Other
PMA Capital Reports Improved Third Quarter 2009 Results
POSTED BY STEVEN WEVODAU
- Press Release
- Source: PMA Capital Corporation
- On 4:06 pm EST, Tuesday November 3, 2009
BLUE BELL, Pa.–(BUSINESS WIRE)–PMA Capital Corporation (NASDAQ:PMACA - News) today reported the following financial results for the third quarter and first nine months of 2009:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands, except per share data) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Operating income before gain on sale of real estate | $ | 6,732 | $ | 6,405 | $ | 18,622 | $ | 16,593 | ||||||||
| Gain on sale of real estate after tax | - | - | - | 1,378 | ||||||||||||
| Operating income | 6,732 | 6,405 | 18,622 | 17,971 | ||||||||||||
| Realized investment gains (losses) after tax | 517 | (5,154 | ) | 697 | (3,239 | ) | ||||||||||
| Income from continuing operations | 7,249 | 1,251 | 19,319 | 14,732 | ||||||||||||
| Loss from discontinued operations after tax | (40 | ) | (2,310 | ) | (1,291 | ) | (4,937 | ) | ||||||||
| Net income (loss) | $ | 7,209 | $ | (1,059 | ) | $ | 18,028 | $ | 9,795 | |||||||
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Diluted per share amounts: |
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| Operating income | $ | 0.21 | $ | 0.20 | $ | 0.58 | $ | 0.56 | ||||||||
| Realized investment gains (losses) after tax | 0.01 | (0.16 | ) | 0.02 | (0.10 | ) | ||||||||||
| Income from continuing operations | 0.22 | 0.04 | 0.60 | 0.46 | ||||||||||||
| Loss from discontinued operations after tax | - | (0.07 | ) | (0.04 | ) | (0.15 | ) | |||||||||
| Net income (loss) | $ | 0.22 | $ | (0.03 | ) | $ | 0.56 | $ | 0.31 | |||||||
Vincent T. Donnelly, President and Chief Executive Officer commented, “PMA Capital produced improved operating results and book value growth in the quarter. We continued to grow our core insurance business, while maintaining disciplined underwriting standards in a price competitive environment, and had significant growth in the revenues of our Fee-based Business. Our combined ratio remained below 97% and for the first quarter since early 2006 our pricing on rate-sensitive workers’ compensation business increased. The Company’s book value grew by 8% in the quarter and 15% in the first nine months of 2009 to $12.38 per share, reflecting improved values in our investment portfolio combined with our earnings.”
At The PMA Insurance Group, Mr. Donnelly noted the following significant operating highlights:
- Pre-tax operating income increased to $13.6 million in the quarter, from $13.3 million in the third quarter of 2008, and increased to $38.8 million for the first nine months of 2009, compared to $38.3 million in the same period last year. The prior year-to-date results included a gain of $2.1 million from the sale of real estate;
- The combined ratio was 95.8% in the quarter, which improved the year-to-date ratio to 96.2%;
- Net investment income increased 7% in the quarter and 2% year-to-date, compared to the same periods last year, as the increase in investment portfolio assets more than offset the decrease in investment yields; and
- Direct premium production, which excludes fronting premiums and premium adjustments, increased 3% in the third quarter to $154.8 million, and increased 3% during the first nine months of 2009 to $404.3 million.
Mr. Donnelly added, “We are continuing to grow our Fee-based Business, with revenues increasing 9% in the quarter and 16% for the first nine months of 2009 as a result of organic growth and our prior year acquisition of PMA Management Corp. of New England. Organic growth of claims service revenues was 9% in the quarter and 12% during the first nine months of 2009. Our Fee-based Business revenues of $59.8 million represent 15% of our total revenues in 2009. Pre-tax operating income for our Fee-based Business was $1.6 million in the quarter, compared to $1.9 million for the same period last year, and $5.1 million for the first nine months of 2009, compared to $5.3 million for the same period in 2008.”
The Company previously announced the execution of a definitive stock purchase agreement (the “Agreement”) to sell its Run-off Operations and the filing of a Form A with the Pennsylvania Insurance Department. On November 3, 2009, additional information regarding the Form A was filed with the Department. Subject to the approval of the transaction by the Pennsylvania Insurance Department under the revised terms, the Company would make a capital contribution of $13 million at the closing of the sale. This contribution will include cash of $3 million and a note payable in two equal installments of $5 million in 2010 and 2011. The revised terms also include capital support agreements provided by the Company to the Run-off Operations in the event that its payments on claims in the excess workers’ compensation and certain excess liability (occurrence) lines of business exceed certain pre-established limits. Such support is limited to an amount not to exceed $46 million and any payments with respect to the supported lines of business are not expected to commence until 2018 and may extend to 2052. Under Generally Accepted Accounting Principles guidance for Guarantees, which requires guarantees to be recorded at fair value at inception, the Company estimates that the fair value of the capital support is approximately $13 million. Upon the closing of the transaction, the Company expects to record an after-tax charge of approximately $17 million, or $0.52 per share, to record the impact of the capital contribution and the additional capital support. The Company and the buyer have mutually agreed to extend the Agreement termination date to December 31, 2009.
Financial Condition
Total assets were $2.6 billion as of September 30, 2009, compared to $2.5 billion as of December 31, 2008. Assets of discontinued operations represented 7% of total assets at September 30, 2009, compared to 10% at December 31, 2008. At September 30, 2009, we had $33.7 million in cash and short-term investments at our holding company and non-regulated subsidiaries.
Shareholders’ equity and book value per share changed as follows:
| Three months ended | Nine months ended | ||||||||||||
| September 30, 2009 | September 30, 2009 | ||||||||||||
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Shareholders’ | Book value | Shareholders’ | Book value | |||||||||
|
(in thousands, except per share data) |
equity | per share | equity | per share | |||||||||
| Balance, beginning of period | $ | 368,998 | $ | 11.45 | $ | 344,656 | $ | 10.78 | |||||
| Net income | 7,209 | 0.22 | 18,028 | 0.56 | |||||||||
| Unrealized gain on securities, net of tax | 22,721 | 0.71 | 35,105 | 1.09 | |||||||||
| Other | 244 | - | 1,383 | 0.04 | |||||||||
| Impact of change in shares outstanding | - | - | - | (0.09 | ) | ||||||||
| Balance, end of period | $ | 399,172 | $ | 12.38 | $ | 399,172 | $ | 12.38 | |||||
The insurance companies within The PMA Insurance Group had statutory capital and surplus of $385.1 million as of September 30, 2009, compared to $332.9 million as of December 31, 2008. The increase in capital and surplus during 2009 related primarily to statutory net income, which included a benefit from the second quarter commutation of a reinsurance agreement with an affiliated entity. The PMA Insurance Group has the ability to pay $31.8 million in dividends during 2009 without the prior approval of the Pennsylvania Insurance Department.
Segment Operating Results
Operating income, which we define as net income (loss) under GAAP excluding net realized investment gains and losses and results from discontinued operations, is the financial performance measure used by our management and Board of Directors to evaluate and assess the results of our businesses. Net realized investment activity is excluded because (i) net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains and losses that do not relate to the operations of the individual segments. Operating income does not replace net income (loss) as the GAAP measure of our consolidated results of operations.
The following is a reconciliation of our operating results to GAAP net income (loss):
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (dollar amounts in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Pre-tax operating income (loss): | ||||||||||||||||
| The PMA Insurance Group | $ | 13,616 | $ | 13,325 | $ | 38,768 | $ | 38,285 | ||||||||
| Fee-based Business | 1,574 | 1,929 | 5,112 | 5,316 | ||||||||||||
| Corporate & Other | (4,768 | ) | (5,319 | ) | (14,935 | ) | (15,754 | ) | ||||||||
| Pre-tax operating income | 10,422 | 9,935 | 28,945 | 27,847 | ||||||||||||
| Income tax expense | 3,690 | 3,530 | 10,323 | 9,876 | ||||||||||||
| Operating income | 6,732 | 6,405 | 18,622 | 17,971 | ||||||||||||
| Realized investment gains (losses) after tax | 517 | (5,154 | ) | 697 | (3,239 | ) | ||||||||||
| Income from continuing operations | 7,249 | 1,251 | 19,319 | 14,732 | ||||||||||||
| Loss from discontinued operations after tax | (40 | ) | (2,310 | ) | (1,291 | ) | (4,937 | ) | ||||||||
| Net income (loss) | $ | 7,209 | $ | (1,059 | ) | $ | 18,028 | $ | 9,795 | |||||||
Income from continuing operations included the following after-tax net realized gains (losses):
| Three months ended | Nine months ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| (dollar amounts in thousands) | 2009 | 2008 | 2009 | 2008 | |||||||||||
| Net realized investment gains (losses) after tax: | |||||||||||||||
| Sales of investments | $ | 517 | $ | 792 | $ | 3,907 | $ | 2,725 | |||||||
| Other than temporary impairments | - | (5,946 | ) | (3,210 | ) | (5,946 | ) | ||||||||
| Other | - | - | - | (18 | ) | ||||||||||
| Net realized investment gains (losses) after tax | $ | 517 | $ | (5,154 | ) | $ | 697 | $ | (3,239 | ) | |||||
We recorded other than temporary impairments of $3.2 million after-tax during the nine months ended September 30, 2009. The impairments in the first nine months of 2009 related primarily to write-downs of $2.9 million on $45.9 million par of commercial mortgage-backed securities (CMBS) that we sold in order to reduce our exposure to this asset sector. These write-downs were measured based on public market prices. At September 30, 2009, our CMBS had an average credit rating of AAA and fair value of $81.4 million, which represented 93% of their amortized cost. The prior year other than temporary impairments resulted from writing down our investments of Lehman Brothers senior debt and Fannie Mae preferred stock. Details of the Company’s investment portfolio at September 30, 2009 and December 31, 2008 are posted on our website at www.pmacapital.com.
The PMA Insurance Group
The PMA Insurance Group reported pre-tax operating income of $13.6 million for the third quarter of 2009, compared to $13.3 million for the same period last year. Year-to-date pre-tax operating income increased to $38.8 million, compared to $38.3 million for the first nine months of 2008. The results for the first nine months of 2008 included a gain of $2.1 million from the sale of a property that housed one of our branch offices.
Direct premium production increased during the third quarter and first nine months of 2009, compared to the same periods last year. We define direct premium production as direct premiums written, excluding fronting premiums and premium adjustments. The following is a reconciliation of our direct premium production to consolidated gross premiums written:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (dollar amounts in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Direct premium production | $ | 154,754 | $ | 150,547 | $ | 404,333 | $ | 393,891 | ||||||||
| Fronting premiums | 10,890 | 2,776 | 40,189 | 13,032 | ||||||||||||
| Premium adjustments | (3,521 | ) | (5,008 | ) | (11,150 | ) | (18,836 | ) | ||||||||
| Direct premiums written | 162,123 | 148,315 | 433,372 | 388,087 | ||||||||||||
| Assumed premiums and other | 2,216 | 3,183 | 8,461 | 8,611 | ||||||||||||
| Gross premiums written | $ | 164,339 | $ | 151,498 | $ | 441,833 | $ | 396,698 | ||||||||
Fronting premiums increased in 2009 primarily as a result of the two fronting arrangements we entered into during August 2008. The decrease in premium adjustments in 2009 primarily reflected a lower amount of return premium adjustments on loss-sensitive products where the insured shares in the underwriting result of the policy. We write these retrospective products because we believe they provide us with greater certainty in achieving our targeted underwriting results as the customer shares in the underwriting result of the policy with us.
Excluding fronting business, we wrote $28.2 million and $99.7 million of new business in the third quarter and first nine months of 2009, compared to $39.4 million and $99.8 million during the same periods last year. Pricing on our workers’ compensation rate-sensitive business increased 1% during the third quarter of 2009, compared to a 7% decrease during the third quarter last year, and on a year-to-date basis, it declined 1% during 2009, compared to a 7% decrease during 2008. Payrolls on our renewal customer base decreased by 1% in the first nine months of 2009, compared to the same period in 2008. Our renewal retention rates on existing workers’ compensation accounts were 84% for the third quarter and 81% for the first nine months of 2009, compared to 88% and 86% for the same periods last year. The decline in the retention rates in 2009 primarily reflected lower retentions on rate-sensitive middle-market business as we continue to maintain disciplined underwriting standards in a price competitive environment. While retention rates were also down on loss-sensitive workers’ compensation business, the decrease was lower than that on rate-sensitive business and retention rates remained higher for business written on a loss-sensitive basis than for business written on a rate-sensitive basis, reflecting our strategy to emphasize loss-sensitive business.
Net premiums earned were $102.6 million in the third quarter of 2009, compared to $98.1 million in the third quarter of 2008. For the first nine months of 2009, net premiums earned increased to $314.8 million, from $286.9 million for the first nine months of 2008. The increases in both periods reflect the increase in direct premiums written over the past year.
The combined ratio on a GAAP basis was 95.8% for the third quarter of 2009, compared to 95.2% in the third quarter last year. The higher combined ratio in the third quarter of 2009 was the result of increases in the policyholders’ dividend and expense ratios, which were partially offset by a decrease in the loss and LAE ratio. The decrease between periods in the loss and LAE ratio primarily reflected the impact of the Company’s managed care initiatives, and also related to modest favorable prior year development in our captive business. The higher policyholders’ dividend ratio was primarily in our captive business and reflected better than anticipated underwriting and investment results in many of the captive programs. In this business, the policyholders may receive a dividend based, to a large extent, on their program’s underwriting and investment results. The increase in the expense ratio reflected higher state based assessments.
On a year-to-date basis, the combined ratio was 96.2% in 2009, compared to 96.5% for the same period in 2008. The improvement in the combined ratio for the first nine months of 2009, compared to the first nine months of last year, was primarily the result of a lower expense ratio, which was partially offset by an increased policyholders’ dividend ratio.
The loss and LAE ratio remained relatively flat in the first nine months of 2009, compared to the prior year period, as the lower loss experience on our captive accounts business was offset by the first quarter reduction in audit premiums. While payrolls on our renewal book have been stable overall, the 1% decrease was lower than the rate of growth we experienced in 2008. As a result of the decrease, we reduced our accrual for additional audit premiums by $3.3 million during the first quarter of 2009. Key loss indicators are in line with our expectations for this business, and we will continue to evaluate loss activity on these accounts as they mature, but we did not reduce our expectation of losses on these policies, which were primarily written in 2007 and 2008. Although pricing changes coupled with payroll inflation for rate-sensitive workers’ compensation business were below overall estimated loss trends, our current accident year loss and LAE ratio remained consistent between periods as we continued to benefit in the first nine months of 2009 from changes in the type of workers’ compensation products selected by our insureds and from our managed care initiatives. We estimate our medical cost inflation to be 6.0% in the first nine months of 2009, compared to our estimate of 6.5% in the first nine months of 2008.
The expense ratio for the first nine months of 2009, compared to the same period last year, benefited as the increase in net premiums earned outpaced the 2% increase in our controllable expenses, which include salary, benefits and other employee-related costs. Commissions earned under our fronting arrangements reduced the acquisition expense ratios by 0.7 points for the third quarter and 0.6 points for the first nine months of 2009, compared to 0.4 points and 0.7 points for the same periods in 2008, as the ceding commissions earned on this business reduce our commission expense.
Net investment income increased to $9.4 million in the third quarter of 2009, compared to $8.8 million in the prior year quarter. Net investment income was $27.4 million for the first nine months of 2009, compared to $26.8 million for the first nine months of 2008. The increases in the third quarter and first nine months of 2009 were due primarily to increases in average invested assets, which were partially offset by lower investment yields.
Fee-based Business
For the third quarter of 2009, total revenues at our Fee-based Business increased to $20.6 million, from $18.8 million for the same period in 2008. For the nine months ended September 30, 2009, total revenues increased to $59.8 million, compared to $51.5 million for the first nine months of 2008. The increases in revenues primarily reflected increases in claims service revenues of $1.4 million and $9.2 million for the third quarter and first nine months of 2009. The year-to-date increase in claims service revenues was partially offset by a decline in commission income of $1.2 million. Organic claims service revenue growth was 9% in the quarter and 12% in the first nine months of 2009, compared to the same periods a year ago. Claims service revenues also increased as a result of our June 2008 acquisition of PMA Management Corp. of New England, Inc.
Our Fee-based Business reported pre-tax operating income of $5.1 million for the first nine months of 2009, compared to $5.3 million for the same period last year. The year-to-date results were reduced by lower net commissions earned by our agency business. The decline in net commissions was partially offset by claims service revenues that increased at a faster rate than operating expenses. For the third quarter, pre-tax operating income was $1.6 million, compared to $1.9 million for the same period last year. The decline in the quarter was due to operating expenses increasing at a higher rate than the increase in revenues.
Corporate and Other
The Corporate and Other segment, which includes primarily corporate expenses and debt service, reported net expenses of $4.8 million during the third quarter of 2009, compared to $5.3 million in the third quarter of 2008. Net expenses were $14.9 million during the first nine months of 2009, compared to $15.8 million for the same period in 2008. The decreases in net expenses in 2009 related primarily to lower stock-based compensation expense and lower interest expense on variable rate debt.
Discontinued Operations
Discontinued operations, which consists of our former reinsurance and excess and surplus lines businesses, had after-tax losses of $40,000 and $1.3 million for the three and nine months ended September 30, 2009, compared to after-tax losses of $2.3 million and $4.9 million for the same periods in 2008. The loss for the first nine months of 2009 reflects the write-down of our carrying value of the discontinued operations to zero. The loss for the first nine months of 2008 was due to an after-tax charge of $4.9 million for adverse loss development, including $2.3 million recorded in the third quarter.
Conference Call with Investors
As a reminder, we will hold a conference call with investors beginning at 8:30 a.m. Eastern Time on Wednesday, November 4th to review our third quarter 2009 results. The conference call will be available via a live webcast over the Internet at www.pmacapital.com. To access the webcast, enter the Investor Information section, click on News Releases and then click on the microphone icon. Please note that by accessing the conference call via the Internet, you will be in a listen-only mode.
The call-in numbers and passcodes for the conference call are as follows:
|
Live Call |
Replay |
|
| 888-679-8038 (Domestic) | 888-286-8010 (Domestic) | |
| 617-213-4850 (International) | 617-801-6888 (International) | |
| Passcode 48446807 | Passcode 51517488 |
You may pre-register for the conference call using the following link:
www.theconferencingservice.com/prereg/key.process?key=PM4JGCJTD
Pre-registering is not mandatory but is recommended as it will provide you immediate entry into the call and will facilitate the timely start of the conference. Pre-registration only takes a few moments and you may pre-register at anytime, including up to and after the call start time. Alternatively, if you would rather be placed into the call by an operator, please use the dial-in information above at least five minutes prior to the call start time.
A replay of the conference call will be available over the Internet or by dialing the call-in number for the replay and using the passcode. The replay will be available from approximately 11:30 a.m. Eastern Time on Wednesday, November 4th until 11:59 p.m. Eastern Time on Friday, December 4th.
Quarterly Statistical Supplement
Our Third Quarter Statistical Supplement, which provides more detailed information about our results, is available on our website. Please see the Investor Information section of our website at www.pmacapital.com. You may also obtain a copy of this supplement by sending your request to:
| PMA Capital Corporation |
| 380 Sentry Parkway |
| Blue Bell, PA 19422 |
| Attention: Investor Relations |
Alternatively, you may make a request by telephone (610-397-5298) or by e-mail to InvestorRelations@pmacapital.com. We will also furnish a copy of this news release and the Statistical Supplement to the Securities and Exchange Commission on a Form 8-K. A copy of the Form 8-K will be available on the SEC’s website at www.sec.gov.
CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 with respect to the Company’s financial condition and results of operations and the plans and objectives of its management. Forward-looking statements can generally be identified by use of forward-looking terminology such as “may,” “will,” “plan,” “expect,” “intend,” “anticipate,” “should” and “believe.” These forward-looking statements may include estimates, assumptions or projections and are based on currently available financial, competitive and economic data and the Company’s current operating plans. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements. The factors that could cause actual results to differ materially from those in the forward-looking statements, include, but are not limited to:
- adequacy of reserves for claim liabilities, including reserves for potential environmental and asbestos claims;
- any future lowering or loss of one or more of our financial strength and debt ratings, and the adverse impact that any such downgrade may have on our ability to compete and to raise capital, and our liquidity and financial condition;
- adequacy and collectibility of reinsurance that we purchase;
- uncertainty as to the price and availability of reinsurance on business we intend to write in the future, including reinsurance for terrorist acts;
- the effects of emerging claims and coverage issues, including changing judicial interpretations of available coverage for certain insured losses;
- the success with which our independent agents and brokers sell our products and our ability to collect payments from them;
- legislative and regulatory changes that affect the cost of, or demand for, our products or otherwise affect our ability to conduct business, including any future action with respect to our business taken by the Pennsylvania Insurance Department and any future action taken by the federal government with respect to regulation of the insurance industry;
- our concentration in workers’ compensation insurance, which makes us particularly susceptible to adverse changes in that industry segment;
- our ability to consummate the sale of our Run-off Operations as described above in a timely manner;
- severity of natural disasters and other catastrophes, including the impact of future acts of terrorism, in connection with insurance and reinsurance policies;
- uncertainties related to possible terrorist activities or international hostilities and whether the Terrorism Risk Insurance Program Reauthorization Act of 2007 is extended beyond its December 31, 2014 termination date;
- our ability to effectively compete in the highly competitive property and casualty insurance industry;
- adverse economic or regulatory developments in the eastern part of the United States, particularly those affecting Pennsylvania, New York and New Jersey;
- fluctuations in interest rates and other events that can adversely impact our investment portfolio;
- disruptions in the financial markets that affect the value of our investment portfolio and our ability to sell our investments;
- our ability to repay our indebtedness;
- our ability to raise additional capital on financially favorable terms when required;
- restrictions on our operations contained in any document governing our indebtedness;
- the impact of future results on the value of recorded goodwill and other intangible assets and the recoverability of our deferred tax asset;
- our ability to attract and retain qualified management personnel;
- the outcome of any litigation against us;
- provisions in our charter documents that can inhibit a change in control of our company; and
- other factors or uncertainties disclosed from time to time in our filings with the Securities and Exchange Commission.
You should not place undue reliance on any forward-looking statements in this press release. Forward-looking statements are not generally required to be publicly revised as circumstances change and we do not intend to update the forward-looking statements in this press release to reflect circumstances after the date of this press release or to reflect the occurrence of unanticipated events.
| PMA Capital Corporation | ||||||||
| GAAP Consolidated Statements of Operations | ||||||||
| (Unaudited) | ||||||||
|
Three months ended September 30, |
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| (dollar amounts in thousands, except per share data) | 2009 | 2008 | ||||||
| Gross premiums written | $ | 164,339 | $ | 151,498 | ||||
| Net premiums written | $ | 119,259 | $ | 123,995 | ||||
| Revenues: | ||||||||
| Net premiums earned | $ | 102,428 | $ | 97,974 | ||||
| Claims service revenues | 17,112 | 15,696 | ||||||
| Commission income | 2,747 | 2,637 | ||||||
| Net investment income | 9,522 | 8,870 | ||||||
| Net realized investment gains (losses) | 795 | (7,929 | ) | |||||
| Other revenues | 259 | 125 | ||||||
| Total revenues | 132,863 | 117,373 | ||||||
| Expenses: | ||||||||
| Losses and loss adjustment expenses | 70,158 | 68,660 | ||||||
| Acquisition expenses | 16,046 | 15,898 | ||||||
| Operating expenses | 30,235 | 26,906 | ||||||
| Dividends to policyholders | 2,786 | 1,169 | ||||||
| Interest expense | 2,421 | 2,734 | ||||||
| Total losses and expenses | 121,646 | 115,367 | ||||||
| Pre-tax income | 11,217 | 2,006 | ||||||
| Income tax expense (benefit): | ||||||||
| Current | 220 | 765 | ||||||
| Deferred | 3,748 | (10 | ) | |||||
| Total income tax expense | 3,968 | 755 | ||||||
| Income from continuing operations | 7,249 | 1,251 | ||||||
| Loss from discontinued operations after tax | (40 | ) | (2,310 | ) | ||||
| Net income (loss) | $ | 7,209 | $ | (1,059 | ) | |||
| Income (loss) per share: | ||||||||
| Basic: | ||||||||
| Continuing Operations | $ | 0.22 | $ | 0.04 | ||||
| Discontinued Operations | - | (0.07 | ) | |||||
| $ | 0.22 | $ | (0.03 | ) | ||||
| Diluted: | ||||||||
| Continuing Operations | $ | 0.22 | $ | 0.04 | ||||
| Discontinued Operations | - | (0.07 | ) | |||||
| $ | 0.22 | $ | (0.03 | ) | ||||
| PMA Capital Corporation | ||||||||
| GAAP Consolidated Statements of Operations | ||||||||
| (Unaudited) | ||||||||
| Nine months ended September 30, | ||||||||
| (dollar amounts in thousands, except per share data) | 2009 | 2008 | ||||||
| Gross premiums written | $ | 441,833 | $ | 396,698 | ||||
| Net premiums written | $ | 317,539 | $ | 316,924 | ||||
| Revenues: | ||||||||
| Net premiums earned | $ | 314,307 | $ | 286,490 | ||||
| Claims service revenues | 49,631 | 40,585 | ||||||
| Commission income | 8,327 | 9,549 | ||||||
| Net investment income | 27,540 | 27,345 | ||||||
| Net realized investment gains (losses) | 1,072 | (4,983 | ) | |||||
| Other revenues | 625 | 2,485 | ||||||
| Total revenues | 401,502 | 361,471 | ||||||
| Expenses: | ||||||||
| Losses and loss adjustment expenses | 219,427 | 200,154 | ||||||
| Acquisition expenses | 52,752 | 50,114 | ||||||
| Operating expenses | 86,160 | 76,586 | ||||||
| Dividends to policyholders | 5,743 | 3,544 | ||||||
| Interest expense | 7,403 | 8,209 | ||||||
| Total losses and expenses | 371,485 | 338,607 | ||||||
| Pre-tax income | 30,017 | 22,864 | ||||||
| Income tax expense: | ||||||||
| Current | 729 | 916 | ||||||
| Deferred | 9,969 | 7,216 | ||||||
| Total income tax expense | 10,698 | 8,132 | ||||||
| Income from continuing operations | 19,319 | 14,732 | ||||||
| Loss from discontinued operations after tax | (1,291 | ) | (4,937 | ) | ||||
| Net income | $ | 18,028 | $ | 9,795 | ||||
| Income (loss) per share: | ||||||||
| Basic: | ||||||||
| Continuing Operations | $ | 0.60 | $ | 0.46 | ||||
| Discontinued Operations | (0.04 | ) | (0.15 | ) | ||||
| $ | 0.56 | $ | 0.31 | |||||
| Diluted: | ||||||||
| Continuing Operations | $ | 0.60 | $ | 0.46 | ||||
| Discontinued Operations | (0.04 | ) | (0.15 | ) | ||||
| $ | 0.56 | $ | 0.31 | |||||
| PMA Capital Corporation | ||||||||
| GAAP Consolidated Balance Sheets | ||||||||
| (Unaudited) | ||||||||
| September 30, | December 31, | |||||||
| (dollar amounts in thousands, except per share data) | 2009 | 2008 | ||||||
| Assets: | ||||||||
| Investments: | ||||||||
| Fixed maturities available for sale | $ | 817,089 | $ | 719,048 | ||||
| Short-term investments | 62,004 | 45,066 | ||||||
| Other investments | 22,669 | 8,127 | ||||||
| Total investments | 901,762 | 772,241 | ||||||
| Cash | 13,887 | 10,501 | ||||||
| Accrued investment income | 6,918 | 6,513 | ||||||
| Premiums receivable | 246,871 | 235,893 | ||||||
| Reinsurance receivables | 807,245 | 826,126 | ||||||
| Prepaid reinsurance premiums | 40,883 | 29,579 | ||||||
| Deferred income taxes, net | 110,358 | 138,514 | ||||||
| Deferred acquisition costs | 42,583 | 40,938 | ||||||
| Funds held by reinsureds | 56,623 | 51,754 | ||||||
| Intangible assets | 29,961 | 30,348 | ||||||
| Other assets | 126,015 | 116,646 | ||||||
| Assets of discontinued operations | 192,431 | 243,663 | ||||||
| Total assets | $ | 2,575,537 | $ | 2,502,716 | ||||
| Liabilities: | ||||||||
| Unpaid losses and loss adjustment expenses | $ | 1,259,940 | $ | 1,242,258 | ||||
| Unearned premiums | 261,952 | 247,415 | ||||||
| Debt | 129,380 | 129,380 | ||||||
|
Accounts payable, accrued expenses and other liabilities |
250,304 | 216,266 | ||||||
| Reinsurance funds held and balances payable | 52,914 | 44,177 | ||||||
| Dividends to policyholders | 6,177 | 6,862 | ||||||
| Liabilities of discontinued operations | 215,698 | 271,702 | ||||||
| Total liabilities | 2,176,365 | 2,158,060 | ||||||
| Shareholders’ Equity: | ||||||||
| Class A Common Stock | 171,090 | 171,090 | ||||||
| Additional paid-in capital | 112,349 | 112,921 | ||||||
| Retained earnings | 152,670 | 140,184 | ||||||
| Accumulated other comprehensive loss | (13,947 | ) | (49,876 | ) | ||||
| Treasury stock, at cost | (22,990 | ) | (29,663 | ) | ||||
| Total shareholders’ equity | 399,172 | 344,656 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,575,537 | $ | 2,502,716 | ||||
| Shareholders’ equity per share | $ | 12.38 | $ | 10.78 | ||||
Contact:
PMA Capital Corporation William E. Hitselberger, 610-397-5298 bhitselberger@pmacapital.com
Donegal Group Inc. Announces Fourth Quarter and Full Year Earnings - Posted by Steven Wevodau
The Company’s combined ratio was 98.0% for the fourth quarter of 2008, compared to 90.5% for the fourth quarter of 2007. The Company’s loss ratio for the fourth quarter of 2008 was 66.8%, compared to 58.4% for the fourth quarter of 2007. The Company’s expense ratio was 30.9% for the fourth quarter of 2008, compared to 31.6% for the fourth quarter of 2007, reflecting the benefit of increased net premiums written during the quarter and decreased underwriting-based incentive compensation costs. The expense ratio for the fourth quarter of 2008 decreased in spite of a severance charge of approximately $1.3 million related to personnel reductions, which were part of the Company’s ongoing expense reduction program. The Company expects that the personnel reductions will result in expense savings of approximately $2.3 million in 2009 and subsequent years.
Net investment income was $5,468,308 for the fourth quarter of 2008, compared to $5,906,339 for the fourth quarter of 2007, reflecting reduced investment income due to increased holdings of short-term U.S. Treasury investments during the fourth quarter of 2008 and the use of invested assets to redeem $15.5 million of subordinated debentures in August 2008. Interest expense on subordinated debentures decreased by $448,623 during the fourth quarter of 2008 compared to the comparable period in 2007, with this decrease in expense more than offsetting the related decrease in investment income.
The Company reported net realized investment losses of $181,181, or $0.01 per Class A share on an after-tax basis, for the fourth quarter of 2008. The Company did not recognize any other than temporary impairments in the fourth quarter of 2008. Equity securities represented less than 1% of the Company’s investment portfolio at December 31, 2008.
As a result of the previously announced acquisition of Sheboygan Falls Insurance Company on December 1, 2008, the Company’s fourth quarter of 2008 financial statements include the results of Sheboygan Falls for the month of December 2008. The impact of the acquisition on fourth quarter results was not material.
Net income for the year ended December 31, 2008 was $25,541,978, compared to $38,279,905 reported for the year ended December 31, 2007. On a diluted basis, net income per share of Class A common stock for the year ended December 31, 2008 was $1.02, compared to $1.53 for the prior year. The Company’s net premiums written increased 16.3% during 2008 to $364,941,055, largely due to the change in the pooling agreement with Donegal Mutual Insurance Company effective March 1, 2008. The Company’s combined ratio for the full year 2008 was 97.2%, compared to its combined ratio of 91.3% for the full year 2007. The Company’s loss ratio was 64.7% for the full year 2008, compared to 57.4% for the full year 2007, with the increase reflecting increased weather-related claim activity and less favorable prior-accident-year reserve development. The Company’s expense ratio was 32.1% for the full year 2008, compared to 33.5% for the full year 2007.
The Company will adjust its financial statements for the first three quarters of 2008 to correct immaterial errors. Because of these errors, the Company overstated its reported net income for the nine months ended September 30, 2008 by approximately $1.7 million, or approximately $.07 per Class A share. The Company will include additional details related to this adjustment in its Annual Report on Form 10-K for the year ended December 31, 2008.
The Company’s total stockholders’ equity, or book value, increased to $363,583,865, a per common share amount of $14.29, at December 31, 2008, compared to $352,690,191, a per common share amount of $13.92, at December 31, 2007.
“We are pleased to be among a select few companies reporting an increase in book value for the year. This accomplishment can be attributed to our conservative investment philosophy as well as our achievement of underwriting profitability and solid investment returns in a difficult environment. We are operating from a position of financial strength and are continuing to follow our conservative business strategy in today’s challenging insurance and investment markets,” stated Donald H. Nikolaus, President and Chief Executive Officer of Donegal Group Inc.
The Company will hold a conference call and webcast on Wednesday, February 18, 2009, beginning at 11:00 A.M. Eastern Time. You may listen via the Internet by accessing the webcast link in the Investors area of the Company’s web site at http://www.donegalgroup.com. A replay of the conference call will also be available via the Company’s web site.
Donegal Group Inc. is an insurance holding company whose insurance subsidiaries offer personal and commercial property and casualty lines of insurance in five Mid-Atlantic states (Delaware, Maryland, New Hampshire, New York and Pennsylvania), eight Southeastern states (Alabama, Georgia, Louisiana, North Carolina, South Carolina, Tennessee, Virginia and West Virginia) and six Midwestern states (Iowa, Nebraska, Ohio, Oklahoma, South Dakota and Wisconsin).
All statements contained in this press release that are not historic facts are based on current expectations. Such statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and necessarily involve risks and uncertainties. Actual results could vary materially. The factors that could cause actual results to vary materially include, but are not limited to, the ability of the Company to maintain profitable operations, the adequacy of the Company’s reserves for losses and loss adjustment expenses, business and economic conditions in the areas in which the Company operates, conditions resulting from the ongoing recession in the United States, severe weather events, competition from various insurance and non-insurance businesses, terrorism, the availability and cost of reinsurance, legal and judicial developments, changes in regulatory requirements and other risks that are described from time to time in the Company’s filings with the Securities and Exchange Commission. The Company disclaims any obligation to update such statements or to announce publicly the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Donegal Group Inc.
Financial Highlights
(unaudited)
Quarter Ended December 31
--------------------------
2008 2007
------------ ------------
Net premiums earned $ 89,067,548 $ 78,188,948
Investment income, net of investment
expenses 5,468,308 5,906,339
Net realized investment (losses) gains (181,181) 1,397,394
Total revenues 95,840,537 86,890,271
Net income $ 6,394,297 $ 10,796,583
Net income per common share:
Class A common stock - basic $ 0.26 $ 0.44
------------ ------------
Class A common stock - diluted $ 0.26 $ 0.43
------------ ------------
Class B common stock - basic and diluted $ 0.23 $ 0.39
------------ ------------
Year Ended December 31
--------------------------
2008 2007
------------ ------------
Net premiums earned $346,575,266 $310,071,534
Investment income, net of investment
expenses 22,755,784 22,785,252
Net realized investment (losses) gains (2,970,716) 2,051,050
Total revenues 372,312,162 340,618,294
Net income $ 25,541,978 $ 38,279,905
Net income per common share:
Class A common stock - basic $ 1.03 $ 1.55
------------ ------------
Class A common stock - diluted $ 1.02 $ 1.53
------------ ------------
Class B common stock - basic and diluted $ 0.92 $ 1.39
------------ ------------
Donegal Group Inc.
Consolidated Statements of Income
(unaudited; in thousands, except share data)
Quarter Ended December 31
--------------------------
2008 2007
------------ ------------
Net premiums earned $ 89,068 $ 78,189
Investment income, net of investment
expenses 5,468 5,906
Net realized investment (losses) gains (181) 1,397
Lease income 221 269
Installment payment fees 1,264 1,129
------------ ------------
Total revenues 95,840 86,890
------------ ------------
Net losses and loss expenses 59,451 45,628
Amortization of deferred policy
acquisition costs 15,141 13,315
Other underwriting expenses 12,397 11,397
Other expenses 352 400
Policyholder dividends 251 405
Interest 276 724
------------ ------------
Total expenses 87,868 71,869
------------ ------------
Income before income tax expense 7,972 15,021
Income tax expense 1,578 4,225
------------ ------------
Net income $ 6,394 $ 10,796
============ ============
Net income per common share:
Class A common stock - basic $ 0.26 $ 0.44
------------ ------------
Class A common stock - diluted $ 0.26 $ 0.43
------------ ------------
Class B common stock - basic and diluted $ 0.23 $ 0.39
------------ ------------
Supplementary Financial Analysts' Data
Weighted-average number of shares
outstanding:
Class A common stock - basic 19,914,130 19,717,747
------------ ------------
Class A common stock - diluted 19,918,941 19,949,711
------------ ------------
Class B common stock - basic and diluted 5,576,775 5,576,775
------------ ------------
Net written premiums $ 78,600 $ 70,781
------------ ------------
Book value per common share at end of
period $ 14.29 $ 13.92
------------ ------------
Donegal Group Inc.
Consolidated Statements of Income
(unaudited; in thousands, except share data)
Year Ended December 31
--------------------------
2008 2007
------------ ------------
Net premiums earned $ 346,575 $ 310,072
Investment income, net of investment
expenses 22,756 22,785
Net realized investment (losses) gains (2,971) 2,051
Lease income 927 1,060
Installment payment fees 5,025 4,650
------------ ------------
Total revenues 372,312 340,618
------------ ------------
Net losses and loss expenses 224,301 177,784
Amortization of deferred policy
acquisition costs 58,250 51,205
Other underwriting expenses 53,108 52,726
Other expenses 1,564 1,896
Policyholder dividends 1,176 1,273
Interest 1,821 2,885
------------ ------------
Total expenses 340,220 287,769
------------ ------------
Income before income tax expense 32,092 52,849
Income tax expense 6,550 14,569
------------ ------------
Net income $ 25,542 $ 38,280
============ ============
Net income per common share:
Class A common stock - basic $ 1.03 $ 1.55
------------ ------------
Class A common stock - diluted $ 1.02 $ 1.53
------------ ------------
Class B common stock - basic and diluted $ 0.92 $ 1.39
------------ ------------
Supplementary Financial Analysts' Data
Weighted-average number of shares
outstanding:
Class A common stock - basic 19,866,099 19,685,674
------------ ------------
Class A common stock - diluted 19,955,518 19,962,858
------------ ------------
Class B common stock - basic and diluted 5,576,775 5,576,775
------------ ------------
Net written premiums $ 364,941 $ 313,690
------------ ------------
Book value per common share at end of
period $ 14.29 $ 13.92
------------ ------------
Donegal Group Inc.
Consolidated Balance Sheets
(in thousands)
December 31,
--------------------------
2008 2007
------------ ------------
(unaudited)
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost $ 99,878 $ 154,290
Available for sale, at fair value 445,816 336,318
Equity securities, at fair value 5,895 36,361
Investments in affiliates 8,594 8,649
Short-term investments, at cost 71,953 70,252
------------ ------------
Total investments 632,136 605,870
Cash 1,831 4,289
Premiums receivable 55,337 51,038
Reinsurance receivable 79,953 78,897
Accrued investment income 6,656 5,875
Deferred policy acquisition costs 29,541 26,235
Prepaid reinsurance premiums 51,436 47,286
Property and equipment, net 6,687 5,608
Deferred tax asset, net 10,995 7,026
Other assets 5,537 1,972
------------ ------------
Total assets $ 880,109 $ 834,096
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Losses and loss expenses $ 239,809 $ 226,432
Unearned premiums 229,014 203,431
Accrued expenses 14,150 12,313
Subordinated debentures 15,465 30,929
Due to affiliate 3,148 242
Accounts payable - securities 1,821 --
Other liabilities 13,118 8,059
------------ ------------
Total liabilities 516,525 481,406
------------ ------------
Stockholders' equity:
Preferred stock -- --
Class A common stock 205 202
Class B common stock 56 56
Additional paid-in capital 163,137 156,851
Accumulated other comprehensive income 1,714 6,974
Retained earnings 207,182 193,807
Treasury stock, at cost (8,710) (5,200)
------------ ------------
Total stockholders' equity 363,584 352,690
------------ ------------
Total liabilities and stockholders'
equity $ 880,109 $ 834,096
============ ============
Contact:
Donegal Group Inc.
Jeffrey D. Miller, Senior Vice President & Chief Financial
Officer
(717) 426-1931
Fax: (717) 426-7009
jeffmiller@donegalgroup.com
Source: Donegal Group Inc
Posted by Steven Wevodau
ACE USA Announces Availability of Admitted Premises Pollution Liability Program - Steven Wevodau
Adds Admitted Coverage Option and Expanded Distribution for Selected Environmental Products
“ACE takes every opportunity to provide easier access to its products and services and broaden its online capabilities. We’re pleased to bring our innovative solutions to the environmental insurance market,” said William P. Hazelton, Senior Vice President, ACE Environmental Risk. “There are three distinct advantages of this product: it is admitted in many states, the online application process is quick and easy to navigate and the policy now offers expanded limits.”
Product Highlights:*
- Coverage may be modified by endorsement to provide new conditions coverage for mold-related claims, liability arising from contingent transportation, liability arising from non-owned disposal sites, and additional insureds
- Minimum self-insured retention of $10,000
- Limits available up to $10 million
- Offers coverage for third-party bodily and property damage claims, or remediation costs arising from new pollution conditions on, at, or emanating from, the insured location
- Provides coverage for associated legal defense expenses required to respond to any claim covered under the policy
ACE Environmental Risk offers a full range of environmental liability insurance solutions designed to minimize bottom line impacts and provide hands-on management for those liabilities. ACE Environmental Risk’s liability product offerings include premises pollution liability, contractor’s pollution liability, and remediation cost containment programs. These programs are primarily distributed through the retail brokerage community to the commercial market.
To learn more about the ACE Express Premises Pollution LiabilitySM Program, please contact Jon Peeples at (303) 256-1770 or jon.peeples@ace-ina.com please visit www.aceusa.com.
*Product highlights are summaries only; please see actual policy for terms and conditions. Products may not be available in all locations and remain subject to ACE Environmental Risk’s underwriting criteria.
ACE USA is the U.S.-based retail operating division of the ACE Group of Companies, headed by ACE Limited (NYSE:ACE - News), and is rated A+ (Superior) by A.M. Best Company and A+ (Strong) by Standard & Poor’s. ACE USA, through its underwriting companies, provides insurance products and services throughout the U.S. Additional information on ACE USA and its products and services can be found at www.aceusa.com. The ACE Group of Companies provides insurance and reinsurance for a diverse group of clients around the world.
Insurance products are provided by ACE American Insurance Company, Philadelphia, PA, or, in some states, other insurance companies in the ACE Group. Surplus lines policies are provided only through licensed surplus lines brokers. All products may not be available in all states. Access to ACE internet product portals is available to qualified producers under applicable provisions of the ACE producer contract.
Contact:
ACE North America Communications Carla Ferrara, 215-640-4744 carla.ferrara@ace-ina.com
Source: ACE USA
Property/Casualty Payouts Hit $25B in 2008
posted by Steven Wevodau
ByMelissa Gannon, Director of Insurance and Bank Ratings
The state of Texas far surpassed all other states with $10.2 billion in insured losses. Louisiana, Minnesota, Ohio, and Georgia rounded out the top five with losses ranging from $1 billion to $2.2 billion.
State Farm Lloyds and Allstate Texas Lloyds, a unit of Allstate , are the two largest homeowners insurers in Texas with $1.6 billion and $600 million in 2007 premiums, respectively. 2007 is the most recent annual premium data available. State Farm Lloyds has a TheStreet.com Financial Strength Rating of B- (Good) while Allstate Texas Lloyds is rated a B (Good).
Travelers Lloyds Insurance Co., a unit of Travelers Companies , writes homeowners, farmowners, and commercial multi peril coverage in Georgia, Ohio, Louisiana and Minnesota. It had combined 2007 premium volume in those four states of $1.8 billion. It also has a B- (Good) Financial Strength Rating from TheStreet.com Ratings.
Allstate and Travelers both cited losses from catastrophes in their third-quarter results. Year-end results are scheduled to be announced later this month.
“Several extraordinary characteristics” are among the more than three dozen 2008 catastrophes, Gary Kerney, assistant vice president of Insurance Service Organization’s PCS, said in a statement. Six consecutive tropical systems made landfall on U.S. coastlines, tornado touchdowns were unusually frequent and related insured property damage contributed to record-setting frequency and significant losses in the first six months of 2008.
The below table includes insured property damage from catastrophe events for the past 11 years:
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TheStreet.com Ratings issues financial strength ratings on each of the nation’s 8,600 banks and savings and loans which are available at no charge on the Banks & Thrifts Screener. In addition, the Financial Strength Ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the Insurers & HMOs Screener.
Independent market research, commentary, analysis and news. Learn more.
The Navigators Group, Inc to Release Fourth Quarter Results on February 17, 2009
Posted by Steven Wevodau
Management to Host Conference Call/Live Webcast February 18, 2009 at 8:30 a.m. EST
To participate by telephone, the domestic dial-in number is 888-680-0860 and the international dial-in number is 617-213-4852. The access code is 99950154. Participants may pre-register for the call at: https://www.theconferencingservice.com/prereg/key.process?key=PLAPYFWMY. Pre-registrants will be issued a pin number to use when dialing into the live call that will provide quick access to the conference by bypassing the operator upon connection.
The webcast will be available for replay on the “News & Events” page of Navigators’ website.
The Navigators Group, Inc is an international specialty insurance holding company with insurance company operations, underwriting management companies, and operations at Lloyd’s of London. Headquartered in New York City, Navigators has offices in major insurance centers in the United States, the United Kingdom and Continental Europe.
Contact:
The Navigators Group, Inc. Frank McDonnell, 914-933-6270 Senior Vice President and Chief Financial Officer fmcdonnell@navg.com
Source: The Navigators Group, Inc.
P&C Insurance Outperforming Other Sectors - posted by Steven Wevodau
Despite a 90 percent decline in profits through the first three quarters of 2008, property and casualty insurers have outperformed several other financial sectors, according to Bob Hartwig, president of the Insurance Information Institute.
Hartwig, who delivered a state of the insurance industry address at the state Capitol last week, said property and casualty insurers have coped with the crisis better than banks thanks to more successful risk management policies and lower leverage.
Through September of last year, banks lost nearly $600 billion, while P&C insurers shed $106 billion, Hartwig said.
“Insurers’ overall approach to risk focuses on underwriting discipline,” Hartwig said. “That implies pricing accuracy and management of potential loss exposure.”
State lawmakers invited Hartwig to speak before the Insurance and Real Estate Committee to get an overview of the challenges facing the industry, which has a major presence in the state.
With 117 insurance companies domiciled in Connecticut and dozens of out-of-state insurers with key divisions here, the industry contributes $15 billion to the state’s economy and employs nearly 74,000 people, Hartwig said. Connecticut insurers have payroll expenditures that exceed $8.5 billion annually.
“You are right to show concerns for the industry because it is such a major player in Connecticut,” Hartwig told lawmakers.
Hartwig said property and casualty insurers have weathered the storm because they do not rely on borrowed money to underwrite insurance or pay claims, and they have little or no debt on their balance sheets.
Insurers also have had a relatively conservative investment philosophy and a strong relationship between underwriting and risk bearing, Hartwig said.
“Insurers always maintain a stake in the business they underwrite, keeping skin in the game at all times,” Hartwig explained. As a result, he added, insurance markets, unlike banking, are operating normally and the basic function of insurance continues uninterrupted.
“That means insurers continue to pay claims, renew policies, write new policies, and develop new products,” Hartwig said.
Despite the relatively positive outlook for property and casualty insurers, however, Connecticut life and health insurance companies have had their problems.
Life insurers, including the life unit of Hartford Financial Services Group Inc. and The Phoenix Cos., have suffered losses related to their investments and variable annuity products, while the state’s health insurers, including Aetna and Cigna, have been dogged by investment losses and a slumping economy that is causing employers and consumers to reduce health coverage.
All four companies have announced major job cuts in recent months.
Who Will Regulate?
During the same public hearing, state Rep. Brian J. O’Connor (D-Clinton) asked if state regulators have enough authority to adequately oversee the insurance industry through the current economic crisis.
State Insurance Commissioner Thomas Sullivan, without hesitation, responded with an adamant, “Yes. I believe that we have everything we need to continue to supervise the health of the marketplace.”
O’Connor posed the question because of his concerns over the near collapse of American International Group. AIG, the country’s largest insurer, has required a $150 billion government bailout after sinking under the weight of billions of dollars in sour credit default swaps.
Critics of state-based regulation, which has been in place for decades, have argued that AIG’s freefall shows the need for federal oversight.
Last March, the U.S. Treasury Department proposed sweeping changes that would allow insurers to choose between state and federal charters and regulation.
The insurance industry largely applauded the plan, known as optional federal charters, but it created great angst among state regulators, including Sullivan.
Sullivan said state regulation has performed quite well in the current economic crisis, noting that no insurance company has gone insolvent, while 25 banks, some of which were federally regulated, have failed.
Sullivan explained that AIG’s freefall was not a failure of state-based regulation because AIG Financial Products, the business segment that brought the company to its knees, was actually federally regulated.
AIG Financial Products, which has offices in Wilton, was responsible for trading credit default swaps, the unregulated insurance contracts that bet against the repayment of a debt. They have been an important contributing factor to the financial crisis.
Sullivan said “optional” federal charters imply a form of deregulation. “I don’t think there is a person in Washington that thinks optional federal charters has legs right now,” he said.
Greg Bordonaro is a Hartford Business Journal staff writer.
Your insurance score will affect your premium
posted by Steven Wevodau
So when his insurance premiums almost doubled in two years, he wanted to know why.
“My agent looked at me and said, ‘Boy, you got to get your financial house in order,’ ” Gambert said, shaking his head as he recalled the conversation.
“I said: ‘What do you mean? I got a credit score that’s about 830.’ He says: ‘We have 15 categories of insurance scores, and you’re in category 13; 1 is the best. You figure it. You do the homework.’
“I left his office in shock.”
That’s how the Pickerington resident learned of something the insurance industry rarely discusses with policyholders: insurance scores, which can determine how much you’ll pay for insurance or whether you’ll get coverage at all.
Unlike their better-known cousins, credit scores, insurance scores are seldom, if ever, the subject of direct-mail offers, Internet banner ads or TV ditties sung by guitar-toting pitchmen wearing pirate outfits.
Insurance scores are based on many of the same factors that go into the calculation of credit scores, which is why they’re sometimes called credit-based insurance scores: Have you ever declared bankruptcy? What’s your payment history? How much credit — and what type of credit — are you carrying now?
The insurance industry says the idea behind the scores is simple: How you handle your financial affairs is a good predictor of how many insurance claims you’ll file on your auto or home.
“I think it’s important to point out that most people benefit from an insurance score because of the fact that most people manage their finances quite well,” said Mary Bonelli, spokeswoman for the Ohio Insurance Institute, an industry trade group.
You can try to see your insurance scores, but keep in mind that insurers get scores from different places: A given insurer might use its own formula, or it might obtain scores from a company such as Fair Isaac or ChoicePoint. The latter will send you your home and auto scores for $12.95 apiece, according to its Web site, choicepoint.com.
If you want to improve your insurance scores, pay your bills on time, keep credit-card balances low and apply for new credit accounts only when necessary. Also, be sure to check your credit reports for errors.
Gambert and his wife obtained their credit reports and found several mistakes, including an entry indicating the couple had 22 open credit accounts; in reality, they had five.
By clearing up those errors, they’ve been able to boost their insurance scores — and thereby lower their rates substantially.
“I’m saving — between the two: home and car — at least $500 a year …,” Gambert said. “And the only difference is the score they’ve given me.”
USG shares jump after Warren Buffet boosts stake
Warren Buffett, Fairfax Financial to buy $400 million of convertible USG notes; shares surge
Assuming USG shareholders give their approval at a meeting in the first quarter of next year, which has yet to be scheduled, the notes will convert into shares of USG common stock at a conversion price of $11.40 per share.
Word of the additional capital comes just days after analysts publicly expressed concern that the company, which emerged from bankruptcy in June 2006, might not be able to meet its debt payments.
Earlier this month, Buckingham Research analyst Mark Weintraub cut his earnings-per-share estimate, partly on concerns that USG is “likely to incur a significant step up in financing costs and quite possibly dilutive equity issuance as it seeks relief on unsecured revolving credit (earning before interest, taxes, depreciation and amortization) covenants that otherwise look likely to be broached by the end of the fourth quarter or the first quarter of 2009 at the latest.”
Berkshire Hathaway Down Almost 50% From All-Time High As Stock Sinks Again
After falling for nine straight days, shares of Warren Buffett’s Berkshire Hathaway have dropped almost 50 percent from their all-time closing high set last December.
Berkshire closed today at $77,500 a share, down $6,500, or 7.7 percent. It’s a fresh three-year low.
That’s down 48.1 percent from the all-time closing high of $149,200 set on December 10, 2007.
Berkshire fell as low as $74,100 in today’s session. At that point, it was 51.1 percent below its all-time intraday high of $151,650.
The stock has ended lower for nine straight days, following Berkshire’s third quarter earnings report on November 7, which revealed lower operating profits and big paper losses for stock option contracts. Berkshire has lost almost a third of its value since that date.
Yesterday’s 12 percent plunge was the stock’s worst day since Black Monday in 1987.
Warren Buffett’s reputation as the world’s greatest investor means the stock’s big fall is getting lots of attention.
The Wall Street Journal’s Marketbeat blog asks Would Buffett Find Berkshire a Value?
Harry Rady of Rady Asset Management in San Diego answers, “The insurance business, which is a significant portion of their earnings, is a very cyclical business. With everything else at an extremely significant discount, I see a lot more downside. There is so much opportunity to buy assets for 50 cents on the dollar, why buy a dollar for a dollar because Warren Buffett runs it?”
Reuters has a news analysis piece headlined Is Warren Buffett Losing His Touch? It quotes Vahan Janjigian, the author of the recent book Even Buffett Isn’t Perfect. “Everything you’re seeing that affects other companies is eventually going to catch up with Berkshire. I’m not saying Berkshire is not well-run, but that even well-run companies will be hit in a severe recession.”
Reuters quotes Buffett-fan Whitney Tilson as saying “we’re buying Berkshire like crazy.” He argues that “investors are looking at the derivative exposure, seeing Berkshire marking losses, and it reminds them of AIG and other companies whose derivative exposures got them into trouble. They are coming to the insane conclusion that Berkshire faces similar risks.”
Tilson expands on his Buffett defense in a detailed Seeking Alpha post headlined Berkshire Hathaway Credit Risk, Index Puts Are Overblown Worries. He writes, “It’s impossible to rule out unexpected surprises for any company, but anyone who’s studied Buffett will surely take comfort in his 50+ years of conservatism and openness with his investors.”
His conclusion: “Berkshire’s freefall in the past few weeks is certifiably crazy – and a buying opportunity that will long be remembered.”
XL Insurance Appoints New Chief Underwriting Officer, Global Aerospace
NEW YORK, Nov. 20 /PRNewswire-FirstCall/ — XL Insurance, the global insurance operations of XL Capital Ltd (NYSE: XL - News), has appointed Christopher A. O’Gwen as Chief Underwriting Officer, Global Aerospace.
Prior to his appointment Mr. O’Gwen was Regional Manager of XL Insurance’s US Aviation team and has 12 years experience in the aviation insurance market. He will continue to be based in New York and report to Dermot O’Donohoe, Chief Underwriting Officer, Global Specialty at XL Insurance. Eric Donofrio will take over as Regional Manager of XL Insurance’s US Aviation team.
Mr. O’Donohoe, said: “Our global aviation team is known for its underwriting excellence and high service commitment, even on the most complex risks. Since joining us in 2006 Chris has done an excellent job in making XL Insurance a leading provider for the aviation and space insurance industry in the US.
With his industry knowledge, solid technical understanding of this complex risk environment and commitment to our brokers and clients Chris is well placed to extend our worldwide aerospace business, while focusing on strategic opportunities around the globe.”
Mr. O’Gwen is a graduate of Embry Riddle Aeronautical University where he earned his Bachelor of Science in Aeronautical Science. He also received an MBA in Insurance from St. John’s University.
XL Insurance’s global Aerospace operations provide a broad spectrum of coverage for international and regional airlines, products manufacturers, as well as for aviation service providers around the world. They also provide coverage for satellites (at launch and while in orbit), launch vehicles, and general aviation. The global aerospace team has underwriters in New York, London, Toronto and Munich.
About XL Insurance
“XL Insurance” is the global brand used by member insurers of the XL Capital Ltd (NYSE: XL - News) group of companies. More information about XL Insurance and its products is available at www.xlinsurance.com. Through its operating subsidiaries, XL Capital is a leading provider of global insurance and reinsurance coverages and services to industrial, commercial and professional service firms, insurance companies, and other enterprises on a worldwide basis. More information about XL Capital Ltd is available at www.xlcapital.com.
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