FPIC INSURANCE GROUP, INC.
REPORTS FOURTH QUARTER AND YEAR 2003 RESULTS
JACKSONVILLE, Fla. (Business Wire) - February 25, 2004 - FPIC Insurance Group,
Inc. (the "Company") (NASDAQ: FPIC) today reported net income of $4.9 million,
or $0.49 per diluted share, for the fourth quarter 2003, compared to net income
of $5.0 million, or $0.53 per diluted share, for the fourth quarter 2002.
Operating earnings increased 43% to $4.9 million, or $0.49 per diluted share,
for the fourth quarter 2003, up from operating earnings of $3.4 million, or
$0.36 per diluted share, for the fourth quarter 2002.
For the year ended December 31, 2003, net income was $16.6 million, or $1.71 per
diluted share, up from a net loss of ($14.7) million, or ($1.56) per diluted
share, for the year ended December 31, 2002. During 2002, the Company adopted
Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets,"
which resulted in a one-time, non-cash charge of $29.6 million, net of income
taxes. Income before the cumulative effect of accounting change was $14.9
million, or $1.58 per diluted share, for the year ended December 31, 2002. For
the year ended December 31, 2003, operating earnings increased 28% to $15.3
million, or $1.58 per diluted share, up from operating earnings of $12.0
million, or $1.27 per diluted share, for the year ended December 31, 2002.
Operating earnings is a non-GAAP measure widely used in the insurance industry
to evaluate financial performance over time. Operating earnings is also an
often-used tool of investors and analysts in our sector to facilitate
understanding of results by excluding the net effects of realized capital gains
and losses that are tied to the financial markets, and the cumulative effects of
accounting changes and other infrequent or non-recurring items, which can affect
comparability across reporting periods. The table below reconciles net income
(loss) to operating earnings.
Three Months Ended Twelve Months Ended
----------------------------- --------------------------
Reconciliation of Net Income (Loss) to Operating Earnings Dec 31, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002
- ------------------------------------------------------------------------ -------------- ------------- ------------ ------------
Net income (loss) $ 4,933 4,987 16,572 (14,702)
-------------- ------------- ------------ ------------
Adjustments to reconcile net income (loss) to operating earnings:
Less: Net realized investment gains, net of income taxes (a) 67 1,582 1,260 2,880
Less: Cumulative effect of accounting change, net of income taxes -- -- -- (29,578)
-------------- ------------- ----------- ------------
Total adjustments 67 1,582 1,260 (26,698)
-------------- ------------- ----------- ------------
Operating earnings $ 4,866 3,405 15,312 11,996
============== ============= =========== ============
(a) All net realized investment gains, net of income taxes, for the periods
reported relate to the insurance segment.
"We ended 2003 with strong earnings momentum," stated John R. Byers, President
and Chief Executive Officer, "with operating earnings increasing quarter over
quarter and year over year at each of our business segments.
"Our insurance operations continue to focus on our core markets, writing good
business at appropriate prices. We are aggressively handling claims and
conservatively booking reserves. We are confident in the level of our reserves,
as the in-depth, year-end reviews performed by both our internal and independent
actuaries demonstrate our reserves' adequacy. Furthermore, our non-insurance
operations continue to contribute positive earnings and cash flow and remain an
excellent complement to our insurance operations."
1
2003 Financial Highlights
-------------------------
* Net income of $1.71 per diluted share and operating earnings of $1.58
per diluted share for the year ended December 31, 2003
* Income before cumulative effect of accounting change increased 11% year
over year
* Operating earnings up 43% quarter over quarter and 28% year over year
* Eighth consecutive quarter of positive consolidated operating earnings
* Lower revenues for the quarter and year due to higher ceded reinsurance
premiums, lower net investment income and lower realized investment
gains
* Improved underwriting results with a GAAP combined ratio of 99% for the
year 2003
* Growth in cash and invested assets to $623 million in 2003
* Increases in assets, reserves, shareholders' equity and statutory
surplus during 2003
* Operating cash flow of $90 million for the year 2003
* 9% return on average equity based on net income for the year 2003
2003 Operational Highlights
---------------------------
* Overall policyholder retention levels remained high
* Third year of significant pricing improvements
* Continued focus on core markets and products
* Continuation of selective underwriting and strong claims management
* Overall claims results remained within expectations
* Integration of insurance operations
* Participation in three private offerings of trust preferred securities
and senior notes
* Full repayment and early retirement of commercial bank debt
* Commutation of all Gerling Global reinsurance exposure
* Successful negotiation of 2004 reinsurance program at a lower overall
cost
* Active participation in Florida 2003 tort reform legislation
Mr. Byers, commenting on 2003 accomplishments, said, "We achieved our financial
and business goals during 2003. Financially, we materially improved our
operating earnings and grew the statutory surplus of our insurers. In addition,
we enhanced our capitalization by replacing restrictive, short-term commercial
bank debt with long-term trust preferred securities and senior notes that offer
us more operating flexibility and improved liquidity. Operationally, we
successfully integrated our insurance operations, which affords us efficiencies
that will improve our bottom line. We believe these accomplishments, along with
our solid financial results, echo our commitment to the long-term interests of
our shareholders and our policyholders."
Looking ahead to 2004, Mr. Byers said, "Our hard work and achievements
throughout 2003 have further established FPIC as a consistently stable and
profitable organization. We are positioned financially and operationally to
capitalize on opportunities in 2004."
Conference Call
---------------
FPIC will host a conference call at 11 a.m., Eastern Time, Thursday, February
26, 2004, to review fourth quarter and year-end 2003 results. Mr. Byers and
Kim D. Thorpe, FPIC's Executive Vice President and Chief Financial Officer, will
host the call. Messrs. Byers and Thorpe, together with Robert E. White, Jr.,
President of First Professionals Insurance Company, Inc., FPIC's largest
insurance subsidiary, will take questions on an interactive basis from FPIC's
analysts and investors. To access the conference call, please dial
(888) 428-4478 (USA) or (651) 291-0618 (International).
The conference call will also be broadcast live over the Internet in a
listen-only format via FPIC's corporate website at http://www.fpic.com. To
access the call from FPIC's home page, click on "Investor Relations" and a
conference call link will be provided to connect listeners to the broadcast.
2
Questions can be submitted in advance of the call until 10 a.m., Eastern Time,
Thursday, February 26, 2004 via e-mail at ir@fpic.com or through FPIC's
corporate website at http://www.fpic.com, where a link on the "Investor
Relations" page has been provided.
For individuals unable to participate in the conference call, a telephone replay
will be available beginning at 4:15 p.m., Eastern Time, Thursday, February 26,
2004 and ending at 11:59 p.m., Eastern Time, Saturday, February 28, 2004. To
access the telephone replay, dial (800) 475-6701 (USA) or (320) 365-3844
(International) and use the access code 719004. A replay of the conference call
webcast will also be available beginning at 1 p.m., Eastern Time, Thursday,
February 26, 2004 on FPIC's website.
Corporate Profile
-----------------
FPIC Insurance Group, Inc., through its subsidiary companies, is a leading
provider of professional liability insurance for physicians, dentists and other
healthcare providers. FPIC also provides management and administration services
to Physicians' Reciprocal Insurers ("PRI"), a New York medical professional
liability insurance reciprocal, and third party administration services both
within and outside the healthcare industry.
Safe Harbor Disclosure
----------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Any written or oral statements made by or on
behalf of FPIC may include forward-looking statements, which reflect our current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain uncertainties and other
factors that could cause actual results to differ materially from such
statements. These uncertainties and other factors include, but are not limited
to:
i) Uncertainties relating to government and regulatory policies (such as
subjecting FPIC to insurance regulation or taxation in additional
jurisdictions or amending, revoking or enacting any laws, regulations or
treaties affecting our current operations);
ii) The occurrence of insured or reinsured events with a frequency or
severity exceeding our estimates;
iii) Legal developments, including claims for extra-contractual obligations or
in excess of policy limits in connection with the administration of
insurance claims;
iv) Developments in global financial markets that could affect our investment
portfolio and financing plans;
v) The impact of surplus constraints on growth;
vi) Developments in reinsurance markets that could affect our reinsurance
programs;
vii) The impact of mergers and acquisitions, including the ability to
successfully integrate acquired businesses and achieve cost savings,
competing demands for our capital and the risk of undisclosed
liabilities;
viii) The ability to integrate Anesthesiologists Professional Assurance
Company's operations into First Professionals' operations and achieve
associated cost savings;
ix) Risk factors associated with financing and refinancing, including the
willingness of credit institutions to provide financing and the
availability of credit generally;
x) The competitive environment in which FPIC operates, including reliance on
agents to place insurance, physicians electing to practice without
insurance coverage, related trends and associated pricing pressures and
developments;
xi) The actual amount of new and renewal business;
xii) Rates, including rates on excess policies, being subject to or mandated
by legal requirements and regulatory approval, which could affect our
business or reinsurance arrangements;
xiii) The loss of the services of any of our executive officers;
xiv) The uncertainties of the loss reserving process;
xv) The ability to collect reinsurance recoverables;
xvi) Changes in our financial ratings resulting from one or more of these
uncertainties or other factors and the potential impact on our agents'
ability to place insurance business on behalf of FPIC;
xvii) The dependence of the reciprocal management segment upon a single major
customer, PRI, for the preponderance of its revenue;
xviii) Risks of impairment of assets, generally including the risk of impairment
or inability to continue to recognize deferred acquisition costs,
deferred tax assets, goodwill and other deferred or intangible assets;
3
xix) General economic conditions, either nationally or in our market areas,
that are worse than expected;
xx) Adverse changes in securities markets; and
other risk factors discussed elsewhere within FPIC's Form 10-Q for the
quarter ended September 30, 2003, filed with the SEC on November 12,
2003, and in FPIC's Form 10-K for the year ended December 31, 2002, filed
with the SEC on March 28, 2003.
The words "believe," "anticipate," "foresee," "estimate," "project," "plan,"
"expect," "intend," "hope," "should," "will," "will likely result" or "will
continue" and variations thereof or similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. FPIC undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, except as
required by law.
Contact
-------
Roberta Goes Cown
Senior Vice President and Corporate Counsel
(904) 354-2482, Extension 3287
For all your investor needs, FPIC is on the Internet at
http://www.fpic.com
-------------------
Got a Tough Question? E-mail us at ir@fpic.com
FPIC: Providing Answers in a Changing Market
4
FPIC Insurance Group, Inc.
Unaudited Selected Financial Data
(Dollars In Thousands)
Three Months Ended Twelve Months Ended
------------------------------ ------------------------------
Consolidated Statements of Income (Loss) Dec 31, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002
- ----------------------------------------------------------------- ------------------------------ ------------------------------
Revenues
Net premiums earned $ 29,992 34,347 $ 131,665 151,684
Claims administration and management fees 12,372 11,473 40,895 37,034
Net investment income 4,512 4,588 18,414 20,977
Commission income 1,093 1,787 7,658 6,215
Net realized investment gains 109 2,575 2,052 4,688
Finance charge and other income 283 572 1,040 1,342
--------------- -------------- --------------- ------------
Total revenues 48,361 55,342 201,724 221,940
--------------- -------------- --------------- ------------
Expenses
Net losses and loss adjustment expenses ("LAE") 25,689 33,838 118,974 139,571
Other underwriting expenses 3,322 3,543 11,219 19,155
Claims administration and management expenses 8,917 9,553 34,098 32,898
Interest expense on debt 1,379 1,115 5,886 4,762
Other expenses 1,537 785 5,658 1,844
--------------- -------------- --------------- ------------
Total expenses 40,844 48,834 175,835 198,230
--------------- -------------- --------------- ------------
Income before income taxes and cumulative effect of
accounting change 7,517 6,508 25,889 23,710
Less: Income tax expense 2,584 1,521 9,317 8,834
--------------- -------------- --------------- ------------
Income before cumulative effect of accounting change 4,933 4,987 16,572 14,876
Less: Cumulative effect of accounting change (net of an
$18,784 income tax benefit) -- -- -- 29,578
--------------- -------------- --------------- ------------
Net income (loss) $ 4,933 4,987 $ 16,572 (14,702)
=============== ============== =============== ============
Basic earnings (loss) per common share $ 0.51 0.53 $ 1.75 (1.57)
=============== ============== =============== ============
Diluted earnings (loss) per common share $ 0.49 0.53 $ 1.71 (1.56)
=============== ============== =============== ============
Basic weighted average common shares outstanding 9,601 9,391 9,483 9,387
=============== ============== =============== ============
Diluted weighted average common shares outstanding 10,003 9,391 9,665 9,432
=============== ============== =============== ============
Selected Consolidated Statement of Financial Position Information Dec 31, 2003 Dec 31, 2002
- ----------------------------------------------------------------- --------------- ------------
Total cash and investments $ 622,701 538,720
Total assets $1,183,130 1,026,431
Liability for losses and LAE $ 574,529 440,166
Liability for losses and LAE, net of reinsurance $ 298,763 272,007
Long term debt $ 46,083 --
Revolving credit facility $ -- 37,000
Term loan $ -- 10,208
Total shareholders' equity $ 186,657 165,913
Book value per common share $ 19.10 17.67
Tangible book value per common share* $ 17.09 15.55
Common shares outstanding 9,771 9,391
Statutory surplus of insurance subsidiaries $ 133,882 125,470
* Excludes goodwill of $18,870 and $18,870 and intangible assets of $782 and
$1,034 as stated in consolidated balance sheet at 12/31/03 and 12/31/02,
respectively
Three Months Ended Twelve Months Ended
------------------------------ ------------------------------
Selected Consolidated Cash Flow Information Dec 31, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002
- ----------------------------------------------------------------- ------------------------------ ------------------------------
Net cash provided by operating activities $ 40,640 46,081 $ 89,930 98,126
Net cash used in investing activities $ (58,404) (34,452) $ (91,126) (81,362)
Net cash used in financing activities $ (1,767) (1,458) $ (329) (5,395)
5
FPIC Insurance Group, Inc.
Unaudited Selected Financial Data (Continued)
(Dollars In Thousands)
Three Months Ended Twelve Months Ended
--------------------------- --------------------------
Dec 31, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002
--------------------------- --------------------------
Segment Reconciliation of Total Revenues
- --------------------------------------------------------------
Insurance $ 35,446 42,543 $ 154,913 180,775
Reciprocal management 10,145 9,827 36,604 31,678
Third party administration 4,165 4,092 16,514 15,302
Intersegment eliminations (1,395) (1,120) (6,307) (5,815)
------------ ----------- ------------ -----------
Total revenues $ 48,361 55,342 $ 201,724 221,940
============ =========== ============ ===========
Segment Reconciliation of Net Income (Loss)
- --------------------------------------------------------------
Insurance $ 2,187 2,781 $ 6,463 7,961
Reciprocal management 2,604 2,161 9,179 (17,759)
Third party administration 142 45 930 (4,904)
------------ ----------- ------------ -----------
Net income (loss) $ 4,933 4,987 $ 16,572 (14,702)
============ =========== ============ ===========
Selected Insurance Segment Information
- --------------------------------------------------------------
GAAP combined ratio:
Loss ratio 86% 99% 90% 92%
Underwriting expense ratio 11% 10% 9% 13%
------------ ----------- ------------ -----------
Combined ratio 97% 109% 99% 105%
============ =========== ============ ===========
Direct and assumed premiums written $ 64,003 74,187 340,741 344,727
============ =========== ============ ===========
Net premiums written $ 21,643 33,336 143,134 140,248
============ =========== ============ ===========
Net paid losses and LAE on professional liability claims $ 34,917 (b) 20,713 112,443 (b) 92,497
============ =========== ============ ===========
Average net paid loss per professional liability claim with
indemnity payment $ 235 (b) 153 213 (b) 184
============ =========== ============ ===========
Total professional liability claims and incidents reported
during the period 657 735 3,063 3,191
============ =========== ============ ===========
Total professional liability claims with indemnity payment 88 64 283 293
============ =========== ============ ===========
Total professional liability claims and incidents closed
without indemnity payment 697 806 1,965 2,104
============ =========== ============ ===========
Professional liability policyholders (excludes fronting
arrangements):
Medical professional liability policyholders 13,919 15,117
Legal professional liability policyholders -- 1,798
------------ -----------
Total professional liability policyholders 13,919 16,915
============ ===========
Professional liability policyholders under fronting arrangements 2,136 4,544
============ ===========
Selected Reciprocal Management Segment Information
- --------------------------------------------------------------
Reciprocal premiums written under management $ 46,915 31,881 $ 205,557 186,924
============ =========== ============ ===========
As of
--------------------------
Dec 31, 2003 Dec 31, 2002
--------------------------
Reciprocal statutory assets under management $ 860,463 821,396
============ ===========
Professional liability policyholders under management 11,149 10,547
============ ===========
Selected Third Party Administration Segment Information
- --------------------------------------------------------------
Covered lives under employee benefit programs 106,927 109,171
============ ===========
Covered lives under workers' compensation programs 38,400 38,100
============ ===========
(b) For the purpose of period over period comparison, net paid losses do not take into account $23,226 received in connection
with the Gerling commutation during fourth quarter 2003, which would be a reduction to reported net paid losses. The remaining
change reflects differences in reinsurance terms applicable to claims paid and additional retention resulting from the Gerling
commutation. Adjusted for the effects of these factors, our average net paid losses and overall severity trends were in line with
those assumed in our carried reserves.
6