Acceptance Insurance Companies Inc. Announces Losses and Letter of Intent.Business Editors COUNCIL BLUFFS Council Bluffs, city (1990 pop. 54,315), seat of Pottawattamie co., SW Iowa, on and below bluffs overlooking the Missouri River, opposite Omaha, Nebr.; inc. 1853. , Iowa--(BUSINESS WIRE)--Nov. 18, 2002 Acceptance Insurance Companies Inc. (NYSE NYSE See: New York Stock Exchange :AIF AIF Annual Information Form AIF Apoptosis-Inducing Factor AIF Agence Intergouvernementale de la Francophonie (French: Intergovernmental Agency for Francophony) AIF Australian Imperial Force ) today reported an estimated after-tax net loss of $131.0 million, or $9.23 per share, for the third quarter of 2002, including the previously reported loss from crop insurance 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. and operations of approximately $62.2 million. For the third quarter of 2001, the Company reported a net loss of $9.5 million, or $0.66 per share. For the nine-month period ended September 30, 2002 the Company reported an estimated after-tax net loss of $140.5 million, or $9.78 per share. Through the first nine months of 2001 Acceptance had a net loss of $14.2 million, or $0.99 per share. The estimated loss is due primarily to a widespread drought and other abnormal growing conditions throughout the Company's area of operations An operational area defined by the joint force commander for land and naval forces. Areas of operation do not typically encompass the entire operational area of the joint force commander, but should be large enough for component commanders to accomplish their missions and protect their . Due to the nature of several crop revenue insurance products, in which indemnity Recompense for loss, damage, or injuries; restitution or reimbursement. An indemnity contract arises when one individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual. amounts are based on commodity market prices in the fourth quarter as well as yields, and also due to the significance of such products as a percentage of the Company's Multiple Peril The designated contingency, risk, or hazard against which an insured seeks to protect himself or herself when purchasing a policy of insurance. Among the various types of perils for which insurance coverage is available are fire, theft, illness, and death. PERIL. Crop Insurance (MPCI MPCI Multiple Peril Crop Insurance MPCI Mouvement Patriotique de Côte D’ Ivoire (Patriotic Movement of the Ivory Coast) MPCI Mobile Protocol Capability Indicator MPCI Multi-Point Courtesy Inspection MPCI Mini Pci MPCI Managing Partners Confidence Index ) business, the Company historically has recorded its initial estimate of profit or loss for MPCI and related products in the fourth quarter. Because of the significance of expected and known losses thus far for the 2002 crop year, however, the Company has recorded its initial estimate of losses and underwriting expenses for MPCI and related products in the third quarter of 2002. Because of the extraordinary reported and expected volume and severity of crop insurance claims in 2002, however, the Company expects its MPCI operations will result in minimal, if any, payments from the Federal Crop Insurance Corporation under the profit-sharing formula established by law and administered by the Risk Management Agency. As a result, the Company has recognized MPCI reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. and underwriting expenses through September 30, 2002 of approximately $60.7 million. Therefore, the Company recorded a loss from crop insurance underwriting and operations for the three months ended September 30, 2002 of approximately $62.2 million. The anticipated loss will materially reduce the statutory capital of American Growers Insurance Company, the Company's wholly owned crop insurance subsidiary. Because future profitability also is unlikely, the Company established a 100% valuation allowance against its deferred tax asset in the amount of $68.6 million. In addition, the Company will incur a loss on a multi-year reinsurance agreement of approximately $21.4 million and recognize the impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of certain intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. totaling approximately $5.7 million. These reductions are all included in the third quarter and estimated year to date results announced today due to the uncertainty of the Company's ability to operate in the agriculture segment in the future. The Company also is reviewing and expects to reduce the value of certain personal property and equipment used primarily in crop insurance operations when the outcome of the proposed transaction described below is known. Acceptance also announced today in a joint statement with Rain and Hail Hail, city, Saudi Arabia Hail (hä`ēl, hīl), city (1993 pop. 176,757), N central Saudi Arabia. The city grew because of its location on a pilgrimage route from Iraq to Mecca. L.L.C. that the two companies and certain of their affiliates have signed a nonbinding Letter of Intent setting forth the preliminary terms for the Company's potential sale of certain crop insurance assets to Rain and Hail and/or its affiliates. The Letter of Intent contemplates transfer by the Company of its MPCI policies, including policies for the 2003 Crop Year, and certain agreements between American Growers Insurance Company and independent crop insurance agents. The proposed sale is contingent upon Adj. 1. contingent upon - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress" contingent on, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent several conditions, including the negotiation and execution of a definitive agreement, approval by the Boards of Directors of both companies and certain of their affiliates, and receipt of all required governmental approvals. There can be no assurance as to the final terms of the proposed transaction, that the conditions will be satisfied, or that the proposed transaction will be completed. The Company is reviewing other potential impacts of its crop insurance underwriting results and the proposed transaction on its operations. During the fourth quarter of 2002 and the first quarter of 2003 the Company expects it will terminate crop insurance underwriting operations and incur significant severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when , benefit and other operational costs, which will be increased if the proposed transaction is not completed. Additionally, if the proposed transaction is not completed, the Company will likely establish significant additional allowances and recognize further impairment of certain intangible assets. During the third quarter, the Company's property and casualty operations, now in runoff Runoff The procedure of printing the end-of-day prices for every stock on an exchange onto ticker tape. Notes: If the "tape is late" then it can take a long time to print off all the closing prices. , generated an estimated loss of $6.1 million, including an addition to previous reserves of $5.4 million. The Company believes the crop insurance losses announced today will have no direct affect on Acceptance Insurance Company, the Company's wholly owned property and casualty insurer, if the proposed transaction is completed in a manner generally consistent with the Letter of Intent. "While disappointed with the underwriting results triggered by the most severe and widespread drought in at least 50 years, we are even more disappointed that the capital-raising effort we began earlier this year has not resulted in a capital partnership for AmAg," said John E. Martin, the Company's President and Chief Executive Officer. "The Letter of Intent announced today is the result of our extensive efforts and those of our Financial Adviser, Philo Smith & Co. Completing the proposed transaction is the best result possible given this year's drought, our capital position, current global insurance industry conditions, and the uncertainties inherent in the crop insurance business. We therefore look forward to serving our customer agents and farmers by completing this transaction and the rapid transition of our crop business." In addition, the Company said it would defer de·fer 1 v. de·ferred, de·fer·ring, de·fers v.tr. 1. To put off; postpone. 2. To postpone the induction of (one eligible for the military draft). v.intr. interest payments on the Preferred Securities issued by AICI AICI Association of Image Consultants International AICI Acç o para o Acesso da Indùstria a Circuitos Integrados (Portugal) Capital Trust until not later than September 30, 2007 in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the August 4, 1997 Indenture An agreement declaring the benefits and obligations of two or more parties, often applicable in the context of Bankruptcy and bond trading. The term indenture primarily describes secured contracts and has several applications in U.S. law. for its Junior Subordinate Debentures. As previously announced, the Company has notified the Securities and Exchange Commission and New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. of its intention to file its Form 10-Q Form 10-Q See 10-Q. for the third quarter results after November 14, 2002. This release includes 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. with respect to the expected future financial results of the Company's property and casualty and crop insurance operations. Such forward-looking statements are subject to inherent risks and uncertainties that may cause actual results to differ materially from those contemplated by such forward-looking statements, including factors noted in Acceptance's Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2001 and Form 10-Q for the quarter ended June 30, 2002, which are incorporated herein by this reference. The Company will not update or revise the forward-looking statements in this release even though the conditions or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or currently underlying those statements may materially change.
ACCEPTANCE INSURANCE COMPANIES INC.
Three Months and Nine Months Ended September 30, 2002 and 2001
(in thousands except per share data)
Three Months Nine Months
2002 2001 2002 2001
Net premiums written $(1,251) $3,012 $28,997 $9,331
========== ========= ========== =========
Revenues:
Insurance premiums earned $(968) $2,848 $30,151 $30,626
Net investment income 1,753 3,540 5,668 13,555
Net realized capital gains
(losses) (203) 708 (978) 1,156
---------- --------- ---------- ---------
582 7,096 34,841 45,337
---------- --------- ---------- ---------
Costs and expenses:
Insurance losses and loss
adjustment expenses 15,222 25,842 50,270 58,452
Insurance underwriting
expenses 52,102 (6,690) 60,627 1,271
Acceleration of multi-year
reinsurance premiums 21,360 - 21,360 -
Impairment of non-compete
related intangibles 5,661 - 5,661 -
General and administrative
expenses 282 236 1,017 722
---------- --------- ---------- ---------
94,627 19,388 138,935 60,445
---------- --------- ---------- ---------
Operating loss (94,045) (12,292) (104,094) (15,108)
---------- --------- ---------- ---------
Interest expense (2,173) (2,170) (6,516) (6,509)
---------- --------- ---------- ---------
Loss before income
taxes (96,218) (14,462) (110,610) (21,617)
Income tax expense (benefit) 34,779 (4,958) 29,847 (7,406)
---------- --------- ---------- ---------
Net loss $(130,997) $(9,504) $(140,457) $(14,211)
========== ========= ========== =========
Loss per share:
Basic $(9.23) $(0.66) $(9.78) $(0.99)
========== ========= ========== =========
Diluted $(9.23) $(0.66) $(9.78) $(0.99)
========== ========= ========== =========
Shares:
Basic 14,196 14,427 14,357 14,365
========== ========= ========== =========
Diluted 14,196 14,427 14,357 14,365
========== ========= ========== =========
Sept. 30, Dec. 31,
2002 2001
Total investments $246,168 $212,365
Net reserves for losses and
loss adjustment expenses 145,653 168,544
Total equity 14,062 155,275
Book value per share $0.99 $10.76
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