Gross Premiums Earned Increase 26% for the First Quarter of 2000
GRAND CAYMAN, Cayman Islands, May 10 /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, 2000.
Gross premiums earned for the first quarter of 2000 were $44.0 million, a 26%
increase compared to $35.0 million in the first quarter of 1999. Due
primarily to an increase in losses and loss adjustment expenses, a net loss of
$1,263,000 or $0.28 per share was reported for the first quarter of 2000. Net
income was $525,000 or $0.08 per share in the first quarter of 1999.
Summary of First Quarter Financial Results
(unaudited; amounts in thousands except per share amounts)
Three Months Ended March 31,
2000 1999 Change
Gross premiums earned $43,963 $34,986 +26%
Net premiums earned $29,075 $21,038 +38%
Litigation expenses, net $227 $259 -12%
Income (loss) before income taxes $(1,852) $947 -296%
Net income (loss) $(1,263) $525 -341%
Net income (loss) excluding net
litigation expenses $(1,038) $765 -236%
Net income (loss) per common share $(0.28) $0.08 -450%
Diluted weighted average
common shares outstanding 4,445 6,435 -31%
"The first quarter yielded mixed results for Chandler Insurance. The
substantial increases in revenues in most of our lines confirm our confidence
in the future of this company and, I think, validate our strategy of focusing
on specific insurance lines in well-defined markets. We are of course
disappointed with the loss for the quarter. However, the contributing factors
are confined to certain areas and we are taking measures to address the
situation though pricing and product structure."
Brent LaGere, Chairman & CEO
NAICO's group accident and health program continued to experience
unsatisfactory underwriting results. The loss ratio for the group accident
and health program was 178.2% on $955,000 in net premiums earned for the first
quarter of 2000, compared to 67.7% on $2,299,000, respectively, for the 1999
quarter. NAICO discontinued writing new policies for the excess portion of
the group accident and health program effective April 1, 1999. NAICO is
currently evaluating the fully insured portion of the program and may modify
or discontinue it during 2000.
The Company's combined loss and underwriting expense ratio was 109.0% for
the first quarter of 2000 versus 98.9% for the first quarter of 1999. The
loss ratio was 71.5% in the first quarter of 2000 compared to 63.9% in the
first quarter of 1999 due primarily to adverse loss experience in the group
accident and health program. Excluding the underwriting results of the group
accident and health program, the loss ratio for the first quarter of 2000 was
67.9% versus 63.5% in the year ago quarter.
The Company's underwriting expense ratio was 37.4% in the first quarter of
2000 compared to 35.0% in the first quarter of 1999. The increase in the
underwriting expense ratio was due primarily to a reduction in ceding
commissions received from reinsurers which resulted from changes in the
Company's worker's compensation reinsurance program in late 1999 and in the
2000 quarter. The operating ratio, which considers net interest income
(excluding net realized investment gains or losses) in addition to the
combined ratio, was 103.9% in the first quarter of 2000 compared to 92.4% in
the first quarter of 1999.
Brent LaGere, Chairman and Chief Executive Officer, commented: "While we
are not happy with the loss recorded in the first quarter, it is a short-term
situation that can and is being aggressively addressed. Not only are we
reviewing our pricing but we are also reevaluating certain programs. Our
first choice is to adjust premium levels where appropriate to a point where
they more accurately reflect the risk we are underwriting. However, if doing
so is impractical from a competitive standpoint, alternative actions,
including the possibility of eliminating certain products, are also available.
Regardless of the action or combination of actions we take, our focus is to
ensure we restore margins to an acceptable level quickly and permanently."
"I believe the environment is favorable to obtaining the needed
adjustments as pricing of coverage has at least begun to stabilize.
Additionally, our reputation for outstanding service to policyholders gives us
a greater ability to obtain the changes in premium levels necessary while
remaining competitive both in terms of our renewal rates and our overall
growth. That is clearly evident from the significant growth in premiums in
all but one of our insurance programs," LaGere added.
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 and political subdivisions.
Premiums Earned
The following table sets forth premiums earned on a gross basis (before
reductions for premiums ceded to reinsurers) and on a net basis (after such
reductions) for each insurance program for the three month periods ended
March 31, 2000 and 1999:
Gross premiums earned Net premiums earned
Three months ended March 31, 2000 1999 2000 1999
(In thousands)
Standard property and
casualty $30,707 $21,635 $20,817 $12,115
Political subdivisions 8,152 7,181 4,388 3,782
Surety bonds 4,009 3,555 2,837 2,881
Group accident and health 1,011 2,609 955 2,299
Other 84 6 78 (39)
TOTAL $43,963 $34,986 $29,075 $21,038
Gross premiums earned, before reductions for premiums ceded to reinsurers,
increased $9.0 million or 26% in the first quarter of 2000 compared to the
first quarter of 1999. The increase is primarily attributable to increased
written premium production in Texas and Oklahoma, as NAICO continues to expand
its programs in these states. Net premiums earned, after such reductions,
increased $8.0 million or 38% in the first quarter of 2000 compared to the
first quarter of 1999 due to the increase in written premium production, and
to an increase in the amount of risk retained in the 2000 quarter for the
Company's workers compensation line of business.
Gross premiums earned in the standard property and casualty program
increased $9.1 million or 42% in the first quarter of 2000 compared to the
first quarter of 1999. The increase is primarily attributable to increased
written premium production in Texas. Net premiums earned increased
$8.7 million or 72% in the first quarter of 2000 versus the first quarter of
1999 due to the increase in written premium production, and to the increase in
the amount of risk retained for the workers compensation portion of the
program.
Gross premiums earned in the political subdivisions program increased
$971,000 or 14% in the first quarter of 2000 compared to the first quarter of
1999. The increase is primarily attributable to increased written premium
production in the school districts portion of the program in Oklahoma. Net
premiums earned in the political subdivisions program increased $606,000 or
16% in the first quarter of 2000 versus the first quarter of 1999.
Gross premiums earned in the surety bond program increased $454,000 or 13%
in the first quarter of 2000 compared to the first quarter of 1999.
Approximately $629,000 of the gross premiums earned in the first quarter of
2000 relates to a new program that is 100% reinsured by an unaffiliated
reinsurer. Excluding this new program, gross premiums earned decreased
$175,000 or 5% from the 1999 quarter. Net premiums earned in the surety bond
program decreased $44,000 or 2% in the first quarter of 2000 versus the first
quarter of 1999.
Gross premiums earned in the group accident and health program decreased
$1.6 million or 61% in the first quarter of 2000 versus the first quarter of
1999. Net premiums earned for this program decreased $1.3 million or 58% in
the first quarter of 2000 versus the first quarter of 1999. NAICO
discontinued writing new policies for the excess portion of the group accident
and health program effective April 1, 1999. NAICO is currently evaluating the
fully insured portion of the program and may modify or discontinue it during
2000.
Net Interest Income and Net Realized Investment Gains
At March 31, 2000, the Company's investment portfolio consisted primarily
of fixed income U.S. Government, high-quality corporate and tax exempt bonds,
with approximately 9% invested in cash and money market instruments. The
Company's portfolio contains no non-investment grade bonds or real estate
investments.
Net interest income increased $95,000 or 7% in the first quarter of 2000
versus the first quarter of 1999 due primarily to an increase in invested
assets. Invested assets increased from $114.3 million at March 31, 1999 to
$126.6 million at March 31, 2000 due primarily to the collection of
$12.9 million in January 2000 related to two reinsurance treaties which were
rescinded in the fourth quarter of 1999. The Company had no net realized
investment gains or losses during the first quarter of 2000, compared to a net
realized investment gain of $50,000 in the first quarter of 1999.
Commissions, Fees and Other Income
The Company's income from commissions, fees and other income decreased
$49,000 or 11% in the first quarter of 2000 versus the first quarter of 1999.
The majority of the Company's income from commissions, fees and other income
are from the Company's subsidiary LaGere & Walkingstick Insurance Agency, Inc.
("L&W").
L&W's brokerage commissions and fees before intercompany eliminations were
$2.1 million in the first quarter of 2000 versus $2.0 million in the first
quarter of 1999. 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.
Losses and Loss Adjustment Expenses
The percentage of losses and loss adjustment expenses to net premiums
earned ("loss ratio") was 71.5% for the first quarter of 2000 versus 63.9% in
the first quarter of 1999. The increase in the 2000 loss ratio was primarily
the result of adverse loss experience in the group accident and health
program. Excluding the underwriting results of the group accident and health
program, the loss ratio for the first quarter of 2000 was 67.9% versus 63.5%
in the year ago quarter. Weather-related losses from wind and hail totaled
$594,000 in the first quarter of 2000 and increased the loss ratio by 2.0
percentage points. Weather-related losses totaled $441,000 in the first
quarter of 1999, and increased the 1999 loss ratio by 2.1 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 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, 20000 and 1999:
Three months ended
March 31,
2000 1999
(In thousands)
Commissions expense $5,259 $4,438
Other premium related assessments 403 400
Premium taxes 975 426
Excise taxes 110 46
Dividends to policyholders 101 87
Other expense 42 30
Total direct expenses 6,890 5,427
Indirect underwriting expenses 4,078 3,824
Commissions received from reinsurers (3,689) (4,215)
Adjustment for deferred acquisition costs 419 11
Net policy acquisition costs $7,698 $5,047
Total gross direct and indirect expenses as a percentage of direct written
and assumed premiums were 24.3% for the first quarter of 2000 versus 26.3% for
the first quarter of 1999. Commission expense as a percentage of gross
written and assumed premiums was 11.7% for the first quarter of 2000 versus
12.6% for the 1999 quarter. Premium taxes increased $549,000 or 129% in the
first quarter of 2000 compared to the 1999 quarter due to the increase in
written premiums and to a refund of $392,000 which was received in the 1999
quarter for premium taxes paid in a prior year.
Indirect underwriting expenses were 9.0% and 10.9% of total direct written
and assumed premiums in the three month periods ended March 31, 2000 and 1999,
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 7.9% and 8.4% of gross premiums
earned and commissions, fees and other income in the first quarter of 2000 and
1999, 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.
Interest Expense
Interest expense increased $338,000 or 148% in the first quarter of 2000
compared to the first quarter of 1999. The increase was primarily due to
interest expense on the $24 million debenture offering which was completed on
July 16, 1999 by the Company's subsidiary Chandler (U.S.A.), Inc.
Litigation and Litigation Expenses
Litigation expenses reflect expenses related to the ongoing legal
proceedings involving CenTra, Inc. and certain of its affiliates ("CenTra").
Litigation expenses decreased $32,000 or 12% in the first quarter of 2000
compared to the first quarter of 1999. Increased or renewed activity could
result in greater litigation expenses in 2000 or future years.
During December 1999, the Company acquired 1,989,200 shares of its own
stock in exchange for payment of $15,204,758 to CenTra and its affiliates
pursuant to a divestiture plan proposed by NAICO and approved by a U.S.
District Court in Nebraska ("Nebraska Court"). All shares were canceled upon
their return to the Company. The Nebraska Court had ordered CenTra to divest
all shares of Chandler owned or controlled by it or its affiliates. An
additional share block owned by CenTra and affiliates consists of 1,142,625
shares, which will be divested following a ruling on CenTra's appeal of a
judgment entered by an Oklahoma Federal Court in April 1997. That judgment
requires CenTra to transfer the shares to the Company in exchange for payment
of $6,882,500. Based on the April 22, 1997 judgment and subsequent actions by
the Oklahoma Federal Court, the Company previously recorded the return of the
1,142,625 shares as a decrease to shareholders' equity during 1997. Following
the conclusion of the appeal, the Nebraska Court will determine the method of
divestiture of these shares. The appellate court heard oral argument on
November 15, 1999. The Company cannot predict when the appellate court will
rule on the appeal.
Income Tax Provision or Benefit
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 2000, the Company provided $9.4 million in cash
from operations due primarily to the collection of certain receivables
totaling approximately $12.9 million in the 2000 quarter that were related to
the rescission of two reinsurance treaties during the fourth quarter of 1999.
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 and loss adjustment expenses,
which generally correspond to the increase in written premiums in the 1999
quarter and to the purchase of additional reinsurance coverages in 1998.
Book value per share was $15.06 at March 31, 2000 based on 3,285,408
shares (after giving effect to 1,142,625 shares rescinded through litigation)
compared to $15.45 at December 31, 1999.
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 to obtain adequate
reinsurance in amounts and at rates that will not adversely affect its
competitive position; (viii) NAICO's ability to maintain favorable insurance
company ratings; (ix) the ability of the Company and its third party
providers, agents and reinsurers to adequately address year 2000 issues; and
(x) other factors such as the ongoing litigation matters involving a
significant concentration of ownership of common stock.
CHANDLER INSURANCE COMPANY, LTD.
Consolidated Balance Sheets
(Amounts in thousands except share amounts)
March 31, December 31,
2000 1999
(Unaudited)
Assets
Investments
Fixed maturities available for sale,
at fair value $113,606 $108,709
Fixed maturities held to maturity, at
amortized cost (fair value $1,052 and
$1,039 in 2000 and 1999, respectively) 1,002 984
Equity securities available for sale,
at fair value 306 306
Total investments 114,914 109,999
Cash and cash equivalents 11,673 8,456
Premiums receivable, less allowance for
non-collection of $310 and $263 at
2000 and 1999, respectively 36,241 47,721
Reinsurance recoverable on paid losses,
less allowance for non-collection of
$275 at 2000 and 1999 3,989 3,281
Reinsurance recoverable on unpaid losses,
less allowance for non-collection of
$322 and $302 at 2000 and 1999,
respectively 38,035 37,539
Prepaid reinsurance premiums 23,387 19,960
Deferred policy acquisition costs 6,069 6,488
Property and equipment, net 11,634 10,765
Licenses, net 4,007 4,044
Excess of cost over net assets
acquired, net 3,793 3,955
Other assets 18,023 16,912
Total assets $271,765 $269,120
Liabilities and Shareholders' Equity
Liabilities
Unpaid losses and loss adjustment
expenses $99,870 $98,460
Unearned premiums 68,935 67,769
Policyholder deposits 5,215 5,135
Accrued taxes and other payables 4,376 6,796
Premiums payable 10,882 7,312
Litigation liabilities 9,031 8,905
Debentures 24,000 24,000
Total liabilities 222,309 218,377
Shareholders' equity
Common stock, $1.67 par value,
10,000,000 shares authorized,
4,428,033 shares issued 7,395 7,395
Paid-in surplus 21,380 21,380
Capital redemption reserve 947 947
Retained earnings 29,216 30,479
Less: Stock rescinded through
litigation (1,142,625 shares) (6,883) (6,883)
Accumulated other comprehensive loss:
Unrealized loss on investments
available for sale, net of
deferred income taxes (2,599) (2,575)
Total shareholders' equity 49,456 50,743
Total liabilities and
shareholders' equity $271,765 $269,120
CHANDLER INSURANCE COMPANY, LTD.
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands except per share data)
For the three months
ended March 31, %
2000 1999 Change
Premiums and other revenues
Direct premiums written and assumed $45,129 $35,111 29%
Reinsurance premiums ceded (18,314) (14,053) 30%
Net premiums written and assumed 26,815 21,058 27%
Decrease (increase) in unearned
premiums 2,260 (20) -11400%
Net premiums earned 29,075 21,038 38%
Interest income, net 1,478 1,383 7%
Realized investment gains, net -- 50 -100%
Commissions, fees and other income 398 447 -11%
Total premiums and other revenues 30,951 22,918 35%
Operating costs and expenses
Losses and loss adjustment expenses 20,800 13,451 55%
Policy acquisition costs 7,698 5,047 53%
General and administrative expenses 3,512 2,986 18%
Interest expense 566 228 148%
Litigation expenses, net 227 259 -12%
Total operating costs and expenses 32,803 21,971 49%
Income (loss) before income taxes (1,852) 947 -296%
Federal income tax benefit (provision)
of consolidated U.S. subsidiaries 589 (422) -240%
Net income (loss) $(1,263) $525 -341%
Basic earnings (loss) per
common share $(0.29) $0.08 -463%
Diluted earnings (loss) per
common share $(0.28) $0.08 -450%
Basic weighted average common
shares outstanding 4,428 6,417 -31%
Diluted weighted average common
shares outstanding 4,445 6,435 -31%
SOURCE Chandler Insurance Company
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Related links:
http://www.frbinc.com
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
of The Financial Relations Board, 312-640-6734, or
marneth@frb.bsmg.com
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