PMA Capital Corporation (NASDAQ: PMACA) today reported
the following financial results for the first quarter of 2010:
Three months ended March 31, (in thousands, except per share
data) 2010 2009 Operating income
$ 7,817 $ 7,816 Net realized investment gains after tax
277 487 Income from continuing
operations 8,094 8,303 Loss from discontinued operations after tax
- (86 ) Net income $ 8,094 $ 8,217
Diluted per share amounts:
Operating income $ 0.24 $ 0.24 Realized gains after tax 0.01
0.02 Income from continuing operations 0.25
0.26 Loss from discontinued operations after tax -
- Net income $ 0.25 $ 0.26
Vincent T. Donnelly, President and Chief Executive Officer,
commented, “Despite very competitive marketplace conditions and
continued challenges in the economy and labor markets, I am pleased
to report a positive start to 2010. We continued to successfully
execute our strategy of increasing the proportion of loss-sensitive
workers’ compensation business, which was the primary driver of our
7% increase in direct premium production, and achieved a combined
ratio of 95%. Our Fee-based Business, which now represents 16% of
our consolidated revenues, had a solid quarter with continued
revenue and operating income growth. Our book value increased for
the fifth consecutive quarter to $12.96 per share due primarily to
our earnings combined with improved values in our investment
portfolio.”
At The PMA Insurance Group, Mr. Donnelly noted the following
operating highlights:
- Pre-tax operating income was
$14.3 million, compared to $15.2 million in the first quarter of
2009;
- The combined ratio was 95.0%,
compared to 93.5% for the first quarter last year;
- Pricing on our rate-sensitive
workers’ compensation business increased 2%, compared to a decline
of 4% in the first quarter of 2009; and
- Direct premiums written
increased 5% due to increased premium production which was
partially offset by a decrease in fronting premiums.
Fee-based Business operating highlights included:
- Our Fee-based Business revenues
increased 9% to $21.5 million, compared to the first quarter of
2009;
- Claims service revenues grew 12%
in the quarter to $17.9 million; and
- Pre-tax operating income
increased to $2.3 million in the quarter, compared to $2.0 million
for the same period last year.
Financial
Condition
Total assets were $2.4 billion as of March 31, 2010 and December
31, 2009. At March 31, 2010, we had $25.6 million in cash and
short-term investments at our holding company and non-regulated
subsidiaries.
Shareholders’ equity and book value per share changed as
follows:
Three months ended March 31, 2010 Shareholders' Book
value
(in thousands, except per share
data)
equity per share Balance, beginning of period $
401,797 $ 12.46 Net income 8,094 0.25 Unrealized gain on
securities, net of tax 7,989 0.25 Other 250 -
Balance, end of period $ 418,130 $ 12.96
Segment Operating
Results
Operating income, which we define as net income under accounting
principles generally accepted in the United States (GAAP) excluding
net realized investment gains and results from discontinued
operations, is the financial performance measure used by our
management and Board of Directors to evaluate and assess the
results of our businesses. Net realized investment activity is
excluded because (i) net realized investment gains and losses are
unpredictable and not necessarily indicative of current operating
fundamentals or future performance of the business segments and
(ii) in many instances, decisions to buy and sell securities are
made at the holding company level, and such decisions result in net
realized gains and losses that do not relate to the operations of
the individual segments. Operating income does not replace net
income as the GAAP measure of our consolidated results of
operations.
The following is a reconciliation of our operating results to
GAAP net income:
Three months ended March 31, (dollar amounts in thousands)
2010 2009 Pre-tax
operating income (loss): The PMA Insurance Group $ 14,267 $
15,187 Fee-based Business 2,305 2,013 Corporate & Other
(4,366 ) (5,000 ) Pre-tax operating income 12,206
12,200 Income tax expense 4,389 4,384
Operating income 7,817 7,816 Net realized investment gains
after tax 277 487 Income from
continuing operations 8,094 8,303 Loss from discontinued operations
after tax - (86 ) Net income $ 8,094
$ 8,217
Income from continuing operations included the following
after-tax net realized investment gains:
Three months ended March 31, (dollar amounts in thousands)
2010 2009 Net realized
investment gains after tax: Sales of investments $ 277 $
3,028 Other than temporary impairments -
(2,541 ) Net realized investment gains after tax $ 277 $ 487
Details of the Company’s investment portfolio at March 31, 2010
and December 31, 2009 are posted on our website at
www.pmacapital.com.
The PMA Insurance
Group
The PMA Insurance Group had pre-tax operating income of $14.3
million for the first quarter of 2010, compared to $15.2 million
for the first quarter of 2009.
We define direct premium production as direct premiums written,
excluding fronting premiums and premium adjustments. The following
is a reconciliation of our direct premium production to
consolidated gross premiums written:
Three months ended March 31, (dollar amounts in thousands)
2010 2009 Direct
premium production $ 157,092 $ 147,367 Fronting premiums 15,795
19,622 Premium adjustments (2,019 ) (4,876 )
Direct premiums written 170,868 162,113 Assumed premiums and other
1,037 1,957 Gross premiums
written $ 171,905 $ 164,070
Direct premium production included new business of $34.5 million
in the first quarter of 2010, compared to $38.0 million during the
same period last year. Pricing on our rate-sensitive workers’
compensation business increased 2% during the first three months of
2010, compared to a 4% decrease during the first three months of
2009. Our renewal retention rate on existing workers’ compensation
accounts for the first quarter improved to 83% in 2010, compared to
79% in 2009. During 2010, our retention rates and new business for
workers’ compensation were higher for business written on a
loss-sensitive basis than for business written on a rate-sensitive
basis, as we continue to emphasize loss-sensitive business. The
increase in the retention rate in 2010 also reflected a higher
retention rate on large account business.
Net premiums written increased to $128.4 million in the first
quarter of 2010, compared to $118.1 million for the same quarter
last year. The increase for the quarter primarily reflected the
increase in direct premium production for the period.
The combined ratio on a GAAP basis was 95.0% for the first
quarter of 2010, compared to 93.5% in the first quarter last year.
The higher combined ratio in the first quarter of 2010 was
primarily the result of an increase in the expense ratio, which
reflected higher state based assessments. Given the seasonality of
our business, our first quarter combined ratios have historically
been lower than the subsequent quarters and full year ratios.
The loss and LAE ratio in the first quarter of 2010 was modestly
higher than the prior year period. Pricing increases coupled with
payroll changes for rate-sensitive workers’ compensation business
were slightly below overall estimated loss trends. Losses and LAE
in 2010 also included expenses incurred on a new claims system
which has been implemented in both our insurance and fee-based
businesses. We estimated our medical cost inflation to be 6.0% in
the first quarters of 2010 and 2009.
Net investment income was $9.2 million in the first quarter of
2010, compared to $8.5 million in the same period last year. The
increase was due primarily to an increase in average invested
assets.
Fee-based
Business
For the first quarter of 2010, total revenues at our Fee-based
Business increased to $21.5 million from $19.7 million for the same
period last year. The increase in revenues primarily reflected
claims service revenue growth of $1.9 million, or 12%, which was
partially offset by a decrease in commission income of $316,000.
Commission income was impacted by the continued softness in the
labor markets. Pre-tax operating income increased to $2.3 million
for the first quarter of 2010, compared to $2.0 million for the
same quarter last year.
Corporate and
Other
The Corporate and Other segment, which includes primarily
corporate expenses and debt service, had net expenses of $4.4
million during the first quarter of 2010, compared to $5.0 million
in the first quarter of 2009. The decrease in net expenses for the
first quarter of 2010 related primarily to lower stock-based
compensation expense and certain 2009 intercompany transactions
with our former run-off operations which were eliminated in the
Corporate and Other segment.
Conference Call with
Investors
As a reminder, the Company will hold a conference call with
investors beginning at 8:30 a.m. Eastern Time on Friday, April 30th
to review its first quarter 2010 results. The conference call will
be available via a live webcast over the Internet at
www.pmacapital.com. To access the webcast, enter the Investor
Information section, click on News Releases and then click on the
microphone icon. Please note that by accessing the conference call
via the Internet, you will be in a listen-only mode.
The call-in numbers and passcodes for the conference call are as
follows:
Live Call
Replay
888-713-4217 (Domestic) 888-286-8010 (Domestic) 617-213-4869
(International) 617-801-6888 (International) Passcode 96118078
Passcode 52027414
You may pre-register for the conference call using the following
link:
www.theconferencingservice.com/prereg/key.process?key=P8PQBBEMM
Pre-registering is not mandatory but is recommended as it will
provide you immediate entry into the call and will facilitate the
timely start of the conference call. Pre-registration only takes a
few moments and you may pre-register at anytime, including up to
and after the call start time. Alternatively, if you would rather
be placed into the call by an operator, please use the dial-in
information above at least five minutes prior to the call start
time.
A replay of the conference call will be available over the
Internet or by dialing the call-in number for the replay and using
the passcode. The replay will be available from approximately 11:30
a.m. Eastern Time on Friday, April 30th until 11:59 p.m. Eastern
Time on Monday, May 31st.
Quarterly Statistical
Supplement
Our First Quarter Statistical Supplement, which provides more
detailed information about our results, is available on our
website. Please see the Investor Information section of our website
at www.pmacapital.com. You may also obtain a copy of this
supplement by sending your request to:
PMA Capital Corporation 380 Sentry Parkway Blue Bell, PA
19422 Attention: Investor Relations
Alternatively, you may make a request by telephone
(610-397-5298) or by e-mail to InvestorRelations@pmacapital.com. We will
also furnish a copy of this news release and the Statistical
Supplement to the Securities and Exchange Commission on a Form 8-K.
A copy of the Form 8-K will be available on the SEC’s website at
www.sec.gov.
CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR”
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This press release contains forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995
with respect to the Company’s financial condition and results of
operations and the plans, strategy and objectives of its
management. Forward-looking statements can generally be identified
by use of forward-looking terminology such as “may,” “will,”
“plan,” “expect,” “intend,” “anticipate,” “should” and “believe.”
These forward-looking statements may include estimates, assumptions
or projections and are based on currently available financial,
competitive and economic data and the Company’s current operating
plans. All forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied by the forward-looking statements.
The factors that could cause actual results to differ materially
from those in the forward-looking statements, include, but are not
limited to:
- adequacy of reserves for claim
liabilities, including reserves for potential environmental and
asbestos claims;
- any future lowering or loss of
one or more of our financial strength and debt ratings, and the
adverse impact that any such downgrade may have on our ability to
compete and to raise capital, and our liquidity and financial
condition;
- judicial, legislative and
regulatory changes that affect the cost of, or demand for, our
products or otherwise affect our ability to conduct business,
including any action with respect to our industry or business taken
by state insurance departments or the federal government;
- regulatory actions by state
insurance departments affecting the operation of our business or
our financial condition, including actions relating to licensing,
examinations, reserving, rate changes, investments, insurance
policy terms and conditions and state based assessments;
- adequacy and collectibility of
reinsurance that we purchase;
- uncertainty as to the price and
availability of reinsurance on business we intend to write in the
future, including reinsurance for terrorist acts;
- the effects of emerging claims
and coverage issues, including changing judicial interpretations of
available coverage for certain insured losses;
- severity of natural disasters
and other catastrophes, including the impact of future acts of
terrorism, in connection with insurance and reinsurance
policies;
- uncertainties related to
possible terrorist activities or international hostilities and
whether the Terrorism Risk Insurance Program Reauthorization Act of
2007 is modified or extended beyond its December 31, 2014
termination date;
- cyclical changes in the
insurance industry;
- the success with which our
independent agents and brokers sell our products and our ability to
collect payments from them;
- our ability to effectively
compete in the highly competitive property and casualty insurance
industry;
- our concentration in workers’
compensation insurance, which makes us particularly susceptible to
adverse changes in that industry segment;
- adverse economic or regulatory
developments in the eastern part of the United States, particularly
those affecting Pennsylvania, New York and New Jersey;
- fluctuations in interest rates
and other events that can adversely impact our investment
portfolio;
- disruptions in the financial
markets that affect the value of our investment portfolio and our
ability to sell our investments;
- our ability to attract and
retain qualified management personnel;
- our ability to repay our
indebtedness and meet our other contractual and financial
obligations;
- our ability to raise additional
capital on financially favorable terms when required;
- restrictions on our operations
contained in any document governing future or existing
indebtedness;
- statutory requirements and
rating agency expectations that limit our ability to receive
dividends from our insurance subsidiaries;
- the impact of future results on
the value of recorded goodwill and other intangible assets and the
recoverability of our deferred tax asset;
- limitations on our ability to
use our deferred tax assets in the event we experience an ownership
change;
- the outcome of any litigation
against us;
- provisions in our charter
documents that can inhibit a change in control of our company;
and
- other risks or uncertainties
disclosed from time to time in our filings with the Securities and
Exchange Commission and, in particular, our Annual Report on Form
10-K for the year ended December 31, 2009.
You should not place undue reliance on any forward-looking
statements in this press release. Forward-looking statements are
not generally required to be publicly revised as circumstances
change and we do not intend to update the forward-looking
statements in this press release to reflect circumstances after the
date of this press release or to reflect the occurrence of
unanticipated events.
PMA Capital Corporation GAAP Consolidated
Statements of Operations (Unaudited) Three
months ended March 31, (dollar amounts in thousands, except per
share data)
2010 2009 Gross
premiums written $ 171,905 $ 164,070
Net premiums written $ 128,245 $ 117,978
Revenues: Net premiums earned $ 103,496 $ 104,930
Claims service revenues 17,883 15,684 Commission income 3,092 3,463
Net investment income 9,120 8,457 Net realized investment gains 426
749 Other revenues 392 176 Total
revenues 134,409 133,459
Expenses: Losses and loss adjustment expenses 75,070 75,775
Acquisition expenses 18,047 17,198 Operating expenses 25,632 24,385
Dividends to policyholders 524 646 Interest expense 2,504
2,506 Total losses and expenses 121,777
120,510 Pre-tax income 12,632
12,949 Income tax expense: Current 254
244 Deferred 4,284 4,402 Total income
tax expense 4,538 4,646 Income
from continuing operations 8,094 8,303 Loss from
discontinued operations after tax - (86 )
Net income $ 8,094 $ 8,217
Income
per share: Basic: Continuing Operations $ 0.25 $ 0.26
Discontinued Operations - - $ 0.25
$ 0.26 Diluted: Continuing Operations $ 0.25 $
0.26 Discontinued Operations - - $ 0.25
$ 0.26
PMA Capital Corporation GAAP
Consolidated Balance Sheets (Unaudited) March
31, December 31, (dollar amounts in thousands, except
per share data)
2010 2009
Assets: Investments: Fixed maturities available for sale $
800,612 $ 791,355 Short-term investments 25,921 41,072 Other
investments 31,205 30,226 Total
investments 857,738 862,653 Cash 13,583 11,059 Accrued
investment income 7,663 7,352 Premiums receivable 275,122 238,650
Reinsurance receivables 839,723 827,458 Prepaid reinsurance
premiums 40,363 35,788 Deferred income taxes, net 131,097 139,782
Deferred acquisition costs 44,820 39,124 Funds held by reinsureds
61,573 58,935 Intangible assets 29,553 29,757 Other assets
108,476 112,181 Total assets $ 2,409,711
$ 2,362,739
Liabilities: Unpaid losses
and loss adjustment expenses $ 1,274,006 $ 1,269,685 Unearned
premiums 270,083 240,759 Debt 137,445 143,380
Accounts payable, accrued expenses
and other liabilities
238,493 249,787 Reinsurance funds held and balances payable 65,610
51,331 Dividends to policyholders 5,944 6,000
Total liabilities 1,991,581 1,960,942
Shareholders' Equity: Class A Common Stock
171,090 171,090 Additional paid-in capital 111,906 111,841 Retained
earnings 163,841 155,747 Accumulated other comprehensive loss
(5,886 ) (14,060 ) Treasury stock, at cost (22,821 )
(22,821 ) Total shareholders' equity 418,130
401,797 Total liabilities and shareholders' equity $
2,409,711 $ 2,362,739 Shareholders' equity per
share $ 12.96 $ 12.46
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