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Hamilton, Bermuda, February 20, 1996 -- Mutual Risk Management Ltd. (NYSE:MM) today reported operating results for the fourth quarter and the year ended December 31, 1995 as follows:
(a) 1994 results have been restated to reflect a pooling of interests following the acquisition of CFM Insurance Managers Ltd. This pooling had no effect on EPS in any period presented.
In a joint statement Robert A. Mulderig, Chairman and Chief Executive Officer and John Kessock, Jr., President said: "The results for the 1995 fourth quarter and full year were excellent producing significant growth in Risk management fees which were up 18% and Operating income which was up 23% for the year. This was accomplished in a workers' compensation market that, although more competitive, continued to produce strong demand for the Company's "Alternative Market" services. The results were helped by the addition of a significant volume of "Program Business" and the excellent performance of the Company's Brokerage and Captive management operations."
Operating income for the fourth quarter of 1995 amounted to $7.8 million a 22% increase over the fourth quarter of 1994 which produced $6.4 million. Fourth quarter Operating income per Common Share amounted to $0.57 a 19% increase over the $0.48 produced in 1994. Operating income for the full 1995 year amounted to $30.3 million, or $2.22 per Common Share, a 21% increase, on a per share basis, from $24.6 million, or $1.84 per Common Share in 1994.
Legion Insurance Company ("Legion"), the Company's policy-issuing subsidiary, added 19 new programs during the fourth quarter and 80 new programs during the 1995 year as compared to 14 and 66 in the respective 1994 periods. Legion's renewal rate declined slightly to 76% for the fourth quarter and 80% for the 1995 year as compared to 91% and 84% in the respective 1994 periods. In California, Legion added 1 new program in the fourth quarter and 6 for the year as compared to 5 in 1994. The renewal rate for the California programs was 75% in the fourth quarter and 74% for 1995 as compared to 50% and 78% in 1994. A number of California workers' compensation insurers have recently filed for substantial rate increases which may be an early sign of improvement in that market, although the filings do not represent premiums actually charged because of open-rating in California.
Risk management fees increased 13% to $15.1 million for the fourth quarter and 18% to $59.8 million for 1995 as compared to $13.4 million and $50.5 million respectively in 1994. Fees in the fourth quarter were adversely affected by the loss of one account which produced significant fees in the 1994 fourth quarter but was not renewed by the Company. The pre-tax profit margin on Risk management fees amounted to 43% for the fourth quarter and 45% for the whole of 1995, as compared to 44% and 46% in the corresponding periods of 1994. Gross premiums written increased 8% to $328.9 million for 1995 as compared to $305.3 million in 1994. Premiums earned decreased 61% and 29% compared to the corresponding quarter and twelve months of 1994. The decreases in earned premiums reflect a continued increase in the use of large deductible policies which were introduced by the Company in California during 1995 and lower premiums in California due to rate reductions, but are offset by corresponding reductions in Total insurance costs which decreased by 60% and 29% respectively.
The Company's Captive management and Brokerage operations performed well in 1995 contributing Risk management fees of $2.0 million and $8.0 million in the 1995 fourth quarter and full year respectively, increases of 64% and 91% as compared to $1.2 million and $4.2 million in 1994. Pre-tax operating income for these operations amounted to $.7 million for the fourth quarter and $3.0 million for the full year as compared to $.3 million and $1.1 million in 1994. These operations included fees of $.4 million and $1.6 million for the fourth quarter and twelve months of 1995 from Shoreline Mutual Management (Bermuda) Ltd. its first year of operation.
Investment income for the fourth quarter and twelve months of 1995 amounted to $5.1 million and $16.1 million, increases of 68% and 41% respectively from the 1994 periods as a result of an increase in invested assets and generally higher yields on the Company's fixed income portfolio. The fourth quarter reflects the investment of the net proceeds of $112 million related to the Company's Zero Coupon Convertible Debenture Offering which was completed on October 30, 1995.Operating expenses amounted to $8.6 million for the fourth quarter, and $32.7 million for the whole of 1995, increases of 15% and 20% over the corresponding 1994 periods. The increase in operating expenses is attributable to the growth in personnel and other expenses resulting from the increased number of client programs and the increased business of the Company's Brokerage and Captive management operations.
The Company has reached an agreement through a U.S. subsidiary to acquire Dearborn Insurance Company, an Illinois domiciled insurer which is approved as a surplus lines insurer in thirty-three states. Dearborn is presently a subsidiary of AON Corporation. The acquisition, which is expected to close in the second quarter of 1996, is subject to regulatory approval. The purchase price will be $2.8 million above the adjusted policyholders' surplus as of the closing. Another AON subsidiary will assume all existing insurance liabilities of Dearborn. The Company will seek to change Dearborn's name to Legion Indemnity Company and will increase its policyholders' surplus to at least $25 million. Messrs. Mulderig and Kessock, in commenting on the Dearborn acquisition, said, "We are delighted to have found a surplus lines company that we can acquire without exposing the Company to the risk of adverse development on existing reserves. A surplus lines company will allow us significantly more regulatory flexibility in responding to our clients needs for policy forms and rating plans, particularly in our growing book of "Program Business"."
On October 30, 1995 the Company completed a private placement of Zero Coupon Convertible Exchangeable Subordinated Debentures due 2015 with a principal amount at maturity of $324.3 million. The net proceeds to the Company from the offering were $112.0 million after expenses. The Debentures carry a yield of 5.25% per annum and are convertible into 8.0698 Common Shares of the Company per $1,000 principal amount at maturity or an aggregate of 2,617,050 Common Shares. In December 1995 $14 million of the proceeds of this offering were used to repay bank debt and another $10 million contributed to the capital of Legion which resulted in Legion's statutory surplus at December 31, 1995 exceeding $100 million. The remaining proceeds will be used to capitalize Legion Indemnity Company, to provide additional investment in Legion and for general corporate purposes.
Standard & Poor's Insurance Rating Services recently upgraded Legion's claims paying ability rating to "A+" from "A".
The Company acquired Professional Underwriters Corp. ("PUC") on January 1, 1996. PUC specializes in placing and managing "Program Business" which is a growing segment of the Company's product line in which third parties other than the insured, typically the broker and reinsurer, finance the insured risk and participate in any underwriting profit or loss. PUC operates as an underwriting manager and service provider for "Program Business", and through its Prowriter division, manages "Alternative Market" insurance programs.
The Company's Board of Directors have authorized a four-for-three split of the Company's Common Shares. The stock split is subject to approval by shareholders at the Company's Annual General Meeting on May 15, 1996 of a resolution increasing the number of authorized Common Shares. If approved, the stock split will be effected by means of a 33% stock distribution to shareholders of record as of May 31, 1996. The record date for the Annual General Meeting is March 15, 1996.
Mutual Risk Management Ltd. provides risk management services to clients in the United States, Canada and Europe seeking alternatives to traditional commercial insurance for certain of their risk exposures, especially workers' compensation. Mutual Risk Management Ltd. (MM) Common Shares are listed on the New York and Bermuda stock exchanges.
Fourth Quarter Ended December 31,
1995
1994
(thousands except per share data)
PER
COMMON
SHARE(c)PER
COMMON
SHARE(c)
Operating income (a)
$7,831
$0.57
$6,430
$0.48
Realized capital losses (b)
(484)
(0.04)
(262)
(0.02)
-----
-----
-----
-----
Net income available to
Common Shareholders (a)$7,347
$0.53
$6,168
$0.46
Average number of
shares outstanding13,828
13,423
Year Ended December 31,
1995
1994
(thousands except per share data)
PER
COMMON
SHARE(c)PER
COMMON
SHARE(c)
Operating income (a)
$30,307
$2.22
$24,621
$1.84
Realized capital losses (b)
(551)
(0.04)
(571)
(0.04)
-----
-----
-----
-----
Net income available to
Common Shareholders (a)$29,756
$2.18
$24,050
$1.80
Average number of
shares outstanding13,669
13,377
(b) Net of tax.
(c) Fully diluted Net income available to Common Shareholders for the 1995 fourth quarter and full year were $0.54 and $2.18 per share respectively. There was no difference between primary and fully diluted EPS in 1994.
P.O. Box HM 2064, 44 Church Street
Hamilton HM HX, Bermuda
Tel: (441) 295-5688 Fax: (441) 292-1867