Allcity Insurance Company Announces Operating Results for the Six Months Ended June 30, 2001.

Business Editors

BROOKLYN, N.Y.--(BUSINESS WIRE)--Aug. 14, 2001

Allcity Insurance Company (NASDAQ:ALCI) announced its operating results for the six month period ended June 30, 2001 and reported a net loss of $15,057,000 or $2.13 per share for the six months ended June 30, 2001 compared to a net loss of $277,000 or $0.04 per share for the comparable 2000 period.

Results for 2001 included $1,016,000 of net securities gains compared to $588,000 of net securities losses for the comparable 2000 period.

Net earned premium revenues of the Company were $11,887,000 and $16,031,000 for the six month periods ended June 30, 2001 and 2000, respectively. Earned and written premiums declined in almost all lines of business. The declines are due, in part, to previously announced decisions by the Company, Empire Insurance Company, the Company's parent, and Centurion Insurance Company, an affiliate, (collectively, the "Empire Group") not to issue any new (as compared to renewal) insurance policies in any lines of business effective March 1, 2001 and that it filed plans of orderly withdrawal with the New York Insurance Department (the "Department"). In addition, commercial lines policies were non-renewed or canceled in accordance with New York Insurance law or replaced by Tower Insurance Company of New York or Tower Risk Management (collectively, "Tower") under an agreement for the sale of the Empire Group's renewal rights. Starting in the second quarter, Tower purchased the renewal rights for substantially all of the Empire Group's remaining lines of business, except private passenger automobile and commercial automobile/garage. Included in the Company's results for the six month periods ended June 30, 2001 and 2000 were $11,700,000 and $1,800,000, respectively, for increases in loss and loss adjustment expenses for prior accident years. The increase during 2001 reflected adverse development in commercial package lines of business, primarily due to increases in severity of liability claims, adverse development in workers' compensation and automobile lines of business and an increase in estimated loss adjustment expenses related to claims handled in house. In addition, results for the six and three month periods ended June 30, 2001 included approximately $2,600,000 and $400,000, respectively, of write offs of deferred policy acquisition costs, as their recoverability from premiums and related investment income was no longer anticipated.

In management's judgment, information currently available has been appropriately considered in estimating the Company's loss reserves. However, the reserving process relies on the basic assumption that past experience is an appropriate basis for predicting future events. As additional experience and other data become available and are reviewed, the Company's estimates and judgments may be revised.

In July 2001, the Department informed the Company and its parent of its examination findings concerning the three-year period ended December 31, 1999. The report on examination has not been filed and the Company and its parent are in the process of reviewing these findings with the Department. Among other matters, the Department's report indicated a loss reserve deficiency for the Company and its parent, of which $9.0 million was attributed to the Company. Although this deficiency is less than the combined surplus of the Company and its parent, after it is allocated between them in accordance with the pooling agreement, this deficiency causes its parent's stand alone statutory surplus to fall below minimum required levels. In addition, the current structure causes its parent's surplus to be reduced by a statutory limitation on the amount that it can invest in its insurance subsidiaries. Accordingly, the Company and its parent are evaluating reorganizing the current structure to reduce and/or eliminate these statutory limitations. Additionally, the Company and its parent are considering certain other transactions to increase the parent's surplus above the minimum required level on a stand alone basis.

A meeting has been scheduled with the Department for the end of August 2001 to review the Company's response to these findings. In addition, the parent believes the above transactions will serve as a basis for providing the Department by the end of August 2001 with a plan for remedying its surplus deficiency. Such a plan is subject to the review and approval of the Department. No assurance can be given that such a plan will be approved by the Department or that material adverse regulatory action will not be taken.

Results of operations for the six and three month periods ended June 30, 2001 and 2000 are as follows (in thousands, except per share amounts):

                                                (Unaudited)

                                            Six Months Ended June 30,

                                       2001                       2000

                                  ---------                  ---------

Total Revenues                     $ 18,029                   $ 22,088


Net Securities Gains (Losses)     $   1,016                  $    (588)


Net Loss                           $(15,057)                 $    (277)


Per Share Data:
Basic and Fully Diluted Loss       $  (2.13)                  $  (0.04)



                                          Three Months Ended June 30,

                                       2001                       2000

                                    -------                    -------

Total Revenues                     $  7,715                   $ 10,879

Net Securities Gains (Losses)         $   4                  $    (367)


Net Loss                           $   (780)                 $    (564)


Per Share Data:
Basic and Fully Diluted Loss       $  (0.11)                 $   (0.08)