COLUMBUS, Ohio, Feb. 20, 2008 (PRIME NEWSWIRE) -- ProCentury Corporation (Nasdaq:PROS), a specialty property and casualty insurance holding company, reported net income for the three months ended December 31, 2007 of $7.2 million, or $0.53 per diluted share, compared to net income of $6.1 million, or $0.46 per diluted share, for the same period in 2006. Net income for the year ended December 31, 2007 was $24.8 million, or $1.85 per diluted share, compared to net income of $20.9 million, or $1.58 per diluted share, for the year ended December 31, 2006.
Results for the year ended December 31, 2007 include:
-- A combined ratio of 91.7%, contributing to return on average
equity in 2007 of 16.3%;
-- A 18.7% increase in net income for 2007 compared to 2006;
-- A decline in gross written premiums of 15.8% compared to 2006,
which includes the impact of a $20.9 million accounting
adjustment in 2006 that accounts for 7.4% of the decline compared
to the prior year; and
-- A 12.1% increase in book value per share to $12.05 at December
31, 2007 compared to $10.75 at December 31, 2006.
Edward Feighan, ProCentury's Chief Executive Officer said, "In 2007 our team's focus on delivering profitable results was outstanding. Return on average equity was 16.3%, exceeding our targeted range of 13% - 15%, and book value per share increased by 12.1%. Year over year net income growth was 18.7% and we maintained our pricing and risk selection discipline in a competitive environment. We are optimistic that the new initiatives implemented in 2007 will have a meaningful impact on our future results, and we continue to evaluate new opportunities in underserved niche markets."
Results for the Fourth Quarter Ended December 31, 2007
For the fourth quarter ended December 31, 2007, ProCentury's net income increased by 18.0% to $7.2 million, or $0.53 per diluted share, compared to net income of $6.1 million, or $0.46 per diluted share for the same period in 2006.
The combined ratio was 86.0% for the fourth quarter of 2007 compared to 93.8% for the fourth quarter of 2006. The fourth quarter 2007 combined ratio includes a loss ratio of 51.1% and an expense ratio of 34.9%. This compares to a loss ratio of 61.4% and an expense ratio of 32.4% for the fourth quarter of 2006.
Results for the fourth quarter of 2007 include $4.6 million of favorable prior year reserve development, or $3.0 million after taxes, representing $0.22 per diluted share. The reserve development impacted the loss ratio by 9.1 percentage points. In the fourth quarter of 2006 there was $1.5 million of favorable prior year development, or $975,000 after taxes, representing $0.07 per diluted share, with a 2.4 percentage point impact on the fourth quarter 2006 loss ratio.
During the fourth quarter of 2006, the Company made accounting adjustments to reflect a change in the manner in which the Company records gross written premium. Prior to the change, the Company recorded premiums on a received and processed basis. Under the Company's revised accounting policy, the Company records an estimate of the premiums that have been bound by agents, but not yet received or processed by the Company. Because of these accounting adjustments, the 2006 gross written premiums of $90.0 million was higher by $20.9 million.
Adjusting for the $20.9 million impact of the accounting adjustment discussed above, gross premiums written for the fourth quarter of 2007 declined 32.0% to $47.0 million compared to $69.1 million for the same period in 2006. This decline is related to one-time, non-recurring items, including a 4.0% decline related to the discontinuance of the auto physical damage program in 2007, a 14.9% decline related to the amount of premium backlog in the fourth quarter of 2007 compared the same period in 2006, and a 13.1% decline in our core business with effective dates in the fourth quarter of 2007 compared to the same period in 2006. Premiums earned were $50.6 million in the fourth quarter of 2007, a decline of 18.4% compared to $62.0 million in the fourth quarter of 2006.
Investment income for the fourth quarter of 2007 increased by 5.7% to $5.6 million compared to $5.3 million in the fourth quarter of 2006. Net realized investment losses were $1,389,000 in the fourth quarter of 2007 compared to net realized investment gains of $117,000 in the fourth quarter of 2006.
Results for the Year Ended December 31, 2007
For the year ended December 31, 2007, ProCentury's net income was $24.8 million, or $1.85 per diluted share, an increase of 18.7% from net income of $20.9 million or, $1.58 per diluted share, for 2006.
The combined ratio was 91.7% for the year ended 2007 compared to 94.5% for 2006. The 2007 combined ratio consists of a loss ratio of 57.9% and an expense ratio of 33.8%. These compare to a loss ratio of 61.9% and an expense ratio of 32.6% for 2006.
Results for the year ended December 31, 2007 include $9.1 million of favorable prior year reserve development, or $5.9 million after taxes, representing $0.44 per diluted share. The reserve development impacted the loss ratio by 4.2 percentage points. In 2006, there was $1.1 million of favorable prior year development, or $715,000 after taxes, representing $0.05 per diluted share, with a 0.5 percentage point impact on the 2006 loss ratio.
In 2007, gross written premiums were $238.3 million, a decline of 15.8% from $283.0 million for 2006. Premiums earned for 2007 were $217.6 million a decline of 0.6% compared to $219.0 million for the prior year.
Investment income for the year ended December 31, 2007 was $22.1 million, an increase of 14.0% from $19.4 million for 2006. Net realized investment losses were $1,982,000 for 2007 compared to a gain of $80,000 for 2006.
The Company also announced today that it has entered into a definitive merger agreement with Meadowbrook Insurance Group, Inc., pursuant to which the Company would merge into a subsidiary of Meadowbrook and the Company's shareholders would receive aggregate consideration valued at approximately $272.6 million, of which 45% would be paid in cash and 55% would be paid in shares of Meadowbrook common stock, subject to the closing of the transaction after receipt of shareholder and regulatory approvals and the satisfaction of other customary closing conditions.
Future Outlook
The following forward-looking statements are based on current expectations and actual results may differ materially as explained more completely in the note on forward-looking statements below.
Throughout 2007 and during the first quarter of 2008 we have been working on new initiatives in response to a softening market, and we expect gross written premium to grow modestly in 2008. At this time, due to the uncertainty that current market conditions present, we are not providing a range of growth.
Conference Call
ProCentury's 2007 fourth quarter and year end results will be discussed by management in more detail on Thursday, February 21, 2008 at 10:00 a.m. EST.
To listen to the call, please dial 1-800-860-2442, 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 of the conference call will be accessible through the company's website.
Additional Information about the Proposed Transaction
The proposed merger will be submitted to Meadowbrook's and ProCentury's shareholders for their approval. Meadowbrook will file a registration statement, which will include a joint proxy statement/prospectus, ProCentury will file a proxy statement and both companies will file other relevant documents with the Securities and Exchange Commission (the "SEC"). Shareholders are urged to read the registration statement and joint proxy statement/prospectus when they become available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. Investors will be able to obtain a free copy of the registration statement and joint proxy statement/prospectus, as well as other filings containing information about Meadowbrook and ProCentury, at the SEC's website (http://www.sec.gov). Investors will also be able to obtain these documents, free of charge, by accessing Meadowbrook's website (http://www.meadowbrook.com), or by accessing ProCentury's website (http://www.procentury.com).
Meadowbrook and ProCentury and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Meadowbrook and/or shareholders of ProCentury in connection with the proposed merger. Information about the directors and executive officers of Meadowbrook is set forth in the proxy statement for Meadowbrook's 2007 annual meeting of shareholders, as filed with the SEC on April 6, 2007. Information about the directors and executive officers of ProCentury is set forth in the proxy statement for ProCentury's 2007 annual meeting of shareholders, as filed with the SEC on April 6, 2007. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the joint proxy statement/prospectus regarding the proposed merger when it becomes available. Investors may obtain free copies of these documents as described above.
About ProCentury Corporation
ProCentury Corporation (Nasdaq:PROS) 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.
The ProCentury Corporation logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=3677
NOTE ON FORWARD-LOOKING STATEMENTS
Statements in this press release that are not historical statements 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 subsidiary; 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; 7) the risk and uncertainty of entering into new lines of business; 8) the ability to obtain required governmental and shareholder approvals and satisfy other closing conditions that will enable us to complete the merger or to complete it in the expected timeframe; 9) the risk that the businesses of Meadowbrook and ProCentury will not be integrated successfully following the merger or such integration may be more difficult, time-consuming or costly than expected; and 10) customer and employee relationships and business operations may be disrupted by the merger. 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. 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
(Unaudited)
(dollars in thousands, except per share data)
Three Months Three Months
Ended Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2007 2006 2007 2006
---------- ---------- ---------- ----------
Gross premiums
written $46,971 90,024 238,346 283,036
Net premiums
written $39,328 78,333 203,804 247,919
Premiums earned $50,604 62,000 217,562 218,992
Net investment
income 5,584 5,258 22,081 19,372
Net realized
investment
(losses) gains (1,389) 117 (1,982) 80
Other income 110 84 489 437
---------- ---------- ---------- ----------
Total revenues 54,909 67,459 238,150 238,881
---------- ---------- ---------- ----------
Losses and loss
expenses 25,879 38,073 125,917 135,480
Amortization of
deferred policy
acquisition costs 12,774 15,002 55,230 54,404
Other operating
expenses 4,886 5,074 18,280 17,043
Interest expense 643 600 2,681 2,318
---------- ---------- ---------- ----------
Total expenses 44,182 58,749 202,108 209,245
---------- ---------- ---------- ----------
Income before
income taxes 10,727 8,710 36,042 29,636
Income tax expense 3,577 2,567 11,286 8,735
---------- ---------- ---------- ----------
Net income $7,150 6,143 24,756 20,901
========== ========== ========== ==========
Net income per
share:
Basic $0.54 0.47 1.87 1.59
========== ========== ========== ==========
Diluted $0.53 0.46 1.85 1.58
========== ========== ========== ==========
Weighted average
number of shares
outstanding -
basic 13,256,737 13,138,439 13,242,083 13,121,848
========== ========== ========== ==========
Weighted average
number of shares
outstanding -
diluted 13,365,125 13,306,989 13,392,949 13,256,419
========== ========== ========== ==========
Loss and loss
expense ratio 51.1% 61.4% 57.9% 61.9%
Expense ratio 34.9% 32.4% 33.8% 32.6%
---------- ---------- ---------- ----------
Combined ratio 86.0% 93.8% 91.7% 94.5%
========== ========== ========== ==========
PROCENTURY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
Assets December 31, December 31,
2007 2006
----------- -----------
Investments $455,510 428,102
Cash 11,766 7,960
Premiums in course of
collection, net 31,805 37,428
Deferred policy acquisition
costs 24,336 26,915
Prepaid reinsurance premiums 14,834 14,051
Reinsurance recoverable on
paid and unpaid losses, net 44,777 43,628
Other assets 24,026 20,964
---------- ----------
Total assets $607,054 579,048
========== ==========
Liabilities and Shareholders' Equity
Loss and loss expense reserves $279,253 250,672
Unearned premiums 114,645 127,620
Long term debt 25,000 25,000
Other liabilities 27,135 33,368
---------- ----------
Total liabilities 446,033 436,660
---------- ----------
Shareholders' equity:
Common shares, without par value -- --
Additional paid-in capital 103,283 100,954
Retained earnings 66,448 43,830
Accumulated other
comprehensive loss, net
of taxes (8,710) (2,396)
---------- ----------
Total shareholders' equity 161,021 142,388
---------- ----------
Total liabilities and
shareholders' equity $607,054 579,048
========== ==========
Book value per share $12.05 10.75
========== ==========
Number of common shares
outstanding 13,363,867 13,248,323
========== ==========