Republic Companies See Higher Revenues in Q1

May 12, 2006

The Republic Companies Group Inc., headquartered in Dallas, reported higher revenues and increased premiums in the first quarter of 2006 compared with the same period in 2005.

According to the company, Republic’s first quarter highlights include:

–Revenues: $68.4 million, an increase of 12.0 percent compared to the prior year first quarter;
–Net income: $6.9 million
–Combined Ratio: 92.9 percent;
–Increase in gross and net written premiums: 14.1 percent and 8.4 percent, respectively, compared to prior year first quarter;
–Increase in net investment income: 51.2 percent compared to prior year first quarter;
–Effects of Hurricanes Katrina and Rita: Well contained within reinsurance covers and consistent with previously reported results;
–Annualized return on average equity: 16.1 percent.

Gross written premiums in Q1 2006 reached $126.3 million, a 14.1 percent increase over the comparable period in 2005. This increase was achieved despite a 15.9 percent decline in personal auto gross written premiums. Net written premiums in Q1 2006 were $63.7 million, 8.4 percent higher than Q1 2005. Net insurance premiums earned reached $63.2 million, a 10.6 percent increase over the $57.2 million reported in Q1 2005.

Increased reinsurance costs negatively impacted net written premiums and net insurance premiums earned by approximately $1.0 million in Q1 2006. For the 2006 year, Republic substantially replicated its 2005 catastrophe reinsurance covers but increased the reinsurance protection to $100 million, which represented a modeled 500-year probable maximum loss event. These higher reinsurance costs were incurred beginning January 1, while the offsetting benefits from rate increases on the company’s policies in Texas and Louisiana will not begin to be earned until the third quarter of 2006.

Republic’s Q1 2006 combined ratio of 92.9 percent was higher than the 87.3 percent reported for Q1 2005. The principal negative factors impacting the Q1 2006 combined ratio were higher reinsurance costs (1.5 points), the expenses associated with the implementation of compliance with SOX (1.1 points) and other incremental public company expenses (0.6 point). The ongoing cost of maintaining SOX compliance should decline after the company has completed its initial implementation.

Excluding catastrophe losses, the Q1 2006 loss ratio was 50.6 percent, virtually unchanged from the 50.3 percent loss ratio excluding catastrophes in Q1 2005.

Republic reaffirmed its previously announced guidance for double digit premium growth in 2006 and a 13 – 15 percent return on average equity.

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