mechanism that affords movement of another object backwards: the pushback on a subway door. 2. Forced movement of troops back from the line. on pricing caused a lot of business to rotate from PAULA to competitors." In 1999, gross premiums written When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called gross premiums written. in California were down 36.4% while gross premiums written in states outside of California increased 12.2% over the comparable 1998 period. Snider continued: "During the January renewal cycle we began to see evidence that the direction of California rates was reversing. Our book of business averaged net pricing increases of 19.6% with persistency rates significantly better than 1999, although still below historical levels. "Our experience indicates that pricing remains competitive on the least profitable segment of the marketplace as a whole, namely large account business. PAULA Trading Company agents favored the Company with $100 million of new submissions for January 2000--and we wrote $4.6 million of this number. "This outcome tells me that our underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. selection remains cautious as our competitors, at least through January, were willing to absorb absorb To offset sell orders or a new security offering with buy orders. business at pricing levels only slightly above 1999 levels," continued Snider. "We believe the Company's pricing stance over the last eighteen months has positioned the Company to best benefit from a changing rate environment. The Company's decision to weather a reduction of California gross written premiums of 36.4% in 1999 is the best evidence that we can offer that our attention is focused on gross combined operating outcomes. "Underwriting businesses today, speaking broadly, are unattractive. We believe that this will not last. Until it changes, however, we do not want to find ourselves trying to outrun out·run tr.v. out·ran , out·run, out·run·ning, out·runs 1. a. To run faster than. b. To escape from: outrun one's creditors. 2. the past. If it makes sense to shrink shrink Vox populi noun A psychiatrist the book in 2000, we will do so, and we will manage expenses accordingly. "As a small specialty company we have to be diligent dil·i·gent adj. Marked by persevering, painstaking effort. See Synonyms at busy. [Middle English, from Old French, from Latin d about acknowledging the good and the bad aspects of our business quickly. And given the carnage of the current environment, being large, on its face, seems to offer little advantage," Snider said. Since the inception of the stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. program in August 1998, the Company has repurchased 751,300 shares with authorization The right or permission to use a system resource; the process of granting access. See access control. to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. up to an aggregate of 1 million shares. Book value per share excluding unrealized loss Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. on investments as of Dec. 31, 1999 was $10.15 compared to $12.55 per share as of Dec. 31, 1998. On Jan. 26, 2000, the Board of Directors elected not to declare TO DECLARE. To make known or publish. By tho constitution of the United States, congress have power to declare war. In this sense the word, declare, signifies, not merely to make it known that war exists, but also to make war and to carry it on. 4 Dall. 37; 1 Story, Const. Sec. a cash dividend for the first quarter of 2000. The decision was largely based on the operating results for the fourth quarter of 1999. "Prior to its public financing in October October: see month. 1997, the Company had paid dividends to its shareholders rarely, and then only on the occasion of distinguishing positive earnings results," Snider observed. On Wednesday Wednesday: see week. , March 1, 2000, A.M. Best amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. its published rating of PAULA Insurance Company to "B" from "B++". The downward adjustment of PAULA's rating coincided with several rating downgrades of California workers' compensation insurers issued by A.M. Best on the same day. "The rating change, while it is unwelcome, cannot be viewed with surprise given the California results. We anticipate that the new rating level will be problematic for some of our agents who support the Company in states outside of California," said Snider. "It is our belief that the rationale rationale (rash´  nal´),n the fundamental reasons used as the basis for a decision or action. for the A.M. Best adjustment of PAULA's rating was tied to the Company's unprofitable results of the last two years, and not to concerns about the Company's credit standing." PAULA Financial is a California-based specialty underwriter underwriter n. a company or person which/who underwrites an insurance policy, issue of corporate securities, business, or project. (See: underwrite) UNDERWRITER, insurances. One who signs a policy of insurance, by which he becomes an insurer. and distributor of commercial insurance products which, through its subsidiary PAULA Insurance Company, is one of the largest underwriters specializing in workers' compensation insurance products and services for the agribusiness agribusiness Agriculture operated by business; specifically, that part of a modern national economy devoted to the production, processing, and distribution of food and fibre products and byproducts. industry. In connection with, and because it desires to take advantage of, the "safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995, the Company cautions readers to recognize the existence of certain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. in this news release and in any other statement made by, or on behalf of, the Company, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Some forward-looking statements may be identified by the use of terms such as "expects," "believes," "anticipates," "intends" or "judgment." Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties, many of which are beyond the Company's control and many of which, with respect to future business decisions, are subject to change. Examples of such uncertainties and contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. include, among other important factors, those affecting the insurance industry in general, such as the economic and interest rate environment, legislative and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. developments and market pricing and competitive trends, and those relating specifically to the Company and its businesses, such as the level of its insurance premiums and fee income, the claims experience of its insurance products, the performance of its investment portfolio, the successful completion by the Company of its Year 2000 compliance program, acquisitions of companies or blocks of business, and the ratings by major rating organizations of its insurance subsidiaries. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. The Company disclaims any obligation to update forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information.
PAULA FINANCIAL AND SUBSIDIARIES
SELECTED INCOME STATEMENT DATA
(In thousands, except per share data)
The following provides selected information derived from the Company's
unaudited consolidated financial statements.
Three Months Ended
December 31,
1999 1998 Variance
Gross premiums
written: $ 28,377 $ 35,706 -20.5%
Income:
Premiums earned, net:
Workers' compensation $ 27,604 $ 22,567 22.3%
Group medical and life 215 191 12.6%
Commissions 1,499 824 81.9%
Net Investment income 2,278 2,930 -22.3%
Net realized investment
gains (losses) 70 (25) 380.0%
Other 157 170 -7.6%
Total income 31,823 26,657 19.4%
Expenses:
Losses and loss adjustment
expenses incurred 47,752 17,952 166.0%
Dividends provided for policyholders 164 83 97.6%
Operating 11,273 8,128 38.7%
Total expenses 59,189 26,163 126.2%
Equity in net loss of
unconsolidated affiliate (75) -- -100.0%
Income (loss) before income tax
expense (benefit) (27,441) 494 -5654.9%
Income tax expense (benefit) (9,461) 27 -35140.7%
Net income (loss) $(17,980) $ 467 -3950.1%
Earnings per share
- assuming dilution $ (3.15) $ 0.08 -4037.5%
Earnings per share
- assuming dilution, excluding
net realized investment losses
and equity in net loss of
unconsolidated affiliate $ (3.15) $ 0.08 -4037.5%
Weighted average shares
outstanding
- assuming dilution 5,707,467 6,010,602
Year Ended
December 31,
1999 1998 Variance
Gross premiums
written: $ 117,808 $ 152,448 -22.7%
Income:
Premiums earned, net:
Workers' compensation $ 80,126 $ 127,997 -37.4%
Group medical and life 830 773 7.4%
Commissions 4,777 3,234 47.7%
Net Investment income 9,697 9,540 1.6%
Net realized investment
gains (losses) (1,515) 1,706 -188.8%
Other 820 842 -2.6%
Total income 94,735 144,092 -34.3%
Expenses:
Losses and loss adjustment
expenses incurred 82,234 114,483 -28.2%
Dividends provided for
policyholders 383 677 -43.4%
Operating 32,834 37,636 -12.8%
Total expenses 115,451 152,796 -24.4%
Equity in net loss of
unconsolidated affiliate (506) -- -100.0%
Income (loss) before
income tax
expense (benefit) (21,222) (8,704) -143.8%
Income tax
expense (benefit) (7,483) (3,827) -95.5%
Net income
(loss) $ (13,739) $ (4,877) -181.7%
Earnings per share
- assuming dilution $ (2.35) $ (0.78) -201.3%
Earnings per share
- assuming dilution,
excluding net realized
investment losses
and equity in net loss of
unconsolidated affiliate $ (2.12) $ (0.96) -120.8%
Weighted average shares
outstanding
- assuming dilution 5,847,836 6,228,479
PAULA FINANCIAL AND SUBSIDIARIES
BALANCE SHEET DATA
(In thousands, except per share data)
The following provides selected information derived from the Company's
unaudited consolidated financial statements.
Dec 31, 1999 Dec 31, 1998
Balance Sheet Data:
Investments $134,836 $177,623
Total assets 259,818 254,948
Unpaid losses and
loss adjustment expenses 158,944 136,316
Notes payable 16,632 2,667
Total liabilities 207,625 180,912
Net stockholders' equity 52,193 74,036
Book value per share 9.14 12.49
Book value per share excluding
unrealized gain (loss) on
investments 10.15 12.55
PAULA FINANCIAL AND SUBSIDIARIES
TRADE RATIOS
The following provides information about the Company's insurance
company subsidiaries, PAULA Insurance Company ("PICO") and PAULA
Assurance Company ("PACO").
Three Months Ended Year Ended
Dec. 31, Dec. 31,
1999 1998 1999 1998
PICO and PACO GAAP, net
Loss ratio 171.7% 78.9% 101.6% 88.9%
Expense ratio 33.5% 30.8% 33.2% 26.4%
Policyholder dividends ratio 0.6% 0.4% 0.5% 0.5%
Combined ratio 205.8% 110.1% 135.3% 115.8%
PICO SAP, net(a)
Loss ratio 172.9% 79.5% 102.4% 89.2%
Expense ratio 27.7% 31.7% 30.8% 25.0%
Policyholder dividends ratio 0.6% 0.4% 0.5% 0.5%
Combined ratio 201.2% 111.6% 133.7% 114.7%
(a) As reported under statutory accounting practices.
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