Ceres (NASDAQ:CERG)
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Ceres Group, Inc. (NASDAQ:CERG)
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For the quarter:
-- Net income of $4.8 million ($0.14 per share)
-- Senior Segment pre-tax income of $3.3 million
-- Medical Segment pre-tax income of $3.1 million
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Ceres Group, Inc. (NASDAQ:CERG) today reported net income of
$4.8 million ($0.14 per share) for the first quarter of 2005. Net
income includes $0.2 million ($0.01 per share) from net realized
investment gains; $0.8 million ($0.02 per share) from net unrealized
investment losses related to securities classified as trading with
respect to investments in convertible securities; and a $1.0 million
($0.03 per share) federal income tax benefit related to the reduction
of federal income tax reserves associated with the elimination of the
company's untaxed policyholder surplus account exposure. This compares
to net income of $6.2 million ($0.18 per share) for the first quarter
of 2004, including $0.1 million from net realized investment gains and
a $1.9 million ($0.05 per share) benefit related to a decrease in the
valuation allowance for deferred taxes.
Ceres also announced that its board of directors has authorized
the repurchase of up to $10 million of its outstanding common stock.
The company expects to purchase the shares from time to time in the
open market or in private transactions. The program is effective
immediately and may be discontinued at any time. As of March 31, 2005,
Ceres had approximately 34.6 million shares of common stock
outstanding.
"The approval of this repurchase program reflects our ongoing
confidence in Ceres' future," said Tom Kilian, president and chief
executive officer of Ceres. "It is consistent with our goal of
maximizing shareholder value and prudently managing our capital, which
includes maintaining appropriate capital levels to support future
growth and current financial strength ratings. We also believe that at
current prices our stock is a compelling value and represents an
attractive investment for the company."
Segment Results
Ceres reports its financial results in two primary business
segments: Senior and Medical.
Senior Segment (Medicare supplement, long-term care, dental, life
insurance, and annuities)
Pre-tax income for the quarter was $3.3 million, including
$0.2 million from net realized investment gains and $1.0 million from
net unrealized investment losses related to trading securities. This
compares to pre-tax income of $2.5 million in the first quarter of
2004.
Benefits, claims, losses and settlement expenses in the Senior
Segment were $38.5 million, compared to $33.8 million in the first
quarter of 2004. The Senior Segment benefit and claims loss ratio was
76.9%, compared to 77.4% in the first quarter of 2004. The improvement
in the Senior Segment loss ratio in the first quarter of 2005 was due
primarily to favorable long-term care experience, partially offset by
an expected increase in the Medicare supplement loss ratio from 69.1%
in the first quarter of 2004 to 71.9% in the first quarter of 2005.
The Medicare supplement loss ratio is expected to be approximately 70%
for the full year 2005 compared to 71.9% for 2004.
"We are pleased that premiums in our Senior Segment increased 15%
compared with the first quarter of last year," Kilian said.
"Obviously, the rate increases we filed for in 2004 and implemented
this quarter, as well as the new premium we wrote in 2004 had a
positive impact. New senior sales were not as strong in the first
quarter as we would have liked. This was caused by the entry of some
new competitors into the market and by the impact of the rate
increases we implemented. We expect to respond to this sales challenge
by adding senior products to our Provident American Life and Health
Insurance Company subsidiary this year and recruiting distribution to
sell through this additional senior platform. We are also rolling out
new senior life products and expect them to impact sales in the second
half of the year."
Medical Segment (catastrophic and comprehensive medical plans)
Pre-tax income for the quarter was $3.1 million, including $0.1
million from net realized investment gains and $0.2 million from net
unrealized investment losses related to trading securities. This
compares to pre-tax income of $4.6 million in the first quarter of
2004.
Benefits, claims, losses and settlement expenses in the Medical
Segment were $38.9 million, compared to $42.8 million in the first
quarter of 2004. The Medical Segment benefit and claims loss ratio was
68.8%, compared to 65.6% in the first quarter of 2004. The loss ratio
was impacted by increased severity of large claims, unfavorable
experience on our partially self-funded small group (Partnership) plan
and a strengthening of claim reserves. The loss ratio in the Medical
Segment is expected to be higher in the balance of 2005 consistent
with historical quarterly seasonality patterns.
In addition, results for the quarter were impacted by a
higher-than-anticipated decline in deferred acquisition costs (DAC) in
the Medical Segment, due to higher lapse rates on both new and renewal
business. The decline in DAC was $1.4 million, or nearly double the
anticipated amount. The rate of decline is expected to moderate in
subsequent quarters.
"New sales in the Medical Segment increased compared with both the
first and fourth quarters of 2004," Kilian said. "However, the premium
decline in our Medical Segment was higher than we anticipated due to
increased lapse rates on new and renewal business. We expect this
decline to moderate throughout the balance of the year. In the second
quarter, we plan to launch a new portfolio of higher margin major
medical products designed to meet a variety of lifestyles and
budgets."
Outlook
"We are continuing with our aggressive plan to manage both of our
business segments for profitability, remaining committed to our goal
of steady long-term growth," Kilian said. "To achieve this goal, we
are focusing on new products, improving sales and strengthening
relationships with our agents. Providing excellent service also
remains a top priority."
"For 2005, in our Senior Segment, we plan to continue to refine
our rating process for both profitability and competitiveness," Kilian
added. "We expect to achieve improved profits in the Medical Segment
in 2005 through expense reductions and continued attention to
improving our long-term profit margins."
The company expects to achieve net income in a range of $0.50 to
$0.53 per diluted share for 2005, based on continued growth in the
company's Senior Segment, and stabilization of the revenue decline and
improved claims trends in the company's Medical Segment. In the
company's outlook for 2005, projected net income per share excludes
the impact of net realized investment gains or losses.
A conference call with management regarding first quarter 2005
results is scheduled for 10:00 a.m. (Eastern) on Thursday, May 5,
2005. To listen to the live conference call over the Internet, go to
www.ceresgp.com or
http://phx.corporate-ir.net/playerlink.zhtml?c=71415&s=wm&e=1055944 .
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.
FINANCIAL TABLES TO FOLLOW
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CERES GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
Three Months Ended
March 31,
-------------------
2005 2004
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REVENUES
Premiums, net
Medical $ 56,566 $ 65,227
Senior and other 50,070 43,602
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Total premiums, net 106,636 108,829
Net investment income 6,083 6,263
Net realized/unrealized (losses) gains (840) 108
Fee and other income 4,588 5,217
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116,467 120,417
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BENEFITS, LOSSES AND EXPENSES
Benefits, claims, losses and settlement expenses
Medical 38,920 42,814
Senior and other 38,486 33,750
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Total benefits, claims, losses and
settlement expenses 77,406 76,564
Selling, general and administrative expenses 32,512 33,611
Net amortization and change in acquisition costs
and value of business acquired 441 3,474
Interest expense and financing costs 175 172
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110,534 113,821
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Income before federal income taxes 5,933 6,596
Federal income tax expense 1,084 422
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Net income $ 4,849 $ 6,174
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Net income per share
Basic $ 0.14 $ 0.18
Diluted 0.14 0.18
Weighted average shares outstanding
Basic 34,536 34,394
Diluted 34,671 35,038
CERES GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31, December 31,
2005 2004
----------- ------------
(Unaudited)
ASSETS
Investments $479,656 $494,951
Cash and cash equivalents 38,614 22,635
Reinsurance receivable 131,657 130,345
Deferred acquisition costs 67,813 67,074
Value of business acquired 10,884 10,952
Goodwill and licenses 14,097 14,097
Other assets 23,527 25,939
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Total assets $766,248 $765,993
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LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and benefits accrued $494,776 $489,829
Deferred reinsurance gain 6,093 6,562
Other policyholders' funds 18,516 19,016
Debt 10,125 10,750
Other liabilities 31,212 35,018
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Total liabilities 560,722 561,175
Stockholders' equity 205,526 204,818
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Total liabilities and stockholders' equity $766,248 $765,993
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Equity per common share:
After accumulated other comprehensive
income (1) $ 5.95 $ 5.93
Before accumulated other comprehensive
income (1) 5.86 5.72
Book value per share excluding goodwill and
licenses 5.54 5.52
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(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
Unaudited
(in thousands)
Three Months Ended
March 31,
-----------------
2005 2004
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Medical
Revenues
Net premiums $56,566 $65,227
Net investment income 971 1,246
Net realized/unrealized (losses) gains (81) 34
Fee and other income 3,961 4,725
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61,417 71,232
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Expenses
Benefits and claims 38,920 42,814
Other operating expenses 19,415 23,851
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58,335 66,665
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Segment profit before federal income taxes $ 3,082 $ 4,567
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Senior and Other
Revenues
Net premiums $50,070 $43,602
Net investment income 5,112 5,017
Net realized/unrealized (losses) gains (874) (36)
Fee and other income 627 492
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54,935 49,075
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Expenses
Benefits and claims 38,486 33,750
Other operating expenses 13,167 12,796
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51,653 46,546
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Segment profit before federal income taxes $ 3,282 $ 2,529
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Corporate and Other
Revenues
Net investment income $ - $ -
Net realized gains 115 110
------- -------
115 110
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Expenses
Interest expense and financing costs 175 172
Other operating expenses 371 438
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546 610
------- -------
Segment loss before federal income taxes $ (431) $ (500)
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Income before federal income taxes $ 5,933 $ 6,596
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Medical loss ratio 68.8% 65.6%
Senior loss ratio 76.9% 77.4%
Overall loss ratio 72.6% 70.4%
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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
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 electronic distribution systems. Ceres is
included in the Russell 3000(R) Index. For more information, visit
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, ability to
develop, market and administer new and competitive products, the
failure to successfully implement the business plans (including the
company's growth strategy) for the company and its subsidiaries,
business conditions and competition in the healthcare industry,
developments in healthcare reform and other regulatory issues
(including failure to meet statutory capital requirements), rising
healthcare costs, adverse outcomes in litigation and related matters,
performance of our reinsurers, and failure to comply with financial
and other covenants in our loan agreements. 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, 2004, 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.