FPIC Insurance Group, Inc. Reports Second Quarter 2002 Results.
Business Editors/Health/Medical Writers
JACKSONVILLE, Fla.--(BUSINESS WIRE)--Aug. 8, 2002--FPIC Insurance
Group, Inc. (Nasdaq:FPIC) (the "Company") today reported second
quarter 2002 financial results.
Operating earnings, which exclude the after-tax effect of realized
investment gains and losses, were $2.8 million, or $0.30 per diluted
share, for the second quarter 2002, up from second quarter 2001
operating earnings of $2.0 million, or $0.22 per diluted share.
Operating earnings were $5.4 million, or $0.57 per diluted share, for
the six months ended June 30, 2002, up from $3.4 million, or $0.36 per
diluted share, for the first six months of 2001.
Earnings per diluted share were $0.27 for the second quarter 2002
as compared to $0.20 for the second quarter 2001. Losses per diluted
share for the six months ended June 30, 2002 were $2.54 compared to
earnings per diluted share of $0.33 for the same period last year. As
reported in the first quarter 2002, the Company adopted Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets,"
which resulted in a one-time, after-tax charge for the cumulative
effect of the accounting change of $29.6 million, or $3.11 per diluted
share.
Total revenues for the second quarter 2002 were $62.8 million, up
27% from revenues in the second quarter 2001 of $49.4 million. Total
revenues for the six months ended June 30, 2002 were $116.2 million,
up 22% from total revenues of $95.6 million for the same period in
2001.
Second Quarter and Year-to-Date 2002 Highlights
-- Second quarter 2002 operating earnings of $0.30 per diluted
share
-- Strong top-line growth driven by pricing improvements and
policyholder growth
-- Increases in operating cash flow, assets and reserves
-- Reaffirmation of A- (Excellent) group rating from A.M. Best
-- Continued monitoring of, and focus on, developing loss trends,
claims management and pricing
-- A decrease in net investment income, reflecting lower
investment portfolio yields and prevailing market interest
rates
-- The decision to curtail accepting applications for new
business, as the result of significant premium and
policyholder growth in the first half of 2002
-- New reinsurance agreement with the Hannover Re group,
effective July 1, 2002
-- Election of two new Directors
John R. Byers, the Company's President and Chief Executive
Officer, commenting on the Company's second quarter results, stated,
"Overall, we are pleased with our second quarter results. Our earnings
were in line with our expectations and we continued to see strong
premium growth.
"We will continue to monitor and address loss trends, maintain our
underwriting discipline and be as efficient as possible in our claims
handling at our insurance companies. As to our other operations, we
continue to be pleased with the performance of our reciprocal
management segment and are continuing our efforts to create
efficiencies and growth opportunities in our third party
administration segment in order to improve that segment's
profitability."
Mr. Byers continued, "As we have previously reported, our growth
in 2002 has significantly exceeded our expectations as a result of
improved pricing, higher than expected policyholder retention and
increased demand, creating the need and desire for additional
capacity. As we reported on August 7, we have entered into a
reinsurance agreement with two reinsurers within the Hannover Re
organization whereby, effective July 1, 2002, our largest insurer,
First Professionals Insurance Company, Inc., will cede portions of its
business this year and next year as an initial step towards addressing
our capacity needs. As we previously announced, we will continue to
renew our existing policyholders and add policyholders to existing
groups, but we will continue to limit new policyholder growth as we
consider additional alternatives and opportunities to increase our
capacity and position the Company to take further advantage of market
conditions."
Consolidated Financial Results
(In thousands, except per common share information)
-0-
*T
Unaudited Unaudited
----------------- ------------------
Three Months Ended Six Months Ended
Income Statement Information June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------------------------------- ------------------------------------
Direct and assumed premiums
written $ 90,426 46,942 179,684 102,115
========= ======= ========= ========
Net premiums written $ 57,164 29,318 113,359 65,216
========= ======= ========= ========
Revenues
Net premiums earned $ 47,560 34,802 86,902 66,319
Claims administration and
management fees 8,291 7,676 15,921 14,894
Net investment income 5,813 5,889 10,701 12,555
Commission income 1,162 1,079 2,036 1,564
Net realized investment
(losses) gains (324) (285) 144 (380)
Finance charges and other
income 250 213 471 673
--------- ------- --------- --------
Total revenues 62,752 49,374 116,175 95,625
--------- ------- --------- --------
Expenses
Net losses and loss
adjustment expenses 41,358 32,732 75,183 62,741
Other underwriting expenses 6,780 4,985 13,471 9,909
Claims administration and
management expenses 7,847 7,645 15,257 15,210
Interest expense 1,254 1,186 2,470 2,339
Other expenses 106 951 177 1,921
--------- ------- --------- --------
Total expenses 57,345 47,499 106,558 92,120
--------- ------- --------- --------
Income from operations before
taxes and cumulative
effect of accounting
change 5,407 1,875 9,617 3,505
Less: Income taxes 2,798 13 4,143 349
--------- ------- --------- --------
Income before cumulative
effect of accounting change 2,609 1,862 5,474 3,156
Less: Cumulative effect
of accounting change -- -- 29,578 --
--------- ------- --------- --------
Net income (loss) $ 2,609 1,862 (24,104) 3,156
========= ======= ========= ========
*T
Consolidated Financial Results
(In thousands, except per common share information)
Unaudited Unaudited
---------------- ----------------
Three Months Ended Six Months Ended
Income Statement Information, June June June June
continued 30, 30, 30, 30,
2002 2001 2002 2001
----------------------------------- ---------------- ----------------
Operating earnings per common share(1)
-----------------------------------
Basic $ 0.30 0.22 0.57 0.36
Diluted $ 0.30 0.22 0.57 0.36
Earnings (loss) per common share
-----------------------------------
Basic $ 0.28 0.20 (2.57) 0.34
Diluted $ 0.27 0.20 (2.54) 0.33
Weighted average shares outstanding
-----------------------------------
Basic 9,390 9,401 9,382 9,397
Diluted 9,516 9,458 9,507 9,447
GAAP combined ratio
-----------------------------------
Loss ratio 87% 94% 87% 95%
Underwriting expense ratio 14% 14% 16% 15%
Combined ratio 101% 108% 103% 110%
(1) Excluding net realized investment gains and losses
Balance Sheet Information Unaudited
As of
June 30, As of Dec
2002 31, 2001
---------------------------------------------- --------- -----------
Total cash and investments $ 443,159 441,966
Total assets $ 826,548 770,822
Liability for loss and loss adjustment
expenses ("LAE") $ 356,247 318,483
Liability for loss and LAE, net of reinsurance $ 252,317 238,073
Revolving credit facility $ 37,000 37,000
Term loan $ 13,125 16,042
Total shareholders' equity $ 151,674 174,574
Common shares outstanding 9,391 9,338
Book value per common share $ 16.15 18.70
Book value per common share, excluding
unrealized gains and losses $ 16.07 18.71
Unaudited
------------------
Six Months Ended
Cash Flow Information June 30, June 30,
2002 2001
---------------------------------------------- --------- --------
Net cash provided by operating activities $ 22,599 6,993
Net cash (used in) provided by investing
activities $ (33,603) 22,240
Net cash (used in) provided by financing
activities $ (2,479) 128
Regarding the quarter and year-to-date results, Kim D. Thorpe,
Executive Vice President and Chief Financial Officer, commented, "We
are very pleased to be able to report these results, which are on
track for the quarter and year-to-date, especially in view of the many
uncertainties facing the financial markets, the economy and businesses
everywhere. We believe our straightforward, conservative operating
strategy is working and that it has positioned us well."
Mr. Thorpe continued, "Investment results continue to be
lackluster. We realized approximately $1.2 million in after-tax losses
on WorldCom bonds held and sold during the quarter. These losses were
largely offset by realized investment gains during the quarter."
Commenting on loss experience and key indicators, Mr. Thorpe
stated, "Indications in our loss metrics have been mixed this quarter
and so far this year. The settlement of three unusually large claims,
two of which were related to one incident, accounted for $3.0 million
of the second quarter payments. An amount equal to 75% of these claims
will be applied to the annual aggregate deductible or otherwise
recovered under the Company's reinsurance programs.
"Growth in newly reported claims and incidents was also higher in
the quarter and so far in 2002. If trended against growth in average
earned exposures, newly reported claims and incidents, which were
1,643 for all companies for the first six months of 2002, were about
18% to 22% higher than historic norms. We have analyzed this trend, in
particular, and have determined that a significant portion of this
increase, or approximately 140 claims and incidents, are accounted for
in three of the larger counties in Florida, where higher claims and
incidents are expected. Approximately 95 of these claims and incidents
represent claims filed under corporate endorsements issued in
connection with individual policies. The remainder of the increase, or
about 50 claims and incidents, reflects growth in out-of-state
business. On the positive side, our closed claims activity metrics,
including the number of claims with indemnity payments, claims closed
without indemnity payments and the relationship between these metrics
are on track for the second quarter and the first six months of 2002."
Mr. Thorpe summed up his remarks on loss experience and reserves
by stating, "At this point, we believe our reserving continues to be
appropriate and adequate, and we remain comfortable that our pricing
will accommodate these trends. However, while we are not overly
concerned by the increases in newly reported claims and incidents thus
far, we will remain watchful of this trend."
Commenting on the terms of the new reinsurance agreement with
Hannover Re, Mr. Thorpe stated, "While the agreement provides a
meaningful amount of reinsurance protection, the finite feature of the
agreement reduces our costs by capping the reinsurer's loss exposure.
The agreement also contains an option for us to commute the treaty if
the underlying business performs such that this protection proves to
be unnecessary."
Other Information
Two new Directors, Joan D. Ruffier and Kenneth M. Kirschner, were
elected to serve on the Company's Board of Directors at the Company's
2002 Annual Meeting of Shareholders held on June 5, 2002. Ms. Ruffier
and Mr. Kirschner both bring significant business and professional
experience with them to the Company's Board.
Ms. Ruffier currently serves on various state and community
boards, including Shands Healthcare, Inc., the University of Florida
Foundation and the University of Central Florida Foundation. Ms.
Ruffier has served on various corporate boards, including Florida
Progress Corporation and its subsidiary, Florida Power Corporation,
the Federal Reserve Bank of Atlanta and SunTrust Bank of Orlando. Ms.
Ruffier also served as a general partner of Sunshine Cafes and was a
certified public accountant with Colley, Trumblower & Howell in
Orlando, Florida.
Mr. Kirschner is a member of the law firm of Kirschner & Legler,
P.A. located in Jacksonville, Florida. Mr. Kirschner began the
practice of law in 1968. Since 1998 and prior to the formation of
Kirschner & Legler, P.A., Mr. Kirschner was a partner in Holland &
Knight, and subsequently, of counsel to LeBoeuf, Lamb, Greene &
MacRae, L. L. P., located in Jacksonville, Florida. From 1985 until
1998, Mr. Kirschner was a partner with Kirschner, Main, Graham, Turner
& Demont also of Jacksonville, Florida. As an attorney, Mr. Kirschner
specializes in corporate matters, corporate governance matters,
finance and mergers and acquisitions. Mr. Kirschner has served as an
officer and on the boards of directors of several publicly owned
corporations and of several life and property and casualty insurance
companies.
One member vacancy on the Board of Directors resulted from the
death on January 11, 2002 of J. Stewart Hagen, M.D. and a second
member vacancy resulted from the retirement of Curtis E. Gause, D.D.S.
as of the 2002 Annual Meeting of Shareholders. Both of these
Directors, having served on the Company's Board since its formation in
1996, provided many years of leadership and service to both the Board
and the Company.
Effective July 1, 2002, Charles Divita, III was appointed
Director, President and Chief Executive Officer of Employers Mutual,
Inc. ("EMI"), a wholly owned subsidiary of the Company, which provides
third party administration services. Mr. Divita previously held the
position of Vice President of Financial Planning at the Company. Prior
to joining the Company, Mr. Divita held various positions with
Prudential Insurance Company of America. Mr. Divita is a certified
public accountant. Markus Mueller, who is retiring in 2002, served as
a Director, President and Chief Executive Officer of EMI since its
acquisition by the Company in January 1997.
As of June 30, 2002, the Company became a member of the Russell
3000 Index and the Russell 2000 Index. The Russell 3000 Index measures
the performance of the 3,000 largest U.S. public companies based on
total market capitalization. The Russell 2000 Index measures the
performance of the 2,000 smallest companies in the Russell 3000 Index.
Conference Call
The Company will host a conference call at 10 a.m., Eastern Time,
Thursday, August 8, 2002, to review second quarter 2002 results and to
discuss the Company's performance. To access the conference call,
please dial 800/230-1074 (USA) or 612/288-0340 (International).
Messrs. Byers and Thorpe will host the call and take questions on an
interactive basis from the Company's analysts.
Participants in the "listen only" telephone audience will be
provided an opportunity during the conference call to submit questions
for Messrs. Byers and Thorpe. Questions can be submitted either during
the call or in advance of the call via e-mail to ir@fpic.com or
through the Company's corporate website at http://www.fpic.com. From
the Company's home page, click on "Investor Relations" and a
conference call link will be provided to connect you to the call.
Questions for listen-only participants will be answered during the
conference call as time permits following questions from the Company's
analysts.
For persons unable to participate in the conference call, a
telephone replay will be available beginning at 3:15 p.m., Eastern
Time, Thursday, August 8, 2002 and ending at 11:59 p.m., Eastern Time,
Saturday, August 10, 2002. To access the telephone replay, dial
800/475-6701 (USA) or 320/365-3844 (International) and use the access
code 622391. A replay of the conference call web cast will also be
available beginning at 1 p.m., Eastern Time, Thursday, August 8, 2002
and ending at 1 p.m., Eastern Time, Thursday, August 15, 2002 on the
Company's website.
Safe Harbor Disclosure
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements. Any written or oral
statements made by or on behalf of the Company may include
forward-looking statements, which reflect the Company's current views
with respect to future events and financial performance. These
forward-looking statements are subject to certain uncertainties and
other factors that could cause actual results to differ materially
from such statements. These uncertainties and other factors (which are
described in more detail in documents filed by the Company with the
Securities and Exchange Commission) include, but are not limited to,
(i) uncertainties relating to government and regulatory policies (such
as subjecting the Company to insurance regulation or taxation in
additional jurisdictions or amending, revoking or enacting any laws,
regulations or treaties affecting the Company's current operations),
(ii) the occurrence of insured or reinsured events with a frequency or
severity exceeding the Company's estimates, (iii) legal developments,
including claims for extra-contractual obligations or in excess of
policy limits in connection with the administration of insurance
claims, (iv) the uncertainties of the loss reserving process, (v) the
actual amount of new and renewal business and market acceptance of
expansion plans, (vi) the loss of the services of any of the Company's
executive officers, (vii) changing rates of inflation and other
economic conditions, (viii) the ability to collect reinsurance
recoverables, (ix) the competitive environment in which the Company
operates, related trends and associated pricing pressures and
developments, (x) the impact of mergers and acquisitions, including
the ability to successfully integrate acquired businesses and achieve
cost savings, competing demands for the Company's capital and the risk
of undisclosed liabilities, (xi) developments in global financial
markets that could affect the Company's investment portfolio and
financing plans, (xii) risk factors associated with financing and
refinancing, including the willingness of credit institutions to
provide financing and the availability of credit generally, (xiii)
developments in reinsurance markets that could affect the Company's
reinsurance program; and (xiv) changes in the Company's financial
ratings resulting from one or more of these uncertainties and other
factors.
The words "believe," "anticipate," "foresee," "estimate,"
"project," "plan," "expect," "intend," "hope," "should," "will likely
result" or "will continue" and variations thereof or similar
expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which
speak only as of their dates. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Management's Discussion and Analysis of Results of Operations
Total revenues for the second quarter 2002 increased 27% to $62.8
million from $49.4 million for the second quarter 2001. Total revenues
for the six months ended June 30, 2002 increased 22% to $116.2 million
from $95.6 million for the six months ended June 30, 2001. The
increase in revenues was primarily the result of price improvements on
the Company's core medical professional liability ("MPL") business and
growth in the number of policyholders in Florida and Missouri. Net
premiums earned on the Company's professional liability business
increased 83% to $44.0 million for the three months ended June 30,
2002 from $24.1 million for the three months ended June 30, 2001. Net
premiums earned on the Company's professional liability business
increased 77% to $80.1 million for the six months ended June 30, 2002
from $45.2 million for the six months ended June 30, 2001. The
differences between these increases and the increases in total net
premiums earned are attributable to declines in group accident and
health ("A&H") and assumed reinsurance premiums earned. The Company
also had an increase in revenues earned by the Company's reciprocal
management segment primarily as a result of an increase in management
fees associated with growth in premiums written at Physicians'
Reciprocal Insurers and an increase in brokerage commissions earned by
FPIC Intermediaries, Inc.
Total expenses for the second quarter 2002 increased 21% to $57.3
million from $47.5 million for the second quarter 2001. Total expenses
for the six months ended June 30, 2002 increased 16% to $106.6 million
from $92.1 million for the six months ended June 30, 2001. Net losses
and loss adjustment expenses ("LAE") incurred for the three months and
six months ended June 30, 2002 increased $8.6 million or 26% and $12.4
million or 20%, respectively when compared with the three months and
six months ended June 30, 2001. Net losses and LAE on the Company's
professional liability business increased 62% to $39.5 million for the
three months ended June 30, 2002 from $24.4 million for the three
months ended June 30, 2001. Net losses and LAE on the Company's
professional liability business increased 56% to $71.9 million for the
six months ended June 30, 2002 from $46.0 million for the six months
ended June 30, 2001. The differences between these increases and the
increases in total net losses and LAE are attributable to declines in
A&H and assumed reinsurance losses and LAE. The increase in net losses
and LAE incurred reflects growth in business, taking into
consideration expected loss trends. Other underwriting expenses also
contributed to the increase in total expenses, primarily as a result
of an increase in expenses related to the growth in insurance
business. These increases were partially offset by the decline in
other expenses due to the Company's adoption of Financial Accounting
Standard ("FAS") No. 142. In accordance with FAS 142, the Company
ceased the amortization of goodwill and indefinite lived intangible
assets during the first quarter 2002. The adoption of FAS 142
eliminated amortization expense of approximately $1.1 million
after-tax for the six months ended June 30, 2002.
The Company reported net income of $2.6 million, or $0.27 per
diluted share, for the second quarter of 2002, an increase of $0.7
million or $0.07 per diluted share, when compared with net income of
$1.9 million, or $0.20 per diluted share for the second quarter 2001.
The Company incurred a net loss of $24.1 million, or $2.54 per diluted
share, for the six months ended June 30, 2002 compared with net income
of $3.2 million, or 0.33 per diluted share for the first half of 2001.
During the first quarter 2002, the adoption of FAS 142 resulted in a
one-time, non-cash charge that reduced the carrying value of the
Company's goodwill by $48.4 million. The goodwill impairments
resulting from the adoption of FAS 142 were associated entirely with
goodwill at the Company's non-insurance segments. Income before
cumulative effect of accounting change was $5.5 million, or $0.58 per
diluted share for the six months ended June 30, 2002, an increase of
$2.3 million, or $0.25 per diluted share, when compared with net
income of $3.2 million, or $0.33 per diluted share for the first half
of 2001.
Insurance Segment
The Company's insurance segment is made up of its four insurance
subsidiaries, First Professionals Insurance Company, Inc. ("First
Professionals"), Anesthesiologists Professional Assurance Company
("APAC") and The Tenere Group, Inc. ("Tenere") companies of Intermed
Insurance Company and Interlex Insurance Company. Holding company
operations are included within the insurance segment due to the
segment's size and prominence and the substantial attention devoted to
the segment. Unaudited financial data for the Company's insurance
segment for the three months and six months ended June 30, 2002 and
2001 are summarized in the table below. Dollar amounts are in
thousands.
Three Months Ended
----------------------------
June 30, Percentage June 30,
2002 Change 2001
----------------------------
Direct and assumed premiums written $ 90,426 93% $ 46,942
========= =========
Net premiums written $ 57,164 95% $ 29,318
========= =========
Net premiums earned $ 47,560 37% $ 34,802
Net investment income 5,754 0% 5,726
Commission income 4 -50% 8
Net realized investment (losses) gains (324) -14% (285)
Finance charges and other income 225 20% 187
Intersegment revenues 787 238% 233
--------- ---------
Total revenues 54,006 33% 40,671
--------- ---------
Net losses and LAE 41,358 26% 32,732
Other underwriting expense 6,780 36% 4,985
Interest expense 1,254 6% 1,186
Other expenses 71 -71% 245
Intersegment expenses 847 -29% 1,201
--------- ---------
Total expenses 50,310 25% 40,349
--------- ---------
Income from operations before taxes and
cumulative effect of accounting change 3,696 1048% 322
Less: Income taxes 2,115 539% (482)
--------- ---------
Income before cumulative effect of
accounting change 1,581 97% 804
--------- ---------
Less: Cumulative effect of accounting
change -- 0% --
--------- ---------
Net income $ 1,581 97% $ 804
========= =========
Three Months Ended
----------------------------
Selected Direct Professional Liability June 30, Percentage June 30,
Claim Information 2002 Change 2001
----------------------------------------------------------------------
Net paid losses and LAE on professional
liability claims only $ 29,038 36% $ 21,277
========= =========
Average net paid loss per professional
liability claim closed with indemnity
payment $ 213 37% $ 156
========= =========
Total professional liability claims
reported
during the period 861 95% 442
========= =========
Total professional liability claims closed
with indemnity payment 91 14% 80
========= =========
Total professional liability claims closed
without indemnity payment 560 83% 306
========= =========
Six Months Ended
----------------------------
June Percentage June
30, 30,
2002 Change 2001
----------------------------
Direct and assumed premiums written $ 179,684 76% $ 102,115
======== ========
Net premiums written $ 113,359 74% $ 65,216
======== ========
Net premiums earned $ 86,902 31% $ 66,319
Net investment income 10,597 -14% 12,263
Commission income 7 -65% 20
Net realized investment (losses) gains 144 138% (380)
Finance charges and other income 422 15% 367
Intersegment revenues 1,313 182% 466
-------- --------
Total revenues 99,385 26% 79,055
-------- --------
Net losses and LAE 75,183 20% 62,741
Other underwriting expense 13,471 36% 9,909
Interest expense 2,470 6% 2,339
Other expenses 142 -71% 491
Intersegment expenses 1,318 -40% 2,206
-------- --------
Total expenses 92,584 19% 77,686
-------- --------
Income from operations before taxes and
cumulative effect of accounting
change 6,801 397% 1,369
Less: Income taxes 2,994 821% (415)
-------- --------
Income before cumulative effect of
accounting change 3,807 113% 1,784
-------- --------
Less: Cumulative effect of accounting
change -- 0% --
-------- --------
Net income $ 3,807 113% $ 1,784
======== ========
As of Percentage As of
June Change June
30, 30,
2002 2001
----------------------------
Professional liability policyholders
(Excludes policyholders under fronting
arrangements of 5,136 and 2,820 as of
June 30, 2002 and 2001, respectively) 17,110 43% 11,939
======== ========
Six Months Ended
----------------------------
Selected Direct Professional Liability June Percentage June
30, 30,
Claim Information 2002 Change 2001
---------------------------------------- ----------------------------
Net paid losses and LAE on professional
liability claims only $ 49,038 6% $ 46,383
======== ========
Average net paid loss per professional
liability claim closed with indemnity
payment $ 192 12% $ 171
======== ========
Total professional liability claims
reported during the period 1,643 74% 944
======== ========
Total professional liability claims
closed with indemnity payment 162 -7% 175
======== ========
Total professional liability claims
closed without indemnity payment 932 39% 672
======== ========
Direct and assumed premiums written increased 93% to $90.4 million
for the three months ended June 30, 2002 from $46.9 million for the
three months ended June 30, 2001. Direct and assumed premiums written
increased 76% to $179.7 million for the six months ended June 30, 2002
from $102.1 million for the six months ended June 30, 2001. Direct and
assumed premiums written have increased primarily as a result of an
increase in direct premiums written on the Company's core MPL
business. The increase in direct premiums written is due to the
effects of rate increases realized by the Company's insurance
subsidiaries and growth in the number of policyholders. First
Professionals implemented rate increases in January and December 2001;
APAC implemented rate increases in July 2001 and 2002; and Intermed
implemented rate increases in November 2001 and July 2002. In
addition, the Company experienced growth in direct premiums written
under fronting arrangements for workers compensation business. The
growth in direct premiums written was partially offset by a decline of
$6.7 million in direct and assumed premiums written under group A&H
programs for the six months ended June 30, 2002, which were
discontinued in 2001.
Net premiums written increased 95% to $57.2 million for the three
months ended June 30, 2002 from $29.3 million for the three months
ended June 30, 2001. Net premiums written increased 74% to $113.4
million for the six months ended June 30, 2002 from $65.2 million for
the six months ended June 30, 2001. The increase in net premiums
written is due to growth in direct premiums written associated with
rate increases at the Company's insurance subsidiaries and an increase
in the number of policyholders, as noted above. The growth in direct
professional liability premiums written was offset by a decline in
group A&H and assumed professional liability premiums written.
Net premiums earned increased 37% to $47.6 million for the three
months ended June 30, 2002 from $34.8 million for the three months
ended June 30, 2001. Net premiums earned increased 31% to $86.9
million for the six months ended June 30, 2002 from $66.3 million for
the six months ended June 30, 2001. The increase in net premiums
earned is due to rate increases implemented by the Company's insurance
subsidiaries and growth in the number of policyholders. Net premiums
earned on the Company's professional liability business increased 83%
to $44.0 million for the three months ended June 30, 2002 from $24.1
million for the three months ended June 30, 2001. Net premiums earned
on the Company's professional liability business increased 77% to
$80.1 million for the six months ended June 30, 2002 from $45.2
million for the six months ended June 30, 2001. The differences
between these increases and the increases in total net premiums earned
are attributable to declines in group A&H and assumed reinsurance
premiums earned. In addition, the increase in net premiums earned is
less than the increase in premiums written for the same period
primarily due to the inherent lag between written and earned premiums.
Direct premiums written include premiums written under fronting
agreements for which a relatively small portion of business is
retained and therefore, only a small portion of premium is ultimately
earned.
The Company's largest insurance subsidiary, First Professionals,
entered into a finite reinsurance agreement with Hannover Re,
effective July 1, 2002, for the primary purpose of adding to its
financial capacity to write business in 2002 and 2003 by providing
relief from the strain on its statutory surplus that occurs as a
result of the significant growth being experienced. By ceding a
portion of its risks to Hannover Re, First Professionals is able to
reduce its financial leverage and realize immediate reimbursement for
its related up-front acquisition costs, thus adding to its financial
capacity. The ultimate cost to First Professionals of such reinsurance
is reduced by placing a cap on the amount of exposure being assumed by
Hannover Re. In addition, First Professionals has the option to
commute the agreement should the business perform such that the
underlying protection proves to be unnecessary, in which case the
reinsurance would cease, the underlying reinsurance assets and
liabilities would unwind, and any net funds under the agreement, less
a 4.2% risk charge to Hannover Re, would be retained by First
Professionals.
Under the terms of the Hannover Re agreement, First Professionals
will cede approximately $48.5 million of its unearned premiums as of
June 30, 2002, and fifty percent of its direct written premiums, net
of other reinsurance, during the last six months of 2002 and the first
six months of 2003. As a result, net premiums written for the
remainder of 2002 are expected to correspondingly decline from the
trends established during the first half of the year and to be lower
than those reported in 2001. Net premiums earned are also expected to
be lower during the second half of 2002 than the trend established
during the first and second quarters; however, net premiums earned for
the full year 2002 are still expected to equal or exceed those
reported in 2001.
On August 2, 2002, Gerling Global Reinsurance Corporation of
America ("Gerling"), one of the Company's current reinsurers, had its
financial strength rating lowered by A.M. Best from A- (Excellent) to
B+ (Very Good). The rating action by A.M. Best follows an announcement
by Gerling of its intention to exit the U.S. non-life reinsurance
market. Gerling has participated in the Company's excess of loss
reinsurance programs in 2000, 2001 and 2002 at 15%, 20% and 20%,
respectively. Gerling has also provided facultative reinsurance
coverage for non-standard risks. It is presently expected that Gerling
will fully meet its obligations to the Company. Management also
anticipates that it will be able to successfully replace Gerling's
participation at the next reinsurance renewal date, January 1, 2003.
As of June 30, 2002, the aggregate amount of reinsurance recoverables
from Gerling was $11.1 million.
Net investment income was relatively flat for the three months
ended June 30, 2002 compared to the three months ended June 30, 2001.
Net investment income decreased 14% to $10.6 million for the six
months ended June 30, 2002 from $12.3 million for the six months ended
June 30, 2001. The decline in net investment income for the first six
months of 2002 is primarily due to lower prevailing interest rates and
reduced yields on fixed income investments, beginning in the second
half of 2001. The Company also held more funds in invested cash during
the first six months of 2002 as compared to 2001 in anticipation of
possible improvements in fixed income rates in the near term.
The Company incurred net realized losses on holdings and sales of
WorldCom bonds during the second quarter 2002 of approximately $1.9
million. These losses were offset by realized investment gains during
the second quarter 2002 of approximately $1.6 million. Net realized
investment losses for the second quarter 2002 were $0.3 million, while
the Company reported net realized investment gains for the first six
months of 2002 of approximately $0.1 million.
Net losses and LAE increased 26% to $41.4 million for the three
months ended June 30, 2002 from $32.7 million for the three months
ended June 30, 2001. Net losses and LAE increased 20% to $75.2 million
for the six months ended June 30, 2002 from $62.7 million for the six
months ended June 30, 2001. The increase in net losses and LAE is
consistent with the growth in business, taking into consideration
expected loss trends and other pertinent considerations. Net losses
and LAE on the Company's professional liability business increased 62%
to $39.5 million for the three months ended June 30, 2002 from $24.4
million for the three months ended June 30, 2001. Net losses and LAE
on the Company's professional liability business increased 56% to
$71.9 million for the six months ended June 30, 2002 from $46.0
million for the six months ended June 30, 2001. The differences
between these increases and the increases in total net losses and LAE
are attributable to declines in group A&H and assumed reinsurance
losses and LAE. The Company's loss ratios for the three months ended
June 30, 2002 and 2001 were 87% and 94%, respectively. The Company's
loss ratios for the six months ended June 30, 2002 and 2001 were 87%
and 95%, respectively. A loss ratio is defined as the ratio of loss
and LAE incurred to net premiums earned. The 8% decrease in the
reported loss ratio for the six months ended June 30, 2002 is due to
the Company's exit from its former group A&H business (3%), loss
expense reduction and productivity (2%), changes in the mix of assumed
reinsurance (1%), and expected improvements in underwriting results
associated with improvements in pricing (2%).
The liability for losses and LAE represents management's best
estimate of the ultimate cost of all losses incurred but unpaid and
considers historical loss experience, expected loss trends, the
Company's loss retention levels and trends in the frequency and
severity of claims. The process of establishing reserves for property
and casualty claims is a complex and uncertain process, requiring
significant reliance upon estimates. The Company's estimates are
revised as additional experience and other data become available and
are reviewed periodically or as other significant events occur that
may affect reserves. Any such revisions could result in future changes
in the estimates of losses or reinsurance recoverables and would be
reflected in the Company's results of operations when the change
occurs.
For the purposes of setting aside reserves on risks insured during
the current period, for which very little experience is present, a
forecasted loss ratio is determined that is applied to earned premiums
during the period. This forecasted loss ratio is judgmentally
determined taking into account the results of the most recent
actuarial study performed, current pricing and underwriting, and
expected loss and LAE trends and other pertinent considerations. In
addition, management monitors and analyzes key loss and LAE indicators
and trends throughout the year, including but not limited to paid
losses, newly reported claims and incidents, closed claim activity,
and other metrics in order to assess the reasonableness of its loss
reserve estimates and the forecasted loss and LAE ratio being applied
during the current period.
Net paid losses and LAE on professional liability claims were
$29.0 million for the second quarter 2002, up 36%, from $21.3 million
for the second quarter of 2001. Net paid professional liability losses
and LAE were $49.0 million for the first six months of 2002, up 6%,
from $46.4 million for the first half of 2001. The settlement of three
unusually large claims, two of which were related to one incident,
accounted for $3.0 million of the second quarter settlements. An
amount equal to 75% of these claims will be applied to the annual
aggregate deductible or otherwise recovered under the Company's
reinsurance programs.
Newly reported professional liability claims and incidents were
861 and 1,643 for the second quarter and first six months of 2002,
respectively, up significantly from the comparable numbers reported,
442 and 944, for the second quarter and first half of 2001,
respectively. If trended against growth in average earned exposures,
newly reported claims and incidents for the first six months of 2002
were about 18% to 22% higher than historic norms. The Company has
analyzed this trend and determined that a significant portion of this
increase, or approximately 140 claims and incidents, are accounted for
in three of the larger counties in Florida, where higher claims and
incidents are expected. Approximately 95 of these claims and incidents
represent claims filed under corporate endorsements issued in
connection with individual policies. The remainder of the increase, or
about 50 claims and incidents, reflects growth in out-of-state
business. Closed claims metrics, including the number of claims with
indemnity payments, claims closed without indemnity payments and the
relationship between these metrics appear to be on track with
expectations for the second quarter and the first six months of 2002.
Based on the analysis performed through the first six months of
2002, the Company believes its liability for loss and LAE continues to
be adequate, and while the Company is not overly concerned by the
increases in newly reported claims and incidents at this point, it
will continue to closely follow this trend and others. Furthermore,
given the inherent uncertainty in reserve estimates, there can be no
assurance that the ultimate amount of actual losses will not exceed
the related amounts currently estimated. Any such differences, either
positive or negative, could have a material effect on the Company's
results of operations and financial position.
Other underwriting expenses increased 36% to $6.8 million for the
three months ended June 30, 2002 from $5.0 million for the three
months ended June 30, 2001. Other underwriting expenses increased 36%
to $13.5 million for the six months ended June 30, 2002 from $9.9
million for the six months ended June 30, 2001. The increase in other
underwriting expenses is primarily attributable to additional
acquisition and operating expenses associated with the growth in
insurance business. In addition, First Professionals, the Company's
largest insurance subsidiary, performed a study in 2001 of expenses
incurred in the administration of claims and based on the results of
this study decreased the amount of expenses allocated to LAE in 2002.
Other expenses decreased 71% to $0.07 million for the three months
ended June 30, 2002 from $0.2 million for the three months ended June
30, 2001. Other expenses decreased 71% to $0.1 million for the six
months ended June 30, 2002 from $0.5 million for the six months ended
June 30, 2001. The decline in other expenses is due to the Company's
adoption of FAS 142. In accordance with FAS 142, the Company ceased
the amortization of goodwill and indefinite lived intangible assets
during the first quarter 2002.
Income tax expense increased to $2.1 million for the three months
ended June 30, 2002 from an income tax benefit of $0.5 million for the
three months ended June 30, 2001. Income tax expense increased to $3.0
million for the six months ended June 30, 2002 from an income tax
benefit of $0.4 million for the six months ended June 30, 2001. In
late 2001, the Company hired external investment managers and began
repositioning portions of its investments in tax-exempt municipal
securities to investments in taxable securities. The increase in
income tax expense is partially associated with an increase in
investment income from taxable securities. In addition, the Company is
nearing completion of the examination of its 1998 and 1999 federal
income tax returns by the Internal Revenue Service and in connection
therewith, established a reserve in the second quarter of 2002 for
potential tax contingencies, which accounted for the remainder of the
increase in income tax expense. Management believes that its positions
are meritorious on these and other potential issues raised in the
examination and that the accrual made is appropriate; however, there
can be no assurance that the Company will ultimately prevail on such
matters.
Reciprocal Management Segment
The Company's reciprocal management segment is made up of
Administrators for the Professions, Inc. ("AFP"), the Company's New
York subsidiary, and its two wholly owned subsidiaries, FPIC
Intermediaries, Inc. ("Intermediaries") and Group Data Corporation
("Group Data"). AFP acts as administrator and attorney-in-fact for
Physicians' Reciprocal Insurers ("PRI"), the second largest medical
professional liability insurer for physicians in the state of New
York. Intermediaries acts as a reinsurance broker and intermediary in
the placement of reinsurance. Group Data acts as a broker in the
placement of annuities for structured settlements. The segment also
includes the business of Professional Medical Administrators, LLC
("PMA"), a 70% owned subsidiary of the Company. PMA provides brokerage
and administration services for professional liability insurance
programs. Unaudited financial data for the Company's reciprocal
management segment for the three months and six months ended June 30,
2002 and 2001 are summarized in the table below. Dollar amounts are in
thousands.
Three Months
Ended
----------------------------
June Percentage June
30, 30,
2002 Change 2001
----------------------------
Claims administration and
management fees $ 5,143 12% $ 4,605
Net investment income 45 -63% 121
Commission income 782 20% 650
Other income 21 11% 19
Intersegment revenues 803 -16% 960
-------- --------
Total revenues 6,794 7% 6,355
-------- --------
Claims administration and
management expenses 4,592 16% 3,948
Other expenses 35 -94% 543
Intersegment expenses 426 284% 111
-------- --------
Total expenses 5,053 10% 4,602
-------- --------
Income from operations before
taxes and cumulative effect
of accounting change 1,741 -1% 1,753
Less: Income taxes 673 18% 568
-------- --------
Income before cumulative
effect of accounting change 1,068 -10% 1,185
-------- --------
Less: Cumulative effect
of accounting change -- 0% --
-------- --------
Net income (loss) $ 1,068 -10% $ 1,185
======== ========
Three Months
Ended
----------------------------
June Percentage June
30, 30,
2002 Change 2001
----------------------------
Reciprocal premiums written
under management $ 49,147 15% $ 42,921
======== ========
As of
----------------------------
June Percentage June
30, 30,
2002 Change 2001
----------------------------
Reciprocal statutory assets
under management $ 811,145 0% $ 809,828
======== ========
Professional liability policyholders
under management 10,364 20% 8,649
======== ========
Six Months Ended
---------------------------
June Percentage June
30, 30,
2002 Change 2001
---------------------------
Claims administration and
management fees $ 9,743 14% $ 8,577
Net investment income 85 -54% 183
Commission income 1,263 71% 740
Other income 41 -86% 291
Intersegment revenues 1,288 -23% 1,672
-------- -------
Total revenues 12,420 8% 11,463
-------- -------
Claims administration and
management expenses 8,659 9% 7,938
Other expenses 35 -97% 1,086
Intersegment expenses 798 259% 222
-------- -------
Total expenses 9,492 3% 9,246
-------- -------
Income from operations before
taxes and cumulative effect
of accounting change 2,928 32% 2,217
Less: Income taxes 1,119 42% 788
-------- -------
Income before cumulative
effect of accounting change 1,809 27% 1,429
-------- -------
Less: Cumulative effect
of accounting change 24,363 100% --
-------- -------
Net income (loss) $ (22,554) -1678% $ 1,429
======== =======
Six
Months
Ended
---------------------------
June Percentage June
30, 30,
2002 Change 2001
---------------------------
Reciprocal premiums written
under management $ 75,215 14% $ 66,245
======== =======
Claims administration and management fees increased 12% to $5.1
million for the three months ended June 30, 2002 from $4.6 million for
the three months ended June 30, 2001. Claims administration and
management fees increased 14% to $9.7 million for the six months ended
June 30, 2002 from $8.6 million for the six months ended June 30,
2001. The claims administration and management fees earned by AFP are
comprised entirely of management fees from PRI and the increase is due
to the growth in premiums written by PRI. In accordance with the
management agreement between AFP and PRI, AFP receives a management
fee equal to 13% of PRI's direct premiums written, with an adjustment
for expected return premiums. As such, the Company's revenues and
results of operations are financially sensitive to the revenues and
financial condition of PRI. In addition, PRI, as an MPL insurer, is
subject to many of the same types of risks as those of the Company's
insurance subsidiaries.
Commission income increased 20% to $0.8 million for the three
months ended June 30, 2002 from $0.7 million for the three months
ended June 30, 2001. Commission income increased 71% to $1.3 million
for the six months ended June 30, 2002 from $0.7 million for the six
months ended June 30, 2001. The increase in commission income is due
to an increase in brokerage commission earned by Intermediaries for
the placement of reinsurance.
Other income for the three months ended June 30, 2002 was
relatively flat when compared to the three months ended June 30, 2001.
Other income decreased 86% to $0.04 million for the six months ended
June 30, 2002 from $0.3 million for the six months ended June 30,
2001. Under the management agreement between AFP and PRI, AFP
receives, in addition to management fees, an amount equal to 10% of
PRI's statutory net income or is responsible for 10% of PRI's
statutory net loss. The provisions of New York law addressing the
sharing of net income or net loss contain certain ambiguities and
interpretation issues. In considering such matters, PRI, AFP and the
New York Department of Insurance have entered into discussions
regarding the removal from the management agreement of this sharing by
AFP of net income or net loss effective in 2002.
Claims administration and management expenses increased 16% to
$4.6 million for the three months ended June 30, 2002 from $3.9
million for the three months ended June 30, 2001. Claims
administration and management expenses increased 9% to $8.7 million
for the six months ended June 30, 2002 from $7.9 million for the six
months ended June 30, 2001. The increase in claims administration and
management expenses is due to an increase in operating expenses
incurred to manage the growth in business at PRI.
Other expenses decreased 94% to $0.04 million for the three months
ended June 30, 2002 from $0.5 million for the three months ended June
30, 2001. Other expenses decreased 97% to $0.04 for the six months
ended June 30, 2002 from $1.1 million for the six months ended June
30, 2001. The decline in other expenses is due to the effects of the
Company's adoption of FAS 142. In accordance with FAS 142, the
Company, including the reciprocal management segment, ceased the
amortization of goodwill and indefinite lived intangible assets during
the first quarter 2002.
In connection with its adoption of FAS 142, the reciprocal
management segment recorded a transitional impairment charge of $24.4
million, after-tax. In management's opinion, the non-cash transitional
impairment charge, which represents the cumulative effect of the
accounting change, primarily reflects certain intangibles and
synergies, which are opportunistic in nature, carry a higher degree of
uncertainty, and therefore were treated conservatively in the
valuation required by FAS 142.
Third Party Administration Segment
The Company's third party administration ("TPA") segment is made
up of Employers Mutual, Inc. ("EMI"). Unaudited financial data for the
Company's TPA segment for the three months and six months ended June
30, 2002 and 2001 are summarized in the table below. Dollar amounts
are in thousands.
Three Months
Ended
-------------------------
June Percentage June
30, 30,
2002 Change 2001
-------------------------
Claims administration and
management fees $ 3,148 3% $ 3,071
Net investment income 14 -67% 42
Commission income 376 -11% 421
Other income 4 -43% 7
Intersegment revenues 44 -82% 240
------ ------
Total revenues 3,586 -5% 3,781
------ ------
Claims administration and
management expenses 3,255 -12% 3,697
Other expenses -- -100% 163
Intersegment expenses 361 198% 121
------ ------
Total expenses 3,616 -9% 3,981
------ ------
Loss from operations before
taxes and cumulative effect
of accounting change (30) 85% (200)
Less: Income taxes 10 114% (73)
------ ------
Loss before cumulative
effect of accounting change (40) 69% (127)
------ ------
Less: Cumulative effect of
accounting change -- 0% --
------ ------
Net loss $ (40) 69% $ (127)
====== ======
Six Months Ended
-----------------------------
June Percentage June
30, 30,
2002 Change 2001
-----------------------------
Claims administration and
management fees $ 6,178 -2% $ 6,317
Net investment income 19 -83% 109
Commission income 766 -5% 804
Other income 8 -47% 15
Intersegment revenues 80 -85% 534
-------- --------
Total revenues 7,051 -9% 7,779
-------- --------
Claims administration and
management expenses 6,598 -9% 7,272
Other expenses -- -100% 344
Intersegment expenses 565 132% 244
-------- --------
Total expenses 7,163 -9% 7,860
-------- --------
Loss from operations before
taxes and cumulative effect
of accounting change (112) -38% (81)
Less: Income taxes 30 225% (24)
-------- --------
Loss before cumulative
effect of accounting change (142) -149% (57)
-------- --------
Less: Cumulative effect of
accounting change 5,215 100% --
-------- --------
Net loss $ (5,357) -9298% $ (57)
======== ========
As of As of
June Percentage June
30, 30,
2002 Change 2001
-----------------------------
Covered lives under
employee benefit programs 108,445 2% 105,943
======== ========
Covered lives under workers
compensation programs 37,700 6% 35,600
======== ========
*T
Claims administration and management fees were $3.1 million for
the three months ended June 30, 2002, which was relatively level with
the comparable amount reported for the three months ended June 30,
2001. Claims administration and management fees decreased 2% to $6.2
million for the six months ended June 30, 2002 from $6.3 million for
the six months ended June 30, 2001. The Company's results of
operations for the period ended June 30, 2001 include the Company's
Albuquerque division, which was disposed of in December 2001.
Excluding the effect of the Albuquerque TPA division, claims
administration and management fees increased $0.8 million or 35% and
$1.2 million or 24% for the three months and six months ended June 30,
2002, respectively, when compared with the three months and six months
ended June 30, 2001. The increase in claims administration and
management fees reflects growth in new business.
Claims administration and management expenses decreased 12% to
$3.3 million for the three months ended June 30, 2002 from $3.7
million for the three months ended June 30, 2001. Claims
administration and management expenses decreased 9% to $6.6 million
for the six months ended June 30, 2002 from $7.3 million for the six
months ended June 30, 2001. The decline in claims administration and
management expenses is due to the disposition of the Company's
Albuquerque division. Excluding the effect of the Albuquerque TPA
division, claims administration and management expenses increased $0.3
million or 10% and $0.9 million or 16% for the three months and six
months ended June 30, 2002, respectively, when compared with the three
months and six months ended June 30, 2001. The increase in claims
administration and management expenses is due to additional expenses
incurred as the result of new business.
Other expenses decreased to $0 for the three months and six months
ended June 30, 2002 from $0.2 million for the three months ended June
30, 2001 and $0.3 million for the six months ended June 30, 2001. The
decline in other expenses is due to the Company's adoption of FAS 142.
In accordance with FAS 142, the Company, including the TPA segment,
ceased the amortization of goodwill and indefinite lived intangible
assets during the first quarter 2002.
In connection with the adoption of FAS 142, the TPA segment
recorded a transitional impairment charge of $5.2 million, after-tax.
In management's opinion, the non-cash transitional impairment charge,
which represents the cumulative effect of the accounting change,
primarily reflects changes in market conditions and an increase in
competition in recent years in the markets served by the TPA segment.
Corporate Profile
FPIC Insurance Group, Inc., through its subsidiary companies, is a
leading provider of professional liability insurance for physicians,
dentists, other healthcare providers and attorneys, primarily in
Florida and Missouri. In addition, the Company provides reciprocal
management and administration services to Physicians' Reciprocal
Insurers, the second largest medical professional liability insurance
carrier in the state of New York, and third party administration
services both within and outside the healthcare industry. Its
insurance subsidiaries, First Professionals Insurance Company, Inc.,
Anesthesiologists Professional Assurance Company, Intermed Insurance
Company and Interlex Insurance Company, have an A- (Excellent) group
rating from A.M. Best.
--30--BRM/se*
CONTACT: FPIC Insurance Group, Inc.
Roberta Goes Cown, 904/354-2482, Extension 3287
KEYWORD: NEW YORK MISSOURI FLORIDA
INDUSTRY KEYWORD: MEDICAL INSURANCE EARNINGS
SOURCE: FPIC Insurance Group, Inc.
COPYRIGHT 2002 Business Wire
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2002, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.
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