Net Premiums Earned Increase 18% for the Second Quarter of 1999
GRAND CAYMAN, Cayman Islands, Aug. 3 /PRNewswire/ -- Chandler Insurance
Company, Ltd., (Nasdaq: CHANF), the parent of subsidiary companies based in
Oklahoma, today announced results for the second quarter and six months ended
June 30, 1999. Net premiums earned for the second quarter of 1999 were
$20.7 million, an 18% increase compared to $17.5 million in the second quarter
of 1998. Net premiums earned for the first six months of 1999 were
$41.7 million, a 24% increase from the 1998 period.
Due primarily to significant weather-related losses, a net loss of
$1,155,000 or $0.18 per share (basic and diluted) was reported for the second
quarter of 1999 versus net income of $1,031,000 or $0.16 per share (basic and
diluted) in the second quarter of 1998. During the second quarter of 1999,
weather-related losses totaled $2.8 million before income taxes (or
$1.9 million after income taxes), compared to $660,000 (or $436,000 after
income taxes) during the second quarter of 1998. The tornadoes, strong winds
and hail that caused significant damage in Oklahoma on May 3, 1999 accounted
for $1.9 million or 67% of the weather-related losses in the second quarter.
The 1998 second quarter also included the recapture of $3.8 million in
previously expensed litigation costs which was largely offset by $3.7 million
of additional loss development from prior accident years which was recorded in
the 1998 quarter.
Summary of Second Quarter Financial Highlights
(unaudited; amounts in thousands except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 Change 1999 1998 Change
Net premiums earned $20,656 $17,475 +18% $41,694 $33,614 +24%
Litigation expenses, net $191 $(3,512) +105% $450 $(3,356) +113%
Income (loss) before
income taxes $(1,894) $943 -301% $(947) $2,005 -147%
Net income (loss) $(1,155) $1,031 -212% $(630) $2,005 -131%
Net income (loss)
excluding net
litigation expenses $(960) $(2,531) +62% $(195) $(1,444) +86%
Net income (loss)
per common
share $(0.18) $0.16 -213% $(0.10) $0.31 -132%
Diluted weighted
average common
shares
outstanding 6,435 6,437 0% 6,435 6,450 0%
"Net earned premiums showed further healthy gains in the second quarter of
1999. Still, like many insurers, we absorbed substantial weather-related
losses driven in large part by the record tornado activity experienced across
Oklahoma and surrounding states mostly during the spring. However, the impact
on our bottom line was significantly mitigated by the Company's reinsurance
program." -- Brent LaGere, Chairman & CEO
The Company's combined loss and underwriting expense ratio was 110.7% for
the second quarter of 1999 versus 123.8% for the second quarter of 1998, and
was 104.8% for the first six months of 1999 versus 114.4% for the first six
months of 1998.
Three months Six months
ended June 30, ended June 30,
1999 1998 1999 1998
Loss ratio 71.1% 80.7% 67.5% 70.6%
Underwriting expense ratio 39.6% 43.1% 37.3% 43.8%
Combined loss and underwriting
expense ratio 110.7% 123.8% 104.8% 114.4%
Weather-related losses increased the loss ratio by 13.4 percentage points
for the second quarter of 1999 and 7.7 percentage points during the first six
months of 1999, while similar losses in the second quarter of 1998 increased
this ratio by 3.8 and 2.3 percentage points, respectively. The loss ratio was
increased by 21.0 percentage points in the second quarter of 1998 and
10.9 percentage points in the first six months of 1998 due to additional loss
development from prior accident years, which was recorded in the second
quarter of 1998. The decline in the underwriting expense ratios is due
primarily to the increase in net written premiums in the 1999 periods.
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 (excluding
net realized investment gains or losses) in addition to the combined ratio,
decreased to 104.3% in the second quarter of 1999 from 113.8% in the second
quarter of 1998, and decreased to 98.4% in the first six months 1999 from
104.3% in the first six months of 1998.
Brent LaGere, Chairman and Chief Executive Officer, commented: "Net
earned premiums showed further healthy gains in the second quarter of 1999.
Still, like many insurers, we absorbed substantial weather-related losses
driven in large part by the record tornado activity experienced across
Oklahoma and surrounding states mostly during the spring. However, the impact
on our bottom line was significantly mitigated by the Company's reinsurance
program."
LaGere added: "Furthermore, our decision early last year to focus more
intently on our core business lines, exit certain non-core lines and
streamline G&A costs has proven to be advantageous as our premium levels and
policyholder base continue to grow in the highly competitive insurance
marketplace. Much of the credit for this success goes to our people's
exceptional commitment to customer service and emphasis on building long-term
relationships with our policyholders."
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 $3.2 million or 18% in the second quarter of
1999 compared to the second quarter of 1998, and increased $8.1 million or
24% for the six months ended June 30, 1999 compared to the 1998 period. The
increases are primarily attributable to increased written premium production
in Texas and Oklahoma.
Net premiums earned in the standard property and casualty program
increased $1.7 million or 16% in the second quarter of 1999 compared to the
second quarter of 1998, and increased $4.5 million or 23% for the six months
ended June 30, 1999 compared to the 1998 period. The increases are primarily
attributable to increased written premium production in Texas.
Net premiums earned in the political subdivisions program increased
$663,000 or 22% in the second quarter of 1999 compared to the second quarter
of 1998, and increased $1.4 million or 22% for the six months ended June 30,
1999 compared to the 1998 period. The increases are due primarily to
expansion of the school districts program in Texas and Missouri and increased
written premium production in Oklahoma.
Net premiums earned in the surety bond program increased $222,000 or 9% in
the second quarter of 1999 compared to the second quarter of 1998, and
increased $959,000 or 21% for the six months ended June 30, 1999 compared to
the 1998 period due primarily to increased written premium production in
California.
Net premiums earned in the group accident and health program increased
$1.1 million or 95% in the second quarter of 1999 compared to the second
quarter of 1998, and increased $2.4 million or 109% for the six months ended
June 30, 1999 compared to the 1998 period. The increases are 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
$1.4 million and $2.7 million for the second quarter and first six months of
1999, respectively. 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 June 30, 1999, the Company's investment portfolio consisted primarily
of fixed income U.S. Government, high-quality corporate and tax exempt bonds,
with approximately 5% invested in cash and money market instruments. The
Company's portfolio contains no junk bonds or real estate investments.
Net interest income decreased $429,000 or 25% in the second quarter of
1999 compared to the second quarter of 1998, and decreased $715,000 or 21% for
the six months ended June 30, 1999 compared to the 1998 period, due primarily
to the purchase of additional reinsurance coverages in 1998. The Company had
no net realized investment gains in the second quarter of 1999 compared to
$268,000 in the second quarter of 1998. Net realized investment gains were
$50,000 and $277,000 in the first six months of 1999 and 1998, respectively.
Commissions, Fees and Other Income
The Company's income from commissions, fees and other income increased
$50,000 or 14% in the second quarter of 1999 compared to the second quarter of
1998, and decreased $236,000 or 21% for the six months ended June 30, 1999
compared to the 1998 period. The majority of the Company's income from
commissions, fees and other income are from the Company's subsidiary LaGere
and Walkingstick Insurance Agency, Inc. ("L&W").
L&W's brokerage commissions and fees before intercompany eliminations were
$2.0 million and $4.0 million in the second quarter and first six months of
1999, respectively, compared to $1.7 million and $3.5 million in the year ago
periods. 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.
Other income during the first six months of 1998 included a gain of
approximately $145,000 that resulted from L&W's disposal of certain equipment.
Losses and Loss Adjustment Expenses
The percentage of losses and loss adjustment expenses to net premiums
earned ("loss ratio") was 71.1% and 67.5% for the quarter and six months ended
June 30, 1999, compared to 80.7% and 70.6% in the comparable 1998 periods.
During the second quarter of 1998, the Company recorded additional loss
development from prior accident years totaling approximately $3.7 million
which increased the loss ratio for the three and six month periods ended
June 30, 1998 by 21.0 and 10.9 percentage points.
Weather-related losses (net of applicable reinsurance) from wind and hail
totaled $2.8 million and $3.2 million for the second quarter and first six
months of 1999, respectively, and increased the respective loss ratios by
13.4 and 7.7 percentage points. Weather-related losses totaled $660,000 and
$775,000 for the second quarter and first six months of 1998, respectively,
and increased the respective loss ratios by 3.8 and 2.3 percentage points.
NAICO is a major insurer of property owned by businesses, cities, towns
and school districts in Oklahoma. As a result, NAICO incurs weather-related
losses. On May 3, 1999, tornadoes, hail and strong winds caused severe damage
to property owned or used by NAICO insureds. NAICO estimates total insured
damages from the storms at approximately $22.7 million. Giving effect to
NAICO's applicable reinsurance, all of which is with unaffiliated reinsurers,
NAICO estimates its net loss before income tax benefit resulting from the May
3 storms at $1.9 million which was recorded in the second quarter of 1999.
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 and six month periods ended June 30, 1999 and 1998:
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
(In thousands)
Commissions expense $5,704 $3,937 $10,142 $7,517
Other premium related assessments 288 386 688 892
Premium taxes 941 920 1,367 1,746
Excise taxes 53 41 99 106
Dividends to policyholders 70 75 157 150
Other expense 55 (8) 85 60
Total direct expenses 7,111 5,351 12,538 10,471
Indirect underwriting expenses 3,970 3,154 7,794 6,143
Commissions received from
reinsurers (4,687) (3,444) (8,902) (7,068)
Adjustment for deferred
acquisition costs (142) (218) (131) (496)
Net policy acquisition costs $6,252 $4,843 $ 11,299 $9,050
Total gross direct and indirect expenses as a percentage of direct written
and assumed premiums were 27.9% and 27.2% for the second quarter and first six
months of 1999, respectively, compared to 28.3% and 27.9% in the corresponding
year ago periods. Commission expense as a percentage of gross written and
assumed premiums was 14.4% and 13.6% in the second quarter and the first six
months of 1999, respectively, compared to 13.1% and 12.6% in the corresponding
1998 periods. The commission rate for a portion of the surety bond program
varies inversely with the loss ratio pursuant to a commission arrangement
contingent on the loss experience of the program. In the 1998 periods, the
commission rate was lowered due to an increase in the expected loss ratio
which reduced the percentage of commission expense to gross written and
assumed premiums by 1.0 and 1.3 percentage points for the second quarter and
first six months of 1998, respectively.
Indirect underwriting expenses were 10.0% and 10.4% of total direct
written and assumed premiums in the second quarter and first six months of
1999, respectively, compared to 10.5% and 10.3% in the corresponding 1998
periods. 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 7.8% and 8.1% of gross premiums
earned and commissions, fees and other income in the second quarter and first
six months of 1999, respectively, compared to 10.2% and 10.6% for the
corresponding 1998 periods. During the second quarter of 1998, the Company
adopted a stock option and stock grant plan for certain non-employee directors
of the Company. Compensation expense related to the plan in the amount of
$272,000 was included in general and administrative expenses in the second
quarter of 1998. 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
Litigation expenses reflect expenses related to the ongoing legal
proceedings involving CenTra, Inc. ("CenTra") and certain of their affiliates.
In April 1998, the Oklahoma Federal Court in which the CenTra litigation is
pending ordered all parties to pay their own costs and attorney's fees in the
case thus denying CenTra's request of approximately $4.7 million for those
expenses. CenTra did not appeal this decision. Accordingly, the Company
reduced the previous first quarter 1997 net charge for CenTra litigation
matters by $3.8 million during the second quarter of 1998. Increased or
renewed activity could result in greater litigation expenses in 1999 or future
years.
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 six months of 1999, the Company used $6.0 million in cash
from operations due primarily to increases in premiums receivable and
reinsurance recoverables, less an increase in unpaid losses, all of which
generally result from the increases in written premiums in the 1999 period and
to the purchase of additional reinsurance coverages in 1998. The Company used
$4.6 million in cash from operations during the first six months of 1998.
On July 16, 1999, the Company announced that its subsidiary Chandler
(U.S.A.), Inc. ("Chandler USA") completed a public offering of $24 million
principal amount of senior debentures with a maturity date of July 16, 2014.
The debentures were priced at $1,000 each with an interest rate of 8.75% and
are redeemable by Chandler USA on or after July 16, 2009 without penalty or
premium. The debentures have been approved for listing on the American Stock
Exchange. Standard & Poor's has assigned the debentures a rating of "BBB".
The proceeds to Chandler USA before expenses but after the underwriter's
discount were $23.16 million. The proceeds of the offering were used to repay
existing bank debt, to repay amounts owed by Chandler USA to its parent
Chandler Insurance (Barbados), Ltd. (which is a subsidiary of the Company),
and for general corporate purposes.
Book value per share was $12.43 at June 30, 1999 based on 4,757,108 shares
(after giving effect to 1,660,125 shares rescinded through litigation and
524,475 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 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 the Company's common stock.
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 or visit the Chandler page on FRB's web site at
http://www.frbinc.com .
CHANDLER INSURANCE COMPANY, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands except per share data)
For the three months
ended June 30, %
1999 1998 Change
Premiums and other revenues
Direct premiums written and assumed $39,708 $30,061 32%
Reinsurance premiums ceded (17,474) (12,478) 40%
Net premiums written and assumed 22,234 17,583 26%
Increase in unearned premiums (1,578) (108) 1361%
Net premiums earned 20,656 17,475 18%
Interest income, net 1,315 1,744 -25%
Realized investment gains, net - 268 -100%
Commissions, fees and other income 416 366 14%
Total premiums and other revenues 22,387 19,853 13%
Operating costs and expenses
Losses and loss adjustment expenses 14,687 14,103 4%
Policy acquisition costs 6,252 4,843 29%
General and administrative expenses 2,938 3,209 -8%
Interest expense 213 267 -20%
Litigation expenses, net 191 (3,512) 105%
Total operating costs and expenses 24,281 18,910 28%
Income (loss) before income taxes (1,894) 943 -301%
Federal income tax benefit
of consolidated U.S. subsidiaries 739 88 740%
Net income (loss) $(1,155) $1,031 -212%
Basic earnings (loss) per common share $(0.18) $ 0.16 -213%
Diluted earnings (loss) per common share $(0.18) $ 0.16 -213%
Basic weighted average common shares
outstanding 6,417 6,423 0%
Diluted weighted average common shares
outstanding 6,435 6,437 0%
CHANDLER INSURANCE COMPANY, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands except per share data)
For the six months
ended June 30, %
1999 1998 Change
Premiums and other revenues
Direct premiums written and assumed $74,819 $59,461 26%
Reinsurance premiums ceded (31,527) (26,807) 18%
Net premiums written and assumed 43,292 32,654 33%
Decrease (increase) in unearned premiums (1,598) 960 -266%
Net premiums earned 41,694 33,614 24%
Interest income, net 2,698 3,413 -21%
Realized investment gains, net 50 277 -82%
Commissions, fees and other income 863 1,099 -21%
Total premiums and other revenues 45,305 38,403 18%
Operating costs and expenses
Losses and loss adjustment expenses 28,138 23,717 19%
Policy acquisition costs 11,299 9,050 25%
General and administrative expenses 5,924 6,586 -10%
Interest expense 441 401 10%
Litigation expenses, net 450 (3,356) 113%
Total operating costs and expenses 46,252 36,398 27%
Income (loss) before income taxes (947) 2,005 -147%
Federal income tax benefit
of consolidated U.S. subsidiaries 317 - 100%
Net income (loss) $(630) $2,005 -131%
Basic earnings (loss) per common share $(0.10) $ 0.31 -132%
Diluted earnings (loss) per common share $(0.10) $ 0.31 -132%
Basic weighted average common shares
outstanding 6,417 6,441 0%
Diluted weighted average common shares
outstanding 6,435 6,450 0%
CHANDLER INSURANCE COMPANY, LTD
Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands except share amounts)
June 30, December 31,
1999 1998
Assets
Investments
Fixed maturities available for sale,
at fair value $103,189 $109,055
Fixed maturities held to maturity,
at amortized cost (fair value
$1,301 and $1,332 in 1999 and 1998,
respectively) 1,215 1,183
Equity securities available for sale,
at fair value 276 191
Total investments 104,680 110,429
Cash and cash equivalents 5,020 10,383
Premiums receivable, less allowance for
non-collection of $186 and $200 at 1999
and 1998, respectively 33,340 28,479
Reinsurance recoverable on paid losses,
less allowance for non-collection of $275
at 1999 and 1998 2,062 2,760
Reinsurance recoverable on unpaid losses,
less allowance for non-collection of $323 and
$330 at 1999 and 1998, respectively 47,173 28,970
Prepaid reinsurance premiums 23,338 22,448
Deferred policy acquisition costs 2,512 2,381
Property and equipment, net 8,394 8,124
Other assets 15,352 13,253
Licenses, net 4,119 4,194
Excess of cost over net assets acquired, net 4,280 4,604
Total assets $250,270 $236,025
Liabilities and Shareholders' Equity
Liabilities
Unpaid losses and loss adjustment expenses $95,420 $80,909
Unearned premiums 53,135 50,647
Policyholder deposits 5,221 4,936
Notes payable 8,452 9,410
Accrued taxes and other payables 4,242 3,869
Premiums payable 11,047 10,961
Litigation liabilities 13,618 13,228
Total liabilities 191,135 173,960
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 35,002 34,983
Common stock to be issued (20,000 shares in 1998) - 125
Capital redemption reserve 947 947
Retained earnings 27,698 28,328
Less: Stock held by subsidiary, at cost
(524,475 and 544,475 shares in 1999 and
1998, respectively) (2,799) (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 (1,507) 793
Total shareholders' equity 59,135 62,065
Total liabilities and shareholders' equity $250,270 $236,025
SOURCE Chandler Insurance Company
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Related links:
www.frbinc.com
CONTACT:
Steve Butler, V.P.-Administration of Chandler
(Cayman), 345-949-8177, Mark Paden, Exec. V.P. & CFO of Chandler
(USA), 405-258-4228; or General Information, Mike Arneth,
312-640-6734, marneth@frb.bsmg.com, Investors-Media, Paul
Scheeler, 312-640-6742, pscheele@frb.bsmg.com, both of The
Financial Relations Board
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