Alabama-based Vesta Insurance Group, Inc. reported net operating earnings of $2.6 million, or $0.08 per share in the first quarter compared to net operating earnings of $.4 million, or $0.01 per share for the corresponding period in 2002.
Net income from continuing operations was $4.9 million, or $0.14 per share for the quarter ending March 31, 2003, compared to net income from continuing operations of $1.7 million, or $0.05 per share in the first quarter of 2002. Net earned premium for the quarter was $118.9 million compared to $106.8 million in the first quarter of 2002.
“The centerpiece of our first quarter results is the growth and performance of our non-standard auto business – both in the agency and underwriting operations,” said Norman Gayle, III, president and CEO. The first quarter is typically the strongest for the non-standard auto business, and Vesta’s non-standard agency and underwriting businesses generated $4.9 million of net income from continuing operations combined in the first quarter of 2003 compared to $3.1 million in the same period in 2002. The non-standard auto underwriting segment posted a 95.2 percent combined ratio for the first quarter of 2003.
“Tom Mangold and our non-standard auto team have done an excellent job staying focused on execution while integrating various aspects of the companies that we acquired over the past 18 months,” said Gayle.
Vesta’s standard property-casualty segment posted a net loss from continuing operations of $2.1 million in the first quarter of 2003 compared to a net loss from continuing operations of $1.6 million in the first quarter of 2002. The standard property-casualty segment GAAP combined ratio was 104.3 percent for the first quarter of 2003 compared to 103.6 percent for the same period in 2002. The standard auto business GAAP combined ratio was 95.6 percent for the first quarter of 2003 compared to 119.1 percent in the first quarter of 2002. The residential property GAAP combined ratio was 106.9 percent in the first quarter of 2003 compared to 98 percent in the corresponding period last year.
“Our standard auto results have shown consistent improvement since the first quarter of 2002 with three consecutive quarters of profitability,” added Gayle. “Our residential property business experienced abnormally high loss severity related to fires and winter weather in the Mid-Atlantic and Northeast. While our standard property-casualty business is subject to volatility from weather events, we remain optimistic about the improving fundamentals for profitability in this business.”
In the first week of April, a severe hailstorm caused approximately $1.2 billion of total losses to the industry, including an estimated $540 million of residential property losses in Texas, according to the Insurance Services Office.
Texas Select, Vesta’s residential property subsidiary in Texas, is currently estimated to have approximately $10 to $12 million in pre-tax losses, net of its 50 percent Texas quota share, in the second quarter as a result of this storm. Texas Select, which reported a 42 percent direct loss ratio in the first quarter, is expected to report a direct loss ratio in excess of 80 percent in the second quarter and barring additional catastrophes, the company forecasts a direct loss ratio less than 60 percent in Texas for the entire year.
“Although this storm will adversely impact earnings for the second quarter, our losses from this event are estimated to be approximately 20 percent less than our 6 percent market share would indicate. This is reflective of our disciplined underwriting, geographic dispersion of risk, and the use of wind and hail deductibles,” said Gayle.
As previously discussed, Vesta is in arbitration with three reinsurers related to a 20 percent whole account quota share treaty. Vesta announced today that its hearing, scheduled for May 13, 2003, with ALFA Mutual Insurance Company has been delayed indefinitely due to a lawsuit recently filed by ALFA in Alabama state court concerning procedural issues related to the ongoing arbitration.
Also, in the Dorinco Reinsurance Company arbitration, a preliminary hearing is scheduled for Tuesday, April 29, regarding coverage for developmental losses under the treaty.
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