KMG America Reports Second Quarter 2006 Net Income of $0.05 Per Share; KMG America Will Host an Investor Web Cast Today, Monday, August 7th at 10:00 A.M. EDT.MINNEAPOLIS Minneapolis (mĭn'ēăp`əlĭs), city (1990 pop. 368,383), seat of Hennepin co., E Minn., at the head of navigation on the Mississippi River, at St. Anthony Falls; inc. 1856. -- KMG KMG Kerr-McGee KMG Koi Mil Gaya (Hindi movie) KMG Kunming, China - Kunming (Airport Code) KMG Kent Messenger Group (UK) America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. Corporation -- (the "Company" or "KMG America") (NYSE NYSE See: New York Stock Exchange :KMA KMA Kiss My Ass KMA Korea Meteorological Administration KMA Koninklijke Militaire Academie (Royal Military Academy; Netherlands) KMA Knoxville Museum of Art KMA Kentucky Medical Association KMA Korean Medical Association ) today reported net income for the second quarter ended June June: see month. 30, 2006 of $1.0 million, or $0.05 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to net income for the first quarter of 2006 of $1.2 million, or $0.06 per diluted share, and second quarter 2005 net income of $0.7 million, or $0.03 per diluted share. KMG America's Chief Executive Officer, Kenneth Kuk KUK Kurukshetra University (India) KUK Kultur- und Kongreßzentrum (German) KUK Krebs Und Kiefer (German consulting engineers) KUK Kaiserlich Und Königlich , commented, "While second quarter earnings are much improved compared to the same period last year, results are below our expectations due primarily to adverse claims experience in portions of the Kanawha Kanawha (kənô`wə), principal river of W.Va., 97 mi (156 km) long, formed by the confluence of the New and Gauley rivers, S central W.Va., and flowing NW to the Ohio River at Point Pleasant; Charleston, W.Va. legacy business. Claims fluctuations from quarter to quarter are inherent to our business and we are satisfied that the Kanawha legacy block of business will continue to provide a stable contribution to earnings over time." Mr. Kuk added, "Regarding our new larger case activity, seasonally-adjusted second quarter sales growth is apparent in spite of in opposition to all efforts of; in defiance or contempt of; notwithstanding. See also: Spite our decision to limit new sales representative hiring. And productivity per sales rep appears consistent with our objectives. Our intent is to maintain 20-22 sales reps until adequate margins are demonstrated." 2006 OUTLOOK The Company previously offered guidance of $0.35 to $0.40 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 per share for 2006. In light of the recent quarter and year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. results and considering the margin compression compression, external stress applied to an object or substance, tending to cause a decrease in volume (see pressure). Gases can be compressed easily, solids and liquids to a very small degree if at all. issues in the stop loss product, the Company currently estimates operating earnings per share to be in the range of $0.28 to $0.32 for the full year of 2006. SECOND QUARTER FINANCIAL RESULTS Second quarter 2006 operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (see discussion of non-GAAP financial measures below) declined slightly to $1.1 million compared to first quarter 2006 operating income of $1.2 million, due primarily to adverse claims experience in the Kanawha legacy business and increased litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. expenses. Second quarter 2006 operating income increased to $1.1 million, compared to second quarter 2005 operating income of $0.7 million, due primarily to revenue growth from the new larger case sales activity and improved investment income that more than offset the adverse claims experience. After-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. operating losses 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. attributed to the new KMG America growth initiatives increased slightly to $2.5 million in the second quarter of 2006 as a result of the increased litigation expense this quarter, compared to the $2.4 million reported in the first quarter of 2006, but favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. compared to the $2.6 million reported in the second quarter of 2005. Direct premiums related to the sales activity from the new KMG America distribution channel increased to $7.1 million (before 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. ceded) compared to $6.2 million in the first quarter of 2006, and $0.1 million in the second quarter of 2005. Expenses (net of deferrals) totaled $4.7 million in the second quarter of 2006 compared to $4.3 million in the first quarter of 2006 and $4.0 million in the second quarter of 2005. Operating income attributed to the Kanawha legacy business for the second quarter of 2006 was $3.6 million, or $0.16 per diluted share, flat compared to $3.6 million, or $0.16 per diluted share, in the first quarter of 2006, and up slightly compared to the second quarter 2005 operating income of $3.3 million, or $0.15 per diluted share. Favorable investment income in the current quarter was largely offset by adverse claims experience. The Company believes that excluding the earnings results of the new KMG America sales activity during the initial period when startup (STARTing UP) "At startup" means when the computer is first turned on or when a program is first loaded. See Startup folder. expenses exceed incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. new premiums provides a more meaningful comparison of the trends in earnings produced by Kanawha's legacy business, which serves to fund the initial expenses associated with building the new sales and 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. organization and the infrastructure needed to operate as a public company. The more notable earnings drivers are discussed below where the second quarter 2006 results are compared to the first quarter 2006 results. Premium Revenue Net premiums for the second quarter of 2006 increased to $30.7 million, compared to $29.8 million in the first quarter of 2006. The increase is due to incremental premiums related to the new KMG America sales distribution channel that produced $7.1 million of new direct earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. ($5.2 million net of reinsurance) in the second quarter of 2006 compared to $6.2 million of new direct earned premiums ($4.5 million net of reinsurance) in the first quarter of 2006. Investment Income Investment income in the second quarter of 2006 increased to $7.6 million, compared to $7.2 million in the first quarter of 2006, due to improved investment portfolio yield. The second quarter 2006 investment portfolio yield averaged 5.25%, based on average cash and invested assets excluding FAS 115 unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. (losses), an improvement of 30 basis points from the 4.95% average yield reported in the first quarter of 2006. The second quarter investment income included approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $175,000 of pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern benefit related primarily to an adjustment to the prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. assumption in the mortgage backed securities portfolio because of rising interest rates this year. The second quarter 2006 average yield would have been 5.10% on a "normalized" basis after adjusting for items that do not occur evenly over time. Average cash and invested assets declined slightly (after removing increasing unrealized capital losses due to rising interest rates) due to the conversion of financial assets Financial assets Claims on real assets. into deferred acquisition cost assets that result from new product sales, and continuing high level of incremental expenses relative to new revenues associated with the build out of the new sales and underwriting operation. Policyholder Policyholder An individual who owns an insurance policy. Benefits Policyholder benefits on a segment basis for the second quarter of 2006 were impacted by reserve reallocations between the Kanawha legacy segments as a result of implementing final purchase GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). reserves and replacing the preliminary reserving methodology in use since the Kanawha acquisition at the end of 2004. Both policyholder benefits and the corresponding benefit ratio by segment are affected by this reallocation Noun 1. reallocation - a share that has been allocated again allocation, allotment - a share set aside for a specific purpose 2. reallocation with no impact to the total company results in 2005 and the first six months of 2006. To facilitate period-over-period comparisons for the legacy segment results, all periods have been reclassified to a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma basis as if the final purchase GAAP reserve methodology was implemented as of December December: see month. 31, 2004. See discussion of non-GAAP financial measures below for a more detailed description. Policyholder benefits for the second quarter of 2006 increased slightly to $24.4 million compared to $23.4 million in the first quarter of 2006, due to higher claims reported in the senior segment and increased benefits related to incremental sales in the new KMG America worksite segment. The total company benefit ratio was 79.5% in the second quarter of 2006 compared to 78.3% in the first quarter of 2006. The benefit ratio in Kanawha's legacy worksite segment improved to 70.4% in the second quarter of 2006, compared to 73.3% in the first quarter of 2006, reflecting in part an improvement from the ratio in the first quarter which had been affected by the one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. return of premium noted then. The benefit ratio in the senior segment increased to 78.3% in the second quarter of 2006, compared to 71.6% in the first quarter of 2006, reflecting higher claim reserves on open claims in the second quarter compared to the first quarter of 2006 and a policy reserve pattern created by uneven policy anniversaries from quarter to quarter. The acquired business segment second quarter 2006 benefit ratio increased to 414.7%, compared to the first quarter 2006 benefit ratio of 381.4%, due largely to a single large claim reported in the second quarter of 2006. The unusually high benefit ratio reported in the acquired segment reflects the fact that much of this business is paid up relative to current and future premium, as well as the impact of sizable siz·a·ble also size·a·ble adj. Of considerable size; fairly large. siz  a·ble·ness n. experience rating refunds on one acquired block that reduce premiums and
claims by the same amount. The acquired segment benefit ratio can also
experience period-to-period fluctuations due to claims volatility Volatility1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the and experience rated refunds. Excluding these experience refunds, the second quarter 2006 benefit ratio was 174.9% compared to 161.5% in the first quarter of 2006. Insurance Commissions Insurance commissions (before deferrals of policy acquisition costs) for the second quarter of 2006 were $5.3 million compared to $5.1 million in the first quarter of 2006, reflecting increased sales production. Insurance commissions, net of deferrals for the second quarter of 2006, declined slightly to $2.9 million compared to $3.0 million in the first quarter of 2006 due to an increased mix of voluntary product sales where commissions are deferred. Acquisition costs are not deferred on group and stop loss sales. Expenses, Taxes, Licenses and Fees General insurance expenses, taxes, licenses and fees (before deferrals of non-commission policy acquisition costs) for the second quarter of 2006 were $15.0 million, flat compared to $15.0 million in the first quarter of 2006. General insurance expenses, taxes, licenses and fees net of deferrals for the second quarter of 2006 were $13.2 million, up slightly compared to $13.0 million in the first quarter of 2006. Amortization of Deferred Acquisition Costs (DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter )/Value of Business Acquired (VOBA VOBA Value of Business Acquired VOBA Virtual Office Business Administration VOBA Votoms Online Battling Arena VOBA Virtual Office Business Assistant (NetOffice) ) Amortization of DAC/VOBA for the second quarter of 2006 was $1.2 million, flat when compared to the $1.2 million reported in the first quarter of 2006. A large claim reported in the acquired business segment and a subsequent reduction in insurance in-force caused a temporary unfavorable accelerated VOBA adjustment of $0.2 million in the current quarter. Provision for Income Taxes The Company experienced an effective tax rate of 34.0% in the second quarter of 2006, essentially flat compared to the 33.9% reported in the first quarter of 2006, but higher than the 24.4% effective tax rate reported in the second quarter of 2005. The low effective tax rate in the second quarter of 2005 resulted from applying a net operating loss carry forward in a subsidiary for which a valuation allowance had been established against the deferred tax asset. NOTES ON FINANCIAL PRESENTATION Non-GAAP Financial Measures
-- Operating Income -- To supplement the financial statements
presented on a GAAP basis, the Company reported operating
income, which is a non-GAAP measure. Operating income is
defined as net income excluding realized investment
gains/losses (except for realized investment gains/losses that
are directly offset by executive deferred compensation
expense), net of income taxes. Management believes this
non-GAAP measure provides investors, potential investors,
securities analysts and others with useful additional
information to evaluate the performance of the business,
because it excludes items that management believes are not
indicative of the operating results of the business. In
addition, this non-GAAP measure is used by management to
evaluate the operating performance of the Company. The
presentation of this additional information is not meant to be
considered in isolation or as a substitute for net income
determined in accordance with GAAP.
-- Pro forma segment results -- To supplement the financial
statements presented on a GAAP basis, the Company reported pro
forma segment results, which is a non-GAAP measure. Second
quarter 2006 segment results were impacted by the reallocation
of portions of policy reserves and corresponding investment
income between the Kanawha legacy reporting segments. When KMG
America acquired Kanawha insurance company in December of
2004, an additional provision for adverse deviations related
to all legacy business was added to policy reserves, and
allocated primarily to the acquired business segment and a
smaller amount to the life products included in the legacy
portion of the worksite insurance business segment. Given the
discontinuation of long term care sales activity combined with
the uncertainty in the amount and timing in obtaining
approvals for rate increases for long term care policies from
state insurance regulators, the company has deemed it
appropriate to reallocate much more of the initial provision
for adverse deviations to the senior segment. The triggering
event for implementing this reallocation of policy reserves at
the current time is the implementation of the final reserve
methodology which replaces the preliminary reserve methodology
which has been in use since inception.
The result of the reallocation of reserves between Kanawha
legacy segments was to increase reserves by $37.5 million in
the senior segment, offset by reduced reserves of $31.2
million in the acquired segment and $6.3 million in the legacy
portion of the worksite segment. There was no impact to
overall policy reserves or to reported earnings to date. The
Company believes reserve adequacy testing of policy reserves
currently underway will indicate that overall earnings over
the next few years will not be adversely impacted by this
reallocation.
This reallocation of reserves between the Kanawha legacy
segments distorts the current quarter reported policyholder
benefits and the resulting reported benefit ratios by segment.
To provide a meaningful period-over-period comparison by
reporting segment, policy reserves and investment income
contained in the segment results over the past six quarters
have been reclassified on a pro forma basis in the attached
financial tables and are also reflected in the subsequent
discussion of segment results above.
A reconciliation of the non-GAAP financial measures contained in this release to the most comparable GAAP measures appears in the attached tables. FORWARD LOOKING INFORMATION This press release contains 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. that are made pursuant to 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 accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause KMG America Corporation's actual results to differ materially from those expressed in the forward-looking statements including, but not limited to: implementation of its business strategy; hiring and retaining key employees; predicting and managing claims and other costs; fluctuations in its investment portfolio; financial strength ratings of its insurance subsidiary; government regulations, policies and investigations affecting the insurance industry; competitive insurance products and pricing; reinsurance costs; fluctuations in demand for insurance products; possible recessionary trends in the U.S. economy; and other risks that are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission. KMG America Corporation assumes no obligation to publicly update or revise any forward-looking statements. ABOUT KMG AMERICA CORPORATION KMG America is a holding company that was formed to acquire the Southeastern south·east n. 1. Abbr. SE The direction or point on the mariner's compass halfway between due south and due east, or 135° east of due north. 2. An area or region lying in the southeast. 3. regional insurance company, Kanawha Insurance Company, and to operate and grow Kanawha's insurance and other related businesses nationwide. KMG offers a broad mix of individual and group insurance products and stop-loss stop-loss, n a general term referring to that category of coverage that provides insurance protection (reinsurance) to an employer for a self-funded plan. coverage along with third-party administration services to employers and to working Americans. For more information visit: www.kmgamerica.com. WEB CAST KMG America will host an investor and analyst web cast today, Monday Monday: see week. , August 7, 2006, at 10:00 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT . The web cast and replay will be available via the following links: www.kmgamerica.com, analyst/investor tab -- for all investors; www.streetevents.com -- for institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. ; www.fulldisclosure.com -- for retail investors Retail Investor Individual investors who buy and sell securities for their personal account, and not for another company or organization. Notes: Retail investors buy in much smaller quantities than larger institutional investors. . The replay will be available starting approximately 2 hours after the original web cast. The replay will be available through Monday, August 21, 2006.
KMG America Corporation
Consolidated Statements of Income (GAAP basis, unaudited)
(in thousands, except share data and percentages)
Quarter Ended Year-to-Date
----------------------------- -------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------
Insurance premiums,
net of reinsurance $ 30,662 $ 29,811 $ 26,817 $ 60,473 $ 53,015
Net investment
income 7,619 7,206 6,800 14,825 13,453
Commission and fee
income 4,117 4,219 3,671 8,336 7,239
Realized investment
gains (115) 211 19 96 46
Other income 923 986 978 1,909 1,770
--------- --------- --------- --------- ---------
Total revenues 43,206 42,433 38,285 85,639 75,523
Policyholder
benefits 24,373 23,354 20,646 47,727 41,076
Insurance
commissions, net
of deferrals 2,924 2,981 2,377 5,905 5,043
Expenses, taxes,
fees and
depreciation 13,213 13,049 13,103 26,262 24,579
Amortization of DAC
and VOBA (1) 1,155 1,178 1,214 2,333 2,299
--------- --------- --------- --------- ---------
Total benefits
and expenses 41,665 40,562 37,340 82,227 72,997
Income before
income taxes 1,541 1,871 945 3,412 2,526
(Provision) for
income taxes (524) (635) (231) (1,159) (792)
--------- --------- --------- --------- ---------
Net income $ 1,017 $ 1,236 $ 714 $ 2,253 $ 1,734
============================= ===================
Net income per
share
Basic $ 0.05 $ 0.06 $ 0.03 $ 0.10 $ 0.08
Diluted $ 0.05 $ 0.06 $ 0.03 $ 0.10 $ 0.08
Weighted-average
shares
outstanding:
Basic 22,201 22,133 22,072 22,168 22,072
Diluted 22,218 22,138 22,072 22,197 22,106
Effective tax rate 34.0% 33.9% 24.4% 34.0% 31.4%
Benefit ratio (2) 79.5% 78.3% 77.0% 78.9% 77.5%
Expense ratio (3) 49.7% 50.6% 54.8% 50.1% 53.0%
Average portfolio
yield (4) 5.25% 4.95% 4.69% 5.10% 4.64%
Average invested
assets $532,746 $519,669 $485,978 $525,911 $477,699
Average
cash/equivalents &
short terms (4) 47,363 62,679 94,583 55,353 102,189
--------- --------- --------- --------- ---------
Total average cash
and invested
assets $580,109 $582,348 $580,562 $581,264 $579,888
============================= ===================
(1) DAC: Deferred Acquisition Costs; VOBA: Value of Business Acquired.
(2) Benefit ratio is defined as policyholder benefits (equal to
incurred claims plus increases in policyholder reserves) divided
by net premiums.
(3) Expense ratio defined as commissions, expenses and amortization of
DAC/VOBA divided by earned premiums plus commissions/fees.
(4) Average portfolio yield is defined as net investment income
divided by average cash and invested assets excluding the impact
of FAS115 unrealized gains (losses) plus average cash and
equivalents. Average cash/equivalents and short term assets
include the portion of initial public offering proceeds that are
invested short (less than 2 year maturities).
KMG America Corporation
Supplemental Financial Information - Unaudited
(in thousands, except share data)
Quarter Ended Year-to-Date
----------------------------- -------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------
Pro forma operating
income (loss): (1)
Worksite insurance
business $ 861 $ 297 $ 137 $ 1,158 $ 153
Senior market
insurance 1,852 2,138 1,281 3,990 2,499
Third party
administration
business 375 410 209 785 390
Acquired business (444) (279) 379 (723) 658
Corporate and
other (1,592) (1,339) (1,304) (2,931) (1,996)
--------- --------- --------- --------- ---------
Total operating
income $ 1,052 $ 1,227 $ 702 $ 2,279 $ 1,704
Total excluding
KMGA new
activity $ 3,557 $ 3,583 $ 3,311 $ 7,139 $ 5,904
(see table
below)
Operating income per
share:
Basic $ 0.05 $ 0.06 $ 0.03 $ 0.10 $ 0.08
Diluted $ 0.05 $ 0.06 $ 0.03 $ 0.10 $ 0.08
Diluted - excl.
KMGA new
activity $ 0.16 $ 0.16 $ 0.15 $ 0.32 $ 0.27
Weighted-average
shares outstanding:
Basic 22,201 22,133 22,072 22,168 22,072
Diluted 22,218 22,138 22,072 22,197 22,106
KMG America new
activity:
Insurance premiums,
net of reinsurance $ 5,167 $ 4,535 $ 96 $ 9,702 $ 96
Net investment
income - - - - -
--------- --------- --------- --------- ---------
Total revenues 5,167 4,535 96 9,702 96
Policyholder
benefits 3,413 3,072 70 6,485 70
Insurance
commissions, net of
deferrals 709 639 14 1,348 14
Expenses, taxes,
fees and
depreciation 4,704 4,254 4,027 8,958 6,473
Amortization of DAC
and VOBA 194 194 - 388 -
--------- --------- --------- --------- ---------
Total benefits and
expenses 9,020 8,159 4,111 17,179 6,557
--------- --------- --------- --------- ---------
Income (loss) before
income taxes (3,853) (3,624) (4,015) (7,477) (6,461)
Benefit for income
taxes 1,349 1,268 1,405 2,617 2,261
--------- --------- --------- --------- ---------
Net income (loss) $ (2,504) $(2,356) $(2,610) $(4,860) $ (4,200)
============================= ===================
(1) Pro forma operating income is defined as net income excluding
realized investment gains/losses (except for realized investment
gains/losses that are directly offset by executive deferred
compensation expense), net of income taxes. Segment pro forma
operating income results reflect the impact of policy reserve
reallocations and corresponding investment income allocations by
segment, net of income taxes. These reserve and investment income
reallocations only impact the Kanawha legacy segment operating
income results and do not impact the total company results.
KMG America Corporation and Subsidiary
Consolidated Balance Sheets
(in thousands, except share data)
June 30, 2006 December 31, 2005
---------------- -----------------
(Unaudited)
Assets:
Cash and cash equivalents $ 6,946 $ 32,583
Investments 542,908 543,307
---------------- -----------------
Total cash and investments 549,854 575,890
Accrued investment income 6,051 5,917
DAC 21,250 14,032
VOBA 70,760 72,639
Other assets (1) 146,782 128,887
---------------- -----------------
Total assets $ 794,697 $ 797,365
================ =================
Liabilities and shareholders'
equity:
Total policy and contract
liabilities $ 560,569 $ 547,894
Deferred income taxes 7,165 13,061
Other liabilities (2) 50,611 48,927
---------------- -----------------
Total liabilities 618,345 609,882
Total shareholders' equity 176,352 187,483
---------------- -----------------
Total liabilities and shareholders'
equity $ 794,697 $ 797,365
================ =================
Book value per share:
Basic $ 7.94 $ 8.47
Diluted $ 7.93 $ 8.47
Book value per share: (excl FAS 115)
(3)
Basic $ 8.80 $ 8.70
Diluted $ 8.78 $ 8.70
Ending shares outstanding:
Basic 22,207 22,126
Diluted (4) 22,241 22,131
(1) Other assets include reinsurance balances recoverable, real estate
and equipment, federal income tax recoverable and other assets.
(2) Other liabilities include accounts payable and accrued expenses,
$16.2 million of outstanding principal and accrued interest on a
subordinated note as of June 30, 2006, and other miscellaneous
liabilities. Outstanding principal and accrued interest on the
subordinated note as of December 31, 2005 was $15.8 million.
(3) The book values are recalculated excluding $19.0 million of
unrealized capital losses, net of taxes, on June 30, 2006.
Unrealized capital losses were $5.0 million, net of taxes, on
December 31, 2005.
(4) Diluted shares were calculated using the treasury stock method.
PRO FORMA SEGMENT RESULTS (Unaudited)
(in thousands)
Quarter Ended Year-to-Date
----------------------------- -------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------
Worksite insurance
business - Legacy:
Insurance
premiums, net of
reinsurance $ 14,159 $ 13,972 $ 14,932 $ 28,131 $ 29,590
Net investment
income 1,876 1,739 1,654 3,615 3,275
Commissions and
fee income - - - - -
Realized
investment gains - - - - -
Other income 50 46 41 96 90
--------- --------- --------- --------- ---------
Total revenues 16,085 15,757 16,627 31,842 32,955
Policyholder
benefits 9,964 10,241 10,551 20,205 21,401
Insurance
commissions, net
of deferrals 854 882 787 1,736 1,865
Expenses, taxes,
fees and
depreciation 2,323 2,271 2,503 4,594 5,198
Amortization of
DAC and VOBA 332 584 894 916 1,714
--------- --------- --------- --------- ---------
Total benefits
and expenses 13,473 13,978 14,735 27,451 30,178
--------- --------- --------- --------- ---------
Income before
income taxes $ 2,612 $ 1,779 $ 1,892 $ 4,391 $ 2,777
============================= ===================
Total assets $156,794 $157,983 $161,556 $156,794 $161,556
============================= ===================
Worksite insurance
business - KMGA:
Insurance
premiums, net of
reinsurance $ 5,167 $ 4,535 $ 96 $ 9,702 $ 96
Net investment
income - - - - -
Commissions and
fee income - - - - -
Realized
investment gains - - - - -
Other income - - - - -
--------- --------- --------- --------- ---------
Total revenues 5,167 4,535 96 9,702 96
Policyholder
benefits 3,413 3,072 70 6,485 70
Insurance
commissions, net
of deferrals 709 639 14 1,348 14
Expenses, taxes,
fees and
depreciation 2,138 1,952 1,694 4,090 2,554
Amortization of
DAC and VOBA 194 194 - 388 -
--------- --------- --------- --------- ---------
Total benefits
and expenses 6,454 5,857 1,778 12,311 2,638
--------- --------- --------- --------- ---------
Income before
income taxes $ (1,287) $ (1,322) $ (1,682) $ (2,609) $ (2,542)
============================= ===================
Total assets $ 7,132 $ 4,738 $ - $ 7,132 $ -
============================= ===================
Senior market
insurance
business:
Insurance
premiums, net of
reinsurance $ 10,705 $ 10,675 $ 11,128 $ 21,380 $ 21,729
Net investment
income 2,272 2,050 1,599 4,322 3,053
Commissions and
fee income - - - - -
Realized
investment gains - - - - -
Other income 760 809 799 1,569 1,456
--------- --------- --------- --------- ---------
Total revenues 13,737 13,534 13,526 27,271 26,238
Policyholder
benefits 8,381 7,641 8,670 16,022 16,509
Insurance
commissions, net
of deferrals 1,269 1,367 1,472 2,636 2,961
Expenses, taxes,
fees and
depreciation 734 765 988 1,499 2,127
Amortization of
DAC and VOBA 504 472 425 976 796
--------- --------- --------- --------- ---------
Total benefits
and expenses 10,888 10,245 11,555 21,133 22,393
--------- --------- --------- --------- ---------
Income before
income taxes $ 2,849 $ 3,289 $ 1,971 $ 6,138 $ 3,845
============================= ===================
Total assets $249,677 $239,985 $217,435 $249,677 $217,435
============================= ===================
PRO FORMA SEGMENT RESULTS (Unaudited) - Continued
(in thousands)
Quarter Ended Year-to-Date
----------------------------- -------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------
Third party
administration
business:
Insurance
premiums, net of
reinsurance $ - $ - $ - $ - $ -
Net investment
income - - - - -
Commissions and
fee income 4,025 4,134 3,583 8,159 7,066
Realized
investment gains - - - - -
Other income - - - - 1
--------- --------- --------- --------- ---------
Total revenues 4,025 4,134 3,583 8,159 7,067
Policyholder
benefits - - - - -
Insurance
commissions, net
of deferrals - - - - -
Expenses, taxes,
fees and
depreciation 3,448 3,503 3,261 6,951 6,467
Amortization of
DAC and VOBA - - - - -
--------- --------- --------- --------- ---------
Total benefits
and expenses 3,448 3,503 3,261 6,951 6,467
--------- --------- --------- --------- ---------
Income before
income taxes $ 577 $ 631 $ 322 $ 1,208 $ 600
============================= ===================
Total assets $ 10,142 $ 10,063 $ 8,304 $ 10,142 $ 8,304
============================= ===================
Acquired business:
Insurance
premiums, net of
reinsurance $ 631 $ 629 $ 661 $ 1,260 $ 1,599
Net investment
income 2,089 1,955 1,924 4,044 3,841
Commissions and
fee income - - - - -
Realized
investment gains - - - - -
Other income 23 16 18 39 31
--------- --------- --------- --------- ---------
Total revenues 2,743 2,600 2,603 5,343 5,471
Policyholder
benefits 2,617 2,399 1,355 5,016 3,096
Insurance
commissions, net
of deferrals 91 94 103 185 202
Expenses, taxes,
fees and
depreciation 593 608 667 1,201 1,371
Amortization of
DAC and VOBA 125 (72) (105) 53 (210)
--------- --------- --------- --------- ---------
Total benefits
and expenses 3,426 3,029 2,020 6,455 4,459
--------- --------- --------- --------- ---------
Income before
income taxes $ (683) $ (429) $ 583 $ (1,112) $ 1,012
============================= ===================
Total assets $164,917 $169,470 $174,942 $164,917 $174,942
============================= ===================
Corporate & other:
Insurance
premiums, net of
reinsurance $ - $ - $ - $ - $ -
Net investment
income 1,383 1,462 1,623 2,845 3,285
Commissions and
fee income 92 85 88 177 173
Realized
investment gains - - - - -
Other income 90 115 121 205 192
--------- --------- --------- --------- ---------
Total revenues 1,565 1,662 1,832 3,227 3,650
Policyholder
benefits - - - - -
Insurance
commissions, net
of deferrals - - - - -
Expenses, taxes,
fees and
depreciation
- Kanawha legacy 1,472 1,450 1,659 2,922 2,943
- KMG America
(KMGA) new
activity 2,566 2,302 2,333 4,868 3,919
Amortization of
DAC and VOBA - - - - -
--------- --------- --------- --------- ---------
Total benefits
and expenses 4,038 3,752 3,992 7,790 6,862
--------- --------- --------- --------- ---------
Income (loss)
before income
taxes $ (2,473) $ (2,090) $ (2,160) $ (4,563) $ (3,212)
============================= ===================
Income before
income taxes
excluding KMGA
new activity $ 93 $ 212 $ 173 $ 305 $ 707
Total assets $206,034 $211,677 $227,294 $206,034 $227,294
============================= ===================
RECLASSIFICATION OF HISTORICAL PRO FORMA SEGMENT QUARTERLY RESULTS
(Unaudited)
(in thousands)
Quarter Ended
-----------------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2006 2006 2005 2005 2005 2005
--------- --------- --------- --------- --------- ---------
Worksite
insurance
business -
Legacy:
Insurance
premiums,
net of
reinsur-
ance $ 14,159 $ 13,972 $ 13,912 $ 14,097 $ 14,932 $ 14,658
Net
invest-
ment
income 1,876 1,739 1,732 1,715 1,654 1,621
Commis-
sions and
fee
income - - - - - -
Realized
invest-
ment
gains - - - - - -
Other
income 50 46 42 40 41 49
--------- --------- --------- --------- --------- ---------
Total
revenues 16,085 15,757 15,686 15,852 16,627 16,328
Policy-
holder
benefits 9,964 10,241 9,327 10,838 10,551 10,850
Insurance
commis-
sions,
net of
deferrals 854 882 833 745 787 1,078
Expenses,
taxes,
fees and
depre-
ciation 2,323 2,271 2,539 2,414 2,503 2,695
Amorti-
zation of
DAC and
VOBA 332 584 766 992 894 820
--------- --------- --------- --------- --------- ---------
Total
benefits
and
expenses 13,473 13,978 13,465 14,989 14,735 15,443
--------- --------- --------- --------- --------- ---------
Income
before
income
taxes $ 2,612 $ 1,779 $ 2,221 $ 863 $ 1,892 $ 885
===========================================================
Benefit
ratio 70.4% 73.3% 67.0% 76.9% 70.7% 74.0%
===========================================================
Total
assets $156,794 $157,983 $160,712 $161,457 $161,556 $163,144
===========================================================
Quarter Ended
-----------------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Dec 31,
2006 2006 2005 2005 2005 2005
--------- --------- --------- --------- --------- ---------
Senior
market
insurance
business:
Insurance
premiums,
net of
reinsur-
ance $ 10,705 $ 10,675 $ 10,135 $ 10,376 $ 11,128 $ 10,601
Net
invest-
ment
income 2,272 2,050 1,922 1,781 1,599 1,454
Commis-
sions and
fee
income - - - - - -
Realized
invest-
ment
gains - - - - - -
Other
income 760 809 747 732 799 657
--------- --------- --------- --------- --------- ---------
Total
revenues 13,737 13,534 12,804 12,889 13,526 12,712
Policy-
holder
benefits 8,381 7,641 8,482 8,339 8,670 7,839
Insurance
commis-
sions,
net of
deferrals 1,269 1,367 1,240 1,294 1,472 1,489
Expenses,
taxes,
fees and
depre-
ciation 734 765 770 1,098 988 1,139
Amorti-
zation of
DAC and
VOBA 504 472 150 (392) 425 371
--------- --------- --------- --------- --------- ---------
Total
benefits
and
expenses 10,888 10,245 10,642 10,339 11,555 10,838
--------- --------- --------- --------- --------- ---------
Income
before
income
taxes $ 2,849 $ 3,289 $ 2,162 $ 2,550 $ 1,971 $ 1,874
===========================================================
Benefit
ratio 78.3% 71.6% 83.7% 80.4% 77.9% 73.9%
===========================================================
Total
assets $249,677 $239,985 $233,165 $225,457 $217,435 $209,281
===========================================================
RECLASSIFICATION OF HISTORICAL PRO FORMA SEGMENT QUARTERLY RESULTS
(Unaudited) - Continued
(in thousands)
Quarter Ended
-----------------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2006 2006 2005 2005 2005 2005
--------- --------- --------- --------- --------- ---------
Acquired
business:
Insurance
premiums,
net of
reinsur-
ance $ 631 $ 629 $ 1,579 $ 941 $ 661 $ 938
Net
invest-
ment
income 2,089 1,955 1,983 1,978 1,924 1,917
Commis-
sions and
fee
income - - - - - -
Realized
invest-
ment
gains - - - - - -
Other
income 23 16 18 20 18 13
--------- --------- --------- --------- --------- ---------
Total
revenues 2,743 2,600 3,580 2,939 2,603 2,868
Policy-
holder
benefits 2,617 2,399 2,376 2,089 1,355 1,741
Insurance
commis-
sions,
net of
deferrals 91 94 99 98 103 99
Expenses,
taxes,
fees and
depreci-
ation 593 608 695 675 667 704
Amorti-
zation of
DAC and
VOBA 125 (72) (276) (258) (105) (105)
--------- --------- --------- --------- --------- ---------
Total
benefits
and
expenses 3,426 3,029 2,894 2,604 2,020 2,439
--------- --------- --------- --------- --------- ---------
Income
before
income
taxes $ (683) $ (429) $ 686 $ 335 $ 583 $ 429
===========================================================
Benefit
ratio 414.7% 381.4% 150.5% 222.0% 205.0% 185.6%
===========================================================
Total
assets $164,917 $169,470 $170,702 $173,097 $174,942 $176,963
===========================================================
Quarter Ended
-----------------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2006 2006 2005 2005 2005 2005
--------- --------- --------- --------- --------- ---------
Corporate
and other
Insurance
premiums,
net of
reinsur-
ance $ - $ - $ - $ - $ - $ -
Net
invest-
ment
income 1,383 1,462 1,566 1,614 1,623 1,662
Commis-
sions and
fee
income 92 85 50 78 88 85
Realized
invest-
ment
gains - - - - - -
Other
income 90 115 89 407 121 71
--------- --------- --------- --------- --------- ---------
Total
revenues 1,565 1,662 1,705 2,099 1,832 1,818
Policy-
holder
benefits - - - - - -
Insurance
commis-
sions,
net of
deferrals - - - - - -
Expenses,
taxes,
fees and
depre-
ciation - - - - - -
- Kanawha
legacy 1,472 1,450 1,427 1,191 1,659 1,284
- KMG
America
(KMGA)
new
activity 2,566 2,302 1,866 1,919 2,333 1,586
Amorti-
zation of
DAC and
VOBA - - - - - -
--------- --------- --------- --------- --------- ---------
Total
benefits
and
expenses 4,038 3,752 3,293 3,110 3,992 2,870
--------- --------- --------- --------- --------- ---------
Income
before
income
taxes $ (2,473) $ (2,090) $ (1,588) $ (1,011) $ (2,160) $ (1,052)
===========================================================
Total
assets $206,034 $211,677 $221,683 $231,785 $227,294 $210,366
===========================================================
KMG America Corporation
Reconciliation of Operating Income and Consolidated Statements of
Income (Unaudited)
(in thousands)
KMG America Corporation: Quarter Ended Year-to-date
--------------------------- -----------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
-------- --------- -------- -------- --------
Net income as reported $ 1,017 $ 1,236 $ 714 $ 2,253 $ 1,734
Reconciliation to
operating income:
Exclude realized
investment
gains/losses, 115 (211) (19) (96) (46)
Exclude offsetting
deferred compensation
expense (1) (61) 197 - 136 -
Taxes on the above (19) 5 7 (14) 16
-------- --------- -------- -------- --------
Operating income $ 1,052 $ 1,227 $ 702 $ 2,279 $ 1,704
=============================================
KMG America Corporation
Reconciliation of Operating Income, Consolidated Statements of Income,
and Segment Assets (Unaudited)
(in thousands)
Senior Quarter Ended
market -----------------------------------------------------------
insurance Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
business: 2006 2006 2005 2005 2005 2005
--------- --------- --------- --------- --------- ---------
Income
(loss)
before
taxes as
reported $(36,239) $ 1,756 $ 1,030 $ 1,458 $ 1,003 $ 926
Reconcili-
ation to
operating
income:
Reallo-
cation of
invest-
ment
income
(1) 706 639 625 586 462 442
Reallo-
cation of
policy
reserves
(1) 38,382 894 507 506 506 506
--------- --------- --------- --------- --------- ---------
Pro forma
income
before
taxes 2,849 3,289 2,162 2,550 1,971 1,874
Taxes @
35% (997) (1,151) (757) (893) (690) (656)
--------- --------- --------- --------- --------- ---------
Pro forma
operating
income
after
taxes $ 1,852 $ 2,138 $ 1,405 $ 1,658 $ 1,281 $ 1,218
===========================================================
Assets as
reported $249,677 $201,603 $193,889 $185,675 $177,147 $168,486
Reallo-
cation of
assets
(1) - 38,382 39,276 39,782 40,288 40,795
--------- --------- --------- --------- --------- ---------
Pro forma
assets $249,677 $239,985 $233,165 $225,457 $217,435 $209,281
===========================================================
Acquired Quarter Ended
business: -----------------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2006 2006 2005 2005 2005 2005
--------- --------- --------- --------- --------- ---------
Income
before
taxes as
reported $ 31,744 $ 773 $ 1,214 $ 769 $ 1,120 $ 1,121
Reconcili-
ation to
operating
income:
Reallo-
cation of
invest-
ment
income
(1) (17) (26) 19 112 9 (146)
Reallo-
cation of
policy
reserves
(1) (32,410) (1,176) (547) (546) (546) (546)
--------- --------- --------- --------- --------- ---------
Pro forma
income
before
taxes (683) (429) 686 335 583 429
Taxes @
35% 239 150 (240) (117) (204) (150)
--------- --------- --------- --------- --------- ---------
Pro forma
operating
income
after
taxes $ (444) $ (279) $ 446 $ 218 $ 379 $ 279
===========================================================
Assets as
reported $164,917 $201,880 $204,288 $207,229 $209,620 $212,188
Reallo-
cation of
assets
(1) - (32,410) (33,586) (34,132) (34,678) (35,225)
--------- --------- --------- --------- --------- ---------
Pro forma
assets $164,917 $169,470 $170,702 $173,097 $174,942 $176,963
===========================================================
(1) Pro forma reconciling adjustments reflect the reclassification of
policy reserves, assets and corresponding investment income
between Kanawha legacy reporting segments that relate to the
implementation of the final purchase GAAP reserves as if the
implementation occurred as of December 31, 2004. The
reclassifications by segment did not impact total company results.
KMG America Corporation
Reconciliation of Operating Income, Consolidated Statements of Income,
and Segment Assets (Unaudited) - Continued
(in thousands)
Worksite Quarter Ended
insurance -----------------------------------------------------------
business: Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2006 2006 2005 2005 2005 2005
--------- --------- --------- --------- --------- ---------
Income
before
taxes as
reported $ 7,185 $ 31 $ 499 $ (823) $ 119 $ 146
Reconcili-
ation to
operating
income:
Reallo-
cation
of
invest-
ment
income
(1) 112 144 130 178 51 (161)
Reallo-
cation
of
policy
reserves
(1) (5,972) 282 40 40 40 40
--------- --------- --------- --------- --------- ---------
Pro forma
income
before
taxes 1,325 457 669 (605) 210 25
Taxes @
35% (464) (160) (234) 212 (74) (9)
--------- --------- --------- --------- --------- ---------
Pro forma
operating
income
after
taxes $ 861 $ 297 $ 435 $ (393) $ 137 $ 16
===========================================================
Assets as
reported $163,926 $168,693 $166,402 $167,107 $167,166 $168,714
Reallo-
cation
of
assets
(1) - (5,972) (5,690) (5,650) (5,610) (5,570)
--------- --------- --------- --------- --------- ---------
Pro forma
assets $163,926 $162,721 $160,712 $161,457 $161,556 $163,144
===========================================================
Corporate Quarter Ended
& other: -----------------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2006 2006 2005 2005 2005 2005
--------- --------- --------- --------- --------- ---------
Income
before
taxes as
reported $ (1,726) $ (1,319) $ (893) $ 2 $ (1,619) $ (890)
Reconcili-
ation to
operating
income:
Exclude
realized
invest-
ment
gains/
losses, 115 (211) (34) (278) (19) (27)
Exclude
offset-
ting
deferred
compen-
sation
expense
(2) (61) 197 113 141 - -
Reallo-
cation
of
invest-
ment
income
(1) (801) (757) (774) (876) (522) (135)
--------- --------- --------- --------- --------- ---------
Pro forma
income
before
taxes (2,473) (2,090) (1,588) (1,011) (2,160) (1,052)
Taxes 881 752 1,296 1,836 856 361
--------- --------- --------- --------- --------- ---------
Pro forma
operating
income
after
taxes $ (1,592) $ (1,338) $ (292) $ 825 $ (1,304) $ (691)
===========================================================
(1) Pro forma reconciling adjustments reflect the reclassification of
policy reserves, assets and corresponding investment income
between Kanawha legacy reporting segments that relate to the
implementation of the final purchase GAAP reserves as if the
implementation occurred as of December 31, 2004. The
reclassifications by segment did not impact total company results.
(2) Offsetting expense for realized gains(losses) related to executive
deferred compensation trading activity
KMG America Corporation
Statistical and Operating Data at or for the Periods Indicated
(in thousands, except percentages)
OTHER FINANCIAL DATA
Unaudited
Quarter Ended Year-to-Date
----------------------------- -------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------
Sales - issued and
paid for annualized
premiums:
Worksite insurance
segment - Kanawha
Legacy
Life $ 623 $ 402 $ 677 $ 1,025 $ 1,296
Cancer 441 486 430 927 938
Disability income 633 633 933 1,266 2,244
Other A&H 276 210 315 486 974
--------- --------- --------- --------- ---------
Total worksite -
Kanawha Legacy 1,973 1,731 2,355 3,704 5,452
Worksite insurance
segment - KMG
America (KMGA) New
Activity
Core Group Products:
Life $ 180 $ 1,151 $ - $ 1,331 $ -
Stop loss 5,487 12,776 1,128 18,263 1,128
Disability income 40 149 - 189 -
Other A&H - - - - -
Voluntary Benefit
Products:
Life 935 122 9 1,057 9
Cancer 64 41 80 105 80
Disability income 1,165 1,278 591 2,443 591
Other A&H 365 336 1 701 1
--------- --------- --------- --------- ---------
Total worksite -
KMGA New
Activity 8,236 15,853 1,809 24,089 1,809
Senior market
insurance segment
Long term care 52 303 549 355 996
--------- --------- --------- --------- ---------
Total senior
market insurance 52 303 549 355 996
--------- --------- --------- --------- ---------
Total sales $ 10,261 $ 17,887 $ 4,713 $ 28,148 $ 8,257
=================================================
Quarter Ended Year-to-Date
---------------------------- --------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------
Segment pro forma
benefit ratios: (1)
Worksite insurance
- Kanawha legacy 70.4% 73.3% 70.7% 71.8% 72.3%
Worksite insurance
- KMGA new
activity 66.1% 67.7% n/a 66.8% n/a
Senior market
insurance 78.3% 71.6% 77.9% 74.9% 76.0%
Acquired business 414.7% 381.4% 205.0% 398.1% 193.6%
Total company 79.5% 78.3% 77.0% 78.9% 77.5%
(1) benefit ratio is defined as total policyholder benefits divided by
total net premiums. Pro forma results restate the segment benefit
ratios as if the finalized purchase GAAP reserving methodology
adopted in the second quarter of 2006 was in place since December
31, 2004.
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