RTW Reports Profitable Q2

July 24, 2003

Minneapolis-based RTW Inc., which manages both insured and self-insured workers’ compensation programs, reported net income for the second quarter ended June 30, 2003, of $639,000, or 12 cents per basic and diluted share and $1.2 million, or 23 cents per basic and diluted share for the six months ended June 30, 2003.

CEO J. Alexander Fjelstad credited the company’s performance to the use of proprietary claims systems.

The second quarter 2003 results include a $2.4 million ($2.7 million through six months) reduction in claims and claim settlement expenses resulting from favorable development of claims. The results also include a $1.5 million charge related to reapportionment of premiums for pools in which the Company participates and a charge of $300,000 for bonus expense.

Net income for the second quarter of 2002 was $208,000, or 4 cents per basic and diluted share and was $2.9 million, or 56 cents per basic and diluted share for the six months ended June 30, 2002. Net income for the six months ended June 30, 2002 included a one-time $3 million reduction in claim and claim settlement expenses resulting from reducing the accrual for the Minnesota Special Compensation Fund (SCF) recorded in the first quarter of 2002. The SCF accrual decrease resulted from legislative changes in Minnesota in March 2002.

Premiums in force at June 30, 2003, decreased to $50.3 million from $59.1 million at June 30, 2002 due to decisions made to exit unprofitable regions including Missouri and New England and unprofitable Professional Employer Organization business (PEO’S) in Michigan.

Gross premiums earned followed the decrease in premiums in force decreasing 12.5 percent to $12.6 million for the second quarter of 2003 from $14.4 million for the same period in the prior year and decreasing 20.6 percent to $25.6 million for the six months ended June 30, 2003 from $32.2 million for the same period in the prior year.

After reflecting premiums ceded under reinsurance treaties, premiums earned decreased by 24.6 percent to $10.8 million for the quarter ended June 30, 2003 from $14.4 million reported in the second quarter of 2003 and decreased 29.9 percent to $22.0 million for the six months ended June 30, 2003 from $31.3 million for the same period in 2002.

Premiums ceded under excess of loss treaties increased significantly in 2003 due to rate increases for excess of loss reinsurance coverage in our non-Minnesota regions while our Minnesota cost decreased only slightly. Also, we lowered our retention in all our regions in 2003 by purchasing increased excess of loss coverage in order to further reduce volatility in our results.

For the second quarter, total revenue was $12.0 million, compared to $15.8 million last year and was $24.4 million for the six months ended June 30, 2003 compared to $35.6 million for the same period in 2002.

Included in total revenue for the second quarter is investment income of $1.2 million, compared to $1.4 million last year and $2.4 million for the six months ended June 30, 2003 compared to $2.8 million for the same period in 2002. Additionally, in the first six months of 2002, we recorded net realized investment gains totaling $1.4 million; no realized investment gains or losses were recorded in the first or second quarters of 2003.

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