Ceres (NASDAQ:CERG)
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Ceres Group Reports Second Quarter 2004 Results
CLEVELAND, Aug. 4 /PRNewswire-FirstCall/ --
For the quarter:
-- Net operating income of $4.8 million ($0.14 per share)
-- Net income of $4.9 million ($0.14 per share)
-- Senior Segment pre-tax operating income of $5.0 million
-- Medical Segment pre-tax operating income of $3.0 million
For the six months:
-- Net operating income of $9.0 million ($0.26 per share)
-- Net income of $11.1 million ($0.31 per share)
-- Senior Segment pre-tax operating income of $7.6 million
-- Medical Segment pre-tax operating income of $7.5 million
Ceres Group, Inc. (NASDAQ:CERG) today reported net operating income of $4.8
million ($0.14 per share), excluding $0.1 million from net realized investment
gains for the second quarter of 2004. This compares to net operating income of
$3.9 million ($0.11 per share) for the second quarter of 2003, excluding $0.4
million ($0.01 per share) from net realized investment gains and $2.7 million
($0.08 per share) related to a decrease in the valuation allowance for deferred
taxes. Net income was $4.9 million ($0.14 per share) in the second quarter of
2004, compared to $6.9 million ($0.20 per share) for the second quarter of
2003.
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For the first six months of 2004, the company reported net operating income of
$9.0 million ($0.26 per share), excluding $0.2 million from net realized
investment gains and $1.9 million ($0.05 per share) related to a decrease in
the valuation allowance for deferred taxes. This compares to net operating
income of $7.3 million ($0.21 per share) for the first six months of 2003,
excluding $0.7 million ($0.02 per share) from net realized investment gains,
$2.7 million ($0.08 per share) related to a decrease in the valuation allowance
for deferred taxes and income of $3.6 million ($0.11 per share) from the
discontinued operations of Pyramid Life Insurance Company, a subsidiary that
was sold on March 31, 2003. Net income was $11.1 million ($0.31 per share) in
the first six months of 2004, compared to $14.3 million ($0.42 per share) for
the first six months of 2003, including $3.6 million ($0.11 per share) from
discontinued operations.
"Our mid-year results are positive," said Tom Kilian, president and chief
executive officer of Ceres. "Both of our business segments continued to be
profitable, and overall new sales increased compared to the first quarter of
this year as well as the second quarter and six-month period a year ago. As
the year progresses, we remain focused on our balanced strategy of growing the
Senior Segment and maximizing profitability in the Medical Segment."
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.
Senior Segment (Medicare supplement, long-term care, dental, life insurance,
and annuities)
Pre-tax operating income for the quarter was $5.0 million, compared to $5.6
million in the second quarter of 2003. Pre-tax income for the quarter was $5.1
million, compared to $5.9 million in 2003. Pre-tax operating income for the
first six months was $7.6 million, compared to $7.8 million for the first six
months of 2003. Pre-tax income for the first six months was $7.6 million,
compared to $8.4 million for the same period of 2003.
Benefits, claims, losses and settlement expenses in the Senior Segment were
$33.6 million, compared to $30.6 million for the second quarter of 2003. The
Senior Segment benefit and claims loss ratio was 74.7%, compared to 72.2% in
the second quarter of 2003. The increase in the loss ratio was due primarily
to an increase in the Medicare supplement loss ratio, partially offset by
improved long-term care experience.
For the six months, benefits, claims, losses and settlement expenses in the
Senior Segment were $67.3 million, compared to $64.4 million for the first six
months of 2003. The Senior Segment benefit and claims loss ratio was 76.0%,
compared to 75.5% for the first six months of 2003. Medicare supplement
claims were higher than expected in the first half of the year, as well as
compared to the same period a year ago. The Medicare supplement loss ratio is
expected to be lower in the second half of the year due to a moderation of this
higher claim trend as well as the historical seasonality of this product.
"New sales in our Senior Segment continue to be promising, and should
contribute to future premium growth," Kilian said. "Medicare supplement sales,
the foundation of our senior business, rose compared to the first quarter and
showed substantial growth from a year ago. To meet our objective of expanding
this segment, we plan to continue strengthening relationships with our
distribution partners and concentrating our efforts on competitive markets, as
well as refining and enhancing our products."
Medical Segment (catastrophic and comprehensive medical plans)
Pre-tax operating income for the quarter was $3.0 million, compared to pre-tax
operating income of $1.3 million in the second quarter of 2003. Pre- tax
income for the quarter was $3.0 million, compared to $1.5 million in the second
quarter of 2003. Pre-tax operating income for the six months was $7.5 million,
compared to $5.1 million for the first six months of 2003. Pre- tax income for
the first six months of 2004 was $7.5 million, compared to $5.4 million in
2003.
Benefits, claims, losses and settlement expenses in the Medical Segment were
$43.9 million, compared to $58.8 million in the second quarter of 2003. The
Medical Segment benefit and claims loss ratio was 70.0%, compared to 74.4% for
the second quarter of 2003. This improvement was due to lower health claims
trends in 2004 and favorable run-off of prior quarter claim reserves.
For the six months, benefits, claims, losses and settlement expenses in the
Medical Segment were $86.7 million, compared to $121.3 million for the first
six months of 2003. The Medical Segment benefit and claims loss ratio was
67.8%, compared to 73.9% for the first six months of 2003. This improvement
was due to lower health claim trends in 2004 and favorable run-off of prior
year claim reserves. The company expects that medical claims and the loss
ratio will increase in the second half of the year as policyholders meet their
annual required co-payments and deductibles.
"Our Medical Segment results were strong for both the quarter and the six
months," Kilian said. "This success was primarily driven by our niche
marketing strategy which has proven effective. In addition, new sales
increased significantly compared with the same period a year ago. The early
sales results of our health savings account (HSA) qualified products are also
encouraging. HSAs offer our customers an excellent opportunity to take more
control of their healthcare dollars and save for future health expenses on a
tax-free basis. Since these products have less first-dollar coverage, they are
also a good risk-sharing plan for our company. We intend to continue refining
our product portfolio and pricing, while targeting profitable states and
working with our producers to remain competitive in this challenging market."
Outlook
"Our results so far this year confirm that our strategy is working," Kilian
said. "We are confident in our ability to grow our Senior Segment while we
carefully manage our Medical Segment to ensure ongoing profitability. Our goal
remains to achieve a 50/50 revenue split between our business segments. We
believe achieving this balance will help us produce stable and positive results
for the long term."
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 half 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 second quarter 2004 results is
scheduled for noon (Eastern) on Thursday, August 5, 2004. To listen to the
live conference call over the Internet, go to http://www.ceresgp.com/ or
http://phx.corporate-ir.net/playerlink.zhtml?c=71415&s=wm&e=920063 . 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
CERES GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2004 2003 2004 2003
-------- -------- -------- --------
REVENUES
Premiums, net
Medical $62,665 $79,042 $127,892 $164,161
Senior and other 44,914 42,402 88,516 85,259
-------- -------- -------- --------
Total premiums, net 107,579 121,444 216,408 249,420
Net investment income 6,686 6,460 12,949 11,984
Net realized gains 130 562 238 1,146
Fee and other income 4,294 7,396 9,102 13,738
Amortization of deferred
reinsurance gain 352 419 761 1,076
-------- -------- -------- --------
119,041 136,281 239,458 277,364
-------- -------- -------- --------
BENEFITS, LOSSES AND EXPENSES
Benefits, claims, losses and
settlement expenses
Medical 43,885 58,799 86,699 121,305
Senior and other 33,558 30,604 67,308 64,404
-------- -------- -------- --------
Total benefits, claims, losses
and settlement expenses 77,443 89,403 154,007 185,709
Selling, general and administrative
expenses 32,963 37,218 66,574 75,388
Net amortization and change in
acquisition costs and value of
business acquired 965 2,656 4,439 3,057
Interest expense and financing costs 166 306 338 735
-------- -------- -------- --------
111,537 129,583 225,358 264,889
-------- -------- -------- --------
Income from continuing operations
before federal income taxes 7,504 6,698 14,100 12,475
Federal income tax expense (benefit) 2,612 (253) 3,034 1,767
-------- -------- -------- --------
Income from continuing operations 4,892 6,951 11,066 10,708
-------- -------- -------- --------
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 $0 and $79,
respectively) - (39) - (2,149)
-------- -------- -------- --------
Income (loss) from discontinued
operations - (39) - 3,583
-------- -------- -------- --------
Net income $4,892 $6,912 $11,066 $14,291
======== ======== ======== ========
Basic earnings per share
Continuing operations $0.14 $0.20 $0.32 $0.31
Discontinued operations - - - 0.11
-------- -------- ------- --------
Net income $0.14 $0.20 $0.32 $0.42
======== ======== ======= ========
Diluted earnings per share
Continuing operations $0.14 $0.20 $0.31 $0.31
Discontinued operations - - - 0.11
-------- -------- -------- --------
Net income $0.14 $0.20 $0.31 $0.42
======== ======== ======== ========
Basic weighted average shares
outstanding 34,459 34,297 34,427 34,267
Diluted weighted average shares
outstanding 35,275 34,320 35,161 34,272
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 uses non-GAAP
financial measures to evaluate the company's performance for the periods
presented, and 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, may not be indicative of overall operating trends. These non-GAAP
measures should not be considered an alternative to measurements required by
GAAP. Ceres' calculation of these measures may differ from similar measures
used by other companies and investors should be careful when comparing the
company's non-GAAP financial measures to those of other companies.
For the periods presented, net operating income, net operating income per
share, and Medical and Senior Segment pre-tax operating income exclude the
results of the discontinued operations of Pyramid Life Insurance Company (a
subsidiary that was sold on March 31, 2003), realized gains on the sale of
investments, and reductions to the valuation allowance for deferred taxes. The
following is a reconciliation to the most directly comparable GAAP financial
measure:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2004 2003 2004 2003
-------- -------- -------- --------
NET OPERATING INCOME
Net operating income $4,807 $3,895 $9,010 $7,272
Net realized gains 130 562 238 1,146
Income taxes on net realized gains (1) (45) (197) (83) (401)
Reduction to the valuation allowance
for deferred taxes -- 2,691 1,901 2,691
-------- -------- -------- --------
Income from continuing operations $4,892 $6,951 $11,066 $10,708
======== ======== ======== ========
NET OPERATING INCOME PER SHARE DATA
(DILUTED)
Net operating income per share $0.14 $0.11 $0.26 $0.21
Net realized gains, net of tax (1) -- 0.01 -- 0.02
Reduction to the valuation allowance
for deferred taxes -- 0.08 0.05 0.08
-------- -------- -------- --------
Net income per share from continuing
operations $0.14 $0.20 $0.31 $0.31
======== ======== ======== ========
SENIOR SEGMENT PRE-TAX OPERATING INCOME
Senior Segment pre-tax operating
income $5,045 $5,586 $7,610 $7,782
Net realized gains (losses) 27 285 (9) 584
-------- -------- -------- --------
Senior Segment profit before federal
income taxes $5,072 $5,871 $7,601 $8,366
======== ======== ======== ========
MEDICAL SEGMENT PRE-TAX OPERATING INCOME
Medical Segment pre-tax operating
income $2,990 $1,281 $7,523 $5,093
Net realized gains (losses) (8) 169 26 346
-------- -------- -------- --------
Medical Segment profit before federal
income taxes $2,982 $1,450 $7,549 $5,439
======== ======== ======== ========
(1) Taxes on net realized gains are based upon a 35% effective tax rate
for all periods.
CERES GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30, December 31,
2004 2003
--------- ---------
(Unaudited)
ASSETS
Investments $488,819 $484,280
Cash and cash equivalents 17,439 26,394
Reinsurance receivable 140,394 143,397
Deferred acquisition costs 66,815 69,609
Value of business acquired 12,638 13,034
Goodwill and licenses 14,097 14,097
Other assets 22,509 23,103
--------- ---------
Total assets $762,711 $773,914
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and benefits accrued $497,758 $504,493
Deferred reinsurance gain 8,695 9,456
Other policyholders' funds 19,605 20,821
Debt 11,875 13,000
Other liabilities 33,130 41,005
--------- ---------
Total liabilities 571,063 588,775
Stockholders' equity 191,648 185,139
--------- ---------
Total liabilities and stockholders' equity $762,711 $773,914
========= =========
Equity per common share:
After accumulated other comprehensive income (1) $5.56 $5.38
Before accumulated other comprehensive income (1) 5.49 5.17
Book value per share excluding goodwill and
licenses 5.15 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 Six Months Ended
June 30, June 30,
------------------ ------------------
2004 2003 2004 2003
-------- -------- -------- --------
MEDICAL
Revenues
Net premiums $62,665 $79,042 $127,892 $164,161
Net investment income 1,248 1,458 2,494 2,933
Net realized gains (losses) (8) 169 26 346
Other income 3,932 5,531 8,657 12,022
-------- -------- -------- --------
67,837 86,200 139,069 179,462
-------- -------- -------- --------
Expenses
Benefits and claims 43,885 58,799 86,699 121,305
Other operating expenses 20,970 25,951 44,821 52,718
-------- -------- -------- --------
64,855 84,750 131,520 174,023
-------- -------- -------- --------
Segment profit before federal
income taxes $2,982 $1,450 $7,549 $5,439
======== ======== ======== ========
SENIOR AND OTHER
Revenues
Net premiums $44,914 $42,402 $88,516 $85,259
Net investment income 5,438 5,011 10,455 9,051
Net realized gains (losses) 27 285 (9) 584
Other income 714 2,284 1,206 2,792
-------- -------- -------- --------
51,093 49,982 100,168 97,686
-------- -------- -------- --------
Expenses
Benefits and claims 33,558 30,604 67,308 64,404
Other operating expenses 12,463 13,507 25,259 24,916
-------- -------- -------- --------
46,021 44,111 92,567 89,320
-------- -------- -------- --------
Segment profit before federal
income taxes $5,072 $5,871 $7,601 $8,366
======== ======== ======== ========
CORPORATE AND OTHER
Revenues
Net investment income $- $(9) $- $-
Net realized gains 111 108 221 216
-------- -------- -------- --------
111 99 221 216
-------- -------- -------- --------
Expenses
Interest expense and financing
costs 166 306 338 735
Other operating expenses 495 416 933 811
-------- -------- -------- --------
661 722 1,271 1,546
-------- -------- -------- --------
Segment loss before federal
income taxes $(550) $(623) $(1,050) $(1,330)
======== ======== ======== ========
Income from continuing operations
before federal income taxes $7,504 $6,698 $14,100 $12,475
======== ======== ======== ========
Medical loss ratio 70.0% 74.4% 67.8% 73.9%
Senior loss ratio 74.7% 72.2% 76.0% 75.5%
Overall loss ratio 72.0% 73.6% 71.2% 74.5%
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 its electronic distribution system. Ceres is included
in the Russell 3000(R) Index. 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, 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), adverse outcomes in litigation, 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, Inc.
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,
Inc.
Web site: http://www.ceresgp.com/
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