Unico American Corporation Reports Fourth Quarter and Full Year 2008 Results and Announces the Declaration of a Cash Dividend of
UNAM | Quote | Chart | News | PowerRating -- Unico American Corp. (NASDAQ: UNAM | Quote | Chart | News | PowerRating) ("Unico," the "Company") is an
insurance holding company that, through its subsidiaries, including
Crusader Insurance Company, offers a variety of property and casualty
insurance products and services. The Company announced today its
consolidated financial results for the three and twelve months ended
December 31, 2008. Revenues were $11.1 million and net income was $2.1
million ($0.37 diluted income per share) for the quarter ended December
31, 2008, compared with revenues of $12.3 million and net income of $1.8
million ($0.31 diluted income per share) for the quarter ended December
31, 2007. For the twelve months ended December 31, 2008, revenues were
$46.8 million and net income was $5.3 million ($0.93 diluted income per
share), compared with revenues of $50.4 million and net income of $6.7
million ($1.18 diluted income per share) for the twelve months ended
December 31, 2007.
Declaration of Cash Dividend
The Company announced that, at a meeting of the Board of Directors held
on March 23, 2009, the Board declared a cash dividend of $0.18 per
common share. The dividend is payable on May 1, 2009, to shareholders of
record on April 10, 2009, with an ex-dividend date of April 8, 2009.
Brief Review of 2008
The marketplace remains intensely competitive, as more insurers are
competing for the same customers. Also, we consider the nature of the
marketplace to be classically cyclical, in that during parts of the
cycle, such as we see today, many of our competitors price their
insurance at rates we believe are inadequate to support any real profit.
Nonetheless, we believe Crusader can grow its sales and profitability
even in these soft phases of the cycle by continuing to focus upon three
key areas of its operations: (1) product development, (2) improved
service to retail brokers, and (3) appointment of retail agents.
--
Growth Through Product Development:
--
During the year we introduced a number of new programs in several
sectors including a new program for Gasoline Stations; an enhanced
Bars & Taverns program; new coverage enhancement options to
further penetrate the Commercial Buildings niche; a new Trucking
program, for local and long haul truckers; a new Associated
Convenience Stores program; and new offerings in the Used Car
Dealerships, Auto Body Shops and Auto Repair Shops programs. In
many of these cases we added new features, expanded coverage
limits and embarked upon new branding and marketing initiatives.
--
Crusader's recently-assigned A.M. Best Company rating upgrade, to
"A-" from "B++" is perceived as an important product enhancement
because the new rating fulfills eligibility requirements of many
lenders, landlords, risk managers, agents and brokers, not
fulfilled by lower ratings.
--
Our implementation of these product changes yielded varying
results. While all of those results are positive, only a few have
shown to be immediately effective. Specifically, introduction of
our Trucking program and of our Associated Convenience Stores
program was well received by the marketplace, where we are on
track to write first-year combined premiums of over $5,000,000.
--
Unico's health-care division contracted with Blue Shield of
California, creating a broader portfolio of products for our
customers and increasing our opportunity to grow sales.
--
Growth Through Customer Service:
--
During the year we began our search for a third party vendor, to
replace our existing legacy IT system with more current
technology. The new system is expected to improve our marketing
efforts, particularly our planned introduction of web-based
transactions and a retail agency sales force in the field. That
search continues and should be completed within the near future.
--
We overhauled the billing system used in Unico's health-care
division. Our new system satisfies the needs of many customers by
giving significantly more detail for subscribing members and
groups, in a format that meets or exceeds industry standards.
--
We moved a number of processes "on-line" during the year,
including direct-delivery and correspondence options; "paperless"
distribution options for agents and brokers; and an on-line forms
library.
--
We enhanced a number of our customer management procedures
including simplified risk management and engineering mechanisms;
revised policy cancellation and reinstatement procedures; and
revised coverage binding practices for escrow-related transactions.
--
We also improved our agency marketing tactics by introducing a new
promotional program that provides cooperative solicitation tools
to our new agency force and product branding at the retail level.
--
During the fourth quarter we focused substantial effort upon
delivering even more mechanisms of convenience, designed to
impress and attract agents and brokers by providing more efficient
ways for them to conduct their business with us.
--
Based on the feedback from the agents and brokers, the positive
results of our customer service changes have been undeniable.
While it is difficult to quantify or otherwise translate those
results into sales or profits, they are clearly a prerequisite to
our long-term success.
--
Growth Through Sales Force Development:
--
In an effort to increase sales and to reduce the Company's exposure to
marketplace volatility, the Company is developing a dedicated
marketing department. In October 2008, the Company hired a marketing
manager, bringing the total number of employees dedicated exclusively
to marketing to three. Those employees are expected to identify
product development opportunities, promote the Company and its
products to the insurance brokerage community, and to recruit retail
agents so as to bring the Crusader brand directly before the
consumers. Crusader had appointed twelve retail agents as of December
31, 2008, and plans to have approximately twenty-four by the end of
year 2009. We expect that each retail agent will be able to reach an
annual sales volume of approximately one to two million dollars of
Crusader's products within three to five years of their appointment by
the Company.
--
In tandem with our website design changes and in further support of
our retail agency plan, we began the redesign of all marketing
collaterals, to enhance brand recognition and brand appeal at the
retail, consumer level.
--
Our marketing team doubled their agency and association visits during
the fourth quarter, focusing on increased awareness of and commitment
to our products. Their efforts were immediately recognized by a
substantial increase in telephone and emailed applications.
--
We increased our profile at the retail consumer level by joining and
co-participating with affiliate and industry associations. Those
efforts were magnified by our expansion of cooperative advertising
campaigns with our agents. These activities create name recognition
and branding of Crusader products at the retail consumer level which,
in turn, help to generate sales and support for our retail agency
sales force.
Fourth Quarter Highlights
--
Insurance writings and risk portfolio
--
Effective January 27, 2009, A.M. Best Company has upgraded
Crusader's financial strength rating to A- (Excellent) from B++
(Good) and revised Crusader's rating outlook to stable from
positive. In addition, Crusader's Issuer Credit Rating was
upgraded to a- (Excellent) from bbb+ (Good).
--
Declining net written premium is a reflection of an
increasingly-competitive marketplace and of Crusader's
conservative underwriting practice. While there is no statutory
requirement, the net premium to surplus ratio guidelines
established by the National Association of Insurance Commissioners
(NAIC) provide that such ratio should generally be no greater than
3 to 1. Crusader's net premium to surplus ratio is as follows:
Twelve months ended December 31,
Statutory: 2008 2007 2006 2005 2004
Net premiums written $ 31,175,204 $ 33,412,745 $ 38,166,864 $ 46,030,707 $ 51,089,573
Policyholders' surplus $ 64,736,230 $ 57,862,334 $ 50,023,768 $ 36,586,441 $ 29,436,343
Ratio 0.5 to 1 0.6 to 1 0.8 to 1 1.3 to 1 1.7 to 1
The above ratio is not based on U.S. generally accepted accounting
principles (GAAP). It is a financial measure required to be disclosed by
the NAIC, a self-regulatory organization that is applicable to the
Company. See "Information Regarding Non-GAAP Measures."
--
Investment Portfolio:
--
While this was a turbulent quarter for many in the financial
industry, the Company benefited from a conservative investment
strategy. There were no defaults or realized losses on any of the
Company's investments. Fixed maturity investments consisted of
high grade bonds, of which approximately 92% were U.S. treasury
securities. As of December 31, 2008, these fixed maturity
investments had net pre-tax unrealized gains of $7.4 million.
Three Month Period Ended December 31, 2008, Financial Results
For the three months ended December 31, 2008, revenues were $11.1
million and net income was $2.1 million ($0.37 diluted income per
share), compared with revenues of $12.3 million and net income of $1.8
million ($0.31 diluted income per share) for the quarter ended December
31, 2007. The decrease in revenues was largely the result of lower
premiums earned, attributed to the Company's selective risk underwriting
stance during the quarter. As it has throughout most of 2008, when faced
with what it has perceived to be intense competition and inadequate
rates offered by its competitors in many niche markets, the Company has
chosen to write business very selectively.
Net premium earned was $8.1 million, or 72% of revenues, for the three
months ended December 31, 2008, compared to net premium earned of $8.7
million, or 71% of revenues, for the three months ended December 31,
2007.
Net investment income for the three months ended December 31, 2008, was
$1.3 million, compared to $1.7 million for the three months ended
December 31, 2007. Annualized yield on average invested assets was 3.7%
for the three months ended December 31, 2008, compared to 4.7% for the
three months ended December 31, 2007.
Total insurance company revenues were $9.6 million, or 86% of total
revenues, for the three months ended December 31, 2008, compared to
total insurance company revenues of $10.7 million, or 87% of revenues,
for the three months ended December 31, 2007.
Gross commissions and fees were $1.4 million for both the three months
ended December 31, 2008, and for the three months ended December 31,
2007.
Loss and loss adjustment expenses were $3.6 million, or 44% of net
premium earned, for the three months ended December 31, 2008, compared
to $5.1 million, or 58% of net premiums earned, for the three months
ended December 31, 2007. Loss and loss adjustment expenses for the
quarter were net of $1.9 million of favorable development expenses for
the fourth quarter of 2008, compared to $1.0 million of favorable
development expenses in the fourth quarter of 2007.
Policy acquisition costs were $2.0 million, compared to $2.1 million,
and commissions to agents and brokers were $0.3 million and $0.3 million
for the three months ended December 31, 2008 and 2007, respectively.
Total expenses for the three months ended December 31, 2008, were $8.0
million, compared to $9.5 million for the three months ended December
31, 2007.
Twelve Month Period Ended December 31, 2008, Financial Results
For the twelve months ended December 31, 2008, revenues were $46.8
million and net income was $5.3 million ($0.93 diluted income per
share), compared with revenues of $50.4 million and net income of $6.7
million ($1.18 diluted income per share) for the twelve months ended
December 31, 2007.
Net premium earned was $33.9 million, or 73% of revenues, compared to
net premium earned of $37.1 million, or 74% of revenues, for the twelve
months ended December 31, 2007.
Net investment income before realized investment gains for the current
twelve-month period was $5.9 million, compared to $6.8 million for the
twelve months ended December 31, 2007. The yield on average invested
assets was 4.0% for the twelve months ended December 31, 2008, compared
to 4.7% in the twelve months ended December 31, 2007.
Total insurance company revenues were $40.5 million, or 87% of total
revenues, in the twelve months ended December 31, 2008, compared to
total insurance company revenues of $44.1 million, or 88% of revenues,
in the twelve months ended December 31, 2007.
Gross commissions and fees were $5.7 million in the twelve months ended
December 31, 2008, compared to $5.5 million in the twelve months ended
December 31, 2007.
Loss and loss adjustment expenses were $20.6 million, or 61% of net
premium earned, in the twelve months ended December 31, 2008, compared
to $22.2 million, or 60% of net premiums earned, in the twelve months
ended December 31, 2007.
Policy acquisition costs were $8.3 million in the twelve months ended
December 31, 2008, compared to $8.5 million for the twelve months ended
December 31, 2007, and commissions to agents and brokers were $1.3
million in the twelve months ended December 31, 2008, compared to $1.0
million in the twelve months ended December 31, 2007.
Total expenses were $38.8 million for the twelve months ended December
31, 2008, compared to $40.3 million for the twelve months ended December
31, 2007.
Financial Condition
As of December 31, 2008, the Company had investments (at amortized cost)
of $145.0 million. Of these investments, $135.5 million, or 93%, were
fixed maturity investments, and 92% of those fixed maturity investments
were U.S. treasury securities.
Stockholders' equity was $77.0 million as of December 31, 2008, or
$13.81 per common share, including unrealized after-tax investment gains
of $4.9 million, compared to stockholders' equity of $69.1 million, or
$12.28 per common share, including unrealized after-tax investment gains
of $1.9 million, as of December 31, 2007. Book value per share increased
12.5% between December 31, 2007, and December 31, 2008.
Share Repurchase Program
Since the year 2000, the Company's Board of Directors had authorized the
repurchase in the open market from time to time of up to an aggregate of
1,445,000 shares of the common stock of the Company. Included in these
shares is a stock repurchase program to acquire up to 500,000 shares of
the Company's common stock which was authorized by the Company's Board
of Directors on December 19, 2008. During the twelve months ended
December 31, 2008, the Company repurchased 51,092 shares of the
Company's common stock at a cost of $416,583 of which $25,108 was
recorded as a reduction of capital and $391,475 was recorded as a
reduction of retained earnings. As of December 31, 2008, under the stock
repurchase programs previously adopted by the Company, the Company had
remaining authority to repurchase up to an aggregate of 515,467 shares
of common stock. During the months of January and February 2009, the
Company purchased an additional 6,688 shares of its common stock at a
total cost of $51,866. The Company has or will retire all stock
purchased.
"The year of 2008 has been one of substantial progress for the Company,"
said Mr. Erwin Cheldin, President of Unico. "To have operated so
profitably, while underwriting new business in a conservative fashion
and at the same time establishing new marketing platforms, developing
new business niches and moving our systems architecture towards 21st
century systems reflects very creditably on our people and processes. I
thank all of the Unico staff and management for the part each of them
has played in the Company's performance over the last year and for their
contributions to its future."
Information Regarding Non-GAAP Measures
The Company has presented information within this document containing
operating measures which in management's opinion provide investors with
useful, industry-specific information to help them evaluate and perform
meaningful comparisons of the Company's performance, but that may not be
presented in accordance with U.S. generally accepted accounting
principles. These measures are not intended to replace, and should be
read in conjunction with, the GAAP financial results.
About Unico American Corp.
Headquartered in Woodland Hills, California, Unico is an insurance
holding company that underwrites property and casualty insurance through
its insurance company subsidiary; provides property, casualty, and
health insurance through its agency subsidiaries; and through its other
subsidiaries provides insurance premium financing and membership
association services. Unico has conducted the majority of its operations
through Crusader Insurance Company since 1985. For more information,
please visit the Company's Web site at www.crusaderinsurance.com.
Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995: Certain statements contained herein that are not historical
facts are forward looking. These statements, which may be identified by
forward-looking words or phrases such as "anticipate," "believe,"
"expect," "intend," "may," "should," and "would," involve risks and
uncertainties, many of which are beyond the control of the Company. Such
risks and uncertainties could cause actual results to differ materially
from these forward-looking statements. Factors which could cause actual
results to differ materially include underwriting actions not being
effective, rate increases for coverages not being sufficient, premium
rate adequacy relating to competition or regulation, actual versus
estimated claim experience, regulatory changes or developments,
unforeseen calamities, general market conditions, and the Company's
ability to introduce new profitable products.
UNICO AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($ in thousands, except per share)
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Revenues
Insurance Company Revenues
Premium earned $ 10,202 $ 11,476 $ 42,721 $ 48,662
Premium ceded 2,125 2,739 8,771 11,532
Net premium earned 8,077 8,737 33,950 37,130
Investment income 1,336 1,695 5,829 6,695
Realized investment gains - - 6 -
Other income 211 255 743 312
Total Insurance Company Revenues 9,624 10,687 40,528 44,137
Other Revenues from Insurance Operations
Gross commissions and fees 1,406 1,420 5,706 5,516
Investment income 10 37 61 152
Finance charges and fees earned 107 130 460 554
Other income 3 4 14 14
Total Revenues 11,150 12,278 46,769 50,373
Expenses
Losses and loss adjustment expenses 3,566 5,079 20,593 22,182
Policy acquisition costs 2,047 2,068 8,261 8,465
Salaries and employee benefits 1,302 1,393 5,631 5,710
Commissions to agents/brokers 320 296 1,280 1,003
Other operating expenses 735 648 3,020 2,940
Total Expenses 7,970 9,484 38,785 40,300
Income Before Taxes 3,180 2,794 7,984 10,073
Income Tax Expense 1,083 1,016 2,701 3,361
Net Income $ 2,097 $ 1,778 $ 5,283 $ 6,712
PER SHARE DATA
Basic
Earnings Per Share $ 0.38 $ 0.32 $ 0.94 $ 1.20
Weighted Average Shares (000) 5,584 5,625 5,615 5,614
Diluted
Earnings Per Share $ 0.37 $ 0.31 $ 0.93 $ 1.18
Weighted Average Shares (000) 5,622 5,679 5,656 5,682
OPERATING RATIOS-GAAP BASIS
Losses and Loss Adjustment Expenses 44.2 % 58.1 % 60.7 % 59.7 %
Underwriting Expenses 25.3 % 23.7 % 24.3 % 22.8 %
Combined Ratio 69.5 % 81.8 % 85.0 % 82.5 %
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($ in thousands)
December 31, December 31,
2008 2007
ASSETS
Investments
Available for sale:
Fixed maturities, at market value (amortized cost: December 31, 2008 $ 142,972 $ 142,896
$135,540; December 31, 2007 $139,992)
Short-term investments, at cost 9,502 7,356
Total Investments 152,474 150,252
Cash 28 109
Accrued investment income 1,301 1,555
Premiums and notes receivable, net 4,681 5,067
Reinsurance recoverable:
Paid losses and loss adjustment expenses 114 318
Unpaid losses and loss adjustment expenses 19,816 28,425
Deferred policy acquisition costs 5,220 5,723
Property and equipment (net of accumulated depreciation) 360 557
Deferred income taxes - 687
Other assets 609 1,083
Total Assets $ 184,603 $ 193,776
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses $ 78,655 $ 94,731
Unearned premiums 19,962 22,743
Advance premium and premium deposits 1,193 2,159
Income taxes payable 559 -
Deferred Income taxes 795 -
Accrued expenses and other liabilities 6,481 5,040
Total Liabilities $ 107,645 $ 124,673
STOCKHOLDERS' EQUITY
Common stock, no par - authorized 10,000,000 shares; issued and $ 3,569 $ 3,594
outstanding shares 5,574,315 at December 31, 2008, and 5,625,308
at December 31, 2007
Accumulated other comprehensive gain 4,905 1,916
Retained earnings 68,484 63,593
Total Stockholders' Equity $ 76,958 $ 69,103
Total Liabilities and Stockholders' Equity $ 184,603 $ 193,776
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2008 AND 2007
(UNAUDITED)
($ in thousands)
Year Ended
December 31,
2008 2007
Cash Flows from Operating Activities:
Net Income $ 5,283 $ 6,712
Adjustments to reconcile net income to net cash from operations
Depreciation 212 239
Bond amortization, net 287 (34 )
Net realized investment gains (6 ) -
Changes in assets and liabilities
Premium, notes and investment income receivable 639 983
Reinsurance recoverable 8,813 (4,956 )
Deferred policy acquisitions costs 503 707
Other assets 48 47
Reserve for unpaid losses and loss adjustment expenses (16,076 ) 1,135
Unearned premium reserve (2,781 ) (3,691 )
Funds held as security and advanced premiums (967 ) 357
Accrued expenses and other liabilities 1,442 245
Tax benefit from disqualified incentive options - (61 )
Income taxes current/deferred 927 (1,797 )
Net Cash Provided (Used) by Operating Activities (1,676 ) (114 )
Investing Activities
Purchase of fixed maturity investments (63,595 ) (69,741 )
Proceeds from maturity of fixed maturity investments 67,260 70,275
Proceeds from sale of fixed maturity investments 506 -
Net decrease (increase) in short-term investments (2,146 ) (536 )
Additions to property and equipment (14 ) (57 )
Net Cash Provided (Used) by Investing Activities 2,011 (59 )
Financing Activities
Proceeds from exercise of stock options - 301
Tax benefit from disqualified incentive options - 61
Repurchase of common stock (416 ) (115 )
Net Cash Provided (Used) by Financing Activities (416 ) 247
Net increase (decrease) in cash (81 ) 74
Cash at beginning of period 109 35
Cash at End of Period $ 28 $ 109
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $ 1,800 $ 5,151
SOURCE: Unico American Corp.
CCG Investor Relations
Mark Collinson, 310-954-1343
For full details on Unico American Corp (UNAM) UNAM. Unico American Corp (UNAM) has Short Term PowerRatings at TradingMarkets. Details on Unico American Corp (UNAM) Short Term PowerRatings is available at This Link.
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