Exhibit 99.1
Press Release
February 26, 2004
For Immediate Release
- ---------------------
For Information Contact:
Eric R. Anderson, Vice President, Investor Relations - 202.969.1866
NCRIC Group, Inc. Reports Fourth Quarter and Year-End 2003 Results
WASHINGTON, D.C. -- NCRIC Group, Inc. (NCRIC) (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 the quarter and year ended December 31, 2003. NCRIC also
commented on the recent adverse verdict in its hospital litigation and discussed
management's outlook for 2004 and 2005.
2003 Financial Results
o Operating results for the quarter and year ended December 31, 2003
were a net loss of $5.6 million and $4.2 million, respectively. NCRIC
strengthened prior year loss reserves by $5.9 million as a result of
upward development on claims reported in 2001, 2002 and 2003. The net
loss per share was $0.89 and $0.65 for the quarter and year ended
December 31, 2003, respectively.
o Book value per share stood at $11.30 as of December 31, 2003, a
reduction of 7%, compared to $12.07 at September 30, 2003.
o Total revenue for the quarter was $15.3 million, up $3.0 million or
24%, compared to $12.3 million for the same period in 2002. For the
twelve months ended December 31, 2003, total revenue was $61.3
million, up 44%, compared to $42.7 million for the same period in
2002.
o Cash flow from operations was $20.6 million for the year ended
December 31, 2003 compared to $3.4 million for the same period in
2002.
Segment Results - Insurance Segment
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
------------ --------------
2003 2002 2003 2002
---- ---- ---- ----
Net premiums earned $ 12,381 $ 8,731 $ 47,264 $ 30,098
Net investment income 1,524 1,378 5,749 5,877
Realized inv. gains (losses) 56 473 1,901 (131)
Other income 218 262 1,079 925
--------- ------- -------- --------
Total segment revenue 14,179 10,844 55,993 36,900
Losses & LAE 19,390 7,757 50,473 26,829
Underwriting expenses 2,763 1,909 10,013 8,175
Other expenses 56 28 351 442
--------- ------- -------- --------
Total segment expenses 22,209 9,694 60,837 35,446
--------- ------- -------- --------
Pre-tax segment results $ (8,030) $ 1,150 $(4,844) $ 1,323
========= ======= ======== ========
Net Premiums Earned
Net premiums earned for the three months ended December 31, 2003 increased by
$3.7 million, or 43%, to $12.4 million from $8.7 million for the three months
ended December 31, 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 2003 renewals, which average 28%, 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 57% to $47.3 million for the twelve months
ended December 31, 2003 from $30.1 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.
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Direct Premiums Written
Direct premiums written were $12.2 million in the fourth quarter of 2003, an
increase of $3.6 million, or 42%, over the fourth quarter of 2002. For the first
twelve months of 2003, direct premiums written were $71.4 million, an increase
of $19.6 million, or 38%, 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 premiums 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.
Direct Premiums Written By State
(in thousands)
Year Ended December 31,
-----------------------
2003 2002
---- ----
District of Columbia $ 23,216 33% $ 21,796 42%
Virginia 22,640 32% 14,863 29%
Maryland 8,819 12% 5,663 11%
Delaware 8,755 12% 1,789 3%
West Virginia 7,368 11% 6,695 13%
WV - HCA 567 0% 993 2%
-------- ---- -------- ----
Total $ 71,365 100% $ 51,799 100%
New Premiums Written
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2003 2002 2003 2002
---- ---- ---- ----
Direct $ 82 $ 573 $ 618 $ 2,309
Agent 2,623 1,955 9,900 11,184
------ ------ ------- --------
Total $2,705 $2,528 $10,518 $ 13,493
====== ====== ======= ========
The overall level of new business produced in 2003 is lower than in 2002 due to
the reduced level of new business in the District of Columbia market in 2003 and
the discontinuation of two programs in West Virginia. New premiums written
produced by agents in 2003 came primarily from Delaware and Virginia, the two
markets targeted as our growth areas.
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Losses and Loss Adjustment Expenses
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2003 2002 2003 2002
---- ---- ---- ----
Incurred losses and LAE related to:
Current year - losses $ 13,403 $ 6,759 $ 44,588 $ 24,063
Prior years - development 5,987 998 5,885 2,766
--------- -------- -------- --------
Total incurred for the period $ 19,390 $ 7,757 $ 50,473 $ 26,829
========= ======== ======== ========
The increase in current year losses for the year ended December 31, 2003
reflects the following:
1. The increase in number of policyholders and level of premium.
2. An increase in retention under reinsurance treaties to $1,000,000 for
each and every loss in 2003 from $500,000 for each and every loss in
2002.
3. Increased severity of reported claims. Losses were estimated taking
into consideration the loss development trends that emerged during the
fourth quarter. The estimate of losses for the entire year was
increased during the fourth quarter to reflect this new information.
The frequency of new claims reported in the fourth quarter was the lowest
experienced in 2003.
Adverse loss development emerged in 2003 as a result of the following:
1. Upward development on claims, primarily in Virginia, in the 2001 and
2002 report years.
2. A lower estimate of reinsurance to be recovered on losses in the 2000,
2001 and 2002 report years across all territories.
The re-estimation of loss costs produced the unfavorable development on
estimated losses for prior years' claims. The results of claims closed by NCRIC,
the discovery of new information on open claims, and a rising trend of higher
award demands by plaintiffs impacted reserving levels.
The estimate of reinsurance amounts to be recovered from reinsurers is
established primarily on historical trends and information on individual claims.
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In the first nine months of 2003, we recognized in our losses a lower amount of
reinsurance recoveries. The revised estimate prepared as of December 31, 2003
further reduced the amount of estimated reinsurance recoveries. The retention of
losses in the 2000, 2001 and 2002 report years is $500,000 for each and every
loss.
"We have completed a detailed analysis of underlying claims to confirm that
these adjustments are sufficient to cover the ultimate loss costs for these
years," said Rebecca B. Crunk, NCRIC's Chief Financial Officer. "For example, in
the 2001 loss year in Virginia where the most significant adverse development
has occurred, we reviewed each of the remaining open claims to evaluate the
merits of the case. Based on the extensive reviews that we conducted in all
territories for these report years, we believe that the established reserves are
sufficient to cover loss exposure."
Combined Ratio Results
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2003 2002 2003 2002
---- ---- ---- ----
Loss and LAE ratio:
Current year losses 108.2% 77.4% 94.3% 79.9%
Prior years losses 48.4 11.4 12.5 9.2
------ ------ ------ ------
Total Loss and LAE ratio 156.6 88.8 106.8 89.1
Underwriting expense ratio 22.3 21.9 21.2 27.2
------ ------ ------ ------
Combined ratio 178.9 110.7% 128.0% 116.3%
====== ====== ====== ======
The loss ratios for 2003 reflect the loss development discussed above. While
total underwriting expenses in 2003 at $10.0 million are 22.5% higher than 2002
expenses, the underwriting expense ratio for 2003 is lower than the 2002 ratio
as a result of the increase in net earned premiums. The primary components of
underwriting expenses include commissions and premium taxes. These costs rise as
a direct result of the increase in premiums.
"We are very disappointed with our 2003 operating results," stated R. Ray Pate,
Jr., NCRIC's President and CEO. "The loss reserve development in the fourth
quarter was based on new information on specific losses and the related revision
of estimates of loss trends, primarily in report years 2001 and 2002. Looking at
our results for the year, the cost for claims reported in 2003 increased as a
result of our premium growth as well as an increase in our loss retention level.
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However, pre-tax results were lower due to the development of losses for claims
originally reported in 2001 and 2002."
Segment Results - Practice Management Services Segment
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2003 2002 2003 2002
---- ---- ---- ----
Client revenue $ 1,155 $ 1,393 $ 4,986 $ 5,886
Investment income 9 5 15 27
Realized investment gains 20 - 20 -
------- ------- ------- -------
Total segment revenue 1,184 1,398 5,021 5,913
Expenses 1,298 1,361 5,231 5,830
------- ------- ------- -------
Pre-tax segment results $ (114) $ 37 $ (210) $ 83
======= ======= ======= =======
Practice management and related revenue decreased primarily due to a reduced
level of one-time consulting assignments in the HealthCare Consulting division,
consistent with declines experienced in previous reporting periods. Practice
management and related 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.
Unaudited Consolidated Financial Summary
NCRIC Group, Inc.
Three Months Ended Dec. 31 Year Ended Dec. 31,
2003 2002 2003 2002
---- ---- ---- ----
(in thousands) (in thousands)
Revenues:
Net premiums earned $ 12,381 $ 8,731 $ 47,264 $ 30,098
Net investment income 1,640 1,397 6,008 5,915
Net realized investment gains (losses) 77 473 1,929 (131)
Practice management and related income 1,143 1,370 4,907 5,800
Other income 72 291 1,155 1,013
--------- -------- -------- --------
Total revenues 15,313 12,262 61,263 42,695
Expenses:
Losses and loss adjustment expenses 19,390 7,757 50,473 26,829
Underwriting expenses 2,760 1,906 10,003 8,168
Practice management expenses 1,296 1,356 5,222 5,811
Interest expense on trust preferred securities 219 62 826 62
Other expenses 295 226 1,651 1,405
--------- -------- -------- --------
Total expenses 23,960 11,307 68,175 42,275
Income (loss) before income taxes (8,647) 955 (6,912) 420
Income tax provision (benefit) (3,003) 154 (2,694) (322)
--------- -------- -------- --------
Net income (loss) $ (5,644) $ 801 $ (4,218) $ 742
========= ======== ======== ========
Net income per common share*:
Basic $ (0.89) $ 0.12 $ (0.65) $ 0.11
Diluted $ (0.89) $ 0.12 $ (0.65) $ 0.11
Weighted average shares outstanding:
Basic 6,357 6,672 6,486 6,639
Diluted 6,635 6,782 6,707 6,779
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* For the earnings per share calculations, the share amounts for periods prior
to the second step conversion and related stock offering which closed on June
25, 2003 have been revised to reflect the share exchange ratio applied in the
conversion.
December 31, 2003 December 31, 2002
----------------- -----------------
(in thousands)
Total investments, at market value $ 174,357 $ 120,120
Reinsurance recoverable 48,100 43,231
Total assets 262,546 202,687
Liability for losses and loss adjustment expenses 125,991 104,022
Total liabilities 184,567 154,870
Accumulated other comprehensive gain 1,461 2,806
Total stockholders' equity 77,979 47,817
Hospital Litigation
o On February 13, 2004, a District of Columbia Superior Court jury
returned an $18.2 million verdict in favor of Columbia Hospital for
Women Medical Center, Inc. (CHW) in litigation between NCRIC, Inc. and
CHW.
o In March, NCRIC will file post-trial motions, including a request to
overturn the verdict or grant a new trial. If those motions are not
granted, NCRIC expects to appeal to the Court of Appeals of the
District of Columbia.
o Under generally accepted accounting principles, FASB Statement No. 5
(FAS 5), Accounting for Contingencies, management is obligated to
accrue a liability when it is both probable and reasonably estimable.
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Based on FAS 5, no liability has been accrued in these financial
statements for any possible loss arising from this litigation. At this
time there is insufficient information on which to make a reasonable
estimation of potential loss, if any. There may be insufficient
information on which to make a reasonable estimate of the liability
before the 2003 financial statements are filed with the SEC in March
2004.
o NCRIC has not commented on the substance of its future motions or any
appellate issues in this earnings release and will not discuss these
issues during its investor conference call on Friday, February 27,
2004. NCRIC's post-trial motions will be posted on our Web site at
www.NCRIC.com. Copies of the opposing motions, to the extent they are
available, will be posted on our Web site as well.
"We are extremely disappointed by the verdict," Pate commented. "We believe it
is wrong, and we will appeal."
Outlook - Summary
o We are projecting earnings of up to $0.40 per share for 2004 and $1.05
per share for 2005.
o We received regulatory approval from Delaware, the District of
Columbia, Maryland, and Virginia to apply our filed rate increases to
all policies beginning with those that renewed on January 1, 2004.
o We informed the West Virginia Commissioner of Insurance on January 8,
2004 of our intention to non-renew our West Virginia policyholders as
their policy terms expire.
o Through February 24, 2004, disregarding the impact of West Virginia
non-renewals, approximately 93% of our policies were renewed at the
2004 filed rates.
o The Board of Directors believes the purchase of common stock by NCRIC
to be an attractive long-term investment and has granted share
repurchase authority of up to 5% or approximately 284,000 shares of
the outstanding public float.
o On December 31, 2003, Commonwealth Medical Liability Insurance Company
(CML) was merged into NCRIC, Inc. and thereafter ceased to exist. This
statutory merger is not expected to have a significant impact on our
financial results.
o Effective March 1, 2004, a financial expert, Frank Ross, will join the
Board of Directors. A press release detailing Mr. Ross' background
will be issued on Friday, February 27.
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Outlook
2004 and 2005 Earnings Guidance
We are projecting earnings of up to $0.40 per share for 2004 and $1.05 per share
for 2005. These projections are based on the successful implementation of our
business model, which entails the deployment of capital in our targeted growth
areas to attain a net premiums written to surplus ratio of 125%. The following
six sections provide additional guidance on key areas of our operations which
have an effect on the successful implementation of our business plan.
1. Premium Rates
NCRIC received regulatory approval from Delaware, the District of Columbia,
Maryland, and Virginia to apply its filed rate increases to all policies
beginning with those that renewed on January 1, 2004.
Rate Increase
Jurisdiction 2004 2003 2002
- ---------------------------------------------------------------------------------------------
Delaware 27.0% 25.7% 12.0%
District of Columbia 14.8% 21.0% 11.3%
Maryland 28.1% 28.7% 18.0%
Virginia 39.7% 39.5% 18.0%
Weighted Average 27.0% 28.0% 14.0%
NCRIC's 2004 rates are designed to cover the cost of insurance coverage and have
a targeted combined ratio of 96.5%. In addition, the 2004 rates are designed to
provide a return on equity of at least 10% on deployed capital. We believe that
the adverse loss development in 2003 will not impact the profitability of our
2004 rates.
2. Combined Ratio
Combined Ratio Target 2004 2005
- ------------------------------------------------------------------
Year-End Total 104.5% 96.5%
3. Policy Retention Rate
Through February 24, 2004, approximately 25% of our medical professional
liability insurance policies were due for renewal. Disregarding the impact of
West Virginia non-renewals, approximately 93% of these policies were renewed at
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the 2004 filed rates. The retention rate is consistent with our financial model
for 2004.
4. Direct Premiums Written Increase
We anticipate that direct premiums written will be approximately 10% higher in
2004 compared to 2003. This projection considers the application of the 2004
rate increases to our retention rate, modest growth in our book of business, and
the non-renewal of policies in West Virginia.
5. Non-Renewal of West Virginia Policies
Attempts to obtain regulatory approval for adequate rates in West Virginia have
been ongoing for a significant period of time. In September 2003, NCRIC filed
for a 35.2% rate increase in West Virginia to be effective January 1, 2004. On
December 4, 2003, the West Virginia Department of Insurance Regulation approved
a 9.8% rate increase. Because no further progress was made to secure what NCRIC
believes to be an adequate rate for this risk exposure, we informed the West
Virginia Commissioner of Insurance on January 8, 2004 of our intention to
non-renew our West Virginia policyholders. Accordingly, notices of non-renewal
have been sent to West Virginia policyholders as their policy terms expire. We
believe that we have made every effort to respond to the needs of policyholders
in West Virginia. We also believe that we cannot renew any further existing
policies at a rate that does not meet our financial objectives.
6. Market Outlook
It is our belief that the hard market, which is characterized by increasing
premium rates, a reduction in the number of professional liability insurance
carriers vying for market share, and a lack of capital in the industry, will
continue through 2005 and into 2006. Over this same time period, it is possible
that some medical professional liability carriers may experience financial
difficulties causing their withdrawal from our core market territories. We
anticipate that our policyholder growth in 2004 will slow due to our rate level
compared to the marketplace.
Stock Repurchase
At an Executive Committee meeting on December 30, 2003, the Board of Directors
granted share repurchase authority of up to 5% or approximately 284,000 shares
of the outstanding public float, or common stock held by non-affiliates. The
Board believes the purchase of common stock by NCRIC to be an attractive
long-term investment. Purchases of NCRIC stock will generally be effected
10
through open market purchases and are authorized to be made during the next 12
months as, in the opinion of management, market conditions warrant. No purchases
will be made during periods designated by the Securities and Exchange Commission
as "blackout" periods. We believe that the current blackout period will end on
March 2, 2004. Shares repurchased in the repurchase plan will be held as
treasury stock and will be available for general corporate purposes. NCRIC
substantially completed its stock repurchase plan that was approved by the Board
of Directors on February 16, 2000.
Statutory Merger
On December 31, 2003, Commonwealth Medical Liability Insurance Company (CML) was
merged into NCRIC, Inc. and thereafter ceased to exist. This statutory merger
was executed after NCRIC, Inc., the parent company of CML, was approved for
licensure in the states of Delaware, Virginia and West Virginia. This
combination of our insurance subsidiaries will improve internal administrative
efficiencies. It will also assist in marketing our medical professional
liability insurance product due to NCRIC, Inc.'s superior capital position and
significant brand recognition. This statutory merger is not expected to have an
impact on our financial results.
Conclusion
Mr. Pate noted that despite the challenges posed by the hospital premium
collection litigation verdict and the loss reserve adjustments, NCRIC continues
to be well positioned to carry out its business plan. "We have successfully
deployed a significant amount of capital in our growth areas as evidenced by the
rise in direct premiums written in Delaware and Virginia in 2003. We are very
likely now the market share leader in both of these states. We acknowledge the
frustration that accompanies setbacks, however, our business model is intact and
we anticipate continued progress toward our return on equity target in 2004."
Investor Conference Call
An investor conference call to discuss NCRIC Group's fourth quarter and year
2003 results will be held at 9:00 a.m., EST, on Friday, February 27, 2004.
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's corporate Web site at www.NCRIC.com. The
Webcast will be archived and will be available until April 2, 2004 at NCRIC.com
and at Streetevents.com.
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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.
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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, Inc.
NCRIC Group, Inc. (NCRIC) 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 has
offices in Richmond, Fredericksburg and Lynchburg, Virginia as well as
Greensboro, North Carolina and provides services to more than 5,000 physician
clients.
For further information, contact Eric R. Anderson, Vice President, Investor
Relations; 1115 30th Street, NW, Washington, D.C. 20007; 202.969.1866, ext.
3102; anderson@ncric.com; or consult NCRIC's Web site, www.NCRIC.com.
###
February 26, 2004
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