COLUMBUS, Ohio, Feb. 21 /PRNewswire-FirstCall/ -- ProCentury Corporation , a specialty property and casualty insurance holding company, reported net income for the three months ended December 31, 2006 of $6.1 million, or $0.46 per diluted share, compared to net income of $5.0 million, or $0.38 per diluted share, for the same period in 2005. Net income for the year ended December 31, 2006 was $20.9 million, or $1.58 per diluted share, compared to net income of $10.2 million, or $0.78 per diluted share, for the same period last year.
Edward Feighan, ProCentury's Chief Executive Officer said, "Our team of approximately 300 associates executed at high levels this past year, enabling us to achieve, and in many cases exceed our expectations. In particular, we achieved some critical successes with the premium growth generated by our program business, and in our agency service levels through the improvements made to Century Online, our web-based agency portal. Looking forward, we expect to encounter a more competitive environment in 2007. That said, we continue to see attractive niche opportunities that will allow us to continue to grow, and do so profitably."
Results for the Fourth Quarter 2006
For the fourth quarter ended December 31, 2006, ProCentury's net income increased by 24% to $6.1 million, or $0.46 per diluted share, compared to net income of $5.0 million, or $0.38 per diluted share for the same period in 2005.
The combined ratio was 93.8% for the fourth quarter of 2006 compared to 93.6% for the fourth quarter of 2005. The fourth quarter 2006 combined ratio includes a loss ratio of 61.4% and an expense ratio of 32.4%. This compares to a loss ratio of 61.5% and expense ratio of 32.1% for the fourth quarter of 2005.
Gross premiums written for the fourth quarter of 2006 were $90.0 million compared to $59.8 million for the same period in 2005. This includes a one time adjustment to our gross written premiums of $20.9 million as discussed in more detail below. Premiums earned were $62.0 million in the fourth quarter of 2006, an increase of 28.8% compared to $48.2 million in the fourth quarter of 2005. Investment income for the fourth quarter of 2006 increased by 32.5% to $5.3 million compared to $4.0 million in the fourth quarter of 2005.
On September 13, 2006, the Securities Exchange Commission staff released Staff Accounting Bulletin 108 (SAB 108) regarding the process of quantifying financial statement misstatements that were uncorrected in prior years. Following the release of SAB 108, the Company reviewed all of its accounting practices and did not identify any items that were considered to be a material misstatement of prior year financial statements. During the fourth quarter of 2006, the Company did make adjustments, one of which changed the timing of recording gross written premiums. In the past, the Company recorded premiums on a received and processed basis, which did not take in to account premiums written by agents but not yet submitted to the Company. Under the Company's revised accounting policy, which was implemented in the fourth quarter of 2006, the Company will record an estimate of the premiums that have been bound by agents, but have not yet been processed.
The Company made the following one time adjustments in order to properly reflect premiums on the policies not yet received by the Company. These one time adjustments had the following impacts on the results for both the quarter and year ended December 31, 2006:
* Premiums in the course of collection, deferred policy acquisition
costs, loss and loss expense reserves and unearned premiums were
higher by $16.7 million, $2.7 million, $2.6 million, and $16.2
million, respectively.
* Gross written premiums, net written premiums and premiums earned were
$20.9 million higher, $18.2 million higher and $4.1 million higher,
respectively.
* Losses and loss expenses, the amortization of deferred policy
acquisition costs and other operating expenses were higher by $2.6
million $784,000, and $396,000, respectively.
* Net income was higher by $216,000 or $0.02 per diluted share.
Erin West, ProCentury's Chief Financial Officer said, "We expect that we will continue to grow, and we expect that the enhancements that we have made to Century Online will eventually, and significantly, reduce the time that it takes to receive information about our binding business. In light of these considerations, we decided to take a proactive approach in changing our accounting policy."
Results for the Year Ended December 31, 2006
For the twelve months ended December 31, 2006, ProCentury's net income was $20.9 million, or $1.58 per diluted share, compared to net income of $10.2 million or, $0.78 per diluted share, for the same period in 2005. Net income for the year ended December 31, 2005 included a $5.4 million after-tax impact attributable to hurricanes Katrina and Rita.
For the year ended December 31, 2006 the combined ratio was 94.5% compared to 99.4% for the same period in 2005. The 2006 year end combined ratio consists of a loss ratio of 61.9% and an expense ratio of 32.6%. These compare to a loss ratio of 66.6% and an expense ratio of 32.8% for the same period in 2005, which includes a loss ratio impact of 4.6% from hurricanes Katrina and Rita.
For the year ended December 31, 2006, gross premiums written were $283.0 million, compared to $216.2 million for the same period in 2005. This includes a one time adjustment to our gross written premiums of $20.9 million as discussed above. Premiums earned were $219.0 million for the year ended December 31, 2006, compared to $177.6 million for the same period last year. Investment income for the year ended December 31, 2006 was $19.4 million, an increase of 33.7% from $14.5 million reported for the year ended December 31, 2005.
Future Outlook
The following forward-looking statement is based on current expectations and actual results may differ materially as explained more completely in the note on forward-looking statements below.
The Company expects gross written premium growth in the range of 10% to 15% in 2007 when excluding the one-time premium adjustment from the total 2006 gross written premiums. In addition, the Company targets long-term average return on equity in the range of 13% to 15%.
Other ProCentury News
-- On December 20, 2006, ProCentury paid a dividend of $0.04 per share
to shareholders of record as of November 29, 2006.
Conference Call
ProCentury's 2006 fourth quarter and year end results will be discussed by management in more detail on Thursday, February 22, 2007 at 10:00 a.m. EST.
To listen to the call, please dial 1-877-407-8035, approximately five minutes prior to the start of the call. Additionally, the conference call will be broadcast live over the Internet and can be accessed by all interested parties on the Company's website at http://www.procentury.com/. For those who cannot listen to the live conference call, a replay will be available from approximately 1:00 p.m. EST on February 22, 2007 until midnight on March 1, 2007. The access number for the replay is 1-877-660-6853. The account number is 286 and the conference ID is 229133. The replay will also be accessible through the Company's website at http://www.procentury.com/.
About ProCentury Corporation
ProCentury Corporation is a specialty property and casualty insurance holding company. Its primary subsidiary, Century Surety Company, underwrites property and casualty insurance for small- and mid-sized businesses. Century Surety Company primarily writes excess and surplus lines insurance and markets its products through a select network of general agents.
NOTE ON FORWARD-LOOKING STATEMENTS
Statements in this press release that are not historical statements, including statements in "future outlooks" are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward- looking statements are derived from information that we currently have and assumptions that we make and may be identified by words such as "believes," "anticipates," "expects," "plans," "should," "estimates" and similar expressions. Our forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those stated or implied in our forward-looking statements, including but not limited to: 1) risks inherent in establishing loss and loss adjustment expense reserves; 2) uncertainties related to the ratings of our insurance subsidiaries; 3) uncertainties related to governmental and regulatory policies; 4) uncertainties relating to the cyclical nature of our business; 5) changes in our relationships with, and the capacity of, our general agents; 6) the risk that our reinsurers may not be able to fulfill their obligations to us; and 7) the continued functionality of our online services. You are cautioned not to place undue reliance on forward-looking statements, which are made only as of the date of this press release. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For additional disclosure regarding potential risks, please refer to documents we file with the Securities and Exchange Commission.
PROCENTURY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share data)
Quarter Quarter
Ended Ended Year Ended Year Ended
December December December December
31, 2006 31, 2005 31, 2006 31, 2005
(unaudited) (unaudited)(unaudited)
Gross premiums
written $90,024 $59,775 $283,036 $216,164
Net premiums written 78,333 53,095 247,919 189,519
Premiums earned 62,000 48,151 218,992 177,630
Net investment income 5,258 3,967 19,372 14,487
Net realized
investment
gains (losses) 117 (107) 80 (326)
Other income 84 94 437 198
Total revenues 67,459 52,105 238,881 191,989
Losses and loss
expenses 38,073 29,622 135,480 118,346
Amortization of
deferred policy
acquisition costs 15,002 11,439 54,404 42,935
Other operating
expenses 5,074 3,999 17,043 14,463
Severance expense - - - 793
Interest expense 600 514 2,318 1,873
Total expenses 58,749 45,574 209,245 178,410
Income before
income taxes 8,710 6,531 29,636 13,579
Income tax expense 2,567 1,575 8,735 3,338
Net income $6,143 4,956 20,901 10,241
Net income per share:
Basic $0.47 0.38 1.59 0.78
Diluted $0.46 0.38 1.58 0.78
Weighted average
of shares
outstanding
- basic 13,138,439 13,078,136 13,121,848 13,060,509
Weighted average
of shares
outstanding
- diluted 13,306,989 13,142,354 13,256,419 13,129,425
Loss and loss
expense ratio 61.4 % 61.5 % 61.9 % 66.6 %
Expense ratio 32.4 % 32.1 % 32.6 % 32.8 %
Combined ratio 93.8 % 93.6 % 94.5 % 99.4 %
PROCENTURY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
(Unaudited)
December 31, December 31,
Assets 2006 2005
Investments $428,102 360,782
Cash 7,960 5,628
Premiums in course of
collection, net 37,428 14,849
Deferred policy
acquisition costs 26,915 20,649
Prepaid reinsurance
premiums 14,051 10,989
Reinsurance recoverable on
paid and unpaid losses,
net 43,628 43,870
Other assets 20,964 17,378
Total assets $579,048 474,145
Liabilities and Shareholders' Equity
Loss and loss expense
reserves $250,672 211,647
Unearned premiums 127,620 95,631
Long term debt 25,000 25,000
Other liabilities 33,368 20,664
Total liabilities 436,660 352,942
Shareholders' equity:
Capital stock, without
par value - -
Additional paid-in
capital 100,954 100,202
Retained earnings 43,830 24,846
Unearned share
compensation - (695)
Accumulated other
comprehensive loss, net
of taxes (2,396) (3,150)
Total shareholders' equity 142,388 121,203
Total liabilities and
shareholders' equity $579,048 474,145
Book value per share $10.75 9.17
Number of common shares
outstanding 13,248,323 13,211,019
