Birmingham, Ala.-based Vesta Insurance Group Inc. reported a net operating loss from continuing operations of $5.4 million, or $(0.16) per share in the second quarter of 2003 compared to a net operating loss from continuing operations of $.6 million, or $(0.02) per share for the corresponding period in 2002. The company said it experienced $20 million in catastrophe losses during the quarter.
The net loss from continuing operations was $4.0 million, or $(0.12) per share for the quarter ending June 30, 2003 compared to a net loss from continuing operations of $1.6 million, or $(0.05) per share in the second quarter of 2002. Net operating loss is a non-GAAP measure which excludes certain items, such as realized gains and losses and gains on debt extinguishments. (A reconciliation of net operating loss to net loss from continuing operations is included herein.)
Net earned premium for the quarter was $123.5 million compared to $122.2 million in the second quarter of 2002.
For the six months ended June 30, 2003, the net operating loss from continuing operations was $3.2 million, or $(0.09) per share compared to a loss of $.3 million, or $(0.01) per share in 2002. For the first six months, the company reported net income from continuing operations of $.4 million, or $0.01 per share compared to income of $.016 million or $0.00 per share in 2002. (
“Our core businesses are producing vastly improved fundamental results as evidenced by our underwriting margins excluding catastrophes,” said Norman W. Gayle, III, president and CEO. “The risk of catastrophes is inherent in the insurance business and our standard property-casualty segment incurred $20.0 million of catastrophe losses in the quarter, including $17.3 million from the severe Texas hailstorms in early April. The hailstorm had a 21-point impact on our standard property-casualty combined ratio in the second quarter.”
Vesta also announced that it has entered into a definitive agreement to sell its health insurance subsidiary, States General Life Insurance Company, for statutory surplus. It is also exploring other capital alternatives, including a possible divestiture of its life insurance business and portions of its property-casualty operations. Furthermore, Vesta is considering separating its non-standard and standard businesses, which could facilitate additional capital transactions.
The company’s non-standard auto underwriting business generated a GAAP combined ratio of 96.7 percent in the second quarter and 96.0 percent for the first six months of 2003 compared to a 96.4 percent and a 97.1 percent combined ratios for the respective corresponding periods in 2002. The non-standard agency operations produced a 10.2 percent pre-tax margin in the quarter on commission and fee revenue of $33.9 million, before eliminations.
“Our non-standard agency operations has consistently provided healthy profitability based on commission and fee income,” said Gayle. “Our non- standard underwriting margins also continue to be attractive. When you consider these two segments together, we believe we have a non-standard auto business with exciting earnings power.”
Vesta’s standard property/casualty segment, which includes the residential property and standard auto businesses, posted a net loss from continuing operations of $7.6 million in the second quarter of 2003.
“Our standard auto results have produced four consecutive quarters of profitability and our frequency and severity trends point to continued profitability,” said Gayle. “We are enthusiastic about the future of our residential property business and its long-term profitability, recognizing that it will experience short-term volatility in quarters with significant catastrophe losses. The Texas hailstorm was the largest single catastrophe in the company’s history and our claims operation handled approximately 7,300 claims related to this storm, of which only 250 claims remain open.”
Vesta incurred $7.6 million in net losses relating to discontinued operations in the quarter. The net losses relate, in part, to an adjustment of our estimated expense recoveries in an arbitration with Cigna Property and Casualty Insurance Company (n/k/a ACE Property and Casualty Insurance Company.) The adjustment is based on an ongoing audit of the expenses charged to Vesta under an assumed reinsurance treaty, and is subject to further modification at the conclusion of the audit.
Vesta also announced that E. Murray Meadows has joined Vesta Insurance Group as vice president and controller. A graduate of Millsaps College in Jackson, Mississippi, Meadows was previously a senior manager with KPMG LLP in Nashville, Tenn.
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