ProCentury Corporation Announces First Quarter Results COLUMBUS,
Ohio, June 7 /PRNewswire-FirstCall/ -- ProCentury Corporation
(NASDAQ:PROS) today announced financial results for the three
months ended March 31, 2004. These results were also contained in
the Company's quarterly report on Form 10-Q filed with the SEC on
Friday, June 4, 2004. On April 26, 2004, ProCentury completed an
initial public offering (IPO) in which it issued eight million of
its common shares at an initial offering price of $10.50 per share.
In connection with the IPO, the Company exited the specialty surety
lines of business through the disposition of its subsidiaries,
Evergreen National Indemnity Company and Continental Heritage
Insurance Company. As a result, following the IPO, ProCentury's
sole remaining insurance subsidiary is Century Surety Company,
allowing the Company to focus on its property and casualty excess
and surplus lines of business. As of April 26, 2004, Evergreen and
Continental and the related specialty surety lines of business are
no longer a part of ProCentury. The following financial results are
expressed on both a reported (GAAP) and pro forma basis. The pro
forma information gives effect to the disposition of our specialty
surety lines as if it occurred on January 1, 2004. The Company
believes that the pro forma information provides useful information
to investors because it excludes the performance of Evergreen and
Continental, which are no longer part of the Company. A
reconciliation of the pro forma information to the Company's
reported results is contained in the financial tables accompanying
this release and in the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 2004. Financial Results ProCentury's
net income for the quarter ended March 31, 2004 was $2.9 million or
$0.58 per share compared to $848,000 or $0.17 per share for the
same period in 2003. Gross written premiums were $49.4 million in
the first quarter of 2004 compared to $39.9 million for the first
quarter of 2003. Net premiums earned were $34.5 million in the
first quarter of 2004 compared with $24.6 million reported for the
same period of 2003. The combined ratio was 91.5% for the quarter
ended March 31, 2004, compared with 97.5% for the first quarter of
2003. Pro Forma Financial Results ProCentury's pro forma net income
was $2.6 million or $0.19 per share for the quarter ended March 31,
2004 based on 13.1 million common shares outstanding which includes
the 8 million shares issued in the IPO. Pro forma gross written
premiums were $42.9 million in the first quarter of 2004. Pro forma
net written premiums were $36.6 million for the first quarter and
net premiums earned were $32.1 million. The pro forma combined
ratio for the first quarter of 2004 was 93.1%. Edward Feighan,
ProCentury's Chief Executive Officer said, "We are very pleased
with the results of the first quarter. The capital we raised with
our initial public offering has created opportunities for us in the
marketplace and allows us to support our strategy to pursue
opportunistic niches in the non-admitted market. We are now
singularly focused on enhancing shareholder value by continuing to
execute on our growth strategy while maintaining a disciplined
underwriting practice." Commenting on the results of the quarter,
Chris Timm, President of Century Surety Company said, "All of the
newly implemented strategies and procedures that were put in place
to prepare the Company for the IPO have proven to be highly
effective. We continue to monitor loss reserves and expenses
closely as we focus on maintaining underwriting profitability."
Future Outlook The following forward-looking statement is based on
current expectations and actual results may differ materially as
explained more completely in the note on forward-looking statements
below. The Company is currently expecting gross written premiums
for the year ended December 31, 2004 to range between $190 and $205
million. Earnings Conference Call ProCentury's first quarter 2004
results will be discussed in more detail on Tuesday, June 8th at
11:00 a.m. EDT (8:00 a.m. PDT). To listen to the call, please dial
888-339-2688 approximately five minutes prior to the start of the
call. For those who cannot listen to the live conference call, a
replay will be available from approximately 1:00 p.m. EDT on June
8, until 4:00 p.m. EDT on June 9, 2004. The access number for the
replay is 888-286-8010 and the pass code is 34179926. About
ProCentury Corporation ProCentury Corporation (NASDAQ:PROS) is a
specialty property and casualty insurance holding company. Its
subsidiary, Century Surety Company, underwrites general liability,
commercial property, and multi-peril insurance for small and
mid-sized businesses. Century Surety Company primarily writes
excess and surplus lines insurance and markets its products through
a select network of general agents and brokers. NOTE ON
FORWARD-LOOKING STATEMENTS Some of the statements in this press
release that are not historical statements including the statements
under "future outlook," are "forward- looking statements" as
defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are derived from information that we
currently have and assumptions that we make and may be identified
by words such as "believes," "anticipates," "expects," "plans,"
"should," "estimates" and similar expressions. Our forward-looking
statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from those
stated or implied in our forward-looking statements, including but
not limited to: 1) risks inherent in establishing loss and loss
adjustment expense reserves; 2) uncertainties related to the
ratings of our insurance subsidiary; 3) uncertainties related to
government and regulatory policies; 4) uncertainties relating to
the cyclical nature of our business; 5) changes in our
relationships with, and the capacity of, our general agents; and 6)
the risk that our reinsurers may not be able to fulfill their
obligations to us. You are cautioned not to place undue reliance on
forward- looking statements, which are made only as of the date of
this press release. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. For additional
disclosure regarding potential risks, refer to documents we file
with the Securities and Exchange Commission. PROCENTURY CORPORATION
AND SUBSIDIARIES Consolidated Condensed Statements of Operations
(Unaudited) For the Three Months Ended March 31, 2004 2003 Premiums
earned $34,510,056 24,592,293 Net investment income 2,314,140
1,587,310 Net realized investment gains 160,770 82,050 Total
revenues 36,984,966 26,261,653 Losses and loss expenses 18,674,975
13,898,874 Amortization of deferred policy acquisition costs
8,784,768 5,796,666 Other operating expenses 4,102,115 4,273,654
Interest expense 415,212 317,787 Total expenses 31,977,070
24,286,981 Income before gain on sale of minority interest in
subsidiary, net 5,007,896 1,974,672 Gain on sale of minority
interest in subsidiary, net of transaction fees - 97,499 Income
before minority interest and income tax expense 5,007,896 2,072,171
Minority interest 564,124 490,311 Income tax expense 1,555,898
734,333 Net income $2,887,874 847,527 Basic and diluted net income
per share: Net income $0.58 0.17 Weighted average of shares
outstanding 5,000,532 5,000,532 PROCENTURY CORPORATION AND
SUBSIDIARIES Pro Forma Condensed Consolidated Statement of
Operations For the Three Months Ended March 31, 2004 (Unaudited)
Evergreen And ProCentury Continental ProCentury Historical Pro
Forma Other Pro Forma (dollars in thousands) Gross written premiums
$49,364 6,491 - 42,873 Net written premium $38,032 1,391 - 36,641
Premiums earned $34,510 2,454(a) - 32,056 Net investment income
2,314 349(b) - 1,965 Net realized investment gains 161 38(c) - 123
Total revenues 36,985 2,841 - 34,144 Losses and loss expenses
18,675 (216)(a) - 18,891 Amortization of deferred policy
acquisition costs and other operating expenses 12,887 930(a)
1,009(e) 10,948 Interest expense 415 - - 415 Total expenses 31,977
714 1,009 30,254 Income (loss) before minority interest and income
tax expense 5,008 2,127 (1,009) 3,890 Minority interest 564 -
564(f) - Income tax expense (benefit) 1,556 731(d) (500)(g) 1,325
Net income (loss) $2,888 1,396 (1,073) 2,565 Key Financial Ratios
Loss and loss expense ratio 54.11% 58.93% Expense ratio 37.34 34.15
Combined Ratio 91.45% 93.08% (a) The adjustments for Evergreen and
Continental include the termination of intercompany pooling
agreement and the implementation of the loss portfolio agreements
that occurred effective January 1, 2004. With these adjustments,
the activity in the ProCentury Pro Forma column only represents
activity for the excess and surplus lines operations and activity
related to the other exited lines including the workers'
compensation line and commercial automobile. (b) The investment
income adjustment is calculated based on pro forma investment
income balances for Evergreen and Continental and include the
effects of the termination of the intercompany pooling agreement
and the implementation of the loss portfolio agreements. The pro
forma investment income balances for Evergreen and Continental are
lower than their actual investment balances due to the fact that
the termination of the intercompany pooling agreement and the
implementation of the loss portfolio agreement requires Evergreen
and Continental to transfer cash and investments to Century in
amounts equal to loss and loss expense reserves and unearned
premium. (c) Realized gains for Evergreen and Continental represent
each company's actual realized gain activity for the three months
ended March 31, 2004. (d) Income tax expense for Evergreen and
Continental represent each company's actual tax expenses as
adjusted by 35% of any pro forma adjustments such as net investment
income. See notes b and c above. (e) This adjustment includes the
following items that occurred in connection with the termination of
the intercompany pooling agreement, the loss portfolio transfer and
the IPO; $654,000 of income to ProCentury related to the
reallocation of deferred acquisition costs from the termination of
the intercompany pooling agreement and the loss portfolio transfer,
$250,000 of a nonrecurring expense related to a severance agreement
and $105,000 of expenses related to the IPO that could not be
capitalized. (f) Minority interest resulted from the partial sales
of Evergreen that occurred in 2003 and 2002. As this pro forma
assumes that Evergreen is no longer part of ProCentury, minority
interest has been adjusted accordingly. (g) The income tax
adjustment in the Other column relates to the tax effect of the
sale of Continental to Evergreen and the tax on the adjustments
that are outlined in note e above. The pro forma income tax
provision has been computed based on our estimated annual effective
tax rate, which differs from the federal income tax rate of 35%
principally because of tax-exempt investment income. DATASOURCE:
ProCentury Corporation CONTACT: Mary Magnani, Corporate
Communications Manager of ProCentury Corporation, +1-614-839-7528,
or Web site: http://www.procentury.com/
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