Ohio-based Bancinsurance Corporation, a specialty insurance holding company reported results for the three months and 12 months ended Dec. 31, 2002.
The fourth quarter 2002 results were impacted by a 21.8 percent increase in loss and loss adjustment expenses, net of recoveries; a net realized loss on investments, and, to a lesser extent, a decline in net premiums earned compared to the same period last year. Net income was $307,366, or $0.05 per diluted share, versus $845,473, or $0.14 per diluted share, a year ago.
Si Sokol, chairman and CEO, noted, “The national economy remained weak in 2002, which resulted in further deterioration in credit quality. This may contribute to a decline in business from automobile lending and an increase in losses and loss adjustment experience in the first half of 2003. During this challenging period, we will continue to move forward with our plans but maintain a cautious outlook for the year.”
Net premiums earned were $10,198,756 for the three months ended Dec. 31, 2002 versus $10,577,543 a year ago. This was due to a $707,983 decline in net premiums earned for lender/ dealer insurance products, reflecting reduced automobile lending by the company’s customers, less favorable incentive programs for automobiles, and continued weakness in the national economy. Guaranteed auto protection, or GAP products, more than doubled to $336,105 of net premiums for the fourth quarter 2002 versus last year. This was primarily due to the transfer of an agent’s book of business in the third quarter 2001. Net premiums earned for unemployment insurance protection and bail bond products grew $143,586 or 12.8 percent for the fourth quarter 2002 compared with last year.
Losses and loss adjustment expenses, net of reinsurance recoveries, were $7,391,291 for the fourth quarter 2002 compared with $6,070,009 for the same period in 2001. Lender/dealer insurance claims were impacted by the persistent weakness in the national economy that has led to increased defaults, vehicle repossessions and bankruptcies. Higher GAP losses were directly attributable to the increase in earned premiums and deterioration in underwriting quality of a book of business transferred to the company in the third quarter 2001. Increased claims for unemployment insurance protection products resulted from higher benefit charges related to rising unemployment insurance obligations and additional reserve strengthening.
Twelve Month Results
Net premiums earned rose 6.7 percent to $40,882,237 for the twelve months ended Dec. 31, 2002 from $38,308,738 the prior year. The most significant factor contributing to this increase was the decrease in retrospective premiums due policyholders for the year 2002 compared to 2001. Retrospective premiums are accrued as an adjustment to earned premium, and generally decrease as losses and loss adjustment expenses increase. Net premiums earned for lender/dealer insurance benefited from a retrospective premium adjustment due policyholders for the year 2002. As a result, net premiums earned increased 5.0% to $35,060,911 for the year 2002 from $33,400,437 a year ago. GAP premiums earned nearly doubled to $939,014 for the year 2002 from the transfer of a significant book of business in the third quarter 2001. Premiums earned for the company’s unemployment insurance products improved 10.6 percent to $4,882,312 in 2002 compared with $4,415,547 a year ago. These amounts include the addition of bail bond coverage during the third quarter 2001.
Other revenue declined to $4,351,791 for the year 2002 from $5,179,384 in 2001. A $671,806 increase in codification and subscription fees for American Legal Publishing Corporation, a wholly-owned subsidiary, was offset by a $1,220,477 net realized loss on investments to reposition the investment portfolio.
Losses and loss adjustment expense, net of reinsurance recoveries, was $28,314,256 for the year 2002, a 30.7 percent increase over 2001. Increases occurred in each of the company’s insurance business segments, primarily due to higher claims resulting from continuation of weak economic conditions that have resulted in increased defaults, repossessions and bankruptcies.
Ohio Indemnity, a wholly-owned subsidiary, underwrites the company’s specialty insurance products. The combined ratio declined to 90.3 percent for the year 2002 from 92.0 percent the prior year. The 2002 combined ratio included a 69.3 percent loss ratio, which increased from the prior year principally due to the impact of continued weakness in the national economy. The expense ratio declined to 21.0 percent for the year 2002.
For the year 2001, the combined ratio was comprised of a 56.5 percent loss ratio and a 35.5 percent expense ratio. The expense ratio was higher for the year 2001 primarily due to increases in the experience rating adjustments related to the addition of a significant policy in the second quarter 2001.
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