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CII FINANCIAL REPORTS SUBSTANTIAL FOURTH QUARTER LOSS, REFLECTS CRISIS IN CALIFORNIA WORKERS' COMPENSATION

 CII FINANCIAL REPORTS SUBSTANTIAL FOURTH QUARTER LOSS,
 REFLECTS CRISIS IN CALIFORNIA WORKERS' COMPENSATION
 BURBANK, Calif., Feb. 11 /PRNewswire/ -- CII Financial Inc. (AMEX: CII) experienced substantial losses for the fourth quarter and year ended Dec. 31, 1991 as conditions in the California workers' compensation industry continued to deteriorate rapidly. Escalating forensic medical expenses, misuse of the workers' compensation system, and an alarming increase in fraudulent claims combined with a lack of adequate rate relief by state regulators created a very hostile environment for the industry.
 Joseph G. Havlick, chairman and president, stated: "It is essential that the governor, state insurance commissioner and the California legislature move swiftly to address this deteriorating situation which has reached crisis proportions in Southern California, principally the six counties of Los Angeles, Orange, Riverside, San Bernardino, Ventura and Santa Barbara. Reforms must be instituted immediately to halt fraudulent claims, particularly those for 'stress and strain,' to target and close the operations of those professionals who are seeking to bilk the systems, to end the illegal and improper substitution of workers' compensation benefits for unemployment compensation and regular medical insurance, and to immediately grant desperately needed rate relief to the insurance carriers. Otherwise the system will collapse, and California workers, employers and taxpayers will suffer drastic consequences."
 The company's net loss for the fourth quarter totaled $25,203,000, equal to $3.38 per share. In the corresponding quarter of 1990, net income was $1,979,000, equal to 34 cents per share. Fourth quarter revenues were $32,643,000, compared with $24,610,000 in the prior year.
 As a result, the net loss for 1991 was $16,220,000, equal to $2.18 per share, as against 1990's net income of $6,434,000, equal to $1.22 per share. Revenues for the year were $112,239,000, compared with $87,259,000 a year ago.
 Havlick said: "The principal reasons for the fourth quarter loss are the previously announced $20 million actuarial bulk loss reserve established during the period and, in addition, accelerating adverse claim case development in October, November and December. On a monthly basis, this adverse case development has escalated three-fold from our previous norm for the year. A weak California economy, marked in particular by high unemployment in the six counties of Southern California, has exacerbated the situation. Abuses include the rapid rise of potentially fraudulent 'stress and strain' claims, malingering, the absence of full-time jobs to return to in a weak economic climate, the over use and abuse of extremely high cost forensic medical examinations, the gross misuse of vocational rehabilitation coverages, and the substitution of workers' compensation for normal medical insurance coverages and unemployment insurance benefits. To date, the results of the anti-fraud workers' compensation bill passed in early January 1992 are unknown, but it appears that only limited funds are available to support the investigation and prosecution of malefactors."
 With respect to rates, he commented: "In early December 1991, the California insurance commissioner declined to approve any portion of a rate increase for adverse loss development which was to be effective Jan. 1, 1992, stating that the matter required more data and further study. The California Workers' Compensation Insurance Rating Bureau had recommended a rate increase of 10.7 percent for adverse loss development."
 He continued: "During the quarter, we experienced greatly increased operating expenses. Unfortunately, our legal expenses have escalated drastically as we continue to maintain an activist approach to defending ourselves against frivolous lawsuits and suspect claims. Other factors which increased operating expenses included a provision for lease settlement on the company's former headquarters, and, as might be expected in a worsening economy, we have seen a rise in unpaid premiums, and weaker collections, due to business failures. As a result, bad debt reserves have had to be increased.
 "We have a conservative posture regarding loss reserves and established the $20 million reserve increase recommended in the preliminary study by our independent actuary. Unfortunately, conditions have continued to worsen since that study as loss experience is rapidly deteriorating, primarily due to adverse conditions in the six counties previously mentioned. Because of the seriousness of this situation, we felt that it was prudent to engage another actuary to have the benefit of a second opinion, and both independent actuaries concur in the range of their estimates of loss reserves. We intend to continue to maintain our conservative posture on the adequacy of our reserves."
 Havlick continued: "While the present industry environment is unfavorable, the health of our company is good. We have a high- quality balance sheet. Statutory capital and surplus totaled $79 million at Dec. 31, 1991, and business is being written on a very conservative basis with a ratio of premium written to policyholder surplus of 1.3-to-1. We are one of the lowest leveraged workers' compensation companies in California, and therefore are well- positioned to withstand adverse conditions. Furthermore, as previously announced, the company's board of directors authorized a repurchase program to purchase up to $10 million of its securities from time to time in accordance with applicable law."
 Describing the company's program to improve results, he said: "As managers, we are activists and have taken strong, even drastic, measures to preserve CII's financial health and position the company to return to profitability as soon as possible. Already, we have moved to reduce our writings in the six-county area while building business in San Diego, the San Joaquin and Sacramento valleys and the San Francisco Bay Area. Key actions include the application of mid- term surcharges in Southern California, declining a substantial percentage of marginal renewal business and a reduction in the agency force. The criteria for maintaining an agency appointment have been made more stringent with a primary emphasis on a better-than-average loss ratio and an extremely low-to-nil bad debt experience.
 "Further, we have transferred our key marketing staff from the six county area in Southern California to our target markets in the rest of the state. Our goal in taking all of these actions is to achieve a healthier geographic spread of business -- effectively 35 percent from the present six county area and 65 percent from the balance of the state, representing almost a complete reversal of our 1991 geographic mix.
 "As an additional step to further reduce our geographic exposure, we intend to relocate the corporate headquarters of the company and its insurance subsidiaries from Burbank in Los Angeles County to the Pleasanton/San Ramon Area in Northern California by July 1, 1992. Historically, insurance companies have the highest market penetration in their home market, and we think the move will help accelerate our penetration of the Northern California market. The company will also continue to explore workers' compensation opportunities in other states where conditions are more favorable and will also seek to further develop its insurance premium finance business.
 "These steps are difficult, but we believe essential. We intend to maintain our posture of limiting our exposure in the affected areas of Southern California for so long as the California legislature does not act to correct the ills and abuses of a system that is now seriously out of control, and for so long as the California insurance commissioner fails to support adequate rates to meet this unprecedented situation.
 "Certainly the present problems can be corrected, and the abuses cleaned up. Historically, the California workers' compensation system has carried out its mission of caring for legitimately injured workers in a very effective manner, and it can do so again, if our elected officials have the courage, the will and the vision to address the problem forthrightly and urgently."
 CII Financial Inc. is a financial services holding company, whose insurance subsidiaries are California Indemnity Insurance Co. and Commercial Casualty Insurance Co. Through these subsidiaries, the company is engaged in writing workers' compensation insurance in California. These insurance companies service workers' compensation accounts of all sizes, but concentrate on small- to medium-sized companies.
 Based in Burbank, the company's insurance subsidiaries service Northern California through a Sacramento regional office and California's Inland Empire through an office in San Bernardino County, Calif. Policies are sold through a network of approximately 440 independent insurance agents and brokers in California. The company also finances insurance premium loans through CII Premium Finance Co.
 CII FINANCIAL INC. & SUBSIDIARIES
 Summary Financial Information
 12 months ended Dec. 31,
 1991 1990
 Income statement data:
 Total revenues $112,239,000 $87,259,000
 Income (loss) before
 federal income taxes ($18,762,000) $8,096,000
 Federal income taxes ($2,542,000) $1,662,000
 Net income (loss) ($16,220,000) $6,434,000
 Primary earnings
 (loss) per share ($2.18) $1.22
 Primary weighted shares
 outstanding 7,455,931 5,258,232
 Three months ended Dec. 31,
 1991 1990
 Total revenues $32,643,000 $24,610,000
 Income (loss) before
 federal income taxes ($30,496,000) $2,459,000
 Federal income taxes ($5,293,000) $480,000
 Net income (loss) ($25,203,000) $1,979,000
 Primary earnings
 (loss) per share ($3.38) $0.34
 Primary weighted
 shares outstanding 7,443,238 5,893,118
 Dec. 31, Dec. 31,
 1991 1990
 Balance Sheet Data:
 Total assets $248,187,000 $160,378,000
 Total liabilities $193,825,000 $89,123,000
 Total shareholder's equity $54,362,000 $71,255,000
 -0- 2/11/91
 /CONTACT: Joseph G. Havlick, chairman of the board, president, and CEO of CII Financial Inc., 818-846-5297/
 (CII) CO: CII Financial Inc. ST: California IN: INS SU: ERN


CH -- LA015 -- 8876 02/11/92 14:41 EST
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