DAVIE, Fla., Aug. 2 /PRNewswire-FirstCall/ -- Bristol West Holdings, Inc. today reported earnings of $10.3 million, or $0.34 per average fully diluted share, for the quarter ended June 30, 2006. The Company's return on average equity for the twelve months ended June 30, 2006 was 13.8%.
Net income for the three months ended June 30, 2006 was $10.3 million compared to $13.1 million for the three months ended June 30, 2005. Diluted earnings per share for the three months ended June 30, 2006 were $0.34 compared to $0.41 for the three months ended June 30, 2005. During the most recent quarter, the Company incurred pre-tax losses of $430,000 associated with an extra-contractual verdict in California and $375,000 from hail storms in the Midwest. During the quarter ended June 30, 2005, the Company incurred pre-tax expenses of $935,000 related to previously reported regulatory inquiries concerning the Company's reinsurance agreements. Net income, excluding the after-tax effect of these items in the respective periods, was $10.9 million, or $0.35 per average fully diluted share, for the quarter ended June 30, 2006 compared to $13.7 million, or $0.42 per average fully diluted share, for the quarter ended June 30, 2005.
Net income for the six months ended June 30, 2006 was $21.5 million compared to $29.9 million for the six months ended June 30, 2005. Diluted earnings per share for the six months ended June 30, 2006 were $0.69 compared to $0.92 for the six months ended June 30, 2005. Net income, excluding the after-tax effect of the aforementioned losses associated with an extra- contractual verdict in California and hail storms in the Midwest and expenses related to the regulatory inquiries in the respective periods, for the six months ended June 30, 2006 was $22.1 million, or $0.71 per average fully diluted share, compared to $30.5 million, or $0.93 per average fully diluted share, for the six months ended June 30, 2005.
Jeffrey J. Dailey, the Company's Chief Executive Officer, said, "During the quarter we continued to deploy our new Select 2.0 product. We are very encouraged by the early results and over time we believe this product will improve our competitive position while not sacrificing our underwriting discipline. This initiative is consistent with our goal to build long term competitive advantage in the marketplace creating sustainable shareholder value."
Highlights
* As announced on May 17, 2006, A.M. Best Co. has upgraded the financial strength rating of the Company's four insurance companies to A- (Excellent) with a stable outlook;
* Introduced our new Select product in Oregon during April, in Texas during June and most recently in Florida as of August 1st. Market reception and the product's performance to date continues to be positive;
* Increased the agencies and brokerages with which we do business by 240 in the most recent quarter to approximately 8,460 as of June 30, 2006 compared to 8,220 at March 31, 2006;
* Repurchased 413,600 shares of our common stock during the quarter at a cost of $6.9 million under the previously announced $20 million stock repurchase program authorized on October 28, 2005; and
* As announced on July 31, 2006, the Company has refinanced and upsized its debt to $100 million. In connection with the prepayment of the refinanced debt, we will incur a one-time $1.3 million non-cash pre-tax charge in the third quarter of 2006. Under the new credit facility, the Company expects to save almost $1 million per year in interest and fees on the refinanced portion.
Written Premium and Fees
Gross written premium was $143.2 million for the quarter ended June 30, 2006 compared to $157.8 million for the same quarter of 2005, a decline of $14.6 million or 9%. The change in expected policy cancellations added $1.1 million, or less than 1%, to gross written premium in the second quarter of 2006 compared to $8.5 million, or 5%, in the comparable quarter of 2005. The provision for expected policy cancellations adjusts the balances of premiums receivable and unearned premiums to amounts the Company expects to ultimately collect and earn. Gross written premium, exclusive of these changes in the provision for expected cancellations, declined $7.2 million, or 5%, to $142.1 million for the quarter ended June 30, 2006 compared to $149.3 million for the comparable quarter of 2005. Most of the decline emanated from California and Michigan, as the Company's premium writings grew 13% in the aggregate in the other states in which it does business.
Gross written premium was $300.4 million for the six months ended June 30, 2006 compared to $328.1 million for the corresponding period of 2005, a decline of 8%. Our California written premium declined by $26.9 million and our Michigan written premium declined by $5.7 million for the six months ended June 30, 2006 compared to the same period of 2005. Outside of these two states, gross written premium grew $11.4 million, or 9% in the aggregate, for the six months ended June 30, 2006 compared to the comparable period of 2005.
Net written premium was $140.8 million for the quarter ended June 30, 2006 compared to $140.4 million for the comparable quarter of 2005, an increase of $0.4 million. Net written premium was essentially unchanged despite the decline in gross written premium because the Company had no voluntary quota share reinsurance in 2006. Net written premium for the quarter ended June 30, 2005 was reduced by $14.9 million as a result of a 10% quota share reinsurance agreement. The Company had no similar agreement in 2006. We continued to cede premium to the Michigan Catastrophic Claims Association (the "MCCA"), the amount and impact of which were not material on the change in net written premium during the second quarters of 2006 and 2005. The MCCA is a mandatory facility which provides excess of loss coverage for personal injury protection in Michigan.
Net written premium was $313.9 million for the six months ended June 30, 2006 compared to $397.1 million for the comparable period of 2005, a decrease of $83.2 million. These decreases resulted primarily from the termination of quota share reinsurance agreements during the first quarters of both 2006 and 2005. Our net written premium, exclusive of the effect of these terminations, was $295.6 million for the first six months of 2006 compared to $290.8 million for the first six months of 2005. Net written premium for the six months ended June 30, 2005 was reduced by $32.4 million as a result of a 10% quota share reinsurance agreement. The Company had no similar agreement in 2006.
Fee income was $13.4 million for the quarter ended June 30, 2006 compared to $16.5 million for the quarter ended June 30, 2005, a decline of $3.1 million. Fee income decreased to $27.3 million for the six months ended June 30, 2006 from $34.3 million for the comparable period of 2005. The declines in fee income were largely the result of the decline in California business, where the fee percentage is higher than in the other states, and a reduction in installment fees. A greater percentage of the Company's customers are signing up for electronic funds transfer ("EFT") payment plans, on which the Company charges lower installment fees. The EFT business is more persistent, produces a lower loss ratio and is less expensive to administer.
Net Investment Income
Net investment income increased 16% to $5.1 million for the quarter ended June 30, 2006 from $4.4 million for the quarter ended June 30, 2005. For the six months ended June 30, 2006, net investment income increased 26% to $10.1 million from $8.0 million for the comparable period of 2005. The increases in net investment income were due to higher investment yields on the portfolio in the second quarter and first six months of 2006 compared to 2005. Also, for the first six months, average invested assets were higher in 2006 compared to 2005.
Earnings Before Taxes and Income Taxes
Income before taxes was $15.7 million for the quarter ended June 30, 2006 compared to $20.6 million for the quarter ended June 30, 2005. For the six months ended June 30, 2006, income before taxes was $32.8 million compared to $47.0 million for the corresponding period of 2005.
Federal and state income taxes were $5.3 million for the quarter ended June 30, 2006 compared to $7.5 million for the quarter ended June 30, 2005. Federal and state income taxes were $11.2 million for the six months ended June 30, 2006, representing an effective tax rate of 34.3%, down from $17.0 million and an effective tax rate of 36.25% for the corresponding period of 2005.
Key Ratios
The Company's combined ratio was 91.8% for the second quarter of 2006 compared to 88.7% for the same quarter of 2005. The loss ratio was 67.6% for the second quarter of 2006, essentially unchanged compared to 67.4% for the second quarter of 2005. The expense ratio was 24.2% for the second quarter of 2006 compared to 21.3% for the same quarter of 2005, an increase of 2.9 points. Lower fee and other income in the second quarter of 2006 compared to the second quarter of 2005 contributed 1.4 points to the increase in the expense ratio. The absence of ceding commission income in the second quarter of 2006 as a result of the termination of the Company's quota share reinsurance caused 1.9 points of increase to the expense ratio.
The Company's combined ratio for the six months ended June 30, 2006 was 91.3% compared to 87.1% for the corresponding period of 2005. The loss ratio was 67.7% for the six months ended June 30, 2006 compared to 66.7% for the comparable period of 2005. The Company experienced slightly higher loss costs relative to net earned premium during the first six months of 2006 compared to the first six months of 2005, as well as 0.3 points of adverse development partially attributed to Hurricane Wilma claims from 2005. The expense ratio was 23.6% for the six months ended June 30, 2006 compared to 20.4% for the comparable period of 2005. Of the 3.2-point increase in the expense ratio, 1.3 points was due to lower fee and other income in the six months ended June 30, 2006 compared to the corresponding period of 2005. In addition, 1.3 points of the increase was due to lower ceding commission income for the six months ended June 30, 2006 compared to the same period of 2005, resulting from the termination of the Company's quota share reinsurance. Increased other operating and general company expenses in the six months ended June 30, 2006 compared to the same period of 2005 added 1.4 points to the expense ratio.
Regulatory Inquiries
As previously reported, the Company received subpoenas from the Florida Office of Insurance Regulation and the Securities and Exchange Commission (the "SEC") and a grand jury subpoena from the United States Attorney for the Southern District of New York (the "USAO") seeking information relating to the Company's finite reinsurance agreements. The Company is cooperating with the Florida Office of Insurance Regulation, the SEC and the USAO.
All of the material reinsurance agreements to which the Company has been a party have been terminated and settled, and the reinsurers have been released from all future liabilities under the agreements. Inasmuch as the governmental investigations are ongoing and the various regulatory authorities could reach conclusions different from the Company's concerning the treatment of these transactions in the Company's financial statements, it would be premature to reach any conclusions as to the likely outcome of these matters and their potential impact upon the Company.
Common Stock Repurchases
As previously announced, on October 28, 2005, the Company's Board of Directors authorized the repurchase of $20 million of the Company's outstanding common stock. Under this program, the Company may make purchases from time to time in the open market depending on share price, market conditions, and other factors. During the second quarter of 2006, the Company repurchased 413,600 shares of its common stock at a total cost of $6.9 million, or an average cost of $16.60 per share. For the six months ended June 30, 2006, the Company repurchased 867,500 shares of its common stock at a total cost of $15.3 million.
About Bristol West
Bristol West Holdings, Inc. began its operations in 1973, and provides private passenger automobile insurance exclusively through agents and brokers in 21 states. Bristol West is traded on the New York Stock Exchange under the symbol, BRW.
For more information about Bristol West, please visit our website, http://www.bristolwest.com/ .
Statements included in this press release that are not historical facts are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "hopes" and similar expressions. Forward-looking statements also include any statements concerning future financial performance (including future revenues, earnings, cash flow or growth rates), ongoing business strategies or prospects, and possible future Company actions, which may be provided by management. Forward-looking statements are based on our current expectations and beliefs concerning future events and involve risks, uncertainties and assumptions. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include those factors that are more particularly described in our filings with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 under the heading "Item 1A. Risk Factors." We believe that our forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
BRISTOL WEST HOLDINGS, INC.
COMPARATIVE INCOME STATEMENTS
($ in thousands, except per share data)
(Unaudited)
Three Months Six Months Ended
Ended June 30, Ended June 30,
Income 2006 2005 2006 2005
Gross written premium $143,187 $157,780 $300,374 $328,130
Net written premium 140,841 140,442 313,859 397,137
Gross earned premium 147,775 166,228 294,554 335,977
Net earned premium $145,290 $153,536 $289,568 $316,995
Net investment income 5,098 4,402 10,065 8,035
Realized (loss) gain on
investments, net (25) (25) 43 (26)
Fee income 13,434 16,512 27,270 34,278
Other income 750 678 1,484 1,426
Total income 164,547 175,103 328,430 360,708
Expenses
Losses and loss adjustment
expenses incurred 98,277 103,553 195,935 211,318
Commissions and other
underwriting expenses 38,436 40,796 75,962 81,611
Other operating and
general expenses (a) 10,884 9,138 21,267 18,809
Interest expense 1,281 1,034 2,487 2,002
Total expenses 148,878 154,521 295,651 313,740
Income before federal and
state income taxes 15,669 20,582 32,779 46,968
Federal and state income
taxes 5,323 7,461 11,243 17,026
Net income $10,346 $13,121 $21,536 $29,942
Basic earnings per share $0.35 $0.42 $0.73 $0.96
Diluted earnings per share $0.34 $0.41 $0.69 $0.92
Weighted average common
shares outstanding 29,304,163 30,971,987 29,517,577 31,243,792
Weighted average common
shares outstanding
including potentially
dilutive common shares 30,800,216 32,381,804 31,061,440 32,675,711
Loss ratio 67.6% 67.4% 67.7% 66.7%
Expense ratio (a) 24.2% 21.3% 23.6% 20.4%
Combined ratio 91.8% 88.7% 91.3% 87.1%
(a) Per SEC Staff Accounting Bulletin 107, Topic 14.F, "Classification of
Compensation Expense Associated with Share-Based Payment
Arrangements," stock-based compensation expense should be presented in
the same lines as cash compensation. As such, stock-based
compensation expense is no longer presented separately, and our
expense ratio now includes this expense item. Prior period amounts
have been reclassified to conform to the 2006 presentation.
BRISTOL WEST HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
(Unaudited)
June 30, December 31,
2006 2005
Assets
Total investments $456,028 $454,872
Cash and cash equivalents 23,823 32,399
Reinsurance receivables 25,647 61,658
Receivables, net 172,557 169,189
Goodwill 101,546 101,546
Other assets 79,632 73,692
Total assets $859,233 $893,356
Liabilities and Stockholders' Equity
Total policy liabilities $413,490 $406,805
Reinsurance payables 2,810 30,590
Accounts payable and other
liabilities 37,272 49,081
Long-term debt 67,975 69,925
Total liabilities 521,547 556,401
Total stockholders' equity 337,686 336,955
Total liabilities and stockholders'
equity $859,233 $893,356
Book value per share $11.34 $11.13
BRISTOL WEST HOLDINGS, INC.
SUPPLEMENTAL DATA
(Unaudited)
GROSS WRITTEN PREMIUM PRODUCTION BY STATE
($ in millions)
Three months ended Six months ended
June 30, % June 30, %
State 2006 2005 Change 2006 2005 Change
California $60.2 $72.2 -16.6% $128.9 $155.8 -17.3%
Florida 22.7 22.8 -0.4% 48.0 48.0 0.0%
Michigan 17.6 20.3 -13.3% 37.1 42.8 -13.3%
Pennsylvania 7.2 4.1 75.6% 13.1 7.5 74.7%
Texas 5.9 5.6 5.4% 12.0 11.8 1.7%
South Carolina 5.4 4.0 35.0% 12.0 10.0 20.0%
New Hampshire 3.5 4.2 -16.7% 7.4 8.0 -7.5%
Maine 3.0 3.4 -11.8% 6.3 7.2 -12.5%
Virginia 3.0 2.1 42.9% 6.0 4.7 27.7%
Colorado 2.7 1.7 58.8% 4.8 3.4 41.2%
All Other (includes 11
states) 10.9 8.9 22.5% 23.0 20.6 11.7%
Gross written premium,
before change in
expected policy
cancellation provision $142.1 $149.3 -4.8% $298.6 $319.8 -6.6%
Change in expected policy
cancellation provision 1.1 8.5 n/m 1.8 8.3 n/m
Gross written premium $143.2 $157.8 -9.3% $300.4 $328.1 -8.4%
BRISTOL WEST HOLDINGS, INC.
SUPPLEMENTAL DATA
($ in thousands)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
2006 2005 2006 2005
Underwriting Results Before
Reinsurance
Revenues
Gross earned premium $147,775 $166,228 $294,554 $335,977
Expenses
Losses and adjustment expenses
incurred 103,760 112,499 206,059 224,669
Commissions 21,549 24,445 43,258 49,843
Other underwriting expenses 16,828 19,209 32,638 35,845
Other operating and general
expenses 10,884 9,138 21,267 18,809
Total underwriting expenses 153,021 165,291 303,222 329,166
Gross underwriting result (5,246) 937 (8,668) 6,811
Fee and other income 14,184 17,190 28,754 35,704
Pretax underwriting income $8,938 $18,127 $20,086 $42,515
Gross loss ratio 70.2% 67.7% 70.0% 66.9%
Gross expense ratio 23.7% 21.4% 23.2% 20.5%
Gross combined ratio 93.9% 89.1% 93.2% 87.4%
Reinsurance Ceded Results
Revenues
Ceded earned premium $2,485 $12,692 $4,986 $18,982
Expenses
Ceded losses and adjustment
expenses incurred 5,483 8,946 10,124 13,351
Ceding commissions (59) 2,858 (66) 4,077
Total underwriting expenses 5,424 11,804 10,058 17,428
Ceded underwriting (loss) income $(2,939) $888 $(5,072) $1,554
Ceded loss ratio 220.6% 70.5% 203.0% 70.3%
Ceded expense ratio -2.4% 22.5% -1.3% 21.5%
Ceded combined ratio 218.2% 93.0% 201.7% 91.8%
Net Underwriting Results
Revenues
Net earned premium $145,290 $153,536 $289,568 $316,995
Expenses
Net losses and loss adjustment
expenses incurred 98,277 103,553 195,935 211,318
Commissions - net of reinsurance 21,608 21,587 43,324 45,766
Other underwriting expenses 16,828 19,209 32,638 35,845
Other operating and general
expenses 10,884 9,138 21,267 18,809
Total underwriting expenses 147,597 153,487 293,164 311,738
Net underwriting result (2,307) 49 (3,596) 5,257
Fee and other income 14,184 17,190 28,754 35,704
Pretax underwriting income $11,877 $17,239 $25,158 $40,961
Net loss ratio 67.6% 67.4% 67.7% 66.7%
Net expense ratio 24.2% 21.3% 23.6% 20.4%
Net combined ratio 91.8% 88.7% 91.3% 87.1%
June 30,
Reinsurance Balances 2006 2005
Reinsurance recoverable on paid
and unpaid losses and loss
adjustment expenses $22,648 $18,298
Prepaid reinsurance 2,999 20,611
Ceding commission receivable -- 6,670
Reinsurance payables (2,810) (27,405)
Net balance $22,837 $18,174
