Press Release
August 13, 2003
For Immediate Release
For Information Contact:
Eric R. Anderson, Vice President, Investor Relations - 202.969.1866
NCRIC Group, Inc. Announces Second Quarter, Six Month Results
Washington, D.C. -- NCRIC Group, Inc. (Nasdaq National Market: NCRI), a leading
provider of medical professional liability insurance and physician practice
management services in the Mid-Atlantic region, today reported operating results
for its second quarter and six months ended June 30, 2003.
For the quarter, net income was $542,000 or $0.08 per diluted share, compared to
$198,000 or $0.03 per diluted share for the same period in 2002. Net realized
investment gains, after tax, for the second quarter of 2003 totaled $762,000
compared to net realized investment losses, after tax, of $379,000 for the
second quarter of 2002. Total revenue for the quarter was $15.1 million, up $5.4
million or 57%, compared to $9.7 million for the same period in 2002.
Net income totaled $1.1 million or $0.15 per diluted share for the six months
ended June 30, 2003, compared with net income of $732,000 or $0.11 per diluted
share for the six months ended June 30, 2002. For the earnings per share
calculations, the share amounts for periods prior to the conversion and stock
offering have been revised to reflect the share exchange ratio applied in the
conversion. Net realized investment gains, after tax, for the first six months
of 2003 totaled $894,000 compared to net realized investment losses, after tax,
of $403,000 for the first six months of 2002. For the six months ended June 30,
2003, total revenue was $29.8 million, up $10.3 million or 53%, compared to
$19.5 million for the six months ended June 30, 2002. The higher revenue was
offset by an increase in loss and loss adjustment expenses, underwriting
expenses, and interest on Trust Preferred Securities.
Stockholders' equity increased to $84.8 million at June 30, 2003, up from $47.8
million at December 31, 2002, as a result of the completion of the second step
conversion and related stock offering as well as net income and other
comprehensive income for the six months ended June 30, 2003. As of June 30,
2003, there were 6.9 million shares of NCRIC Group, Inc. common stock
outstanding. Book value per share as of June 30, 2003 stood at $12.25. Book
value per share as of December 31, 2002 was $6.91 as revised to reflect the
shares issued in the conversion and stock offering which closed on June 25,
2003.
R. Ray Pate, Jr., President and CEO, NCRIC Group, Inc. said, "Through the first
six months of the year, we remain on target to achieve our 2003 new business
objectives. Furthermore, the successful completion of our conversion and related
stock offering provides us with additional capital to respond to what we believe
to be significant growth opportunities as a result of continuing industry
contraction." Pate further explained that NCRIC Group's business model
incorporates a structured approach to geographic expansion that is designed to
enhance profitability and strengthen the Company's position as a leading
provider of medical professional liability insurance in the Mid-Atlantic region.
He said, "We have begun deploying the new capital in our core market territories
where carriers have either left the market or stopped writing new business. We
will continue to adhere to strict underwriting criteria and maintain disciplined
pricing practices as we fulfill the need for capacity in these underserved
areas. Rate adequacy and controlled growth are the cornerstones of our expansion
philosophy."
"Net operating results through June 30, 2003 did not meet our expectations for
two primary reasons," Pate stated. "Investment income for the period was down
due to lower market yields as well as our decision to improve the overall credit
quality of our investment portfolio. We continue to evaluate the interest rate
risk in our fixed income portfolio and are strategically positioning the
investment portfolio to reduce that risk. We also experienced a slight rise in
the frequency of claims in the District of Columbia which increased the loss
component of our combined ratio. While at this time it does not appear to be a
trend, we will continue to monitor it closely."
Pate further noted that NCRIC Group is pleased with its continuing position of
financial strength. He said, "While we measure performance quarterly, we believe
that medical professional liability insurance is a long-term business and
therefore it is more meaningful to measure results over an extended timeframe.
Our overriding objective is to maintain a strong balance sheet and increase
shareholder value."
2
Segment Results - Insurance Segment
(in thousands)
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -----------------
2003 2002 2003 2002
------ ------ ------ ------
Net premiums earned $ 10,962 $ 6,945 $ 22,411 $ 13,511
Net investment income 1,379 1,511 2,666 3,056
Realized gains (losses) 1,136 (574) 1,340 (610)
Other income 286 214 566 408
-------- -------- -------- --------
Total segment revenue 13,763 8,096 26,983 16,365
Losses & LAE 10,355 5,980 19,938 11,700
Underwriting expenses 2,234 1,533 4,705 3,101
Other expenses 68 101 179 231
-------- -------- -------- --------
Total segment expenses 12,657 7,614 24,822 15,032
Pre-tax segment results $ 1,105 $ 482 $ 2,161 $ 1,333
======== ======== ======== ========
For the three months ended June 30, 2003, new business written was $2.9 million,
an increase of 43% compared to the same three month period in 2002. For the six
months ended June 30, 2003, new business written totaled $4.3 million compared
to $6.6 million for the same six month period in 2002. The overall level of new
business produced in the first six months of 2003 is lower than for the first
six months of 2002 due to a decision to slow sales in the first quarter of 2003
while capital availability for 2003 growth was determined.
3
New Premium Written
(in thousands)
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -----------------
2003 2002 2003 2002
------ ------ ------ ------
Direct $ 161 $ 176 $ 327 $ 526
Agent 2,729 1,845 3,988 6,081
------ ------ ------ ------
Total $2,890 $2,021 $4,315 $6,607
====== ====== ====== ======
Net Premiums Earned
Net premiums earned for the three months ended June 30, 2003 increased by $4.1
million, or 59%, to $11.0 million from $6.9 million for the three months ended
June 30, 2002. This increase primarily reflects the increase in business in
force as a result of growth from new premium written, increases in premium rates
effective with 2002 and 2003 renewals, which average 16% and 29% respectively,
and the change in the risk retention level from $500,000 under the 2002
reinsurance program to $1 million in 2003.
Net premiums earned increased by 66% to $22.4 million for the six months ended
June 30, 2003 from $13.5 million for the same period in 2002. This increase
primarily reflects growth in policies in force as a result of net new business
written combined with the rise in base premiums effective with 2002 and 2003
renewals. The increase in net premiums also reflects the change in the risk
retention level and an increase in premium earned for extended reporting
endorsements issued.
Gross Premiums Written
Gross premiums written were $9.2 million in the second quarter of 2003, an
increase of $3.5 million, or 61%, over the second quarter of 2002. For the first
six months of 2003, gross premiums written were $38.6 million, an increase of
$10 million, or 35%, from the same period in 2002. This increase was due to net
new business written combined with the premium rate increases effective January
1, 2003.
The distribution of premium written shows notable growth in our market areas
outside of the District of Columbia. We continue to maintain strict
underwriting standards as we expand our business.
4
Gross Premium Written By State
(in thousands)
Six Months Ended June 30,
---------------------------
2003 2002
------ ------
District of Columbia $17,432 45% $15,153 53%
Virginia 8,862 23% 5,799 20%
Maryland 6,242 16% 3,684 13%
West Virginia 3,131 8% 3,297 12%
Delaware 2,963 8% 655 2%
------- ------- ------- -------
Total $38,630 100% $28,588 100%
Losses and Loss Adjustment Expenses
(in thousands)
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
2003 2002 2003 2002
------ ------ ------ ------
Incurred losses and LAE related to:
Current year - losses $ 10,507 $ 4,844 $ 20,240 $ 10,855
Prior years - development (152) 1,136 (302) 845
-------- -------- -------- --------
Total incurred for the period $ 10,355 $ 5,980 $ 19,938 $ 11,700
======== ======== ======== ========
Total incurred loss and LAE expense of $10.4 million for the second quarter and
$19.9 million for the first six months of 2003 increased by $4.4 million and
$8.2 million, respectively, from the same periods in 2002. The increase in
current year losses to $10.5 million for the second quarter and $20.2 million
for the first six months of 2003 reflects the increase in the level of exposure
as a result of expanding business combined with a rise in the cost of resolving
claims and losses associated with the increase in retained losses under
reinsurance treaties from $500,000 to $1,000,000 as of January 1, 2003. The
favorable development of losses reported in prior years reflects the favorable
experience on claims closed during the quarter, partially offset by the
continuing upward pressure of severity of losses. Prior years development
results from the re-estimation and settlement of individual losses not covered
by reinsurance, which prior to 2003 are generally losses under $500,000.
5
Combined Ratio Results
Six Months Ended June 30,
---------------------------
2003 2002
GAAP Underwriting Ratios: ------ ------
Loss and LAE ratio 89.0% 86.6%
Underwriting expense ratio 21.0% 22.9%
------ ------
Combined ratio 110.0% 109.5%
The combined ratio of 110.0% for the six months ended June 30, 2003, compared to
109.5% for the first six months of 2002, reflects the increase in loss and loss
adjustment expenses, the increase in severity in current year losses, and the
stable level of core underwriting expenses.
Segment Results - Practice Management Services Segment
(in thousands)
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
2003 2002 2003 2002
------ ------ ------ ------
Client revenue $1,298 $1,544 $2,695 $3,125
Investment income 2 14 5 20
------ ------ ------ ------
Total segment revenue 1,300 1,558 2,700 3,145
Expenses 1,292 1,549 2,697 3,078
------ ------ ------ ------
Pre-tax segment results $ 8 $ 9 $ 3 $ 67
====== ====== ====== ======
Practice management and related revenue of $1.3 million for the three months
ended June 30, 2003 is down from $1.5 million for the three months ended June
30, 2002. Practice management and related revenue of $2.7 million for the six
months ended June 30, 2003 is lower by $400,000 compared to the six months ended
June 30, 2002. The decrease occurred primarily in one-time consulting
assignments in the HealthCare Consulting division, consistent with declines
experienced in the latter part of 2002. Revenue for practice management and
related services is comprised of fees for the following categories of services:
practice management, accounting, tax and personal financial planning, retirement
plan accounting and administration, and other services.
6
Practice management and related expenses totaled $1.3 million for the second
quarter and $2.7 million for the first half of 2003, compared to $1.5 million
and $3.1 million, respectively, for the same periods in 2002. Expenses decreased
primarily due to the elimination of the client service transition expenses
associated with the expiration of two employment contracts at the end of 2002.
NCRIC Group, Inc.
Three months ended June 30, Six months ended June 30,
2003 2002 2003 2002
------ ------ ------ ------
(in thousands) (in thousands)
Revenues:
Net premiums earned $ 10,962 $ 6,945 $ 22,411 $ 13,511
Net investment income 1,389 1,524 2,711 3,074
Net realized investment gains (losses) 1,155 (574) 1,354 (610)
Practice management and related income 1,277 1,525 2,652 3,086
Other income 360 232 713 444
-------- -------- -------- --------
Total revenues 15,143 9,652 29,841 19,505
Expenses:
Losses and loss adjustment expenses 10,355 5,980 19,938 11,700
Underwriting expenses 2,234 1,530 4,705 3,098
Practice management expenses 1,289 1,547 2,692 3,069
Interest expense on Trust Preferred Securities 204 -- 405 --
Other expenses 395 448 837 813
-------- -------- -------- --------
Total expenses 14,477 9,505 28,577 18,680
Income before income taxes 666 147 1,264 825
Income tax provision (benefit) 124 (51) 208 93
-------- -------- -------- --------
Net income $ 542 $ 198 $ 1,056 $ 732
======== ======== ======== ========
Net income per common share:
Basic $ 0.08 $ 0.03 $ 0.16 $ 0.11
Diluted $ 0.08 $ 0.03 $ 0.15 $ 0.11
Weighted average shares outstanding:
Basic 6,660 6,626 6,669 6,623
Diluted 6,817 6,776 6,815 6,776
7
For the earnings per share calculations, the share amounts for periods prior to
the conversion and stock offering have been revised to reflect the share
exchange ratio applied in the conversion.
June 30, 2003 December 31, 2002
--------------- -------------------
(in thousands)
Total investments, at market value $164,120 $120,120
Reinsurance recoverable 47,421 43,231
Total assets 259,441 202,687
Liability for losses and loss adjustment expenses 112,441 104,022
Total liabilities 174,632 154,870
Accumulated other comprehensive income 3,022 2,806
Total stockholders' equity 84,809 47,817
Outlook
Deployment of Capital
On June 25, 2003, we completed the plan of conversion and reorganization. In the
related stock offering, 4,143,701 shares of the common stock of NCRIC Group
produced net proceeds of $39.5 million, 75% of which have been invested in our
insurance subsidiaries. We have begun to deploy this capital in our core market
territories of Delaware and Virginia. These markets were identified for
expansion as reductions in capacity have led many professional liability
carriers to withdraw from, or limit the writing of new business in, these areas.
Over the next 18 to 24 months, we anticipate the deployment of our new capital
as a result of policyholder growth, rate actions, and the maturation of claims
made policies. Our pricing structure will target a return on equity of at least
10 percent.
Premium Rates
In September 2003, we will complete a comprehensive review of our insurance
policy pricing in all jurisdictions. Our rates are designed to cover the cost of
insurance coverage and provide a return on capital and are based on loss
experience, projected operating expenses, reinsurance costs, and a return on
capital. Through the first six months of 2003, we experienced continuing upward
pressure on the severity of losses in all market territories. The rate level
determined by the rate review will be applied to all policies beginning with
those with effective dates in 2004.
8
Interest Rate Risk
Our investment portfolio is exposed to various market risks, including interest
rate risk. At June 30, 2003, fixed maturity securities comprise 98% of total
investments at market value. Because of the high percentage of fixed maturity
securities, interest rate risk represents the highest exposure we have on our
investment portfolio. Our investment policy is designed to maximize after-tax
yields while minimizing portfolio credit risk. The decision to reallocate the
portfolio in 2003 as recommended by our portfolio manager was based on this
goal. We have been and are continuing to work with our investment managers to
develop and implement strategies to protect the value of the portfolio in a
rising interest rate environment.
Earnings
We expect the same primary factors that influenced earnings in the first six
months of the year, including the interest rate environment and the large growth
in new business, to have a continuing impact on earnings for the balance of
2003. We believe that we are positioned for increasing profitability in future
years with premium rate levels that reduce reliance on investment income. While
we anticipate a reduction in the pace of growth, our objective is to continue to
deploy capital in markets where we can obtain an adequate return on investment.
Investor Conference Call
An investor conference call to discuss NCRIC Group's second quarter 2003 results
will be held at 11:00 a.m., EST, on Thursday, August 14, 2003. Investors and
analysts may access the conference call by dialing (800) 915-4836. All
participants are requested to call in at least ten minutes prior to the start of
the conference to register. The listen-only audience will be provided an
opportunity to submit appropriate questions following management's remarks and
these questions will be responded to as time permits. The conference call will
also be Webcast in a listen-only format on Streetevents.com and through the
Investor Relations section of NCRIC Group's corporate Web site at www.NCRIC.com.
The Webcast will be archived will be available until September 4, 2003 at
NCRIC.com and at Streetevents.com.
9
Safe Harbor Information
Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements may be identified by reference to a future period or
periods, or by the use of forward-looking terminology, such as "may," "will,"
"believe," "expect," "estimate," "anticipate," "continue," or similar terms or
variations on those terms, or the negative of those terms. These forward-looking
statements include: statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating
strategies; and estimates of our risks and future costs and benefits. These
forward-looking statements are subject to significant risks, assumptions and
uncertainties, including, among other things, the following important factors
that could affect the actual outcome of future events:
o general economic conditions, either nationally or in our market area, that
are worse than expected;
o price competition;
o inflation and changes in the interest rate environment and performance of
financial markets;
o adverse changes in the securities markets;
o changes in laws or government regulations affecting medical professional
liability insurance and practice management and financial services;
o NCRIC, Inc.'s concentration in a single line of business;
o our ability to successfully integrate acquired entities;
o changes to our ratings assigned by A.M. Best;
o impact of managed healthcare;
o uncertainties inherent in the estimate of loss and loss adjustment expense
reserves and reinsurance;
o the cost and availability of reinsurance;
o changes in accounting policies and practices, as may be adopted by our
regulatory agencies and the Financial Accounting Standards Board; and
o changes in our organization, compensation and benefit plans.
10
We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and wish to
advise readers that the factors listed above could affect our financial
performance and could cause actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements. We do not undertake and specifically decline
any obligation to publicly release the result of any revisions that may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
About NCRIC Group
NCRIC Group is a healthcare financial services organization that assists
individual physicians and groups of physicians in managing their practices by
providing medical professional liability insurance, practice management and
financial services, and employee benefits plan design and pension
administration. In addition to its headquarters in Washington, D.C., NCRIC Group
has offices in Wilmington, Delaware; Greensboro, North Carolina; Richmond and
Lynchburg, Virginia; and Charleston, West Virginia and provides services to more
than 5,000 physician clients. Its primary insurance subsidiary, NCRIC, Inc., is
rated A- (Excellent) by A.M. Best Company.
For further information, contact Eric R. Anderson, Vice President, Investor
Relations; 1115 30th Street, NW, Washington, D.C. 20007; 202.969.1866, ext. 102;
anderson@ncric.com; or consult NCRIC Group's Web site, www.NCRIC.com.
###
August 13, 2003
11