First Quarter Highlights: Revenues: $68.4 million, an increase of
12.0% compared to the prior year first quarter; Net income: $6.9
million; Combined Ratio: 92.9%; Increase in gross and net written
premiums: 14.1% and 8.4%, respectively, compared to prior year
first quarter; Increase in net investment income: 51.2% 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% DALLAS, May 4 /PRNewswire-FirstCall/ -- Republic Companies
Group, Inc. (NASDAQ:RUTX) ("Republic" or the "Company") today
reported revenues of $68.4 million and net income of $6.9 million
for the quarter ended March 31, 2006 ("Q1 2006"). Shareholders'
equity was $167.3 million as of March 31, 2006. Republic's Q1 2006
revenues of $68.4 million represent an increase of 12.0% when
compared to the first quarter of 2005 ("Q1 2005"). Net income for
Q1 2006 was $6.9 million compared to net income of $7.5 million for
Q1 2005. Net income per common share for Q1 2006 was $0.50 (basic
and diluted). Reported net income per common share for Q1 2005 was
$0.78 (basic and diluted). Pro forma net income per common share
for Q1 2005, after giving effect to our August 2005 Initial Public
Offering ("IPO") as if it had occurred at the beginning of 2005,
would have been $0.54 (basic and diluted). See comments regarding
non-GAAP measures in the footnote below. Net income per common
share after taxes for Q1 2006 was reduced $0.05 per share as a
result of higher reinsurance costs, $0.03 per share because of the
higher expenses associated with the implementation of the
provisions of the Sarbanes-Oxley Act ("SOX") and $0.02 per share
for the other additional costs of public ownership that were not
incurred in Q1 2005. Gross written premiums in Q1 2006 reached
$126.3 million, a 14.1% increase over the comparable period in
2005. This increase was achieved despite a 15.9% decline in
personal auto gross written premiums. Net written premiums in Q1
2006 were $63.7 million, 8.4% higher than Q1 2005. Net insurance
premiums earned reached $63.2 million, a 10.6% 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% was higher than the 87.3% 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%, virtually unchanged from the
50.3% loss ratio excluding catastrophes in Q1 2005. As such, the
core underwriting fundamentals of the Company's operating strategy
continue to produce strong and consistent results. The Q1 2006
catastrophe loss ratio of 2.0% was comparable with the 1.6%
reported in the Q1 2005 and is consistent with weather patterns
normally anticipated in the first quarter for our operating area.
Parker Rush, President and Chief Executive Officer, commented, "As
in prior years, we produced solid premium growth and profitable
results in the first quarter of 2006. We are pleased to report that
all of our business segments contributed to profits and premium
growth in the first quarter. We have continued to meet our
responsibilities to the victims of Hurricanes Katrina and Rita and
have continued to settle the few remaining pending claims. Our
previously reported estimates of ultimate loss and loss adjustment
expenses remain sufficient, since these estimates included expected
contingencies such as the impact of increased prices resulting from
a surge in demand. Our target growth initiatives remain on track
and should allow Republic to achieve our planned double-digit
premium growth in 2006. Growth in gross and net written premiums
will be supplemented in the later quarters of 2006 as we begin to
realize the benefits of rate increases that have been approved in
Texas and Louisiana that will be effective in the second quarter.
These rate increases, as earned, will represent an offset to higher
reinsurance costs. Our consistent underwriting results, coupled
with the recent rate increases and significantly higher investment
earnings, put us on track to achieve our return-on-equity target
for 2006." Financial Overview and Highlights The highlights of
Republic's condensed consolidated financial information for the
2006 and 2005 first quarters are summarized in the following
tables. Three Months Three Months Condensed Consolidated First
Quarter Ended Ended Highlights March 31, 2006 March 31, 2005 ($ in
millions) (unaudited) (unaudited) Gross written premiums $126.3
$110.7 Net written premiums 63.7 58.8 Net insurance premiums earned
63.2 57.2 Net investment income 3.5 2.3 Total revenues earned 68.4
61.1 Net income 6.9 7.5 Net income available to common shareholders
$6.9 $3.9 Net income per common share Basic $0.50 $0.78 Diluted
$0.50 $0.78 Weighted average shares outstanding Basic shares (in
millions) 13.8 5.0 Diluted shares (in millions) 13.9 5.0 Pro forma
net income per common share (1) Basic $0.50 $0.54 Diluted $0.50
$0.54 Pro forma weighted average shares outstanding (1) Basic
shares (in millions) 13.8 13.7 Diluted shares (in millions) 13.9
13.7 Net ex-catastrophe loss ratio 50.6% 50.3% Net catastrophe loss
ratio 2.0% 1.6% Net expense ratio 40.3% 35.4% Net combined ratio
92.9% 87.3% Condensed First Quarter Consolidated As of March 31, As
of March 31, Highlights 2006 2005 ($ in millions) (unaudited)
(unaudited) Total assets $801.4 $740.1 Shareholders' Equity (GAAP)
167.3 153.7 Annualized return on average equity (GAAP) 16.1% 17.5%
(1) The press release contains certain pro forma financial
information determined by methods other than in accordance with
U.S. generally accepted accounting principles ("GAAP"). In
particular, the 2005 net income per common share has been adjusted
to give effect for the August 2005 IPO as if it occurred at the
beginning of Q1 2005 by excluding the effect of the accrued
preferred stock redeemed in the IPO and by including the additional
common shares issued in the IPO. A reconciliation of the reported
Q1 2005 net income per common share of $0.78 (basic and diluted) to
the pro forma net income per common share of $0.54 (basic and
diluted) is as follows: a. Reported Q1 2005 net income available to
common shareholders of $3.9 million is increased by the accrued
preferred stock dividends of $3.6 million to equal consolidated net
income of $7.5 million. b. Reported Q1 2005 weighted average common
shares outstanding of 5.0 million (basic and diluted) are increased
by 8.7 million of additional common shares issued in the IPO for
total pro forma weighted average common shares outstanding of 13.7
million. c. Consolidated net income of $7.5 million is then divided
by pro forma weighted average common shares outstanding of 13.7
million to obtain the pro forma Q1 2005 net income per share of
$0.54 (basic and diluted). Management believes this presentation
provides useful supplemental information in evaluating the
operating results of our business. These disclosures should not be
viewed as a substitute for net earnings per share and weighted
average shares outstanding determined in accordance with GAAP.
Contributions by business segment for the quarters ended March 31,
2006 and 2005 are summarized as follows: Condensed First Quarter
Highlights by Three Months Three Months Segment Ended Ended March
31, 2006 March 31, 2005 ($ in millions) (unaudited) (unaudited)
Gross Written Premium Independent Agents - Personal Lines $32.7
$31.7 Independent Agents - Commercial Lines 21.7 19.9 Program
Management 33.4 28.2 Insurance Services and Corporate 38.5 30.9
Consolidated $126.3 $110.7 Net Income Independent Agents - Personal
Lines $2.8 $6.5 Independent Agents - Commercial Lines 0.9 (0.1)
Program Management 1.9 0.4 Insurance Services and Corporate 1.3 0.7
Consolidated $6.9 $7.5 Net Combined Ratio (GAAP) Independent Agents
- Personal Lines 91.2% 73.6% Independent Agents - Commercial Lines
98.8% 105.3% Program Management 90.7% 105.3% Consolidated 92.9%
87.3% Percentage Contribution to Consolidated Gross Written Premium
Independent Agents - Personal Lines 25.9% 28.6% Independent Agents
- Commercial Lines 17.2% 17.9% Program Management 26.5% 25.5%
Insurance Services and Corporate 30.4% 28.0% Consolidated 100.0%
100.0% Percentage Contribution to Consolidated Net Income
Independent Agents - Personal Lines 40.2% 86.5% Independent Agents
- Commercial Lines 13.5% (1.2)% Program Management 26.9% 5.6%
Insurance Services and Corporate 19.4% 9.1% Consolidated 100.0%
100.0% First Quarter Highlights The year-to-date comparison of
gross written premiums and net income by segment and the balanced
contributions by segments reflect our re-underwriting initiatives
and refined underwriting strategy implemented over the last several
years. We continue to seek the balance between growth and profit
among business segments that is a key indicator of any insurer's
ability to manage fluctuations in market conditions, product
underwriting cycles and weather conditions over the long run. Gross
written premiums in Personal Lines increased 3.0% in Q1 2006 when
compared to the same quarter in the prior year. This growth
included 20.9% growth in our personal property lines, led primarily
by our high-margin low- value dwelling initiative. Partially
offsetting the first quarter growth in personal property lines was
a 15.9% reduction in personal auto lines, primarily from our
continued de-emphasis of nonstandard personal auto products, but
also from increasing competition in the standard personal auto
markets. Net insurance premiums earned in Q1 2006 in Personal Lines
declined by 3.7% from the level reported in the comparable
prior-year quarter due in part to the impact of higher reinsurance
costs, primarily higher property catastrophe reinsurance costs, and
reductions in the personal auto lines. Future quarters will benefit
from the fact that Republic has received approval for a 7.0%
average rate increase in Texas personal property insurance and a
17.7% average rate increase for Louisiana personal property
insurance to offset the higher cost of reinsurance. These average
increases vary by territory based upon actuarial justification. The
impact on net insurance premiums earned from the approved personal
property rate increases in Texas and Louisiana will become
significant starting with the third quarter 2006. The combined
ratio for Personal Lines was 91.2% for Q1 2006, 17.6 points higher
than the comparable period in 2005, and net income in Personal
Lines declined to $2.8 million from $6.5 million. The Q1 2006
Personal Lines loss ratio increased 12.3 points over the prior year
quarter primarily due to the impact of the higher reinsurance
premiums on the loss ratio denominator (net insurance premiums
earned) and from an increase in the loss ratio on personal property
lines. The increased loss ratio on personal property lines was
primarily the result of increased average loss severity in Texas
and Louisiana exposures, which, while not directly resulting from
the major hurricane activity, may have been caused by anomalies
associated with the catastrophic events. The continuing higher
demand for materials and contractors from hurricane claims has
impacted the cost of subsequent non-catastrophe related losses.
Personal property results were also positively impacted in Q1 2005
by a $1.4 million favorable loss development, which improved the
combined ratio for Personal Lines by approximately 4.3 points in Q1
2005. Other factors contributing to the deterioration in the
Personal Lines combined ratio in Q1 2006 were higher reinsurance
costs (2.3 points); an underwriting loss in personal auto lines of
$0.4 million in Q1 2006 compared to a net underwriting income of
$1.3 million in Q1 2005 (5.4 points), and an increase in the
expense ratio to 38.1% in 2006 from 32.8% in 2005, primarily
reflecting the new expenses associated with being a public company.
Throughout Q1 2006 we continued to process the few pending claims
from Hurricanes Katrina and Rita. Our previously reported estimated
ultimate loss and loss adjustment expenses from Hurricanes Katrina
and Rita of $45.3 million and $47.2 million, respectively, have
proved to be adequate, since these estimates included the effects
of contingencies such as a surge in demand for products and
services. The financial effects of these storms remain well within
the protections provided by our catastrophe reinsurance treaties as
previously reported. Further, the support of our reinsurance
partners continues to be exemplary, and we have not experienced any
collectibility issues regarding reinsurance recoverables.
Commercial Lines gross written premiums grew 9.3% in Q1 2006
compared to Q1 2005. The increase was well diversified across our
target markets and business classes including our farm and ranch
initiative. We continue to replace purposeful non-renewals in
certain classes of business that have been de-emphasized with
business in target areas of opportunity. Net insurance premiums
earned by Commercial Lines in Q1 2006 increased 5.9% over Q1 2005.
Improvements in underwriting results and higher investment income
were the principal contributors to the $1.0 million increase in the
first quarter net income. The Commercial Lines combined ratio was
98.8% for the quarter, 6.5 points better than in Q1 2005. Embedded
in the Q1 2006 combined ratio improvement is a 12.8 point
improvement in the loss ratio from the prior year, primarily driven
by a significant improvement in the casualty lines resulting from
the re-underwriting initiatives of prior years. Partially
offsetting this improvement were a 6.3 point increase in the
expense ratio driven by higher costs related to public ownership
and the cost of system installations for which the related
productivity benefits have not yet been realized. In addition, the
Q1 2005 loss ratio was negatively impacted by $2.7 million of
unfavorable loss and loss adjustment expense reserve development
for commercial casualty lines (16.5 points). Gross written premiums
in Program Management were 18.7% higher, quarter- over-quarter,
primarily reflecting the development of our new program for
voluntary non-subscribers who choose to opt out of the Texas
Workers Compensation system and growth in the commercial auto/small
casualty premiums produced by Texas General Agency ("TGA"), our
long-standing and largest managing general agent relationship. Net
insurance premiums earned in Program Management during Q1 2006 were
74.4% higher than in Q1 2005, primarily because Republic began
retaining a larger share of business produced by TGA in 2006 and
growth in the non- subscriber program implemented in the second
quarter of 2005. The combined ratio in Program Management of 90.7%
for Q1 2006 was 14.6 points better than in Q1 2005 primarily
because of a substantial improvement in the business produced by
TGA and because of the profitability of our non-subscriber
programs. In Q1 2005, the TGA results included auto insurance
losses that were significantly higher than normal. Overall, these
factors and increased investment income resulted in an increase in
Program Management net income to $1.9 million. Insurance Services
produced a 24.4% quarter-over-quarter increase in gross written
premiums, driven by increases in premium volume derived from
programs fronted by Republic. These premiums are produced primarily
by several large, national carriers but also by regional carriers
who meet our credit and financial strength guidelines. As the
issuing carrier, Republic earns a fee for its services on these
programs but retains none of the related underwriting risk. Net
income of $1.3 million for Q1 2006 was significantly higher than Q1
2005. Contributing to this increase was an increase in Other Income
of 34.5%, quarter-over-quarter, primarily from the sale of certain
unused assets and from fees on a higher volume of fronted premiums.
Also, the equity earnings of Seguros Atlas, a well-established
Mexican multi-line insurance company in which Republic holds a 30%
ownership interest, were 84.6% higher than in the prior year
quarter, driven primarily by increases in investment income. A
partial offset to the increases in Other Income and equity earnings
was higher interest expense reflecting the facts that the Company's
$20.0 million senior note was not outstanding for the full first
quarter in 2005 and the level of interest rates on outstanding
loans has risen over the past year. Net investment income for the
Company in Q1 2006 of $3.5 million represented a 51.2% increase
over Q1 2005. The primary factors contributing to this increase are
a larger investment portfolio and increases in short-term interest
rates. Reported net income per common share comparisons between the
first quarters of 2006 and 2005 are distorted for comparative
purposes by the effects of the preferred stock that was outstanding
prior to Republic's August 2005 IPO and the additional shares
issued in the IPO to retire this preferred stock. Since all of the
net proceeds from the IPO were used to redeem preferred stock, we
believe a meaningful supplemental comparison of the Q1 2005 net
income per common share can be computed using the pro forma 13.7
million basic and diluted weighted average shares that would have
been outstanding during Q1 2005 if the IPO had occurred on January
1, 2005. On this pro forma basis, the Q1 2005 basic and diluted net
income per common share would have been $0.54. See comments
regarding non-GAAP measures in the footnote above. Shareholders'
equity as of March 31, 2006 was $167.3 million, an increase over
the $164.5 million at December 31, 2005. The principal elements
contributing to this net increase were $6.9 million of income,
partially offset by an increase in net-of-tax unrealized losses of
$2.3 million from the investment portfolio as a result of rising
interest rates, and common stock cash dividends of $1.7 million.
2006 Guidance Republic reaffirms its previously announced guidance
for double digit premium growth in 2006 and a 13 - 15% return on
average equity. Investors are advised to read the precautionary
statement regarding forward-looking information included in this
press release and in our Annual Report filed on Form 10-K and other
filings with the Securities and Exchange Commission (available at
http://www.sec.gov/ ). Supplemental Consolidated Information
Supplemental comparative summary consolidated and segment results
of operations and key financial measures for the three months ended
March 31, 2006 and 2005 will be posted to the Company's website.
Conference Call The Company will conduct a teleconference call to
discuss information included in this news release and related
matters at 9:00 a.m. Eastern Time (8:00 a.m. Central Time) on
Friday, May 5, 2006. Investors may access the call telephonically
by dialing 800 291 9234 with pass code 24556717 approximately 10
minutes prior to the scheduled start time. International callers
may access the call telephonically by dialing 617 614 3923 with
pass code 24556717. To listen to a simultaneous internet broadcast,
go to the Event Calendar within the Investor Relations section of
our website http://www.republicgroup.com/ . The conference call
will be available for replay through May 12, 2006 by dialing 888
286 8010 with the pass code 80788484. International callers may
access the replay by dialing 617 801 6888 with pass code 80788484.
Quiet Period The Company observes a quiet period and will not
comment on financial results or expectations during quiet periods.
The quiet period for the first quarter started April 1, 2006 and
will extend through May 8, 2006. About Republic Republic Companies
Group, Inc. through a group of insurance companies and related
entities provides personal and commercial property and casualty
insurance products to individuals and small to medium-size
businesses primarily in Texas, Louisiana, Oklahoma and New Mexico.
This focus on a large, rapidly growing region allows Republic to
participate in profitable underserved niche opportunities. We have
written insurance in Texas consistently throughout our entire
102-year history and have developed deep market knowledge and a
loyal network of independent agents and managing general agents who
provide us with access to what we believe are among the most
profitable clients and market segments. We are rated A- (Excellent)
by A.M. Best Company, Inc. with a stable outlook. We completed our
IPO in August 2005. Precautionary Statement Regarding
Forward-Looking Information Some of the statements in this press
release may include forward-looking statements, as that term is
defined in the Private Securities Litigation Reform Act of 1995
(PSLRA), that reflect our current views with respect to future
events and financial performance. These forward-looking statements,
which may apply to us specifically or the insurance industry in
general, are made pursuant to the safe harbor provisions of the
PSLRA and include estimates and assumptions related to economic,
competitive, regulatory, judicial, legislative and other
developments. Statements that include the words "expect", "intend",
"plan", "believe", "project", "estimate", "may", "should",
"anticipate", "will" and similar statements of a future or
forward-looking nature identify forward-looking statements for
purposes of the federal securities laws or otherwise. All
forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors
that could cause our actual results to differ materially from those
indicated in these statements. You should carefully consider these
factors. We believe that these factors include but are not limited
to the following: ineffectiveness or obsolescence of our business
strategy due to changes in current or future insurance market
conditions; increased competition on the basis of pricing,
capacity, coverage terms or other factors; greater frequency or
severity of claims and loss activity, including as a result of
natural or man-made catastrophic events, than our underwriting,
reserving or investment practices anticipate based on historical
experience or industry data; developments in the world's financial
and capital markets that adversely affect the performance of our
investments; changes in regulations or laws applicable to us, our
subsidiaries, agents or customers; changes in the level of demand
for independent agents and managing general agents and our
insurance products and services, including new products and
services; changes in the insurance product pricing environment;
changes in the availability, cost or quality of reinsurance,
failure of our reinsurers to pay claims timely or at all, or
inability to recover increases in reinsurance costs; loss of the
services of any of our executive officers or other key personnel;
the effects of mergers, acquisitions and divestitures; changes in
rating agency policies or practices; changes in legal theories of
liability under our insurance policies, including any loss
limitation methods and emerging claim and coverage issues; changes
in accounting policies or practices; unavailability of future
capital or availability of future capital on unfavorable terms; a
few large stockholders may be able to influence stockholder
decisions, which may conflict with other stockholder interests; and
general economic conditions, including inflation and other factors.
This list of factors should not be construed as exhaustive and
should be read in conjunction with the other precautionary
statements described in our Annual Report filed on Form 10-K and
other filings with the Securities and Exchange Commission
(available at http://www.sec.gov/). Unless otherwise required by
law, we undertake no obligation to publicly update or revise any
forward- looking statement, whether as a result of new information,
future developments or otherwise. If one or more risks or
uncertainties materialize, or if our underlying assumptions
otherwise prove to be incorrect, our actual results may vary
materially from what we project. Any forward-looking statements you
read in this news release reflect our views as of the date of this
press release with respect to future events and are subject to
these and other risks, uncertainties and assumptions relating to
our operations, financial condition, results of operations, growth
strategy and liquidity. All subsequent written and oral
forward-looking statements attributable to us or individuals acting
on our behalf are expressly qualified in their entirety by this
paragraph.
http://www.newscom.com/cgi-bin/prnh/20050801/REPUBLICLOGO
http://photoarchive.ap.org/ DATASOURCE: Republic Companies Group,
Inc. CONTACT: Michael E. Ditto, Esq., Vice President, General
Counsel and Secretary of Republic Companies Group, Inc.,
+1-972-788-6000 Web site: http://www.republicgroup.com/
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