Press Release
November 9, 2004
For Immediate Release
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For Information Contact:
Eric R. Anderson, Vice President, Investor Relations - 202.969.1866
NCRIC Group, Inc. Reports 2004 Nine Month and Third Quarter Results
Nine Month Summary
o Direct premiums written of $70.5 million, up 19%
o Revenue, excluding net realized investment gains, of $58.0 million, up 31%
o Combined ratio of 104.0%
o Expense of $711,000 (after tax) related to the CHW litigation
o Net income of $1.2 million or $0.18 per diluted common share
o Cash flow from operations of $27.8 million
o Book value per share of $11.56 at September 30, 2004
Third Quarter Summary
o Revenue, excluding net realized investment gains, of $19.9 million, up 28%
o Net income of $1.1 million or $0.17 per diluted common share
WASHINGTON, D.C. -- NCRIC Group, Inc. (NCRIC) (Nasdaq National Market: NCRI), a
leading provider of medical professional liability insurance in the Mid-Atlantic
region, today reported operating results for the third quarter and nine months
ended September 30, 2004.
For the quarter, net income was $1.1 million or $0.17 per diluted share,
compared to net income of $370,000 or $0.06 per diluted share for the same
period in 2003. Year-to-date through September 30, 2004, the Company reported
net income of $1.2 million or $0.18 per diluted share, compared to $1.4 million
or $0.21 per diluted share for the nine months ended September 30, 2003. The
results for the first nine months of 2004 were driven by earned premium growth,
as a result of rate level increases, and a moderation of claims frequency,
partially offset by litigation expenses and claims severity increases.
President and CEO R. Ray Pate, Jr., commented on the quarter, "We are pleased
with our profitable results in the third quarter. Our rate increases are holding
and we saw a continued moderation in the frequency of claims. We remain the
market share leader in our core territories of the District of Columbia and
Delaware and maintained our position among the top writers in Virginia. This
success is primarily attributable to our ongoing commitment to disciplined
pricing and underwriting, aggressive claims management, and unparalleled client
service."
Pate continued, "While we are required to report performance on a quarterly
basis, 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."
Insurance Segment
The primary company in our insurance segment, NCRIC, Inc., provides professional
liability insurance for physicians, surgeons and other ancillary providers
involved in the delivery of healthcare.
Selected Segment Data:
- ----------------------
(in thousands)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- -----------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net premiums earned $ 16,918 $ 12,472 $ 48,648 $ 34,883
Net investment income 1,702 1,559 5,078 4,225
Realized investment
(losses) gains (71) 505 346 1,845
Other income 191 295 581 861
------- ------- ------- -------
Total segment revenue 18,740 14,831 54,653 41,814
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Losses & LAE 13,374 11,145 40,585 31,083
Underwriting expenses 3,091 2,541 10,032 7,250
Other expenses 127 120 410 295
Interest 216 - 623 -
------- ------- ------- -------
Total segment expenses 16,808 13,806 51,650 38,628
Pre-tax segment results $ 1,932 $ 1,025 $ 3,003 $ 3,186
======= ======= ======= =======
Net Premiums Earned
The increase in net premiums earned primarily reflects the increases in premium
rates effective with 2004 and 2003 renewals, which average 27%, growth in
business in force from the sale of new policies over the past 12 months, and
higher premiums for extended reporting endorsements. Premium for extended
reporting endorsements is earned in the same period it is written and totaled
$5.1 million in the first nine months of 2004 compared to $2.5 million for the
same period in 2003.
Direct Premiums Written By State
(in thousands)
Nine Months Ended Sept. 30,
---------------------------
2004 2003
---- ----
District of Columbia $ 24,783 35% $22,685 38%
Virginia 22,989 33% 17,585 30%
Maryland 10,117 14% 7,952 13%
Delaware 9,118 13% 5,853 10%
West Virginia 3,536 5% 5,082 9%
------- --- -------- ---
Total $ 70,543 100% $ 59,157 100%
New Premiums Written
(in thousands)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
2004 2003 2004 2003
---- ---- ---- ----
Direct $ 226 $ 209 $ 678 $ 536
Agent 1,054 3,289 2,034 7,277
------- ------- ------- -------
Total $ 1,280 $ 3,498 $ 2,712 $ 7,813
======= ======= ======= =======
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The overall level of new business produced in the first nine months of 2004 is
lower than for the first nine months of 2003, as planned. We are the market
share leader in the District of Columbia and in Delaware. In West Virginia, as a
result of the regulatory approval of our August 2004 rate increase, we began to
offer renewal to select West Virginia policyholders with expiration dates on or
after September 1, 2004. Despite these renewals, we have a limited presence in
West Virginia and do not anticipate significantly expanding our market share in
this jurisdiction. While we continue to write new business in Virginia, growth
has been constrained because our product is priced at the high end of the
market.
Losses and Loss Adjustment Expenses
(in thousands)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
2004 2003 2004 2003
---- ---- ---- ----
Incurred losses and LAE related to:
Current year - losses $ 13,374 $ 10,945 $ 39,067 $ 31,185
Prior years - development - 200 1,518 (102)
--------- --------- --------- ---------
Total incurred for the period $ 13,374 $ 11,145 $ 40,585 $ 31,083
========= ========= ========= =========
The increase in current year losses in the third quarter of 2004 reflects the
increase in the level of exposure as a result of a higher level of earned
premium combined with a rise in the cost of resolving claims and reserves on
extended reporting endorsements.
Chief Financial Officer Rebecca B. Crunk commented on the losses, "Lower than
expected claims frequency, as measured by the number of claims reported in the
first nine months of 2004, positively impacted our results for both the third
quarter and the year to date. Unfortunately, similar to patterns that we have
seen across the nation, the overall severity of claims continues to rise."
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Combined Ratio
Nine Months Ended Sept. 30,
2004 2003
---- ----
GAAP Underwriting Ratios:
Loss and LAE ratio 83.4% 89.1%
Underwriting expense ratio 20.6% 20.8%
------- -------
Combined ratio 104.0% 109.9%
The combined ratio for the nine months ended September 30, 2004 reflects the
higher level of earned premiums in relation to the increase in loss and loss
adjustment expenses, the increase in loss severity, and the stable level of core
underwriting expenses. Expenses stemming from a fraudulent act of a former sales
agent, as previously disclosed in the second quarter, added 1.3 points to the
2004 combined ratio and 1.0 points to the 2003 combined ratio in the
Underwriting expenses component.
Unaudited Consolidated Financial Summary
(in thousands, except share data)
Three months ended Sept. 30, Nine months ended Sept. 30,
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Net premiums earned $ 16,918 $ 12,472 $ 48,648 $ 34,883
Net investment income 1,800 1,657 5,378 4,368
Net realized investment gains (losses) (72) 498 344 1,852
Practice management and related income 1,004 1,112 3,319 3,764
Other income 209 370 635 1,083
-------- -------- --------- ---------
Total revenues 19,859 16,109 58,324 45,950
Expenses:
Losses and loss adjustment expenses 13,374 11,145 40,585 31,083
Underwriting expenses 3,086 2,538 10,025 7,243
Practice management expenses 1,244 1,234 3,723 3,926
Interest expense on Trust Preferred Securities 216 202 623 607
Other expenses 463 519 2,144 1,356
-------- -------- --------- ---------
Total expenses 18,383 15,638 57,100 44,215
Income before income taxes 1,476 471 1,224 1,735
Income tax provision 379 101 42 309
-------- -------- --------- ---------
Net income $ 1,097 $ 370 $ 1,182 $ 1,426
======== ======== ========= =========
Net income per common share:
Basic $ 0.17 $ 0.06 $ 0.19 $ 0.22
Diluted $ 0.17 $ 0.06 $ 0.18 $ 0.21
Weighted average shares outstanding:
Basic 6,349 6,328 6,349 6,554
Diluted 6,643 6,639 6,630 6,756
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Balance Sheet Summary
(in thousands, except per share data)
Sept. 30, 2004 December 31, 2003
-------------- -----------------
(unaudited)
Total investments, at market value $ 194,840 $ 174,357
Reinsurance recoverable 51,839 48,100
Total assets 290,492 262,546
Liability for losses and loss adjustment expenses 141,140 125,991
Total liabilities 211,001 184,567
Accumulated other comprehensive income 1,460 1,461
Total stockholders' equity 79,491 77,979
Book value per share $ 11.56 11.30
Outlook
Loss Development and Severity Pattern Study
As previously disclosed, in the third quarter of 2004 we engaged an actuarial
claims specialist to conduct a study of our claims loss development and severity
patterns in order to achieve a further understanding of claims trends to ensure
that we have the best information possible as a foundation for making our
business decisions. The findings of the study confirm that there have been no
material changes in the manner in which we manage claims or establish case
reserves. Based on this conclusion, we believe that the adverse loss reserve
development recognized in the fourth quarter of 2003 and in the second quarter
of 2004 was the result of environmental factors, such as the indexing damage cap
in Virginia, and social inflation factors, such as the unprecedented
proliferation of large jury awards and settlements due to a shift in jurors'
perceptions of medical malpractice defendants. The social inflation factor is
consistent with trends reported by medical malpractice carriers on a national
basis. Medical professional liability loss reserves are established based on an
estimate of future payments as reflected in past experience with similar cases
and historical trends involving claim payment patterns. Reserving for medical
malpractice liability claims is a complex and uncertain process and is therefore
subject to volatility.
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2005 Premium Rates
In October, we completed a comprehensive review of our insurance policy pricing
in all jurisdictions. As a result of this review, the Board of Directors
approved an increase in base premium rates for all market territories. The
weighted average composite rate increase is 18.3%. The following is a breakdown
of the filed rate increases by jurisdiction:
Rate Increase
Jurisdiction 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------
Delaware 25.3% 27.0% 25.7% 12.0%
District of Columbia 15.3% 14.8% 21.0% 11.3%
Maryland 25.0% 28.1% 28.7% 18.0%
Virginia 19.5% 39.7% 39.5% 18.0%
West Virginia * 20.2%* 22.7% 20.0%
Weighted Average 18.3% 27.0% 28.0% 14.0%
* We filed two rate increases, 9.8% effective February 1, 2004 and 9.5%
effective September 1, 2004, which compound to total 20.2%. We will again
review our rate adequacy in 2005 for a potential mid-year rate filing.
These rate increases will be applied to all policies beginning with those that
renew on January 1, 2005. NCRIC's 2005 rates are designed to cover the cost of
insurance coverage and have a targeted combined ratio of 92.4%. In addition, the
2005 rates are designed to provide a return on equity of at least 10% on
deployed capital.
2004 and 2005 Earnings Guidance
We are projecting earnings of up to $0.35 per share for 2004 and $0.90 per share
for 2005. These projections are based on the continued implementation of our
business model, which entails the deployment of capital in our targeted market
areas to attain a net premiums written to surplus ratio of 125%. There are many
uncertainties underlying the projection of earnings of a medical malpractice
insurance company, the greatest of which is losses incurred on insurance
coverage we provide. The number of claims reported, the severity of losses
incurred and development of losses originally incurred in prior years are all
factors which have a significant impact on reported results and which are
estimable but without certainty.
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Practice Management Operations
Under the oversight of Mr. David Beauregard, president of the practice
management operations since May 2004, a branding analysis was recently
completed. In the first quarter of 2005, this business will be re-introduced to
the market under the brand name of ConsiCare. We believe that this initiative
will differentiate the practice management operations from its competitors and
contribute to the establishment of a consistent and distinguishable brand
identity.
A strategic business plan has been developed with the primary objective of
creating an increase in shareholder value over the next 12 to 36 months. The
focus of the strategic direction is growth through the establishment of
partnerships with other successful practice management entities and an increased
focus on the marketing and delivery of an integrated suite of services to new
and existing practice management clients.
Further, we have entered into discussions with the management team of the
practice management operations regarding the implementation of a management
incentive plan that would transfer up to 20% of the ownership of the practice
management operations to these individuals through a stock award program if
certain performance targets are achieved. We believe that this program will
provide added incentive to improve profitability and anticipate that a
three-year agreement will be in place by January 1, 2005. At the end of the
three-year period, we will again review strategic alternatives, including a
management buyout.
Investor Conference Call
An investor conference call to discuss NCRIC's 2004 nine month and third quarter
results will be held at 9:00 a.m., ET, on Wednesday, November 10, 2004.
Investors and analysts may access the conference call by dialing (800) 811-7286.
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 through the Investor Relations
section of NCRIC's corporate website at www.ncric.com. The webcast will be
archived and will be available until December 10, 2004 at ncric.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.
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 Wilmington, Delaware; Greensboro, North Carolina; Richmond and
Lynchburg, Virginia; and Charleston, West Virginia. NCRIC 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 website, www.ncric.com.
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November 9, 2004
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