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. (Logo:
http://www.newscom.com/cgi-bin/prnh/20000315/CRLOGO ) "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. http://www.newscom.com/cgi-bin/prnh/20000315/CRLOGO
http://photoarchive.ap.org/ 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/
http://www.firstcallevents.com/service/ajwz405384486gf12.html
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