FPIC Fpic Insurance Grp (MM)

FPIC Insurance Group, Inc. ("FPIC") (Nasdaq:FPIC) reported consolidated income from continuing operations of $9.4 million, or $0.87 per diluted common share, for second quarter 2006, up from $8.4 million, or $0.79 per diluted common share, for second quarter 2005. Operating earnings increased to $9.4 million, or $0.87 per diluted common share, for second quarter 2006, up from $8.5 million, or $0.80 per diluted common share, for second quarter 2005. For the six months ended June 30, 2006, income from continuing operations was $18.8 million, or $1.75 per diluted common share, up from income from continuing operations of $15.0 million, or $1.41 per diluted common share, for the six months ended June 30, 2005. For the six months ended June 30, 2006, operating earnings increased to $18.7 million, or $1.74 per diluted common share, up from operating earnings of $15.0 million, or $1.41 per diluted common share, for the six months ended June 30, 2005. For additional information regarding the use of operating earnings as a financial measure, see the discussion provided later in this release captioned "Non-GAAP Financial Measures." "We are very pleased with our results for the quarter, which reflect the continued execution of our business strategy," said John R. Byers, President and Chief Executive Officer. "Our insurance underwriting operations delivered strong results, despite being impacted by a large assessment from the Florida Insurance Guaranty Association related to an insurance insolvency, and our insurance management business also performed well. We remain committed to delivering the best possible products and services to our customers and sustainable value to our shareholders." -0- *T Unaudited Financial and Operational Highlights for Second Quarter 2006 (as compared to second quarter 2005 unless otherwise indicated) -- Consolidated operating earnings up 10% -- 15% return on average equity for the trailing 4 quarters -- Net premiums earned up 4% primarily due to reduced reinsurance utilization -- Continued targeted market focus; policyholder retention in Florida remained strong at 94% for the first six months of 2006 -- Net premiums written declined 12% primarily due to a shift in business mix and a 4% decline in professional liability policyholders -- Loss ratio improved to 67% as the result of favorable loss experience - reported claims and incidents were significantly lower and severity of claims continued to be within our expectations -- Expense ratio increased to 26% primarily due to a $4.7 million charge ($2.9 million after-tax or $0.27 per diluted common share) to other underwriting expenses for a state levied guarantee fund assessment related to the insolvency of the insurance subsidiaries of Poe Financial Group -- Investment portfolio growth and a higher overall yield contributed to a 32% increase in net investment income -- Shareholders' equity increased 5% and insurance segment surplus increased 7% as of June 30, 2006, compared to December 31, 2005, and were the highest in our organization's history -- Effective May 9, 2006, the management agreement between our subsidiary, Administrators for the Professions, Inc., and Physicians' Reciprocal Insurers ("PRI") was extended through December 31, 2011 -- Incurred total share-based compensation expense of $0.7 million pre-tax, $0.4 million of which was the result of the adoption of Financial Accounting Standard No. 123(R), effective January 1, 2006 -- Repurchased 150,000 shares of FPIC common stock during the quarter; on July 21, 2006, our Board of Directors approved an additional 500,000 shares for repurchase through December 31, 2008. A total of 544,732 shares remain available for repurchase under our stock repurchase program. -- FPIC common stock was selected for inclusion in the new NASDAQ Global Select Market *T Conference Call Information We will host a conference call at 11:00 a.m., Eastern Time, Wednesday, August 9, 2006, to review second quarter 2006 results. To access the conference call, please dial (800) 901-5259 (USA) or (617) 786-4514 (International) and use the access code 57038248. The conference call will also be broadcast live over the Internet in a listen-only format via our corporate website at http://www.fpic.com. To access the call from FPIC's home page, click on "Investor Relations" and a conference call link will be provided to connect to the broadcast. Questions can be submitted in advance of the call until 10:00 a.m., Eastern Time, Wednesday, August 9, 2006, via e-mail at ir@fpic.com or through our corporate website at http://www.fpic.com, where a link on the "Investor Relations" page has been provided. For individuals unable to participate in the conference call, a telephone replay will be available beginning at 1:00 p.m., Eastern Time, Wednesday, August 9, 2006, and ending at 11:59 p.m., Eastern Time, Friday, August 11, 2006. To access the telephone replay, dial (888) 286-8010 (USA) or (617) 801-6888 (International) and use the access code 74627435. A replay of the conference call webcast will also be available beginning at 1:00 p.m., Eastern Time, Wednesday, August 9, 2006, on FPIC's website. Cautionary Statement Regarding Forward-Looking Statements This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements: of our plans, strategies and objectives for future operations; concerning new products, services or developments; regarding future economic conditions, performance or outlook; as to the outcome of contingencies; as to the value of our contract awards and programs; of beliefs or expectations; and of assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as "believes," "expects," "may," "should," "would," "will," "intends," "plans," "estimates," "anticipates," "projects" and similar words or expressions. You should not place undue reliance on these forward-looking statements, which reflect our management's opinions only as of the date of this press release. -0- *T Factors that might cause our results to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to: i) The effect on our insurance subsidiaries of changing market conditions that result from fluctuating cyclical patterns of the medical professional liability insurance business; ii) The competitive environment in which we operate, including reliance on agents to place insurance, physicians electing to self-insure or to practice without insurance coverage, related trends and associated pricing pressures and developments; iii) Business risks that result from our size, products, and geographic concentration; iv) The rates we charge for our products and services being subject to or mandated by legal requirements and regulatory approval, which could affect our business or reinsurance arrangements; v) The actual amount of new and renewal business; vi) The uncertainties of the loss reserving process, including the occurrence of insured or reinsured events with a frequency or severity exceeding our estimates; vii) Business and financial risks associated with the unpredictability of court decisions; viii) Legal developments, including claims for extra-contractual obligations or in excess of policy limits, in connection with the administration of insurance claims; ix) The dependence of our insurance management segment upon a major customer, PRI, for its revenue; x) The effects of PRI's premium rate adequacy, claims experience, policyholder retention, financial position and overall market and regulatory environment on its ability to maintain or grow its premium base; xi) Developments in reinsurance markets that could affect our reinsurance programs or our ability to collect reinsurance recoverables; xii) Developments in financial and securities markets that could affect our investment portfolio; xiii) The impact of rising interest rates on the market value of our investments and our interest costs associated with our long-term debt; xiv) The loss of the services of any key members of senior management; xv) Risks of impairment of assets, generally, including the risk of impairment or inability to continue to recognize deferred acquisition costs, deferred tax assets, goodwill and other deferred or intangible assets; xvi) Assessments imposed by state financial guarantee associations or other insurance regulatory bodies; xvii) Uncertainties relating to government and regulatory policies (such as subjecting us to insurance regulation or taxation in additional jurisdictions or amending, revoking or enacting any laws, regulations or treaties affecting our current operations); xviii) General economic conditions, either nationally or in our market areas, that are worse than expected; xix) Changes in our financial ratings resulting from one or more of these uncertainties or other factors and the potential impact on our agents' ability to place insurance business on our behalf; xx) Other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2005, including Item 1A. Risk Factors, and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, filed with the SEC on March 16, 2006; and xxi) Other factors discussed elsewhere within FPIC's Form 10-Q for the quarter ended June 30, 2006, filed with the SEC on August 8, 2006. *T Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. 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 required by law. Non-GAAP Financial Measures To supplement the consolidated financial information presented herein in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we report certain non-GAAP financial measures widely used in the insurance industry to evaluate financial performance over time. Operating earnings is a non-GAAP financial measure widely used by investors and analysts in the insurance sector to facilitate understanding of results by excluding: (i) the net effects of realized capital gains and losses, which are more closely tied to the financial markets; (ii) the cumulative effects of accounting changes and other infrequent or non-recurring items, which can affect comparability across reporting periods; and (iii) discontinued operations. Tangible book value is a further non-GAAP financial measure used by investors and analysts to gauge book values excluding goodwill and other intangible assets. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, see the table captioned "Reconciliation of Non-GAAP Measures to the Nearest Comparable GAAP Measures," provided later in this release. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and allows for greater transparency with respect to supplemental information used by us in our financial and operational decision making. Corporate Profile FPIC Insurance Group, Inc., through its subsidiary companies, is a leading provider of medical professional liability insurance for physicians, dentists and other healthcare providers and a provider of insurance management services to other medical professional liability insurance carriers. -0- *T FPIC Insurance Group, Inc. Unaudited Selected Financial Data (In thousands, except common share data) Three Months Ended Six Months Ended Consolidated Statements of June 30, June 30, June 30, June 30, Income 2006 2005 2006 2005 -------------------------------- --------- -------- -------- -------- Revenues Net premiums earned $55,940 53,882 114,819 104,076 Insurance management fees 11,404 10,294 22,685 20,568 Net investment income 8,331 6,316 15,438 12,021 Commission income 503 449 845 1,114 Net realized investment (losses) gains (14) (175) 170 (39) Other income 151 172 291 362 -------------------------------- --------- -------- -------- -------- Total revenues 76,315 70,938 154,248 138,102 -------------------------------- --------- -------- -------- -------- Expenses Net losses and loss adjustment expenses ("LAE") 37,425 40,955 80,432 79,526 Other underwriting expenses 14,769 6,974 24,499 15,606 Insurance management expenses 8,184 7,737 16,341 15,136 Interest expense 1,061 841 2,104 1,596 Other expenses 1,361 1,825 3,172 3,707 -------------------------------- --------- -------- -------- -------- Total expenses 62,800 58,332 126,548 115,571 -------------------------------- --------- -------- -------- -------- Income from continuing operations before income tax expense and minority interest 13,515 12,606 27,700 22,531 Less: Income tax expense 4,277 4,283 8,981 7,580 -------------------------------- --------- -------- -------- -------- Income from continuing operations before minority interest 9,238 8,323 18,719 14,951 Less: Minority interest loss on consolidated subsidiary (117) (74) (113) (72) -------------------------------- --------- -------- -------- -------- Income from continuing operations 9,355 8,397 18,832 15,023 Discontinued Operations Income from discontinued operations (net of income taxes) -- 180 -- 369 Gain on disposal of discontinued operations (net of income taxes) -- 1,733 -- 1,733 -------------------------------- --------- -------- -------- -------- Discontinued operations -- 1,913 -- 2,102 -------------------------------- --------- -------- -------- -------- Net income $9,355 10,310 18,832 17,125 ================================ ========= ======== ======== ======== Basic earnings per common share: Income from continuing operations $0.91 0.82 1.83 1.48 Discontinued operations -- 0.19 -- 0.21 -------------------------------- --------- -------- -------- -------- Basic earnings per common share $0.91 1.01 1.83 1.69 ================================ ========= ======== ======== ======== Basic weighted average common shares outstanding 10,336 10,192 10,296 10,151 ================================ ========= ======== ======== ======== Diluted earnings per common share: Income from continuing operations $0.87 0.79 1.75 1.41 Discontinued operations -- 0.18 -- 0.20 -------------------------------- --------- -------- -------- -------- Diluted earnings per common share $0.87 0.97 1.75 1.61 ================================ ========= ======== ======== ======== Diluted weighted average common shares outstanding 10,742 10,672 10,751 10,663 ================================ ========= ======== ======== ======== *T -0- *T FPIC Insurance Group, Inc. Unaudited Selected Financial Data, continued (In thousands, except common share data) Selected Consolidated Statements of Financial Position Information ----------------------------------------------- As of June 30, Dec 31, 2006 2005 ----------- ---------- Total cash and investments $ 808,566 773,803 Total assets $1,322,303 1,308,541 Liability for losses and LAE $ 665,290 663,466 Liability for losses and LAE, net of reinsurance $ 387,870 359,619 Long-term debt $ 46,083 46,083 Accumulated other comprehensive loss, net $ (10,293) (4,231) Total shareholders' equity $ 261,102 249,590 Book value per common share $ 25.11 24.14 Tangible book value per common share (a,b) $ 23.29 22.32 Common shares outstanding 10,399 10,339 Consolidated statutory surplus of insurance subsidiaries $ 206,429 193,584 (a) Excludes goodwill of $18,870 as of June 30, 2006 and December 31, 2005. (b) For additional information regarding the use of non-GAAP financial measures, see the discussion provided earlier in this release captioned "Non-GAAP Financial Measures" and the "Reconciliation of Non-GAAP Measures to the Nearest Comparable GAAP Measures" found later in this release. *T -0- *T Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2006 2005 2006 2005 -------------------- ----------------- Selected Consolidated Cash Flow Information -------------------------------- Net cash provided by operating activities $14,078 34,042 36,333 61,269 Net cash provided by (used in) investing activities $ 4,766 (40,993) 38,984 (52,156) Net cash (used in) provided by financing activities $(1,879) 1,711 (2,331) 2,985 Segment Reconciliation of Consolidated Revenues -------------------------------- Insurance $64,286 60,148 130,489 116,338 Insurance management 12,116 11,040 23,897 22,125 Intersegment eliminations (87) (250) (138) (361) --------------------------------------------------- ----------------- Consolidated revenues $76,315 70,938 154,248 138,102 =================================================== ================= Segment Reconciliation of Consolidated Income from Continuing Operations --------------------------------------------------- Insurance $ 7,010 6,596 14,357 11,142 Insurance management 2,345 1,844 4,475 3,983 Intersegment eliminations -- (43) -- (102) --------------------------------------------------- ----------------- Consolidated income from continuing operations $ 9,355 8,397 18,832 15,023 =================================================== ================= *T -0- *T FPIC Insurance Group, Inc. Unaudited Selected Financial Data, continued (Dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2006 2005 2006 2005 ------------------ ---------------- Selected Insurance Segment Information ---------------------------------- GAAP Combined Ratio: Loss ratio 66.9 % 76.0 % 70.1 % 76.4 % Underwriting expense ratio 26.4 % 12.9 % 21.3 % 15.0 % ---------------------------------- ----------------- ----------------- Combined ratio 93.3 % 88.9 % 91.4 % 91.4 % ================================== ================= ================= Direct and assumed premiums written $57,877 67,160 133,666 151,297 ================================== ================= ================= Net premiums written $51,329 58,280 118,571 132,392 ================================== ================= ================= Net Paid Losses and LAE on Professional Liability Claims: (1) Net paid losses on professional liability claims $11,772 17,703 25,375 28,619 Net paid LAE on professional liability claims 12,545 13,117 25,165 23,963 ---------------------------------- ----------------- ----------------- Total net paid losses and LAE on professional liability claims $24,317 30,820 50,540 52,582 ================================== ================= ================= Total professional liability claims with indemnity payment 71 106 150 184 ================================== ================= ================= Professional Liability Claims and Incidents Closed Without Indemnity Payment: Total professional liability claims closed without indemnity payment 217 207 439 372 Total professional liability incidents closed without indemnity payment 260 245 509 554 ---------------------------------- ----------------- ----------------- Total professional liability claims and incidents closed without indemnity payment 477 452 948 926 ================================== ================= ================= Professional Liability Claims and Incidents Reported During the Period: Total professional liability claims reported 158 228 382 470 Total professional liability incidents reported 225 257 470 530 ---------------------------------- ----------------- ----------------- Total professional liability claims and incidents reported 383 485 852 1,000 ================================== ================= ================= Total professional liability claims and incidents that remained open 4,348 5,091 ================================== ================= ================= Professional liability policyholders 13,513 14,016 ================================== ================= ================= (1) For the purpose of period over period comparison, net paid losses and LAE do not take into account $10,180 received in connection with the American Professional Assurance, Ltd. ceded reinsurance commutation during the second quarter of 2005, which would be a reduction to reported net paid losses and LAE. *T -0- *T FPIC Insurance Group, Inc. Reconciliation of Non-GAAP Measures to the Nearest Comparable GAAP Measures (Dollars in thousands, except per share data) Reconciliation of net income to operating earnings: Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2006 2005 2006 2005 -------- -------- -------- -------- Net income $9,355 10,310 18,832 17,125 --------------------------------- -------- -------- -------- -------- Adjustments to reconcile net income to operating earnings: Less: Net realized investment (losses) gains, net of income taxes (a) (9) (107) 104 (24) Less: Discontinued operations, net of income taxes -- 1,913 -- 2,102 --------------------------------- -------- -------- -------- -------- Total adjustments (9) 1,806 104 2,078 --------------------------------- -------- -------- -------- -------- Operating earnings $9,364 8,504 18,728 15,047 ================================= ======== ======== ======== ======== Diluted earnings per share: Net income $ 0.87 0.97 1.75 1.61 Adjustments to reconcile net income to operating earnings -- (0.17) (0.01) (0.20) --------------------------------- -------- -------- -------- -------- Operating earnings $ 0.87 0.80 1.74 1.41 ================================= ======== ======== ======== ======== (a) All net realized investment gains, net of income taxes, for the periods reported relate to the insurance segment. *T -0- *T Reconciliation of shareholders' equity to tangible shareholders' equity: As of June 30, Dec 31, 2006 2005 ---------------------- Total shareholders' equity $261,102 249,590 Adjustments to reconcile total shareholders' equity to tangible shareholders' equity: Less: Goodwill 18,870 18,870 ---------------------------------------------------------------------- Tangible shareholders' equity $242,232 230,720 ====================================================================== Book value per common share $25.11 24.14 ====================================================================== Tangible book value per common share $23.29 22.32 ====================================================================== *T