Direct General Corporation Announces Second Quarter Results and Regulatory Approval of Proposed Acquisition
NASHVILLE, Tenn.--Aug. 2, 2005--Direct General Corporation today announced second quarter 2005 net income of $11.5 million or $0.53 per share, on a diluted basis, which included the after-tax impact of net realized losses on investments of $0.2 million or $0.01 per share. Comparatively, net income for the second quarter of 2004 was $16.0 million or $0.70 per share on a diluted basis.For the three months ended June 30, 2005, gross premiums written decreased 3.3% to $98.4 million and gross revenues decreased 3.0% to $125.2 million, as compared to the same period in 2004. Net premiums written increased 1.4% to $87.0 million for the current quarter as the percentage of business retained by the Company increased to 88.4% in the second quarter of 2005 from 84.3% in the second quarter of 2004. Net premiums earned, a function of net premiums written in the current and prior periods, increased 12.3% to $104.7 million for the three months ended June 30, 2005 compared to the second quarter of 2004.
Direct General's net loss ratio of 73.0% in the second quarter of 2005, as compared to the net loss ratio of 73.2% in the second quarter of 2004, demonstrates the Company's continued commitment to consistent pricing and effective claims handling. The Company's quarterly actuarial reserve analysis as of June 30, 2005 resulted in an overall redundancy in the net loss reserves for prior accident quarters of $0.4 million or 0.4 points of the loss ratio. In comparison, the Company's net loss ratio was increased by approximately 0.7 points of unfavorable development in the second quarter of 2004.
The Company's combined ratio was 85.4% in the second quarter of 2005, as compared to 75.4% for the corresponding period in 2004, reflecting a higher level of operating expenses including costs related to the Company's expansions in Texas, Missouri and Virginia, and a decrease in ceding commissions received from reinsurers.
The Company is pleased to announce that it recently received regulatory approval to proceed with the acquisition of a property and casualty insurance company, the assets of which consist of debt securities and licenses to conduct property and casualty business in 38 states and the District of Columbia. The purchase price is estimated to be $10.3 million, of which approximately $4.3 million is expected to be allocated to the value of the licenses and recorded as goodwill. This pending acquisition, which is expected to close within 30 days, should facilitate the Company's entrance into new markets and provide flexibility to explore alternative distribution channels and pricing.
Conference Call
The Company will hold a conference call to discuss its second quarter 2005 results at 11:00 a.m. (EDT), August 3, 2005. The conference call will be broadcast over the Internet. To listen to the call via the Internet, go to Direct's website, www.direct-general.com, click on Investors and follow the instructions provided at the webcast link. Institutional investors can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com). The archived webcast will be available shortly after the call on the Company's website until the Company's next conference call.
GENERAL INFORMATION
Direct General Corporation, headquartered in Nashville, Tennessee, is a financial services holding company whose principal operating subsidiaries provide non-standard personal automobile insurance, term life insurance, premium finance and other consumer products and services primarily through neighborhood sales offices staffed predominantly by employee-agents. Direct's operations are concentrated in the southeastern part of the United States. Additional information about Direct can be found online at www.direct-general.com.
Safe Harbor Statement
This press release contains statements that may constitute "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.
These statements can be identified from the use of the words "may," "should," "could," "potential," "continue," "plan," "forecast," "estimate," "project," "believe," "intend," "anticipate," "expect," "target," "is likely," "will" or the negative of these terms and similar expressions. Forward-looking statements include, but are not limited to, discussions regarding our operating strategy, growth strategy, acquisition strategy, cost savings initiatives, industry, economic conditions, financial condition, liquidity and capital resources and results of operations. All statements in this press release not dealing with historical results are forward-looking and are based on estimates, assumptions and projections.
Forward-looking statements are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed in this press release. These risks and uncertainties include, without limitation, uncertainties related to fluctuations in interest rates and stock indices; claims frequency and severity experience; cyclical changes in the personal automobile insurance market; the effects of competition in the areas in which the Company operates; changes in economic and regulatory conditions; failure of expected contingencies to occur; estimates, assumptions and projections generally; inflation and changes in financial markets; the accuracy and adequacy of the Company's pricing methodologies; the outcome of litigation pending against the Company; court decisions and trends in litigation; the ability to obtain timely approval for requested rate changes; weather conditions including severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions; changes in driving patterns and loss trends; and acts of war and terrorist activities.
In addition, the Company's past results of operations do not necessarily indicate its future results. The Company undertakes no obligation to publicly update or revise any use of the forward-looking statements. For more detailed discussion of some of the foregoing risks and uncertainties, please see the Company's filings with the Securities and Exchange Commission.
DIRECT GENERAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
-----------------------------------------
2005 2004 %Change
-----------------------------------------
(In thousands - except per share amounts)
Revenues
Premiums earned $104,737 $93,297 12.3
Finance income 12,130 12,702 (4.5)
Commission and service
fee income 11,116 11,980 (7.2)
Net investment income 3,546 2,621 35.3
Net realized (losses)
gains on securities
and other (286) (9) NM
----------------------------------------------------------------------
Total revenues 131,243 120,591 8.8
----------------------------------------------------------------------
Expenses
Insurance losses and
loss adjustment
expenses 76,485 68,262 12.0
Selling, general and
administrative costs 34,322 25,148 36.5
Interest expense 1,950 1,539 26.7
----------------------------------------------------------------------
Total expenses 112,757 94,949 18.8
----------------------------------------------------------------------
Income before income
taxes 18,486 25,642 (27.9)
Income tax expense 6,990 9,624 (27.4)
----------------------------------------------------------------------
Net income $ 11,496 $ 16,018 (28.2)
----------------------------------------------------------------------
Earnings per Share
Numerator:
-------------------------------------------------------
Net income $ 11,496 $ 16,018
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Denominator:
Weighted average
common shares
outstanding 21.634.5 22,239.2
Dilutive stock options 48.4 602.5
-------------------------------------------------------
Weighted average common
shares outstanding for
purposes of computing
diluted earnings per
common share 21,682.9 22,841.7
-------------------------------------------------------
Basic earnings per
common share $ 0.53 $ 0.72
-------------------------------------------------------
Diluted earnings per
common share $ 0.53 $ 0.70
-------------------------------------------------------
(Unaudited)
Six Months Ended
June 30,
-----------------------------------------
2005 2004 %Change
-----------------------------------------
(In thousands - except per share amounts)
Revenues
Premiums earned $ 206,650 $ 176,304 17.2
Finance income 24,301 25,463 (4.6)
Commission and service
fee income 25,383 25,475 (0.4)
Net investment income 6,875 4,897 40.4
Net realized (losses)
gains on securities
and other (255) 60 NM
----------------------------------------------------------------------
Total revenues 262,954 232,199 13.2
----------------------------------------------------------------------
Expenses
Insurance losses and
loss adjustment
expenses 152,367 129,087 18.0
Selling, general and
administrative costs 67,106 50,388 33.2
Interest expense 3,260 2,891 12.8
----------------------------------------------------------------------
Total expenses 222,733 182,366 22.1
----------------------------------------------------------------------
Income before income
taxes 40,221 49,833 (19.3)
Income tax expense 15,142 18,797 (19.4)
----------------------------------------------------------------------
Net income $ 25,079 $ 31,036 (19.2)
----------------------------------------------------------------------
Earnings per Share
Numerator:
-------------------------------------------------------
Net income $ 25,079 $ 31,036
-------------------------------------------------------
Denominator:
Weighted average
common shares
outstanding 21,951.6 21,871.1
Dilutive stock options 75.4 718.1
-------------------------------------------------------
Weighted average common
shares outstanding for
purposes of computing
diluted earnings per
common share 22,027.0 22,589.2
-------------------------------------------------------
Basic earnings per
common share $ 1.14 $ 1.42
-------------------------------------------------------
Diluted earnings per
common share $ 1.14 $ 1.37
-------------------------------------------------------
NM = Not Meaningful
DIRECT GENERAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, Dec. 31,
2005 2004 %Change
-------------------------------
(In thousands)
Assets
Investments:
Debt securities available-for-sale,
at fair value $356,706 $334,816 6.5
Short-term investments 1,623 1,663 (2.4)
----------------------------------------------------------------------
Total investments 358,329 336,479 6.5
Cash and cash equivalents 110,541 70,988 55.7
Finance receivables, net 241,541 214,180 12.8
Reinsurance balances receivable 32,102 35,671 (10.0)
Prepaid reinsurance premiums 27,651 29,544 (6.4)
Other assets 106,894 100,590 6.3
----------------------------------------------------------------------
Total assets $877,058 $787,452 11.4
----------------------------------------------------------------------
Liabilities and Shareholders' Equity
Loss and loss adjustment expense
reserves $126,055 $124,858 1.0
Unearned premiums 245,075 223,303 9.7
Reinsurance balances payable and
funds held 36,452 33,996 7.2
Notes payable 179,202 135,626 32.1
Other liabilities 41,355 24,588 68.2
----------------------------------------------------------------------
Total liabilities 628,139 542,371 15.8
----------------------------------------------------------------------
Shareholders' equity
Common stock 89,850 109,163 (17.7)
Retained earnings 159,508 136,178 17.1
Accumulated other comprehensive
loss (439) (260) 68.8
----------------------------------------------------------------------
Total shareholders' equity 248,919 245,081 1.6
----------------------------------------------------------------------
Total liabilities and
shareholders' equity $877,058 $787,452 11.4
----------------------------------------------------------------------
NM = Not Meaningful
DIRECT GENERAL CORPORATION
SELECTED FINANCIAL DATA AND KEY RATIOS
The following table presents our gross premiums written in our
major markets and provides a reconciliation of gross revenues (a
non-GAAP financial measure) to total revenues, a summary of gross,
ceded and net premiums written and earned, and key financial ratios
for the periods presented ($ in millions):
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
2005 2004 %Change 2005 2004 %Change
-----------------------------------------------
Gross premiums written
Florida $46.6 $52.2 (10.7) $124.7 $136.1 (8.4)
Tennessee 12.5 13.6 (8.1) 34.8 37.0 (5.9)
Georgia 5.5 6.7 (17.9) 16.1 19.0 (15.3)
Louisiana 5.3 6.1 (13.1) 17.1 18.6 (8.1)
Texas 14.5 8.0 81.3 23.0 15.0 53.3
Mississippi 5.0 5.0 0.0 15.0 15.1 (0.7)
All other states 9.0 10.2 (11.8) 29.0 30.0 (3.3)
----------------------------------------------------------------------
Gross premiums written $98.4 $101.8 (3.3) $259.7 $270.8 (4.1)
Ancillary income 23.2 24.7 (6.1) 49.7 50.9 (2.4)
Net investment income 3.6 2.6 38.5 6.9 4.9 40.8
----------------------------------------------------------------------
Gross revenues(1) 125.2 129.1 (3.0) 316.3 326.6 (3.2)
Ceded premiums written (11.4) (16.0) (28.8) (29.4) (47.6) (38.2)
Change in net unearned
premiums 17.7 7.5 136.0 (23.6) (46.9) (49.7)
Net realized gains on
securities and other (0.3) - NM (0.3) 0.1 NM
----------------------------------------------------------------------
Total revenues $131.2 $120.6 8.8 $263.0 $232.2 13.3
----------------------------------------------------------------------
Gross premiums written $98.4 $101.8 (3.3) $259.7 $270.8 (4.1)
Ceded premiums written (11.4) (16.0) (28.8) (29.4) (47.6) (38.2)
----------------------------------------------------------------------
Net premiums written $87.0 $85.8 1.4 $230.3 $223.2 3.2
----------------------------------------------------------------------
Gross premiums earned $119.7 $120.4 (0.6) $237.9 $235.4 1.1
Ceded premiums earned (15.0) (27.1) (44.6) (31.2) (59.1) (47.2)
----------------------------------------------------------------------
Net premiums earned $104.7 $93.3 12.3 $206.7 $176.3 17.2
----------------------------------------------------------------------
Key Financial Ratios
--------------------
Loss ratio - net(2) 73.0% 73.2% 73.7% 73.2%
Expense ratio - net(3) 12.4% 2.2% 10.0% 1.3%
------------------------------------- --------------
Combined ratio
- net (4) 85.4% 75.4% 83.7% 74.5%
------------------------------------- --------------
(1) Gross Revenues (a non-GAAP financial measure). Gross revenues
is the sum of gross premiums written plus ancillary income (finance
income and commission and service fee income) plus net investment
income (excluding realized gains and losses). We use gross revenues as
the primary measure of the underlying growth of our revenue streams
from period to period. Gross revenues are reconciled to total revenues
in the table above.
(2) Loss ratio. Loss ratio is the ratio (expressed as a
percentage) of losses and loss adjustment expenses incurred to
premiums earned and measures the underwriting profitability of a
company's insurance business.
(3) Expense ratio. Expense ratio is the ratio (expressed as a
percentage) of net operating expenses to premiums earned and measures
a company's operational efficiency in producing, underwriting and
administering its insurance business. For statutory accounting
purposes, operating expenses of an insurance company exclude
investment expenses, and are reduced by other income. There is no such
industry definition for determining an expense ratio for GAAP
purposes. As a result, we apply the statutory concept of net operating
expenses in calculating our expense ratio on a GAAP basis. We reduce
our operating expenses by ancillary income (excluding net investment
income and realized gains (losses) on securities) to calculate our net
operating expenses.
(4) Combined ratio. Combined ratio is the sum of the loss ratio
and the expense ratio and measures a company's overall underwriting
profit. If the combined ratio is at or above 100, an insurance company
cannot be profitable without investment income (and may not be
profitable if investment income is insufficient). We use the GAAP
combined ratio in evaluating our overall underwriting profitability
and as a measure for comparison of our profitability relative to the
profitability of our competitors.