21st Century Insurance Group Reports 35% Increase in Third Quarter Net Income as Non-California Premium Climbs 79%
WOODLAND HILLS, Calif.--21st Century Insurance Group today reported net income of $28.4 million ($0.33 per basic share) for the third quarter of 2006, compared to $21.1 million ($0.25 per basic share) for the same period in 2005. The third quarter results include decreases to reserves for prior accident year losses and loss adjustment expenses (“LAE”) totaling $14.4 million, versus decreases of $1.2 million in the third quarter of 2005. The third quarter results also include $0.2 million of net realized investment gains, compared to net realized investment losses of $0.9 million in the third quarter of 2005. In October 2006, the Company announced its entry into the New Jersey private passenger automobile insurance market.
Other third quarter financial highlights:
- Direct premiums written of $337.2 million, versus $349.1 million in the third quarter of 2005 (3.4% decrease)
- California direct premiums written of $295.8 million, versus $326.0 million in the third quarter of 2005 (9.3% decrease)
- Non-California direct premiums written of $41.4 million, versus $23.1 million in the third quarter of 2005 (79.6% increase)
- GAAP combined ratio of 91.7% versus 95.2% for the third quarter of 2005. 2006 was favorably impacted by 4.4 points of prior accident year loss and LAE reserve decreases, versus 0.3 points in 2005
“We are turning 21st into a national competitor. As a direct-to-consumer company, having more markets and more consumers to target increases our opportunities and operating flexibility. In the third quarter, we continued to expand into new markets and maintained our profitability,” said President and Chief Executive Officer Bruce Marlow.
For the nine months ended September 30, 2006, net income was $78.0 million ($0.91 per basic share), compared to $61.0 million ($0.71 per basic share) for the same nine-month period in 2005. The 2006 nine-month results include decreases to prior accident year loss and LAE reserves totaling $39.5 million, versus decreases of $20.8 million for the same nine-month period in 2005. The 2006 nine-month results also include net realized investment losses of $0.9 million, compared to net realized investment losses of $2.7 million for the same nine-month period in 2005. Other nine-month financial highlights:
- Direct premiums written of $992.6 million, versus $1,029.9 million for the same nine-month period in 2005 (3.6% decrease)
- California direct premiums written of $895.0 million, versus $967.8 million for the same nine-month period in 2005 (7.5% decrease)
- Non-California direct premiums written of $97.6 million, versus $62.1 million for the same nine-month period in 2005 (57.2% increase)
- GAAP combined ratio of 92.6% versus 95.5% for the same nine-month period in 2005. 2006 was favorably impacted by 4.0 points of prior accident year loss and LAE reserve decreases, versus 2.0 points in 2005
Stockholders’ equity at September 30, 2006 increased to $897.6 million, compared to $813.0 million at September 30, 2005. Book value per share at September 30, 2006 improved to $10.39 per share from $9.47 per share at September 30, 2005. Operating cash flows for the third quarter of 2006 were $19.8 million, compared to $52.1 million in the same period of 2005. Operating cash flows for the nine months ended September 30, 2006 were $84.3 million, compared to $122.4 million for the same period of 2005.
The addition of New Jersey means more than 50 percent of the national auto insurance market has access to 21st’s low prices, superior policy features and great customer service. At $6.3 billion of Direct Written Premium, New Jersey is the 7th largest market for personal auto insurance in the United States. Regulatory reforms in 2003 have made the state more attractive for new entrants. New Jersey is the latest step in the company’s geographic expansion strategy, as 21st entered the Midwest in 2004, Texas in 2005 and three Eastern states – Florida, Georgia & Pennsylvania - during the second quarter of 2006. During the first ten months of 2006, the Company has increased the percentage of the U.S. personal auto market in which it operates from 34% to 53%.
“Over the last few years, the Company has consistently invested in the capability to execute its national expansion strategy. We are seeing the results of this focused effort, as the percent of our premium that is written outside California has grown steadily. We wrote 12.3% of the current quarter’s premium outside California, versus 6.6% during the same quarter last year,” said the Company’s Senior Vice President and Chief Financial Officer, Steve Erwin. “These investments and our consistent profitability show the strength and focus of our business model. We have a conservative balance sheet and a strong capital position which strongly support our national expansion strategy,“ added Erwin.
About 21st
Founded in 1958, 21st Century Insurance Group is a direct-to-consumer provider of personal auto insurance. With $1.4 billion of revenue in 2005, the Company insures over 1.5 million vehicles in Arizona, California, Florida, Georgia, Illinois, Indiana, Nevada, New Jersey, Ohio, Oregon, Pennsylvania, Texas and Washington. 21st provides superior policy features and 24/7 customer service at a competitive price. Customers can purchase insurance, service their policy or report a claim at www.21st.com or on the phone with our licensed insurance professionals at 1-800-211-SAVE, 24 hours a day, 365 days a year. Service is offered in English and Spanish, both on the phone and on the web. 21st Century Insurance Company, 21st Century Casualty Company, and 21st Century Insurance Company of the Southwest are rated A+ by A. M. Best, Fitch Ratings and Standard & Poor’s.
21st Century Insurance Group is traded on the New York Stock Exchange under the trading symbol “TW” and is headquartered at 21st Century Plaza, 6301 Owensmouth Avenue, Woodland Hills, CA 91367.
21st Century Insurance Group will hold an earnings teleconference for investors on Thursday, November 2nd, 2006 at 11:00 a.m. EST. The public can find information about the call in the Investor Relations section of www.21st.com. The call and its accompanying slides will be broadcast over the Internet via a webcast, as well.
Teleconference Details: Dial in number - 1-800-599-9795 International dial in number - 1-617-786-2905 Passcode - 877-353-08 Teleconference Replay Details: Available from 1 p.m. (EST) on November 2nd, 2006 until 1 p.m. (EST) on November 16th, 2006 Dial in number - 1-888-286-8010 International dial in number - 1-617-801-6888 Passcode - 326-759-67
Cautionary Statement:
Statements contained herein and within other publicly available documents may include, and the Company's officers and representatives may from time to time make, statements that may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts, but instead represent only the Company's belief regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company's control. These statements may address, among other things, the Company's strategy for growth, underwriting results, expected combined ratio and growth of written premiums, product development, computer systems, litigation, regulatory environment and approvals, market position, financial results, dividend policy and reserves. It is possible that the Company's actual results, actions and financial condition may differ, possibly materially, from the anticipated results, actions and financial condition indicated in these forward-looking statements. Other important factors that could cause the Company's actual results and actions to differ, possibly materially, from those in the specific forward-looking statements include the effects of competition and competitors' pricing actions; changes in consumer preferences or buying habits; adverse underwriting and claims experience; customer service problems; the impact on Company operations of natural disasters, principally earthquake, or civil disturbance, due to the concentration of Company facilities and employees in Southern California; information system problems; control environment failures; adverse developments in financial markets or interest rates; results of legislative, regulatory or legal actions, including the inability to obtain regulatory approval for necessary licenses, rate changes and product changes and possible adverse actions by state regulators in market conduct examinations and rate proceedings; and the Company’s ability to service its debt, including its ability to receive dividends and/or sufficient payments from its subsidiaries to service its obligations. The Company is not under any obligation (and expressly disclaims any such obligation) to update or alter any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. Additional financial information is available on the Company's website at www.21st.com (which shall not be deemed to be incorporated in or a part of this release) or by request to the Investor Relations Department.
Disclosure of Non-GAAP Measures:
The Company may have included financial measures and other information in this document that may not be presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management believes these financial measures and other information may enhance investors’ understanding of the Company’s operations or enhance their understanding of the industry, in general. However, these financial measures and other information are not intended to replace, and should be read in conjunction with, the GAAP financial results. When possible, the Company has made efforts to reconcile these financial measures and other information to the most directly comparable GAAP financial measures available.
(1) Premiums Written: Premiums written represent the premiums charged on policies issued and in effect during a fiscal period. Premiums Earned, the most directly comparable GAAP measure, represents the portion of premiums written that is recognized as income in the financial statements for the periods presented and earned on a pro-rata basis over the terms of the policies. Premiums Written are meant as supplemental information and are not intended to replace Premiums Earned. (2) Statutory Surplus: Statutory surplus represents equity as of the end of a fiscal period for the Company’s insurance entities, determined in accordance with Statutory Accounting Principles, as prescribed by insurance regulatory authorities. Stockholders’ Equity is the most directly comparable GAAP measure. Statutory Surplus is presented as supplemental information and is not intended to replace Stockholders’ Equity. (3) Underwriting Profit (Losses): Underwriting profit (loss) consists of net premiums earned less losses from claims, loss adjustment expenses and underwriting expenses. 21st believes that underwriting profit (loss) provides investors with financial information that is not only meaningful, but critically important to understanding the results of property and casualty insurance operations. The results of operations of a property and casualty insurance company include three components: underwriting profit (loss), net investment income and realized capital gains (losses). Without disclosure of underwriting profit (loss), it is difficult to determine how successful an insurance company is in its core business activity of assessing and underwriting risk, as including investment income and realized capital gains (losses) in the results of operations without disclosing underwriting profit (loss) can mask underwriting losses. Underwriting profit (loss) is presented as supplemental information and is not intended to replace Net Income.
These non-GAAP, financial measures should be read in conjunction with the GAAP financial results. The Company has reconciled these financial measures with the most directly comparable GAAP financial measures in the supplemental schedules.
© 2006 by 21st Century Insurance Group. All rights reserved
| 21st Century Insurance Group | ||||||||||
|
Condensed Consolidated Statements of Operations - Exhibit A |
||||||||||
| (Unaudited) | ||||||||||
| (Amounts in thousands, except share data) | ||||||||||
| Q3'05 | Q4'05 | Q1'06 | Q2'06 | Q3'06 | ||||||
| Direct premiums written | $ 349,118 | $ 316,466 | $ 338,569 | $ 316,837 | $ 337,217 | |||||
| Net premiums written | $ 347,827 | $ 315,172 | $ 337,223 | $ 315,476 | $ 335,810 | |||||
| Net premiums earned | $ 344,102 | $ 335,626 | $ 325,824 | $ 325,512 | $ 327,325 | |||||
| Net losses and loss adjustment expenses | 258,105 | 241,513 | 236,496 | 223,094 | 222,550 | |||||
| Underwriting expenses | 69,638 | 70,495 | 71,933 | 74,391 | 77,518 | |||||
| Underwriting profit | 16,359 | 23,618 | 17,395 | 28,027 | 27,257 | |||||
| Net investment income | 17,042 | 18,011 | 17,755 | 17,174 | 16,897 | |||||
|
Other (expenses)/income |
(3) | (407) | - | (913) | 58 | |||||
| Net realized investment losses (gains) | (939) | (606) | (1,067) | 30 | 159 | |||||
| Interest and fees expense | (1,988) | (1,943) | (1,898) | (1,854) | (1,820) | |||||
| Income before provision for income taxes | 30,471 | 38,673 | 32,185 | 42,464 | 42,551 | |||||
| Provision for income taxes | 9,369 | 12,281 | 10,868 | 14,143 | 14,144 | |||||
| Net income | $ 21,102 | $ 26,392 | $ 21,317 | $ 28,321 | $ 28,407 | |||||
| Earnings per share - basic | $ 0.25 | $ 0.31 | $ 0.25 | $ 0.33 | $ 0.33 | |||||
| Earnings per share - diluted | $ 0.24 | $ 0.31 | $ 0.25 | $ 0.33 | $ 0.33 | |||||
|
Weighted average shares outstanding |
||||||||||
| Basic | 85,793,904 | 85,799,397 | 85,868,878 | 85,968,155 | 86,192,395 | |||||
| Diluted | 86,205,599 | 86,427,724 | 86,517,163 | 86,232,103 | 86,454,509 | |||||
| Net losses and loss adjustment expense ratio | 75.0% | 72.0% | 72.6% | 68.5% | 68.0% | |||||
| Underwriting expense ratio | 20.2% | 21.0% | 22.1% | 22.9% | 23.7% | |||||
| Combined ratio | 95.2% | 93.0% | 94.7% | 91.4% | 91.7% | |||||
| Reconciliation of direct premiums written to net premiums earned | ||||||||||
| Direct premiums written | $ 349,118 | $ 316,466 | $ 338,569 | $ 316,837 | $ 337,217 | |||||
| Ceded premiums written | (1,291) | (1,294) | (1,346) | (1,361) | (1,407) | |||||
| Net premiums written | 347,827 | 315,172 | 337,223 | 315,476 | 335,810 | |||||
| Net change in unearned premiums | (3,725) | 20,454 | (11,399) | 10,036 | (8,485) | |||||
| Net premiums earned | $ 344,102 | $ 335,626 | $ 325,824 | $ 325,512 | $ 327,325 | |||||
| Net losses and loss adjustment expenses | ||||||||||
| Current accident year | $ 259,301 | $ 245,870 | $ 243,511 | $ 241,215 | $ 236,942 | |||||
| Prior accident years | (1,196) | (4,357) | (7,015) | (18,121) | (14,392) | |||||
| Net losses and loss adjustment expenses | $ 258,105 | $ 241,513 | $ 236,496 | $ 223,094 | $ 222,550 | |||||
| 21st Century Insurance Group | ||||||||||
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Condensed Consolidated Balance Sheets - Exhibit B |
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| (Unaudited) | ||||||||||
|
(Amounts in thousands, except share data) |
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| September 30, | December 31, | March 31, | June 30, | September 30, | ||||||
| 2005 | 2005 | 2006 | 2006 | 2006 | ||||||
| Assets | ||||||||||
| Investments: | ||||||||||
| Available for sale | ||||||||||
| Fixed maturity securities, at fair value | $ 1,350,411 | $ 1,354,707 | $ 1,434,761 | $ 1,426,728 | $ 1,470,385 | |||||
| Equity securities, at fair value | 46,380 | 47,367 | 850 | - | - | |||||
| Other long-term investments, equity method | - | - | - | - | 9,443 | |||||
| Total Investments | 1,396,791 | 1,402,074 | 1,435,611 | 1,426,728 | 1,479,828 | |||||
| Cash and cash equivalents | 65,264 | 68,668 | 35,146 | 40,188 | 19,497 | |||||
| Accrued investment income | 16,183 | 16,585 | 17,333 | 17,304 | 17,006 | |||||
| Premiums receivable | 116,980 | 100,900 | 107,231 | 98,887 | 115,513 | |||||
| Reinsurance receivables and recoverables | 5,914 | 6,539 | 6,223 | 6,521 | 6,550 | |||||
| Prepaid reinsurance premiums | 1,870 | 1,946 | 2,023 | 2,072 | 2,141 | |||||
| Deferred income taxes | 53,798 | 56,209 | 59,307 | 57,321 | 42,566 | |||||
| Deferred policy acquisition costs | 63,760 | 59,939 | 62,919 | 68,248 | 67,592 | |||||
| Leased property under capital lease | 25,339 | 22,651 | 21,587 | 20,568 | 19,998 | |||||
|
Property and equipment, net of accumulated depreciation |
145,841 | 145,811 | 147,047 | 148,213 | 152,480 | |||||
| Other assets | 29,930 | 38,907 | 42,183 | 41,323 | 40,277 | |||||
| Total assets | $ 1,921,670 | $ 1,920,229 | $ 1,936,610 | $ 1,927,373 | $ 1,963,448 | |||||
| Liabilities and stockholders' equity | ||||||||||
| Liabilities | ||||||||||
| Unpaid losses and loss adjustment expenses | $ 517,614 | $ 523,835 | $ 508,428 | $ 495,092 | $ 484,258 | |||||
| Unearned premiums | 340,055 | 319,676 | 331,152 | 321,166 | 329,719 | |||||
| Debt | 131,095 | 127,972 | 124,796 | 121,619 | 118,853 | |||||
| Claims checks payable | 40,711 | 42,681 | 40,609 | 38,363 | 39,697 | |||||
| Reinsurance payable | 663 | 643 | 755 | 748 | 769 | |||||
| Other liabilities | 78,514 | 75,450 | 94,057 | 95,220 | 92,529 | |||||
| Total liabilities | 1,108,652 | 1,090,257 | 1,099,797 | 1,072,208 | 1,065,825 | |||||
| Stockholders' equity | ||||||||||
| Common stock | 86 | 86 | 86 | 86 | 86 | |||||
| Additional paid-in capital | 423,795 | 425,454 | 430,360 | 435,889 | 438,618 | |||||
| Accumulated other comprehensive loss | (2,812) | (10,382) | (22,892) | (31,500) | (13,246) | |||||
| Treasury stock | - | (84) | (84) | (84) | (106) | |||||
| Retained earnings | 391,949 | 414,898 | 429,343 | 450,774 | 472,271 | |||||
| Total stockholders' equity | 813,018 | 829,972 | 836,813 | 855,165 | 897,623 | |||||
| Total liabilities and stockholders' equity | $ 1,921,670 | $ 1,920,229 | $ 1,936,610 | $ 1,927,373 | $ 1,963,448 | |||||
| Book Value Per Share | $ 9.47 | $ 9.66 | $ 9.72 | $ 9.91 | $ 10.39 | |||||
| Outstanding Shares | 85,835,038 | 85,933,960 | 86,095,739 | 86,335,335 | 86,372,668 | |||||
| 21st Century Insurance Group | ||||||||||
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Condensed Consolidated Statements of Cash Flows - Exhibit C |
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| (Unaudited) | ||||||||||
| (Amounts in thousands) | ||||||||||
| Q3'05 | Q4'05 | Q1'06 | Q2'06 | Q3'06 | ||||||
| Operating activities | ||||||||||
| Net Income | $ 21,102 | $ 26,392 | $ 21,317 | $ 28,321 | $ 28,407 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Depreciation and amortization | 9,507 | 9,258 | 6,661 | 6,643 | 7,089 | |||||
| Net amortization of investment premiums and discounts | 2,365 | 2,165 | 2,007 | 2,489 | 2,822 | |||||
| Stock-based compensation cost | 100 | 81 | 4,099 | 2,379 | 2,274 | |||||
| Provision for deferred income taxes | 4,784 | 1,664 | 2,820 | 6,611 | 5,754 | |||||
| Net realized investment losses (gains) | 1,062 | 493 | 1,067 | (30) | (159) | |||||
| Changes in assets and liabilities: | ||||||||||
| Premiums receivable | (11,400) | 16,080 | (6,331) | 8,344 | (16,626) | |||||
| Deferred policy acquisition costs | (1,555) | 3,821 | (2,980) | (5,329) | 656 | |||||
| Reinsurance receivables and recoverables | (184) | (722) | 352 | (355) | (76) | |||||
| Federal income taxes | (1,019) | 678 | 4,529 | (1,743) | (8,326) | |||||
| Other assets | 1,482 | (10,307) | (2,880) | 1,015 | 3,397 | |||||
| Unpaid losses and loss adjustment expenses | 22,092 | 6,221 | (15,407) | (13,336) | (10,834) | |||||
| Unearned premiums | 3,812 | (20,379) | 11,476 | (9,986) | 8,553 | |||||
| Claims checks payable | 2,144 | 1,970 | (2,072) | (2,246) | 1,334 | |||||
| Other liabilities | (2,164) | 477 | 14,079 | 2,904 | (4,433) | |||||
| Net cash provided by operating activities | 52,128 | 37,892 | 38,737 | 25,681 | 19,832 | |||||
| Investing Activities | ||||||||||
| Purchases of: | ||||||||||
| Fixed maturity investments available-for-sale | (17,446) | (42,102) | (146,738) | (33,441) | (47,848) | |||||
| Equity securities available-for-sale | (78,762) | (77,847) | (35,627) | - | - | |||||
| Other long-term investments, equity method | - | - | - | - | (9,123) | |||||
| Property and equipment | (19,948) | (6,544) | (6,627) | (6,719) | (9,969) | |||||
| Sales, maturities, and calls of: | ||||||||||
| Fixed maturity investments available-for-sale | 8,987 | 24,949 | 42,161 | 25,803 | 29,527 | |||||
| Equity securities available-for-sale | 81,196 | 75,696 | 83,989 | 847 | - | |||||
| Net cash used in investing activities | (25,973) | (25,848) | (62,842) | (13,510) | (37,413) | |||||
| Financing Activities | ||||||||||
| Repayment of debt | (3,390) | (3,260) | (3,352) | (3,388) | (3,543) | |||||
| Dividends paid | (3) | (6,874) | (6,872) | (6,891) | - | |||||
| Proceeds from exercise of stock options | 1,180 | 1,494 | 718 | 3,126 | 406 | |||||
| Excess tax benefits from stock-based compensation | - | - | 89 | 24 | 27 | |||||
| Net cash used in financing activities | (2,213) | (8,640) | (9,417) | (7,129) | (3,110) | |||||
| Net increase (decrease) in cash and cash equivalents | 23,942 | 3,404 | (33,522) | 5,042 | (20,691) | |||||
| Cash and cash equivalents, beginning of period | 41,322 | 65,264 | 68,668 | 35,146 | 40,188 | |||||
| Cash and cash equivalents, end of period | $ 65,264 | $ 68,668 | $ 35,146 | $ 40,188 | $ 19,497 | |||||
| 21st Century Insurance Group | ||||||||||
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Supplemental Operational Information - Exhibit D |
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| (Unaudited) | ||||||||||
| (Amounts in thousands, except ratios and vehicles in-force) | ||||||||||
| Q3'05 | Q4'05 | Q1'06 | Q2'06 | Q3'06 | ||||||
| Direct Premiums Written | ||||||||||
| California | $ 326,048 | $ 294,472 | $ 311,820 | $ 287,389 | $ 295,776 | |||||
| Non - California | 23,070 | 21,994 | 26,749 | 29,449 | 41,441 | |||||
| Total direct premiums written | $ 349,118 | $ 316,466 | $ 338,569 | $ 316,838 | $ 337,217 | |||||
| % of Direct Premiums Written | ||||||||||
| California | 93.4% | 93.1% | 92.1% | 90.7% | 87.7% | |||||
| Non - California | 6.6% | 6.9% | 7.9% | 9.3% | 12.3% | |||||
| Total | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | |||||
| Vehicles in-force | ||||||||||
| California | 1,447,471 | 1,413,909 | 1,382,296 | 1,359,217 | 1,323,381 | |||||
| Non-California | 117,760 | 127,001 | 138,257 | 157,386 | 196,613 | |||||
| Total Vehicles In-force at end of quarter | 1,565,231 | 1,540,910 | 1,520,553 | 1,516,603 | 1,519,994 | |||||
| Other Information | ||||||||||
| Statutory surplus | $ 657,666 | $ 704,671 | $ 725,144 | $ 755,326 | $ 781,633 | |||||
| Ratio of net premiums written to statutory surplus | 2.1 | 1.9 | 1.8 | 1.7 | 1.6 | |||||
| Auto renewal ratio | 92% | 91% | 91% | 91% | 91% | |||||
|
Reconciliation of stockholders' equity to statutory surplus |
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| Stockholders' equity - GAAP | $ 813,018 | $ 829,972 | $ 836,813 | $ 855,165 | $ 897,623 | |||||
|
Condensed adjustments to reconcile GAAP stockholders' equity to statutory surplus: |
||||||||||
| Equity in non-insurance entities | 22,073 | 26,798 | 31,728 | 39,558 | 54,827 | |||||
| Capital lease obligation | 3,095 | 2,975 | 1,178 | (662) | (2,542) | |||||
| Net unrealized losses on investments | 644 | 10,788 | 31,683 | 44,778 | 16,956 | |||||
| Deferred policy acquisition costs | (63,760) | (59,939) | (62,919) | (68,248) | (67,592) | |||||
|
Net deferred tax assets related to items nonadmitted under SAP |
38,394 | 38,544 | 24,137 | 24,438 | 32,641 | |||||
| Assets nonadmitted for statutory purposes | (155,798) | (144,467) | (137,476) | (139,703) | (150,280) | |||||
| Statutory surplus | $ 657,666 | $ 704,671 | $ 725,144 | $ 755,326 | $ 781,633 | |||||