Zenith Announces Second Quarter Results.WOODLAND HILLS, Calif. -- Zenith zenith, in astronomy, the point in the sky directly overhead; more precisely, it is the point at which the celestial sphere is intersected by an upward extension of a plumb line from the observer's location. National Insurance Corp. (NYSE NYSE See: New York Stock Exchange :ZNT ZNT Zenith National Insurance Corp ZNT Zinc Transporter ZNT Zeitschrift für Neues Testament (German) ZNT Zentrum Neue Technologien (German) ZNT Journal Library for Natural Sciences and Technology ) reported net income of $46.4 million, or $1.90 per share, for the second quarter of 2005 compared to net income of $24.8 million, or $1.06 per share, for the second quarter of 2004. Net income for the six months ended June June: see month. 30, 2005 was $85.7 million, or $3.54 per share, compared to net income for the six months ended June 30, 2004 of $49.9 million, or $2.15 per share. Net income in the second quarter and six months of 2005 includes a holding company expense of $3.4 million after tax, or $0.14 per share, paid in connection with the conversion, in April 2005, of $80.3 million aggregate principal amount of the Convertible Notes. Also, net income includes realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. on investments after tax of $10.6 million, or $0.43 per share, in the second quarter of 2005 compared to $1.2 million, or $0.05 per share, in the second quarter of 2004. Net income includes realized gains on investments after tax of $12.5 million, or $0.51 per share, in the six months ended June 30, 2005 compared to $3.7 million, or $0.15 per share, in the six months ended June 30, 2004. Income from the workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. and 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. segments were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in Thousands) 2005 2004 2005 2004
------------------------------- -------- ---------- --------- --------
Income Before Tax From (1):
Workers' Compensation
Segment $42,864 $22,134 $84,025 $41,938
Reinsurance Segment 2,542 2,453 4,949 4,492
(1) Income from the workers' compensation and reinsurance segments
does not include any investment income, as described in the
supplemental financial information contained in this press
release.
-0-
Workers' compensation net premiums earned increased approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 29% in the three months and in the six months ended June 30, 2005 compared to the corresponding periods of 2004. In California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). , workers' compensation net premiums earned increased approximately 28% in the three months and in the six months ended June 30, 2005 compared to the corresponding periods of 2004. The combined ratio for the workers' compensation segment for the six months ended June 30, 2005 was 85.0% compared to 90.3% for the six months ended June 30, 2004. The combined ratio for the reinsurance segment for the six months ended June 30, 2005 was 78.9% compared to 79.8% for the six months ended June 30, 2004. Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: net cash flow from operating activities was $202.0 million for the six months ended June 30, 2005 compared to $165.8 million for the six months ended June 30, 2004. Consolidated stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. per share at June 30, 2005, March 31, 2005, December December: see month. 31, 2004 and June 30, 2004 was $27.56, $26.55, $25.92 and $21.81, respectively. Return on average equity in the six months ended June 30, 2005 was 31.1% compared to 24.4% in the corresponding period of 2004, and 27.2% in the year ended December 31, 2004. Commenting on the results, Stanley Stanley, town (1991 pop. 1,557), capital of the Falkland Islands, S Atlantic Ocean, on East Falkland island. It is the main port and trading center of the islands. The name is sometimes written as Port Stanley. R. Zax zax n. A tool similar to a hatchet, used for cutting and dressing roofing slates. [Variant of sax, from Middle English, knife, from Old English seax; see sek- , Chairman & President, said: "The second quarter benefited from continued favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. claim cost trends, combined ratios and growth of investment income and provides the basis for optimism Optimism See also Hope. Bontemps, Roger personification of cheery contentment. [Fr. Lit.: “Roger Bontemps” in Walsh Modern, 66] Candide beset by inconceivable misfortunes, hero indifferently shrugs them off. [Fr. about our future. Also, as previously reported, our balance sheet was significantly strengthened by the conversion into equity of $80.3 million of convertible debt resulting in a conservative ratio of debt to debt and equity of 14%. "There is a good level of positive momentum on the cost saving side due to the California reforms, which has led to a more robust and competitive market with more choices for employers, but as we have previously stated, the long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. outcome of the reforms is unknowable un·know·a·ble adj. Impossible to know, especially being beyond the range of human experience or understanding: the unknowable mysteries of life. for several years. Our strategy gives proper weight to our customers' desires for lower prices and our shareholders' desires for a fair return on equity. Continuation continuation - continuation passing style of the favorable cost trends will be beneficial to our customers and shareholders." 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 provides a 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. for 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. if accompanied ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed. Forward-looking statements include those related to the plans and objectives of management for future operations, future economic performance, or projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure, or other financial items. Statements containing words such as expect, anticipate, believe, estimate or similar words that are used in this release or in other written or oral information conveyed by or on behalf of Zenith are intended to identify forward-looking statements. Zenith undertakes no obligation to update such forward-looking statements, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the following: (1) competition; (2) adverse state and federal legislation and regulation; (3) changes in interest rates causing fluctuations of investment income and fair values of investments; (4) changes in the frequency and severity of claims and catastrophes; (5) adequacy of loss reserves; (6) changing environment for controlling medical, legal and rehabilitation rehabilitation: see physical therapy. costs, as well as fraud and abuse; (7) losses associated with any terrorist attacks that impact our workers' compensation business in excess of our reinsurance protection; and (8) other risks detailed herein and from time to time in Zenith's reports and filings with the Securities and Exchange Commission.
ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2005 2004 2005 2004
(In thousands, except per
share)
TOTAL REVENUES $332,183 $247,821 $637,901 $491,218
SELECTED INCOME DATA:
Net Investment Income after
Tax $ 12,817 $ 9,707 $ 24,392 $ 19,819
Realized Gains on Investments
after Tax 10,629 1,211 12,494 3,687
-------- -------- -------- --------
Income from Investment
Segment after Tax $ 23,446 $ 10,918 $ 36,886 $ 23,506
Net Income (1) $ 46,400 $ 24,800 $ 85,700 $ 49,900
NET INCOME PER COMMON SHARE (1):
Basic (2) $ 2.04 $ 1.29 $ 4.06 $ 2.61
Diluted (3) 1.90 1.06 3.54 2.15
STOCKHOLDERS' EQUITY:
Stockholders' Equity $631,705 $420,492
Stockholders' Equity per Share 27.56 21.81
Number of Common Shares:
Outstanding (2) 22,924 19,278
Weighted Average for the
Period - Basic (2) 22,764 19,179 21,097 19,097
Weighted Average for the
Period - Diluted (3) 24,696 24,503 24,663 24,390
(1) The three and six months ended June 30, 2005 include an expense of
$3.4 million after tax, or $0.14 per share, paid in connection
with the conversion in April 2005 of $80.3 million aggregate
principal amount of our 5.75% Convertible Senior Notes due 2023
(the "Convertible Notes") and $1.5 million after tax, or $0.06 per
share, of adverse loss development relating to the 2004 Florida
hurricanes recognized by Advent Capital (Holdings) PLC ("Advent
Capital"). Because Advent Capital recently sold additional common
stock in a public offering, we will no longer account for our
investment under the equity method after the second quarter of
2005.
(2) Outstanding shares at June 30, 2005 includes 3.2 million shares
issued in April 2005 in connection with the conversion of $80.3
million aggregate principal amount of Convertible Notes. Basic
average outstanding shares for the three and six months ended June
30, 2005 includes 3.2 million and 1.6 million, respectively, of
shares that were issued in connection with the conversion of $80.3
million aggregate principal amount of Convertible Notes.
(3) Diluted average outstanding shares include the impact of all
additional shares that would be issuable in connection with
conversion of all of the Convertible Notes. This represents an
additional 1.8 million and 3.4 million shares for the three and
six months ended June 30, 2005, respectively, and an additional
5.0 million shares for each of the three and six months ended June
30, 2004. After tax interest expense associated with the
Convertible Notes of $0.5 million and $1.7 million for the three
and six months ended June 30, 2005, respectively, and $1.3 million
and $2.5 million for the three and six months ended June 30, 2004,
respectively, is added back to net income in computing diluted
earnings per share.
ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)
Six Months Ended
June 30,
------------------
2005 2004
(In thousands)
TOTAL REVENUES:
Net Premiums Earned (1) $582,497 $456,630
Net Investment Income 36,182 28,916
Realized Gains on Investments 19,222 5,672
-------- --------
$637,901 $491,218
======== ========
RESULTS OF OPERATIONS BY SEGMENT (2):
Income from Investment Segment:
Net Investment Income $ 36,182 $ 28,916
Realized Gains on Investments 19,222 5,672
-------- --------
55,404 34,588
Workers' Compensation Segment 84,025 41,938
Reinsurance Segment 4,949 4,492
Parent Segment (3) (13,667) (9,390)
-------- --------
Income from Continuing Operations before Tax 130,711 71,628
and Equity in Earnings of Investee
Income Tax Expense 45,805 24,494
-------- --------
Income from Continuing Operations after Tax 84,906 47,134
and before Equity in Earnings of Investee
Equity in Earnings of Investee after Tax (4) 794 2,766
-------- --------
NET INCOME $ 85,700 $ 49,900
======== ========
(1) Net premiums earned in the six months ended June 30, 2004 are net
of $47.8 million of ceded premiums earned in connection with a 10%
ceded quota share reinsurance agreement which was terminated
effective December 31, 2004.
(2) See Supplemental Financial Information for a description of
segment results.
(3) Includes interest expense before tax of $5.3 million and $6.5
million for the six months ended June 30, 2005 and 2004,
respectively. Also, the six months ended June 30, 2005 includes an
expense of $4.7 million before tax ($3.4 million after tax, or
$0.14 per share) paid in connection with the conversion in April
2005 of $80.3 million aggregate principal amount of the
Convertible Notes.
(4) For the six months ended June 30, 2005, our share of Advent
Capital net income includes $1.5 million after tax, or $0.06 per
share, of adverse loss development relating to the 2004 Florida
hurricanes recognized by Advent Capital. Because Advent Capital
recently sold additional common stock in a public offering, we
will no longer account for our investment under the equity method
after the second quarter of 2005.
ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)
(In thousands) Six Months Ended June 30,
--------------------------------
2005 2004
PROPERTY-CASUALTY INSURANCE
OPERATIONS:
Gross Premiums Written (1):
Workers' Compensation:
California $405,398 65.1% $377,663 66.4%
Outside California 188,871 30.4% 166,016 29.2%
-------- ------ -------- ------
Total Workers' Compensation 594,269 95.5% 543,679 95.6%
Reinsurance 28,143 4.5% 25,113 4.4%
-------- ------ -------- ------
622,412 100.0% 568,792 100.0%
Net Premiums Written (1):
Workers' Compensation:
California 389,166 65.0% 326,154 65.9%
Outside California 181,732 30.3% 143,925 29.1%
-------- ------ -------- ------
Total Workers' Compensation (2) 570,898 95.3% 470,079 95.0%
Reinsurance 28,180 4.7% 24,979 5.0%
-------- ------ -------- ------
599,078 100.0% 495,058 100.0%
Net Premiums Earned:
Workers' Compensation:
California 383,533 65.8% 298,991 65.5%
Outside California 175,526 30.2% 135,441 29.6%
-------- ------ -------- ------
Total Workers' Compensation (2) 559,059 96.0% 434,432 95.1%
Reinsurance 23,438 4.0% 22,198 4.9%
-------- ------ -------- ------
582,497 100.0% 456,630 100.0%
Income before Tax/Combined Ratio of:
Workers' Compensation (1) 84,025 85.0% 41,938 90.3%
Reinsurance (1) 4,949 78.9% 4,492 79.8%
COMBINED LOSS AND EXPENSE RATIOS:
Workers' Compensation:
Losses and Loss Adjustment
Expenses 59.4% 66.8%
Underwriting and Other Operating
Expenses (3) 25.6% 23.5%
------ ------
Combined Ratio 85.0% 90.3%
Reinsurance:
Loss and Loss Adjustment Expenses 64.2% 50.5%
Underwriting and Other Operating
Expenses 14.7% 29.3%
------ ------
Combined Ratio 78.9% 79.8%
(1) See Supplemental Financial Information for a description of
segment results, "Combined Ratio" and "Premiums Written."
(2) Premiums for the six months ended June 30, 2004 are net of $51.7
million of ceded premiums written and $47.8 million of ceded
premiums earned in connection with a 10% ceded quota share
reinsurance agreement which was terminated effective December 31,
2004.
(3) The underwriting and other operating expense ratio for the
workers' compensation segment is higher in the six months ended
June 30, 2005 by approximately two percentage points as compared
to the same period in 2004 due to the absence in 2005 of ceding
commissions received in 2004 under the 10% ceded quota share
agreement which was terminated effective December 31, 2004.
ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)
Three Months Ended
June 30,
------------------
2005 2004
(In thousands)
TOTAL REVENUES:
Net Premiums Earned (1) $296,780 $231,917
Net Investment Income 19,051 14,041
Realized Gains on Investments 16,352 1,863
-------- --------
$332,183 $247,821
======== ========
RESULTS OF OPERATIONS BY SEGMENT (2):
Income from Investment Segment:
Net Investment Income $ 19,051 $ 14,041
Realized Gains on Investments 16,352 1,863
-------- --------
35,403 15,904
Workers' Compensation Segment 42,864 22,134
Reinsurance Segment 2,542 2,453
Parent Segment (3) (8,351) (4,612)
-------- --------
Income from Continuing Operations before Tax 72,458 35,879
and Equity in (Losses) Earnings of Investee
Income Tax Expense 25,682 12,145
-------- --------
Income from Continuing Operations after Tax 46,776 23,734
and before Equity in (Losses) Earnings of
Investee
Equity in (Losses) Earnings of Investee after
Tax (4) (376) 1,066
-------- --------
NET INCOME $ 46,400 $ 24,800
======== ========
(1) Net premiums earned in the three months ended June 30, 2004 are
net of $24.4 million of ceded premiums earned in connection with a
10% ceded quota share reinsurance agreement which was terminated
effective December 31, 2004.
(2) See Supplemental Financial Information for a description of
segment results.
(3) Includes interest expense before tax of $2.0 million and $3.3
million for the three months ended June 30, 2005 and 2004,
respectively. Also, the three months ended June 30, 2005 includes
an expense of $4.7 million before tax ($3.4 million after tax, or
$0.14 per share) paid in connection with the conversion in April
2005 of $80.3 million aggregate principal amount of the
Convertible Notes.
(4) For the three months ended June 30, 2005, our share of Advent
Capital's net loss includes $1.5 million after tax, or $0.06 per
share, of adverse loss development relating to the 2004 Florida
hurricanes recognized by Advent Capital. Because Advent Capital
recently sold additional common stock in a public offering, we
will no longer account for our investment under the equity method
after the second quarter of 2005.
ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)
(In thousands) Three Months Ended June 30,
---------------------------------
2005 2004
PROPERTY-CASUALTY INSURANCE
OPERATIONS:
Gross Premiums Written (1):
Workers' Compensation:
California $200,913 67.0% $188,272 68.5%
Outside California 91,228 30.4% 79,340 28.9%
-------- ------ -------- ------
Total Workers' Compensation 292,141 97.4% 267,612 97.4%
Reinsurance 7,917 2.6% 7,166 2.6%
-------- ------ -------- ------
300,058 100.0% 274,778 100.0%
Net Premiums Written (1):
Workers' Compensation:
California 192,576 66.8% 162,381 68.2%
Outside California 87,649 30.5% 68,643 28.8%
-------- ------ -------- ------
Total Workers' Compensation (2) 280,225 97.3% 231,024 97.0%
Reinsurance 7,869 2.7% 7,129 3.0%
-------- ------ -------- ------
288,094 100.0% 238,153 100.0%
Net Premiums Earned:
Workers' Compensation:
California 197,042 66.4% 153,938 66.4%
Outside California 88,522 29.8% 67,308 29.0%
-------- ------ -------- ------
Total Workers' Compensation (2) 285,564 96.2% 221,246 95.4%
Reinsurance 11,216 3.8% 10,671 4.6%
-------- ------ -------- ------
296,780 100.0% 231,917 100.0%
Income before Tax/Combined Ratio of:
Workers' Compensation (1) 42,864 85.0% 22,134 90.0%
Reinsurance (1) 2,542 77.3% 2,453 77.0%
COMBINED LOSS AND EXPENSE RATIOS:
Workers' Compensation:
Losses and Loss Adjustment
Expenses 59.2% 66.2%
Underwriting and Other Operating
Expenses (3) 25.8% 23.8%
------ ------
Combined Ratio 85.0% 90.0%
Reinsurance:
Loss and Loss Adjustment Expenses 65.0% 44.3%
Underwriting and Other Operating
Expenses 12.3% 32.7%
------ ------
Combined Ratio 77.3% 77.0%
(1) See Supplemental Financial Information for a description of
segment results, "Combined Ratio" and "Premiums Written."
(2) Premiums in the three months ended June 30, 2004 are net of $25.5
million of ceded premiums written and $24.4 million of ceded
premiums earned in connection with a 10% ceded quota share
reinsurance agreement which was terminated effective December 31,
2004.
(3) The underwriting and other operating expense ratio for the
workers' compensation segment is higher in the three months ended
June 30, 2005 by approximately two percentage points as compared
to the same period in 2004 due to the absence in 2005 of ceding
commissions received in 2004 under the 10% ceded quota share
agreement which was terminated effective December 31, 2004.
ZENITH NATIONAL INSURANCE CORP.
Supplemental Financial Information (Unaudited)
HOW WE REPORT ON OUR RESULTS
Our business is comprised of the following segments: investments;
workers' compensation; reinsurance; and parent. Our real estate
segment was discontinued in 2002. Results of the investments segment
include investment income and realized gains and losses on investments
and we do not allocate investment income to our workers' compensation
and reinsurance segments. Income (loss) before tax from the workers'
compensation and reinsurance segments is determined solely by
deducting losses and loss adjustment expenses incurred and
underwriting and other operating expenses incurred from net premiums
earned. The parent segment loss includes interest expense and the
general operating expenses of Zenith National Insurance Corp.
Combined Ratios
The combined ratios, expressed as a percentage, are key measurements
of profitability traditionally used in the property-casualty insurance
business. The ratios discussed in this press release are calculated
using GAAP financial results (defined as accounting principles
generally accepted in the United States of America). The combined
ratio is the sum of the loss and loss adjustment expense ratio and the
underwriting and other operating expense ratio. The loss and loss
adjustment expense ratio is the percentage of net incurred loss and
loss adjustment expenses to net premiums earned. The underwriting and
other operating expense ratio is the percentage of underwriting and
other operating expenses to net premiums earned.
NON-GAAP MEASURES
In addition to financial measures presented in the consolidated
financial statements prepared in accordance with GAAP, we also use
certain non-GAAP financial measures to analyze and report our
financial results. Management believes that these non-GAAP measures,
when used in conjunction with the consolidated financial statements,
can aid in understanding our financial condition and results of
operations. These non-GAAP measures are not a substitute for GAAP
measures, and where these measures are described we provide
information that reconciles the non-GAAP measures to the GAAP measures
reported in our consolidated financial statements.
Premiums Written
Gross premiums written is a non-GAAP financial measure representing
the amount of premiums we have billed to our policyholders in the
applicable period. It is indicative of the amount of cash premium
before commission expense that we expect to receive from our policies
for the applicable period. Net premiums written represent the amount
of premiums we have billed to our policyholder in the applicable
period less the cost of any reinsurance ceded. Net premiums earned,
the most comparable GAAP measure, represents the portion of premiums
written that is recognized as earned in the financial statements for
the periods presented. Premiums are earned on a pro-rata basis over
the term of the policies or reinsurance contracts. The following table
provides a reconciliation of gross premiums written and net premiums
written to net premiums earned:
(In thousands) Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2005 2004 2005 2004
Workers' Compensation:
Gross Premiums Written $292,141 $267,612 $594,269 $543,679
Ceded Premiums (11,916) (36,588) (23,371) (73,600)
-------- -------- -------- --------
Net Premiums Written 280,225 231,024 570,898 470,079
Change in Unearned
Premiums, Net of
Reinsurance 5,339 (9,778) (11,839) (35,647)
-------- -------- -------- --------
Net Premiums Earned $285,564 $221,246 $559,059 $434,432
======== ======== ======== ========
Reinsurance:
Gross Premiums Written $ 7,917 $ 7,166 $ 28,143 $ 25,113
Ceded Premiums (48) (37) 37 (134)
-------- -------- -------- --------
Net Premiums Written 7,869 7,129 28,180 24,979
Change in Unearned
Premiums, Net of
Reinsurance 3,347 3,542 (4,742) (2,781)
-------- -------- -------- --------
Net Premiums Earned $ 11,216 $ 10,671 $ 23,438 $ 22,198
======== ======== ======== ========
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