Business Services Industry
Frontier Insurance Group, Inc. Announces Fourth Quarter and Full Year 2000 Results
Business Wire, April 27, 2001
Business Editors
ROCK HILL, N.Y.--(BUSINESS WIRE)--April 27, 2001
Frontier Insurance Group, Inc. (Frontier) (OTCBB-FTERE) today announced a net loss for the fourth quarter of 2000 of $150.7 million, equal to a net loss per share (diluted) of $3.61. For the full year ended December 31, 2000 the Company recorded a net loss of $297.2 million, equal to a net loss per share diluted of $8.18. For comparability, in the fourth quarter of 1999 the Company had a net loss of $90.2 million, equal to a net loss per share (diluted) of $2.63 and for the full year ended December 31, 1999 had a net loss of $233.3 million, equal to a net loss per share (diluted) of $6.65.
Related Results
The results for 2000 reflect increased ultimate loss and LAE ratios utilized as a result of an actuarial study completed during the third quarter of 1999. In addition to maintaining these higher ratios, continued deterioration in business written primarily in years 1999 and prior resulted in reserve charges of approximately $157 million during 2000.
Of the $157 million of adverse development loss and LAE charges, recorded during 2000, approximately $95.8 million is recoverable under the National Indemnity retroactive reinsurance treaty, of which $12.5 million is an offset of amortization of deferred gain on the retroactive reinsurance treaty. The remaining $83.3 million of expected recoveries under the treaty must be deferred and recognized as a reduction to losses and LAE incurred in future periods as the underlying claims are settled.
Frontier's gross and net premiums written decreased by 76.2% and 64.5%, respectively, and 53.8% and 45.3%, respectively, in the 2000 fourth quarter and twelve month periods over the comparable 1999 periods. The decline was primarily attributable to the sale of certain subsidiaries and renewal rights during 2000 and the termination of several programs. In addition, rating agency downgrades impaired the Company's ability to write new and renewal policies in certain segments. Net premiums earned declined 32.0% and 13.4%, respectively, from the 1999 fourth quarter and twelve-month periods.
Net investment income for the fourth quarter of 2000 declined 77.1% from the comparable period in 1999, and declined by 41% for the 2000 twelve-month period from 1999. The decrease was primarily due to the liquidation of assets in conjunction with the purchase of the retroactive reinsurance treaty from National Indemnity. The net realized capital losses were $.9 million in the fourth quarter of 2000 and $11.6 million for the twelve-month period, primarily the result of the liquidation of portfolio securities in 2000 in connection with the purchase of the aggregate stop loss reinsurance treaty.
The GAAP combined ratio for the fourth quarter of 2000 was 252.4% compared to 170.8% for the 1999 fourth quarter. The increase in the quarterly operating expense ratio was due primarily to the decline in net earned premiums resulting from the significant decrease in net premiums written and increased expenses resulting from impairment charges relating to the home office building and certain other fixed assets and increases for allowances for doubtful reinsurance recoverables, premiums and other receivables due the Company. The GAAP combined ratio for the year 2000 was 164% compared to 141.4% for the 1999 year. The increase in the annual operating expense ratio was also due primarily to the decline in net earned premiums resulting from the significant decrease in net premiums written and increased expenses as a result of the Company's corrective action plan which resulted in significant restructuring related charges. The 2000 results were also negatively impacted by impairment charges related to the Company's home office, certain other fixed assets and intangible assets. Also, the 2000 results were negatively impacted by increased allowances for doubtful reinsurance recoverables and premiums and other receivables due the Company.
As a result of the foregoing, at December 31, 2000, the Company reported a total deficit in equity of approximately $156.3 million, compared to equity of $78.6 million at December 31, 1999. As of December 31, 2000 and 1999, book value per share was $(3.72) and $2.32, respectively.
FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
(dollar amounts in thousands, except per share data)
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Operations Data:
Three Months Ended Percent
--------------------------------
December 31, Change
--------------------------------
2000 1999
--------------------------------
Revenues
Premiums written $60,561 $254,607 -76.2%
Premiums ceded (4,522) (96,646) -95.3
Net Premiums Written 56,039 157,961 -64.5
Decrease (increase) in net 40,963 (15,391) 366.1
unearned premiums
Net Premiums Earned 97,002 142,570 -32.0
Net investment income 4,489 19,563 -77.1
Realized capital gains (losses) (893) (2,302) 61.2
Total Net Investment 3,596 17,261 -79.2
Income
Gain on sale of renewal (267) - N/A
rights, net
Total Revenues 100,331 159,831 -37.2
Expenses:
Losses and loss adjustment
expenses 173,946 150,457 15.6
Amortization of policy
acquisition costs 22,493 46,281 -51.4
Underwriting and other expenses 44,714 43,946 1.7
Other corporate expenses 3,526 2,772 27.2
Restructuring related charges 125 - N/A
Minority interest in income of
Consolidated subsidiary trust 2,245 2,744 -18.2
Interest expense 2,281 2,243 1.7
Total Expenses 249,330 248,443 0.4
Loss Before Income Taxes (148,999) (88,612) -68.1
Provision for Income Taxes
State (252) 166 -251.8
Federal 1,905 1,433 32.9
Total Income Taxes 1,653 1,599 3.4
Net Loss $(150,652) $ (90,211) -67.0
Loss per Common Share:
Basic ($3.61) ($2.63) 37.3
Diluted ($3.61) ($2.63) 37.3
Weighted Average Common Shares
Outstanding (in thousands):
Basic 41,678 34,326 21.4
Diluted 41,678 34,326 21.4
GAAP Ratios:
Loss ratio 179.3% 105.5%
Operating expense ratio (1) 73.0% 65.2%
Combined ratio 252.3% 170.7%
Operations Data:
Year Ended Percent
-----------------------------------
December 31, Change
-----------------------------------
2000 1999
-----------------------------------
Revenues
Premiums written $470,693 $1,017,804 -53.8 %
Premiums ceded (101,814) (343,003) 70.3
Net Premiums Written 368,879 674,801 -45.3
Decrease (increase) in net 125,783 (103,873) -221.1
unearned premiums
Net Premiums Earned 494,662 570,928 -13.4
Net investment income 45,834 77,622 -41.0
Realized capital gains (losses) (11,641) 3,113 -473.9
Total Net Investment 34,193 80,735 -57.6
Income
Gain on sale of renewal 7,771 - N/A
rights, net
Total Revenues 536,626 651,663 -17.7
Expenses:
Losses and loss adjustment
expenses 538,244 539,378 -0.2
Amortization of policy
acquisition costs 127,299 143,092 -11.0
Underwriting and other expenses 106,394 119,784 -11.2
Other corporate expenses 21,447 5,015 327.7
Restructuring related charges 17,729 - N/A
Minority interest in income of
Consolidated subsidiary trust 12,989 10,974 18.4
Interest expense 7,557 7,505 0.7
Total Expenses 831,659 825,748 0.7
Loss Before Income Taxes (295,033) (174,085) -69.5
Provision for Income Taxes
State 190 1,156 -83.6
Federal 1,983 58,023 -96.6
Total Income Taxes 2,173 59,179 -96.3
Net Loss $(297,206) $(233,264) -27.4
Loss per Common Share:
Basic ($8.18) ($6.65) 23.0
Diluted ($8.18) ($6.65) 23.0
Weighted Average Common Shares
Outstanding (in thousands):
Basic 36,326 35,068 3.6
Diluted 36,326 35,068 3.6
GAAP Ratios:
Loss ratio 108.8% 94.5%
Operating expense ratio (1) 55.2% 46.9%
Combined ratio 164.0% 141.4%
Balance Sheet Data:
December 31,
----------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------
Assets:
Total Investments $592,052 $1,414,680 -58.1 %
Total Assets 1,904,836 2,635,537 -27.7
Liabilities and Shareholders' Equity:
Policy Liabilities
Unpaid losses $1,027,306 $982,123 4.6 %
Unpaid loss adjustment expenses 361,514 331,187 9.2
Unearned premiums 145,241 649,736 -77.6
Total Liabilities 1,935,345 2,389,639 -19.0
Guaranteed preferred beneficial
interest in
Companys' convertible
subordinated
debentures 125,828 167,345 -24.8 %
Total Shareholders'
Equity (Deficit) (156,337) 78,553 -299.0
Book Value per Share ($3.72) $2.32
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