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CITATION INSURANCE NET INCOME UP 64 PERCENT IN SECOND QUARTER; DENVER BRANCH OPENS

 SAN JOSE, Calif., July 27 /PRNewswire/ -- Citation Insurance Group (NASDAQ: CITN) today announced that net income for the second quarter of 1993 was $1.1 million, or 28 cents per share on 4.0 million shares outstanding. This was an increase in net income of 64 percent from $0.7 million, or 16 cents per share on 4.2 million shares in the second quarter of 1992.
 For the first six months, net income was $5.5 million, including a one-time adjustment of $3.5 million in the first quarter for the cumulative effect of the change in accounting for income taxes. Net income before the cumulative effect of the change in accounting for income taxes was $2.0 million, or 49 cents per share on 4.0 million shares outstanding, up 51 percent from $1.3 million, or 32 cents per share on 4.2 million shares outstanding in the first half of 1992.
 In other news, the company opened a branch office in Denver, Colo., on July 1, its second office outside of California. Also, the company has submitted the necessary regulatory filings related to the planned merger with Madison Capital Inc., which will substantially expand Citation's commercial property and casualty business. The parties executed the definitive merger agreement on June 11, 1993.
 On July 16, Gov. Pete Wilson signed into law a package of five bills intended to reform the workers' compensation system in California. Some of the key provisions of this package include restricting the ability to file stress claims, increasing anti-fraud measures, increasing benefit levels and reducing rates. An additional bill, which would replace California's long-standing minimum rate law with a competitive rating law, is still awaiting the governor's action. Citation has encouraged the governor to sign this bill, S.B. 30.
 Don Young, president and chief executive officer, said, "I am pleased with our results for the quarter and the solid progress we are making in planning the integration of Madison into Citation. At the same time, our increased marketing efforts for Citation's commercial property and casualty products are generating substantial growth, and we are rapidly gaining momentum in our expansion into other western states. The California legislature finally did its job and passed what we hope to be some meaningful reforms of workers' compensation. However, we expect no immediate relief; savings in loss costs will be gradual, whereas the rate reduction will have an immediate impact on rates which we believe are already inadequate."
 Commercial Property and Casualty Maintains Brisk Growth in Second Quarter
 For the three months ended June 30, 1993, net premiums written increased $1.8 million, or 10 percent over the same period in 1992. This increase was attributable entirely to the 50 percent increase in commercial property and casualty premiums from $3.6 million in the second quarter of 1992 to $5.4 million in the second quarter of 1993. Workers' compensation net premiums written were approximately even for those same periods. However, as a result of the company's shift in emphasis away from larger-premium workers' compensation business which began in mid-1992, the number of policies incepting during the second quarter of 1993 were triple those incepting during the second quarter of 1992 and the average premium size of those policies declined to $15,000 from $40,500 in the same period in 1992.
 Net premiums earned in the second quarter of 1993 were $17.7 million unchanged from the second quarter last year. Workers' compensation net premiums earned were $13.7 million, down 10 percent from $15.3 million in the second quarter of 1992, but net premiums earned for the commercial property and casualty business segment were $4.0 million, an increase of 68 percent from $2.4 million in the same quarter of last year.
 Said Young, "We are moving along well in our plans to tip the balance of our business toward the more profitable commercial property and casualty segment, and we have substantially completed our strategy not to renew the bulk of our larger-premium workers' compensation policies. This quarter we have also seen a very encouraging increase in the number of smaller worker's compensation policies we have been targeting. Our branch office underwritng and marketing people have done a truly commendable job of shifting our market emphasis."
 Net investment income was $2.6 million for the quarter, an increase of 16 percent from the second quarter of 1992. Total revenues for the second quarter were $20.6 million, 3 percent higher than the second quarter last year.
 Loss and loss adjustment expenses decreased 3 percent in the second quarter of 1993 from the second quarter of 1992. The loss ratio improved to 81.6 percent from 84.0 percent in the second quarter of 1992. This improvement was primarily due to a greater portion of total net earned premiums being attributable to the company's more profitable commercial property and casualty business in 1993 than in the same period in 1992.
 Policy acquisition costs and other underwriting expense increased 15 percent in the second quarter of 1993 over the same quarter in 1992. As a percentage of net premiums earned, these expenses were 24.8 percent in the second quarter compared with 21.6 percent in the same quarter of 1992. This increase in the underwriting expense ratio was due primarily to the relatively higher commission expense and other operating costs associated with the commercial property and casualty business segment and the higher average rates of workers' compensation commissions which accompanied the shift in mix of business to lower premium size policies. Dividends to policyholders decreased 59 percent in the second quarter of 1993 compared with 1992, primarily due to the shift in the mix of workers' compensation business to smaller premium sized policies, which generally result in lower policyholder dividends.
 Six Month Results
 In the first six months of 1993, net premiums written decreased $1.5 million, or 4 percent from the same period in 1992. This was the net result of a decrease of approximately $4.5 million in workers' compensation premiums and an increase of approximately $3.0 million in property and casualty premiums over the same period.
 The 14 percent decrease in workers' compensation premiums during the first half of 1993 compared with the first half of 1992 was primarily a result of the company's shift in emphasis away from larger-premium business which began in mid 1992 and, to a lesser extent, the continuing recession in California. While the number of policies incepting more than doubled through the first half of 1993, the average premium size of these policies declined to $18,700, compared with $44,200 for policies incepting through the first six months of 1992. As a result of management's continuing plans to significantly increase the company's volume of property and casualty business, increased marketing efforts generated a 46 percent increase in net property and casualty premiums written during the first half of 1993 from the first half of 1992.
 Net premiums earned decreased 5 percent in the first six months of 1993 from the same 1992 period. This was the net result of a reduction of approximately $4.8 million in workers' compensation premiums and an increase of approximately $3.1 million in property and casualty premiums. For the six months ended June 30, 1993, 22 percent of net premiums earned related to property and casualty premiums compared to 12 percent in the same 1992 period. Net investment income was $5.0 million, an 11 percent increase from the first half of 1992.
 Net income for the six months, before the cumulative effect of the change in accounting for income tax, was $2.0 million, or 49 cents per share on 4.0 million shares outstanding, up 51 percent from $1.3 million, or 32 cents per share on 4.2 million shares outstanding in the first half of 1992.
 California Workers' Compensation Reform -- A Start
 "Make no mistake," said Young, "just as the new workers' compensation reform laws are not going to make California's economy suddenly spring to life, they will not regenerate instant underwriting health for the industry. In point of fact, the mandated rate reduction on a line of business already inadequately priced will, in the short run, inflict more pain on the insurance industry, while the reform measures will only gradually make up some of the difference.
 "I will quickly add that this reform package is a tremendous step in the right direction in terms of going after the real cost drivers in the system and putting some teeth in the law. It shows me that the California legislature can work cooperatively and get a job done reasonably well when supplied with sufficient motivation."
 Western States Expansion Accelerates
 The company opened a branch office in Denver on July 1, staffed by a branch manager who has extensive experience in the Rocky Mountain states. The new office will market and underwrite commercial property and casualty business initially in Colorado, followed by Utah, where Citation became admitted to do business during the second quarter. The company was also recently admitted to do business in Hawaii, and has one final requirement pending for admission to New Mexico. The company is also preparing to begin business in Nevada during the third quarter, through its Phoenix office in the southern portion of Nevada and through its Sacramento, Calif., office in the northern portion of the state. The company is also evaluating the potential for writing workers' compensation business profitably in Arizona and Colorado.
 Merger Update
 All appropriate filings have been made and legal documents prepared for the proposed merger with Madison. Pending the approvals of the various regulatory agencies and the respective shareholders of Citation and Madison, joint planning is proceeding vigorously for all the various aspects of the merger, including marketing, organization, facilities and systems. Said Young, "We fully intend to hit the ground running!"
 Headquartered in San Jose, Citation Insurance Group is a regional multiple-line specialist operating in tightly focused segments of the workers' compensation and commercial property and casualty marketplace, through its insurer subsidiary, Citation Insurance Co. Citation's 4.2 million common shares are traded on the NASDAQ National Market System, symbol: CITN. Citation Insurance Co. is rated B++ (Very Good) by the A.M. Best Co. The company has approximately 170 employees at offices in San Jose, Tustin, Sacramento, San Diego, Fresno, Calif,; Phoenix and Denver.
 Additional information can be obtained on Citation Insurance Group via fax, at no cost. Dial 800-PRO-INFO, code No. 108.
 -0- 7/27/93
 /CONTACT: Dennis J. Pastirik, chief financial officer of Citation Insurance Group, 408-292-0222; or Lise Needham of The Financial Relations Board, 415-986-1591, for Citation Insurance/
 (CITN)


CO: Citation Insurance Group ST: California, Colorado IN: INS SU: ERN

LH-JH -- SF005 -- 6073 07/27/93 09:02 EDT
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Date:Jul 27, 1993
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