Ceres (NASDAQ:CERG)
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Ceres Group Reports First Quarter 2004 Results
CLEVELAND, May 5 /PRNewswire-FirstCall/ --
For the quarter:
-- Net operating income of $4.2 million ($0.12 per share)
-- Net income of $6.2 million ($0.18 per share)
-- Senior Segment pre-tax operating income of $2.6 million
-- Medical Segment pre-tax operating income of $4.5 million
Ceres Group, Inc. (NASDAQ:CERG) today reported net operating income of $4.2
million ($0.12 per share), excluding $0.1 million from net realized investment
gains and $1.9 million ($0.05 per share) from the reduction in the deferred tax
valuation allowance for the first quarter of 2004. This compares to net
operating income of $3.4 million ($0.10 per share) for the first quarter of
2003, excluding $0.4 million ($0.01 per share) from net realized investment
gains and income of $3.6 million ($0.11 per share) from the discontinued
operations of Pyramid Life Insurance Company. Net income was $6.2 million
($0.18 per share) in the first quarter of 2004, compared to $7.4 million ($0.22
per share) for the first quarter of 2003, including $3.6 million ($0.11 per
share) from discontinued operations.
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"Our first quarter results show the continuing positive impact of our balanced
strategy," said Tom Kilian, president and chief executive officer of Ceres.
"Both business segments were profitable, and we improved loss ratios while also
increasing new sales compared with the same period a year ago. We are focused
on delivering consistent results by growing the Senior Segment and maximizing
profitability in the Medical Segment."
During the first quarter, A.M. Best upgraded the financial strength rating of
Central Reserve Life Insurance Company (CRL) to B+ (Very Good) from B (Fair)
and affirmed the B+ financial strength rating of Continental General Insurance
Company (CGI). Fitch Ratings upgraded the insurer financial strength rating of
CRL to 'BBB' from 'BBB-' and affirmed the 'BBB' rating for CGI.
"We are very pleased that A.M. Best and Fitch Ratings took these rating
actions," Kilian added. "These upgrades clearly demonstrate that our financial
position is improved and our business plan is working."
Segment Results
Ceres reports its financial results in two primary business segments: Senior
and Medical. For 2003, the segment results exclude the discontinued operations
of Pyramid Life Insurance Company, which was sold on March 31, 2003.
Senior Segment (Medicare supplement, long-term care, dental, life insurance,
and annuities)
Pre-tax operating income for the quarter was $2.6 million, compared to pre-tax
operating income of $2.2 million in the first quarter of 2003.
Benefits, claims, losses and settlement expenses in the Senior Segment were
$33.8 million, which was comparable to the first quarter of 2003. The Senior
Segment benefit and claims loss ratio was 77.4%, compared to 78.9% in the first
quarter of 2003. The improvement in the Senior Segment results in the first
quarter of 2004 was due primarily to the reduction in Medicare supplement loss
ratio from 74.4% in the first quarter of 2003 to 69.1% in the same period in
2004. The improvement in the Medicare supplement loss ratio was partially
offset by higher senior life mortality in the first quarter of 2004.
"We are particularly encouraged with the sales results for our Senior Segment
this quarter," Kilian said. "New sales of our cornerstone product, Medicare
supplement, increased substantially compared to the fourth quarter of 2003 as
well as the same period a year ago. The increase in first quarter Medicare
supplement sales will contribute to premium growth as we move through the
balance of 2004. Consistent with 2003 results, Senior Segment earnings are
lower in the first quarter due to paying Medicare deductibles in the first
months of the year. We remain committed to our plan of growing this segment by
focusing on competitive markets, refining our product portfolio and managing
relationships with new and established producers."
Medical Segment (catastrophic and comprehensive medical plans)
Pre-tax operating income for the quarter was $4.5 million, compared to pre-tax
operating income of $3.8 million in the first quarter of 2003.
Benefits, claims, losses and settlement expenses in the Medical Segment were
$42.8 million, compared to $62.5 million in the first quarter of 2003. The
Medical Segment benefit and claims loss ratio was 65.6%, compared to 73.4% in
the first quarter of 2003. The first quarter loss ratio reflects the seasonal
nature of claim payment patterns for this product line. The loss ratio in the
Medical Segment is expected to be higher in the balance of 2004.
In addition, results for the quarter were impacted by a $3.8 million decline in
deferred acquisition costs (DAC) in the Medical Segment, due to higher assumed
lapse rates on existing business. The company continues to maintain a
conservative approach of deferring new business costs. The rate of decline on
the deferred acquisition cost asset is expected to moderate in subsequent
quarters.
"Results in this segment demonstrate the success of our selective marketing
approach," Kilian said. "New sales increased compared with the fourth quarter
of 2003, as well as the same period a year ago. We will continue targeting
markets in the most profitable states, refining our products and pricing, and
expanding our relationships with new and experienced producers. These
measures, along with careful monitoring, will help us remain competitive and
profitable in this unpredictable market."
Outlook
"Overall, our results show that our strategy is working," Kilian said. "We
believe our Senior Segment has the financial strength, technology and
administrative platform to support successful expansion. At the same time, our
niche strategy for our Medical Segment will help ensure earnings stability.
Our goal continues to be striking the right balance between our business
segments."
As previously stated, the company expects to achieve net operating income per
diluted share of $0.53 for 2004, based on the company's prospects for growth in
the Senior Segment and continued profitability in the Medical Segment. Net
operating income excludes certain items that, in the opinion of management, are
not indicative of overall operating trends. In the company's results for the
first quarter of 2004 and its outlook for 2004, net operating income excludes
the impact of net realized investment gains, and the reduction in the deferred
tax valuation allowance.
A conference call with management regarding first quarter 2004 results is
scheduled for 10:00 a.m. (Eastern) on Thursday, May 6, 2004. To listen to the
live conference call over the Internet, go to http://www.ceresgp.com/ or
http://www.firstcallevents.com/service/ajwz405384486gf12.html . To listen to
the webcast, please log onto this site at least 15 minutes prior to the call to
register, download and install any necessary audio software. For those who
cannot listen to the live broadcast, a replay will be available after the call.
CERES GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
Three Months Ended
March 31,
------------------------
2004 2003
--------- ---------
REVENUES
Premiums, net
Medical $65,227 $85,119
Senior and other 43,602 42,857
--------- ---------
Total premiums, net 108,829 127,976
Net investment income 6,263 5,524
Net realized gains 108 584
Fee and other income 4,808 6,342
Amortization of deferred reinsurance gain 409 657
--------- ---------
120,417 141,083
--------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, claims, losses and settlement
expenses
Medical 42,814 62,506
Senior and other 33,750 33,800
--------- ---------
Total benefits, claims, losses and
settlement expenses 76,564 96,306
Selling, general and administrative expenses 33,611 38,170
Net amortization and change in acquisition
costs and value of business acquired 3,474 401
Interest expense and financing costs 172 429
--------- ---------
113,821 135,306
--------- ---------
Income from continuing operations before
federal income taxes 6,596 5,777
Federal income tax expense 422 2,020
--------- ---------
Income from continuing operations 6,174 3,757
--------- ---------
Discontinued operations
Income from operations of Pyramid Life
(less tax expense of $3,223) - 5,732
Loss on sale of Pyramid Life
(less tax benefit of $79) - (2,110)
--------- ---------
Income from discontinued operations - 3,622
--------- ---------
Net income $6,174 $7,379
========= =========
Basic earnings per share
Continuing operations $0.18 $0.11
Discontinued operations - 0.11
--------- ---------
Net income $0.18 $0.22
========= =========
Diluted earnings per share
Continuing operations $0.18 $0.11
Discontinued operations - 0.11
--------- ---------
Net income $0.18 $0.22
========= =========
Basic weighted average shares outstanding 34,394 34,236
Diluted weighted average shares outstanding 35,038 34,236
CERES GROUP, INC. and SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Unaudited
(in thousands, except per share amounts)
In this press release, the company presented net operating income, net
operating income per share, and Medical and Senior Segment pre-tax
operating income, which are non-GAAP financial measures. Management
believes that these measures of profitability provide a meaningful
presentation of the underlying earnings of the company's operations. Net
operating income, net operating income per share, and Medical and Senior
Segment pre-tax operating income exclude certain items that, in the
opinion of management, are not indicative of overall operating trends.
For the periods presented, net operating income, net operating income per
share, and Medical and Senior Segment pre-tax operating income exclude
realized gains on the sale of investments, and reductions to the valuation
allowance for deferred taxes, and, for 2003, the results of the
discontinued operations of Pyramid Life Insurance Company (a subsidiary
that was sold on March 31, 2003). The following is a reconciliation to
the most directly comparable GAAP financial measure:
Three Months Ended
March 31,
------------------------
2004 2003
--------- ---------
NET OPERATING INCOME
Net operating income $4,203 $3,377
Net realized gains 108 584
Income taxes on net realized gains (1) (38) (204)
Reduction to the valuation allowance for
deferred taxes 1,901 -
--------- ---------
Income from continuing operations $6,174 $3,757
========= =========
NET OPERATING INCOME PER SHARE DATA (DILUTED)
Net operating income per share $0.12 $0.10
Net realized gains, net of tax (1) - 0.01
Reduction to the valuation allowance for
deferred taxes 0.05 -
--------- ---------
Net income per share from continuing operations $0.18 $0.11
========= =========
SENIOR SEGMENT PRE-TAX OPERATING INCOME
Senior Segment pre-tax operating income $2,565 $2,196
Net realized gains (losses) (36) 299
--------- ---------
Senior Segment profit before federal
income taxes $2,529 $2,495
========= =========
MEDICAL SEGMENT PRE-TAX OPERATING INCOME
Medical Segment pre-tax operating income $4,533 $3,812
Net realized gains 34 177
--------- ---------
Medical Segment profit before federal
income taxes $4,567 $3,989
========= =========
(1) Taxes on net realized gains are based upon a 35% effective tax rate
for all periods.
Note: Income per share amounts may not total due to rounding of
individual components.
CERES GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31, December 31,
2004 2003
--------- ---------
(Unaudited)
ASSETS
Investments $501,812 $484,280
Cash and cash equivalents 22,955 26,394
Reinsurance receivable 141,785 143,397
Deferred acquisition costs 66,146 69,609
Value of business acquired 11,760 13,034
Goodwill and licenses 14,097 14,097
Other assets 20,041 23,103
--------- ---------
Total assets $778,596 $773,914
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and benefits accrued $495,475 $504,493
Deferred reinsurance gain 9,047 9,456
Other policyholders' funds 21,866 20,821
Debt 12,438 13,000
Other liabilities 42,893 41,005
--------- ---------
Total liabilities 581,719 588,775
Stockholders' equity 196,877 185,139
--------- ---------
Total liabilities and stockholders' equity $778,596 $773,914
========= =========
Equity per common share:
After accumulated other comprehensive
income(1) $5.72 $5.38
Before accumulated other comprehensive
income(1) 5.35 5.17
Book value per share excluding goodwill
and licenses 5.31 4.97
(1) Accumulated other comprehensive income relates primarily to the net
unrealized gain (loss) on available-for-sale securities.
CERES GROUP, INC. and SUBSIDIARIES
INDUSTRY SEGMENT DATA
(excluding operations of Pyramid Life Insurance Company)
Unaudited
(in thousands)
Three Months Ended
March 31,
------------------------
2004 2003
--------- ---------
MEDICAL
Revenues
Net premiums $65,227 $85,119
Net investment income 1,246 1,475
Net realized gains 34 177
Other income 4,725 6,491
--------- ---------
71,232 93,262
--------- ---------
Expenses
Benefits and claims 42,814 62,506
Other operating expenses 23,851 26,767
--------- ---------
66,665 89,273
--------- ---------
Segment profit before federal income taxes $4,567 $3,989
========= =========
SENIOR AND OTHER
Revenues
Net premiums $43,602 $42,857
Net investment income 5,017 4,040
Net realized gains (losses) (36) 299
Other income 492 508
--------- ---------
49,075 47,704
--------- ---------
Expenses
Benefits and claims 33,750 33,800
Other operating expenses 12,796 11,409
--------- ---------
46,546 45,209
--------- ---------
Segment profit before federal income taxes $2,529 $2,495
========= =========
CORPORATE AND OTHER
Revenues
Net investment income $-- $9
Net realized gains 110 108
--------- ---------
110 117
--------- ---------
Expenses
Interest expense and financing costs 172 429
Other operating expenses 438 395
--------- ---------
610 824
--------- ---------
Segment loss before federal income taxes $(500) $(707)
========= =========
Income from continuing operations before
federal income taxes $6,596 $5,777
========= =========
Medical loss ratio 65.6% 73.4%
Senior loss ratio 77.4% 78.9%
Overall loss ratio 70.4% 75.3%
About Ceres Group
Ceres Group, Inc., through its insurance subsidiaries, provides a wide array of
health and life insurance products through two primary business segments.
Ceres' Medical Segment includes major medical health insurance for individuals,
families, associations, and small to mid-size businesses. The Senior Segment
includes senior health, life and annuity products for Americans age 55 and
over. To help control medical costs, Ceres also provides medical cost
management services to its insureds. Ceres' nationwide distribution channels
include independent agents and its electronic distribution system. For more
information, visit http://www.ceresgp.com/ .
This news release contains certain forward-looking statements with respect to
the financial condition, results of operations and business of the company.
Forward-looking statements are statements other than historical information or
statements of current condition. In light of the risks and uncertainties
inherent in all future projections, the inclusion of forward-looking statements
herein should not be regarded as representation by the company or any other
person that the objectives or plans of the company will be achieved. Many
factors could cause actual results to differ materially from those contemplated
by such forward-looking statements, including, among others, failure to
accurately predict claims liabilities, adverse outcomes in litigation, rising
healthcare costs, business conditions and competition in the healthcare
industry, developments in healthcare reform and other regulatory issues
(including failure to meet statutory capital requirements), ability to develop
and administer competitive products, performance of our reinsurers and failure
to comply with financial and other covenants in our loan agreements, and the
failure to successfully implement the business plans for the company and its
subsidiaries. This review of important factors should not be construed as
exhaustive. Investors and others should refer to Ceres' filings with the
Securities and Exchange Commission, including its annual report on Form 10-K
for the year ended December 31, 2003, and its quarterly reports on Form 10-Q
and other periodic filings, for a description of the foregoing and other
factors. Ceres undertakes no obligation to update forward- looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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DATASOURCE: Ceres Group
CONTACT: David I. Vickers, Chief Financial Officer, +1-440-878-2941, or
Gayle M. Vixler, Senior Vice President, +1-440-572-8848, both of Ceres Group
Web site: http://www.ceresgp.com/
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