Net Premiums Earned Increase 30% for the 1999 First Quarter
GRAND CAYMAN, Cayman Islands, April 28 /PRNewswire/ -- Chandler Insurance
Company, Ltd., (Nasdaq: CHANF), the parent of subsidiary companies based in
Oklahoma, today announced results for the first quarter ended March 31, 1999.
Net income was $525,000 or $0.08 per share for the first quarter of 1999
versus $974,000 or $0.15 per share in the first quarter of 1998. Net premiums
earned for the first quarter of 1999 were $21.0 million, a 30% increase
compared to $16.1 million in the first quarter of 1998.
Summary of First Quarter Financial Highlights
(unaudited; amounts in thousands except per share amounts)
Three Months Ended March 31,
1999 1998 Change
Net Premiums Earned $21,038 $16,139 + 30 %
Litigation Expenses, Net $259 $ 156 + 66 %
Income Before Income Taxes $947 $1,062 - 11 %
Net Income $525 $974 - 46 %
Net Income Excluding Net
Litigation Expenses $765 $1,086 - 30 %
Net Income Per Common Share $0.08 $0.15 - 47 %
Diluted Weighted Average
Common Shares Outstanding 6,435 6,447 0 %
"We're seeing the results of our ongoing efforts to more tightly control
G&A costs, including a 12% reduction from the prior year quarter, even as our
policyholder base expands and we strive to further extend our strong presence
in neighboring states, especially the prime Texas market.
-- Brent LaGere, Chairman & CEO
The Company's combined loss and underwriting expense ratio improved to
98.9% for the first quarter of 1999 from 104.4% for the first quarter of 1998.
The loss ratio for these same periods increased from 59.6% to 63.9%, while the
Company's underwriting expense ratio decreased from 44.8% to 35.0%. The
decline in the underwriting expense ratio is due primarily to an increase in
net written premiums of $6.0 million in the 1999 quarter, while underwriting
expenses increased only $621,000. Because certain types of expenses are fixed
in nature, the percentage of such expenses to net written premiums will vary
depending on the Company's premium volume. The operating ratio, which
considers net interest income in addition to the combined ratio, improved to
92.4% in the first quarter of 1999 from 94.0% in the first quarter of 1998.
Brent LaGere, Chairman and Chief Executive Officer, commented: "While
first quarter 1999 net premiums earned rose 30% and our core business lines
remain strong, we did not experience a commensurate increase in net income
relative to the year ago quarter due to a combination of factors. Foremost
among these was a higher loss ratio due primarily to increased competition and
an increase in weather-related losses in the 1999 quarter."
LaGere added: "We're seeing results from our ongoing efforts to more
tightly control G&A costs, including a 12% reduction from the prior year
quarter, even as our policyholder base expands and we strive to further extend
our strong presence in neighboring states, especially the prime Texas market."
Through its U.S.-based subsidiary, National American Insurance Company
(NAICO), Chandler underwrites various lines of commercial property and
casualty insurance including surety bonds and workers compensation in Oklahoma
and surrounding states, principally Texas. The Company's main areas of
concentration include the construction, manufacturing, oil and gas, wholesale,
service and retail industries along with political subdivisions.
Net Premiums Earned
Net premiums earned increased $4.9 million or 30% in the first quarter of
1999 compared to the first quarter of 1998. The increase is primarily
attributable to increased premium production in Oklahoma and Texas.
Net premiums earned in the standard property and casualty program
increased $2.8 million or 30% in the first quarter of 1999 versus the first
quarter of 1998. The increase is primarily attributable to increased
production in Texas.
Net premiums earned in the political subdivisions program increased
$702,000 or 23% in the first quarter of 1999 versus the first quarter of 1998
due primarily to expansion of the school districts program in Texas and
Missouri and increased production in Oklahoma.
Net premiums earned in the surety bond program increased $737,000 or 34%
in the first quarter of 1999 versus the first quarter of 1998 due primarily to
increased production in California and New Mexico.
Net premiums earned in the group accident and health program increased
$1.3 million or 124% in the first quarter of 1999 versus the first quarter of
1998 due primarily to a new program covering Oklahoma employers on a fully
insured basis which was effective January 1, 1999. Net premiums earned for
this program were $1.2 million in the 1999 quarter. NAICO discontinued
writing new policies for the excess portion of its group accident and health
program effective April 1, 1999.
Net Interest Income and Net Realized Investment Gains
At March 31, 1999, the Company's investment portfolio consisted primarily
of fixed income U.S. Government, high-quality corporate and tax exempt bonds,
with approximately 7% invested in cash and money market instruments. The
Company's portfolio contains no junk bonds or real estate investments.
Net interest income decreased $286,000 or 17% in the first quarter of 1999
versus the first quarter of 1998 due to a reduction in invested assets.
Invested assets declined from $132.7 million at March 31, 1998 to
$114.3 million at March 31, 1999 due primarily to the purchase of additional
reinsurance coverages in 1998.
Commissions, Fees and Other Income
The Company's income from commissions, fees and other income decreased
$286,000 or 39% in the first quarter of 1999 versus the first quarter of 1998.
The majority of the Company's income from commissions, fees and other income
are from LaGere and Walkingstick Insurance Agency, Inc.'s (L&W) brokerage
commissions and fees.
L&W's brokerage commissions and fees before intercompany eliminations were
$2.0 million in the first quarter of 1999 versus $1.8 million in the first
quarter of 1998. A large portion of the brokerage commissions and fees for
L&W is incurred by NAICO and thus eliminated in the consolidation of the
Company's subsidiaries.
L&W disposed of certain equipment in the first quarter of 1998 that
resulted in a gain of approximately $145,000 which was included in other
income.
Losses and Loss Adjustment Expenses
The percentage of losses and loss adjustment expenses to net premiums
earned ("loss ratio") was 63.9% for the first quarter of 1999 versus 59.6% in
the first quarter of 1998. The higher loss ratio in the 1999 quarter was due
primarily to increased competition and an increase in weather-related losses.
Weather-related losses from wind and hail totaled $441,000 in the first
quarter of 1999 and increased the loss ratio by 2.1 percentage points.
Weather-related losses totaled $115,000 in the first quarter of 1998, and
increased the 1998 loss ratio by 0.7 percentage points.
Policy Acquisition Costs
Policy acquisition costs consist of costs associated with the acquisition
of new and renewal business and generally include direct costs such as premium
taxes, commissions to agents and ceding companies and premium-related
assessments and indirect costs such as salaries and expenses of personnel who
perform and support underwriting activities. NAICO also receives ceding
commissions from certain of the reinsurers who assume premiums from NAICO
under certain reinsurance contracts and the ceding commissions are accounted
for as a reduction of policy acquisition costs. Direct policy acquisition
costs and ceding commissions are deferred and amortized over the terms of the
policies. Recoverability of such deferred costs is dependent on the related
unearned premiums on the policies being more than expected claim losses.
The following table sets forth the Company's policy acquisition costs for
each of the three month periods ended March 31, 1999 and 1998:
Three months ended
March 31,
1999 1998
(In thousands)
Commissions expense $4,438 $3,580
Other premium related assessments 400 506
Premium taxes 426 827
Excise taxes 46 65
Dividends to policyholders 87 75
Other expense 30 68
Total direct expenses 5,427 5,121
Indirect underwriting expenses 3,824 2,989
Commissions received from reinsurers (4,215) (3,624)
Adjustment for deferred acquisition costs 11 (279)
Net policy acquisition costs $5,047 $4,207
Total gross direct and indirect expenses as a percentage of direct written
and assumed premiums were 26.3% for the first quarter of 1999 versus 27.6% for
the first quarter of 1998. Commission expense as a percentage of gross
written and assumed premiums was 12.6% for the first quarter of 1999 versus
12.2% for the 1998 quarter. The 1999 commission rate increased due primarily
to a higher proportion of surety bond direct written and assumed premiums to
total direct written and assumed premiums in the 1999 quarter. Surety bonds
have historically had a higher commission rate than the Company's other lines
of business which is normal for the industry.
Indirect underwriting expenses were 10.9% and 10.2% of total direct
written and assumed premiums in the three month periods ended March 31, 1999
and 1998, respectively. Indirect expenses include general overhead and
administrative costs associated with the acquisition of new and renewal
business, some of which is relatively fixed in nature, thus, the percentage of
such expenses to direct written and assumed premiums will vary depending on
the Company's overall premium volume.
General and Administrative Expenses
General and administrative expenses were 8.4% and 11.0% of gross premiums
earned and commissions, fees and other income in the first quarter of 1999 and
1998, respectively. General and administrative expenses have historically not
varied in direct proportion to the Company's revenues. A portion of such
expenses is allocated to policy acquisition costs (indirect underwriting
expenses) and loss and loss adjustment expenses based on various factors
including employee counts, salaries, occupancy and specific identification.
Because certain types of expenses are fixed in nature, the percentage of such
expenses to revenues will vary depending on the Company's overall premium
volume.
Litigation and Litigation Expenses
While the Company's litigation expenses related to CenTra, Inc. (CenTra)
have generally decreased since the first quarter of 1997, continued or renewed
actions by CenTra or its affiliates could cause the Company to incur
significant litigation expenses in future periods.
Income Tax Provision
The provision for or benefit from federal income taxes of the consolidated
U.S. subsidiaries varies with the level of income or loss before income taxes
of such subsidiaries. The provision or benefit relative to the consolidated
income before income taxes will also vary dependent on the contribution to
income before income taxes by the consolidated U.S. subsidiaries.
Liquidity and Capital Resources
In the first quarter of 1999, the Company used $4.4 million in cash from
operations due primarily to increases in premiums receivable and reinsurance
recoverables, less an increase in unpaid losses, which generally correspond to
the increase in written premiums in the 1999 quarter and to the purchase of
additional reinsurance coverages in 1998. Cash provided by operations in the
first quarter of 1998 was $1.7 million.
Chandler (U.S.A.), Inc. (CUSA), a wholly owned subsidiary of the Company,
intends to offer debentures in the aggregate principal amount of $24 million.
The terms of the debentures including the interest rate and redemption date
have not been determined. CUSA plans to use the proceeds of the offering to
repay amounts due to its direct parent Chandler Insurance (Barbados), Ltd.; to
retire its current bank debt; and for general corporate purposes. CUSA's
subsidiaries and affiliates will not be obligated by the debentures.
Accordingly, the debentures will be effectively subordinated to all existing
and future liabilities and obligations of CUSA's existing and future
subsidiaries.
Book value per share was $12.94 at March 31, 1999 based on 4,757,108
shares (includes total common shares outstanding and common stock to be
issued, less 1,660,125 shares rescinded through litigation and 544,475 shares
that are held by a subsidiary of the Company) compared to $13.05 at December
31, 1998.
Cautionary Statement
Some of the statements made in this News Release, as well as statements
made by the Company in periodic press releases, oral statements made by the
Company's officials to analysts and shareholders in the course of
presentations about the Company and conference calls following earnings
releases, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Such
factors include, among other things, (i) general economic and business
conditions; (ii) interest rate changes; (iii) competition and regulatory
environment in which the Company operates; (iv) claims frequency; (v) claims
severity; (vi) the number of new and renewal policy applications submitted by
the Company's agents; (vii) the ability of the Company and its third party
providers, agents and reinsurers to adequately address year 2000 issues; and
(viii) other factors such as the ongoing litigation matters involving a
significant concentration of ownership of common stock.
CHANDLER INSURANCE COMPANY, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands except per share data)
For the three months ended
March 31, %
1999 1998 Change
Premiums and other revenues
Direct premiums written and assumed $35,111 $29,400 19%
Reinsurance premiums ceded (14,053) (14,329) -2%
Net premiums written and assumed 21,058 15,071 40%
Decrease (increase) in unearned premiums (20) 1,068 -102%
Net premiums earned 21,038 16,139 30%
Interest income, net 1,383 1,669 -17%
Realized investment gains, net 50 9 456%
Commissions, fees and other income 447 733 -39%
Total premiums and other revenues 22,918 18,550 24%
Operating costs and expenses
Losses and loss adjustment expenses 13,451 9,614 40%
Policy acquisition costs 5,047 4,207 20%
General and administrative expenses 2,986 3,377 -12%
Interest expense 228 134 70%
Litigation expenses, net 259 156 66%
Total operating costs and expenses 21,971 17,488 26%
Income before income taxes 947 1,062 -11%
Federal income tax provision
of consolidated U.S. subsidiaries (422) (88) 380%
Net income $525 $974 -46%
Basic earnings per common share $0.08 $0.15 -47%
Diluted earnings per common share $0.08 $0.15 -47%
Basic weighted average common
shares outstanding 6,417 6,447 0%
Diluted weighted average common
shares outstanding 6,435 6,447 0%
CHANDLER INSURANCE COMPANY, LTD.
Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands except per share amounts)
March 31, December 31,
1999 1998
Assets
Investments
Fixed maturities available for sale, at
fair value $105,074 $109,055
Fixed maturities held to maturity, at
amortized cost (fair value of $1,316 and
$1,332 in 1999 and 1998, respectively) 1,199 1,183
Equity security available for sale, at fair value 191 191
Total investments 106,464 110,429
Cash and cash equivalents 7,808 10,383
Premiums receivable, less allowance for
non-collection of $200 at 1999 and 1998 31,085 28,479
Reinsurance recoverable on paid losses, less
allowance for non-collection of $275 at
1999 and 1998 1,915 2,760
Reinsurance recoverable on unpaid losses,
less allowance for non-collection of $297 and
$330 at 1999 and 1998, respectively 33,212 28,970
Prepaid reinsurance premiums 22,553 22,448
Deferred policy acquisition costs 2,370 2,381
Property and equipment, net 8,091 8,124
Other assets 13,767 13,253
Licenses, net 4,156 4,194
Excess of cost over net assets acquired, net 4,442 4,604
Total assets $235,863 $236,025
CHANDLER INSURANCE COMPANY, LTD.
Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands except per share amounts)
March 31, December 31,
1999 1998
Liabilities and Shareholders' Equity
Liabilities
Unpaid losses and loss adjustment expenses $83,190 $80,909
Unearned premiums 50,772 50,647
Policyholder deposits 5,013 4,936
Notes payable 8,934 9,410
Accrued taxes and other payables 2,864 3,869
Premiums payable 10,116 10,961
Litigation liabilities 13,418 13,228
Total liabilities 174,307 173,960
Shareholders' equity
Common stock, $1.67 par value, 10,000,000
shares authorized, 6,941,708 shares issued 11,593 11,593
Paid-in surplus 34,983 34,983
Common stock to be issued (20,000 shares) 125 125
Capital redemption reserve 947 947
Retained earnings 28,853 28,328
Less: Stock held by subsidiary, at cost
(544,475 shares) (2,905) (2,905)
Less: Stock rescinded through litigation
(1,660,125 shares) (11,799) (11,799)
Accumulated other comprehensive income:
Unrealized gain (loss) on investments available
for sale, net of deferred income taxes (241) 793
Total shareholders' equity 61,556 62,065
Total liabilities and shareholders' equity $235,863 $236,025
SOURCE Chandler Insurance Company, Ltd.
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CONTACT:
Steve Butler, V.P.-Administration of Chandler
(Cayman), 345-949-8177, or Mark Paden, Exec. V.P. & CFO of
Chandler (USA), 405-258-4228; or General Information, Mike
Arneth, 312-640-6734, e-mail, mga@chi.frbd.com, or
Investors-Media, Paul Scheeler, 312-640-6742, e-mail,
pas@chi.frbd.com, both of The Financial Relations Board
NOTE TO EDITORS: For further information on Chandler Insurance
toll-free via fax, dial 1-800-PRO-INFO, follow the voice menu
prompts and enter the company code 032 on any touch tone phone
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