Zenith Announces Third Quarter Results
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WOODLAND HILLS, Calif.--(BUSINESS WIRE)-- Zenith National Insurance Corp. (NYSE: ZNT) reported net income for the third quarter 2009 of $19.2 million, or $0.51 per share, compared to net income for the third quarter 2008 of $16.6 million, or $0.44 per share. Net income for the nine months ended September 30, 2009 was $23.6 million, or $0.62 per share, compared to net income for the nine months ended September 30, 2008 of $86.9 million, or $2.32 per share.
Net income includes net realized gains on investments after tax of $13.4 million and $17.0 million ($0.35 per share and $0.45 per share) for the three and nine months ended September 30, 2009, respectively, compared to net realized losses on investments after tax of $5.8 million and $4.4 million ($0.15 per share and $0.12 per share) for the corresponding periods of 2008.
Net investment income before tax was $20.5 million and $68.1 million for the three and nine months ended September 30, 2009, respectively, compared to $22.9 million and $68.4 million for the corresponding periods of 2008. The annualized pre-tax yield on our investment portfolio for the three and nine months ended September 30, 2009 was 4.3% and 4.8%, respectively, compared to approximately 4.5% for both the corresponding periods of 2008.
The market value of our available-for-sale investment portfolio improved 2% during the third quarter 2009 to an unrealized gain before tax of $55.6 million at September 30, 2009, compared to an unrealized gain of $10.2 million at June 30, 2009 and an unrealized loss before tax of $77.3 million at December 31, 2008.
Workers' compensation underwriting loss before tax was $8.5 million and $49.4 million for the three and nine months ended September 30, 2009, respectively, compared to underwriting income before tax of $15.3 million and $81.8 million for the corresponding periods of 2008. The workers' compensation combined ratio improved to 107.4% in the third quarter 2009 compared to 115.1% in the second quarter 2009, primarily as a result of a net reduction in policyholders' dividends for prior years.
Stockholders' equity per share at September 30, 2009, June 30, 2009, March 31, 2009 and December 31, 2008 was $28.93, $28.11, $26.82 and $27.42, respectively. Stockholders' equity per share before stockholder dividends increased by 11% from December 31, 2008 to September 30, 2009. The reduction in our stockholders' equity per share from its all time high of $29.58 as of March 31, 2008 to $28.93 at September 30, 2009 is less than the $3.40 dividends paid to stockholders during this period.
Commenting on the results, Stanley R. Zax, Chairman and President, said: "Book value per share plus stockholder dividends increased approximately 5% in the third quarter 2009 primarily because of the improvement in the market value of our investments. When the economy improves, we are optimistic that our excellent financial condition will provide the basis upon which we can find opportunities to grow our business."
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements if accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed. Forward-looking statements include those related to the plans and objectives of management for future operations, future economic performance, or projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure, or other financial items. Statements containing words such as expect, anticipate, believe, estimate, likely or similar words that are used in this release or in other written or oral information conveyed by or on behalf of Zenith are intended to identify forward-looking statements. Zenith undertakes no obligation to update such forward-looking statements, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to the following: 1) volatility in the financial markets, including the duration of the recent crisis and the effectiveness of governmental solutions; 2) economic recession; 3) competition; 4) decreased payroll levels of our customers; 5) medical cost trends; 6) regulatory restrictions on investments; 7) changes in state and federal legislation and regulation; 8) changes in interest rates causing fluctuations of investment income and fair values of investments; 9) changes in the frequency and severity of claims and catastrophes; 10) adequacy of loss reserves; 11) changing environment for controlling medical, legal and rehabilitation costs, as well as fraud and abuse; 12) losses associated with any terrorist attacks that impact our workers' compensation business for amounts not covered by our reinsurance protection; 13) losses caused by nuclear, biological, chemical or radiological events whether or not there is any applicable reinsurance protection; and 14) other risks detailed herein and from time to time in Zenith's reports and filings with the Securities and Exchange Commission.
(Selected financial data attached)
ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(In
thousands, 2009 2008 2009 2008
except per
share data)
TOTAL $ 156,888 $ 166,952 $ 444,578 $ 528,072
REVENUES
SELECTED
INCOME DATA:
Net
investment $ 13,633 $ 15,475 $ 45,769 $ 46,315
income after
tax
Net realized
gains
(losses) on 13,419 (5,774 ) 17,005 (4,352 )
investments
after tax (1)
Income from
investments 27,052 9,701 62,774 41,963
segment after
tax
Net income $ 19,200 $ 16,600 $ 23,600 $ 86,900
NET INCOME
PER COMMON
SHARE (1):
Basic $ 0.51 $ 0.45 $ 0.62 $ 2.34
Diluted 0.51 0.44 0.62 2.32
CASH
DIVIDENDS $ 0.50 $ 0.50 $ 1.50 $ 1.50
DECLARED PER
COMMON SHARE
STOCKHOLDERS'
EQUITY (as of
September 30,
2009 and
2008):
Stockholders' $ 1,081,207 $ 1,044,555
equity
Stockholders'
equity per 28.93 28.04
common share
(2)
NUMBER OF
COMMON
SHARES:
Outstanding
(as of
September 30, 37,367 37,254
2009 and
2008)
Weighted
average for 37,353 37,248 37,342 37,190
the period -
basic
Weighted
average for 37,353 37,424 37,342 37,387
the period -
diluted
Net realized gains on investments after tax were $0.35 per share and $0.45
per share for the three and nine months ended September 30, 2009,
respectively, compared to net realized losses on investments after tax of
$0.15 per share and $0.12 per share for the corresponding periods of 2008.
There were no other-than-temporary impairments recorded during the three
(1) months ended September 30, 2009. Net realized gains on investments for the
nine months ended September 30, 2009 are net of other-than-temporary
impairments of $12.4 million after tax, or $0.33 per share. Net realized
losses on investments for the three and nine months ended September 30,
2008 include other-than-temporary impairments of $9.9 million after tax, or
$0.27 per share and $15.5 million after tax, or $0.41 per share,
respectively.
Stockholders' equity at September 30, 2009 includes net unrealized gains on
(2) our investment portfolio, after deferred tax, of $0.97 per share compared
to net unrealized losses of $1.43 per share at September 30, 2008.
ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(In 2009 2008 2009 2008
thousands)
TOTAL
REVENUES:
Net premiums $ 115,702 $ 152,962 $ 350,308 $ 466,362
earned
Net
investment 20,541 22,873 68,108 68,405
income
Net realized
gains
(losses) on 20,645 (8,883 ) 26,162 (6,695 )
investments
(1)
$ 156,888 $ 166,952 $ 444,578 $ 528,072
RESULTS OF
OPERATIONS
(2):
Investments
segment:
Net
investment $ 20,541 $ 22,873 $ 68,108 $ 68,405
income
Net realized
gains
(losses) on 20,645 (8,883 ) 26,162 (6,695 )
investments
(1)
41,186 13,990 94,270 61,710
Workers'
compensation (8,526 ) 15,268 (49,366 ) 81,767
segment (3)
Reinsurance 87 (94 ) (42 ) (107 )
segment (4)
Parent (5) (3,108 ) (3,086 ) (9,162 ) (9,145 )
Income before 29,639 26,078 35,700 134,225
tax
Income tax 10,439 9,478 12,100 47,325
expense
NET INCOME $ 19,200 $ 16,600 $ 23,600 $ 86,900
There were no other-than-temporary impairments recorded during the three
months ended September 30, 2009. Net realized gains on investments before
tax for the nine months ended September 30, 2009 are net of
(1) other-than-temporary impairments of $19.1 million. Net realized losses on
investments for the three and nine months ended September 30, 2008 include
other-than-temporary impairments of $15.3 million and $23.8 million,
respectively.
(2) See Supplemental Financial Information for a description of segment
results.
(3) See Workers' Compensation Segment in the following tables.
(4) In September 2005, we exited the assumed reinsurance business and ceased
writing and renewing assumed reinsurance contracts.
Includes interest expense before tax of $1.3 million in both of the three
(5) months ended September 30, 2009 and 2008 and $3.9 million in both of the
nine months ended September 30, 2009 and 2008.
ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)
Three Months Ended September 30,
(Dollars in thousands) 2009 2008
WORKERS' COMPENSATION SEGMENT (1):
Gross premiums written:
California $ 70,207 59.7 % $ 86,750 56.3 %
Outside California 47,487 40.3 67,439 43.7
Total $ 117,694 100.0 % $ 154,189 100.0 %
Net premiums written:
California $ 68,105 59.9 % $ 84,119 56.3 %
Outside California 45,684 40.1 65,370 43.7
Total $ 113,789 100.0 % $ 149,489 100.0 %
Net premiums earned:
California $ 68,616 59.3 % $ 85,990 56.3 %
Outside California 47,050 40.7 66,741 43.7
Total $ 115,666 100.0 % $ 152,731 100.0 %
Underwriting (loss) income before $ (8,526 ) 107.4 % $ 15,268 90.0 %
tax/combined ratio
Workers' compensation calendar year combined ratios, along with a reconciliation to the accident year combined ratios, were as follows (1):
Three Months Ended September 30,
2009 2008
Favorable Favorable
Calendar Prior Accident Calendar (Unfavorable) Accident
Period
Year Year Year Prior Period Year
Development
Development
Losses and
loss 69.5 % 69.5 % 49.1 % 15.5 % 64.6 %
adjustment
expenses
Underwriting
and other 42.5 42.5 37.2 37.2
operating
expenses
Policyholders' (4.6 ) 9.6 % 5.0 3.7 (1.6 ) 2.1
dividends
Combined ratio 107.4 % 9.6 % 117.0 % 90.0 % 13.9 % 103.9 %
(1) See Supplemental Financial Information for a description of segment
results, "Premiums Written" and "Combined Ratio."
The change in the underwriting (loss) income before tax and the combined
ratio for the three months ended September 30, 2009 compared to the three
months ended September 30, 2008 principally reflects the decline in
premiums earned and no prior period loss reserve development recognized in
2009 compared to $23.6 million of favorable development recognized in 2008.
Policyholders' dividends for the three months ended September 30, 2009
reflect an $11.1 million reduction in our estimated Florida policyholders'
dividends for prior accident years, partially offset by a $3.7 million
increase in our current estimated California policyholders' dividends.
Premiums decreased for the three months ended September 30, 2009 compared
to the three months ended September 30, 2008 as a result of: 1) fewer
policies in-force due to competition in relation to our risk management
practices; 2) increased unemployment and declining payrolls for many
insureds due to the recession; and 3) net reductions in Florida premium
rates year over year, offset in part by California premium rate increases.
ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)
Nine Months Ended September 30,
(Dollars in thousands) 2009 2008
WORKERS' COMPENSATION SEGMENT (1):
Gross premiums written:
California $ 209,253 57.7 % $ 260,989 54.6 %
Outside California 153,183 42.3 216,730 45.4
Total $ 362,436 100.0 % $ 477,719 100.0 %
Net premiums written:
California $ 203,135 57.8 % $ 253,324 54.7 %
Outside California 148,292 42.2 210,007 45.3
Total $ 351,427 100.0 % $ 463,331 100.0 %
Net premiums earned:
California $ 200,977 57.4 % $ 254,508 54.7 %
Outside California 149,403 42.6 210,816 45.3
Total $ 350,380 100.0 % $ 465,324 100.0 %
Underwriting (loss) income before $ (49,366 ) 114.1 % $ 81,767 82.4 %
tax/combined ratio
Workers' compensation calendar year combined ratios, along with a reconciliation to the accident year combined ratios, were as follows (1):
Nine Months Ended September 30,
2009 2008
Favorable Favorable
Calendar Prior Accident Calendar (Unfavorable) Accident
Period
Year Year Year Prior Period Year
Development
Development
Losses and
loss 71.3 % 71.3 % 41.9 % 13.3 % 55.2 %
adjustment
expenses
Underwriting
and other 43.2 43.2 36.7 36.7
operating
expenses
Policyholders' (0.4 ) 3.2 % 2.8 3.8 (1.6 ) 2.2
dividends
Combined ratio 114.1 % 3.2 % 117.3 % 82.4 % 11.7 % 94.1 %
(1) See Supplemental Financial Information for a description of segment
results, "Premiums Written" and "Combined Ratio."
The change in the underwriting (loss) income before tax and the combined
ratio for the nine months ended September 30, 2009 compared to the nine
months ended September 30, 2008 principally reflects the decline in
premiums earned and no prior period loss reserve development recognized in
2009 compared to $61.8 million of favorable development recognized in 2008.
Policyholders' dividends for the nine months ended September 30, 2009
reflect an $11.1 million reduction in our estimated Florida policyholders'
dividends for prior accident years, partially offset by a $3.7 million
increase in our current estimated California policyholders' dividends.
Premiums decreased for the nine months ended September 30, 2009 compared to
the nine months ended September 30, 2008 as a result of: 1) fewer policies
in-force due to competition in relation to our risk management practices;
2) increased unemployment and declining payrolls for many insureds due to
the recession; and 3) net reductions in Florida premium rates year over
year, offset in part by California premium rate increases.
ZENITH NATIONAL INSURANCE CORP.
Supplemental Financial Information
(Unaudited)
HOW WE REPORT OUR RESULTS
Our business is comprised of the
following segments: investments, workers' compensation and reinsurance.
In September 2005, we exited the assumed reinsurance business. Results
of the investments segment include net investment income and net
realized gains or losses on investments. We do not allocate investment
income to other segments. Income or loss before tax from the workers'
compensation and reinsurance segments is determined by deducting losses
and loss adjustment expenses incurred and underwriting and other
operating expenses from net premiums earned (this result is also known
as underwriting income or loss). The parent loss includes interest
expense and the general operating expenses of our parent company, Zenith
National Insurance Corp.
NON-GAAP MEASURES
In addition to the financial measures
presented in the consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America ("GAAP"), we also use certain non-GAAP financial
measures to analyze and report our financial results. Management
believes that these non-GAAP measures, when used in conjunction with the
consolidated financial statements, can aid in understanding our
financial condition and results of operations. These non-GAAP measures
are not a substitute for GAAP measures, and where these measures are
described we provide information that reconciles the non-GAAP measures
to the most comparable GAAP measures reported in our consolidated
financial statements.
Combined Ratio
The combined ratio, expressed as a
percentage, is a key measurement of profitability traditionally used in
the property-casualty insurance business. The combined ratio, also
referred to as the "calendar year combined ratio," is the sum of the
losses and loss adjustment expense ratio and the underwriting and other
operating expense ratio. The losses and loss adjustment expense ratio is
the percentage of net losses and loss adjustment expenses incurred to
net premiums earned. The underwriting and other operating expense ratio
is the percentage of underwriting and other operating expenses to net
premiums earned. When the calendar year combined ratio is adjusted to
exclude prior period items, such as loss reserve development and
policyholders' dividends, it becomes the "accident year combined ratio,"
a non-GAAP financial measure.
Net Cash Flow from Insurance Operations
Net cash flow
from our workers' compensation and assumed reinsurance operations are
non-GAAP financial measures that represent the following on a pre-tax
basis: premiums collected less losses, loss adjustment expenses,
underwriting and other operating expenses paid. The net cash flows from
the insurance operations, in addition to investment income received,
interest and other expenses paid by our parent company, and income taxes
refunded (paid) are included in net cash provided by operating
activities, the most comparable GAAP financial measure. The following
table provides a reconciliation of the net cash flow from our workers'
compensation and assumed reinsurance operations to the net cash provided
by operating activities shown in the consolidated financial statements:
Three Months Ended September 30, Nine Months Ended September 30,
(In 2009 2008 2009 2008
thousands)
Net cash flow
from workers' $ (19,707 ) $ (2,440 ) $ (69,130 ) $ 14,577
compensation
operations
Net cash flow
from assumed (1,838 ) (2,209 ) (5,293 ) (11,180 )
reinsurance
operations
Investment
income 20,520 22,511 70,228 64,191
received
Interest and
other (3,736 ) (3,628 ) (10,665 ) (10,011 )
expenses paid
by parent
Income taxes
refunded 18,205 (13,959 ) 18,200 (56,694 )
(paid)
Net cash
provided by $ 13,444 $ 275 $ 3,340 $ 883
operating
activities
In periods in which net cash flow from operating activities is negative, such cash flow is offset by cash flow from investing activities, principally from short-term investments and maturities of longer-term investments. We maintain a portfolio of invested assets with varying maturities and a substantial amount of short-term investments to provide adequate liquidity.
ZENITH NATIONAL INSURANCE CORP.
Supplemental Financial Information
(Unaudited)
Premiums Written
Gross premiums written is a non-GAAP
financial measure representing the amount of premiums we have billed to
our policyholders in the applicable period. It is indicative of the
amount of cash premium, before commission expense, that we expect to
receive from our policies. Net premiums written are premiums we have
billed to our policyholders less any reinsurance premiums ceded. Net
premiums earned, a GAAP measure, represent the portion of premiums
written that is recognized as earned in the consolidated financial
statements for the periods presented. Premiums are earned on a pro-rata
basis over the term of the policies. The following table provides a
reconciliation of workers' compensation gross and net premiums written
to net premiums earned:
Three Months Ended September 30, Nine Months Ended September 30,
(In 2009 2008 2009 2008
thousands)
Workers'
compensation:
Gross
premiums $ 117,694 $ 154,189 $ 362,436 $ 477,719
written
Ceded
premiums (3,905 ) (4,700 ) (11,009 ) (14,388 )
written
Net premiums 113,789 149,489 351,427 463,331
written
Change in
unearned
premiums, net 1,877 3,242 (1,047 ) 1,993
of
reinsurance
Net premiums $ 115,666 $ 152,731 $ 350,380 $ 465,324
earned
Source: Zenith National Insurance Corp.
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