EX-99 3 exhibit99.txt PMA CAPITAL [LOGO OMITTED] Mellon Bank Center Suite 2800 1735 Market Street Philadelphia, PA 19103-7590 PRESS RELEASE For Release: Immediate Contact: Albert D. Ciavardelli (215) 665-5063 PMA Capital's Second Quarter 2002 Results Include Significant ------------------------------------------------------------- Rise in Operating Earnings for Core Businesses ---------------------------------------------- Philadelphia, PA, July 30, 2002 -- PMA Capital (NASDAQ: PMACA) today announced strong premium growth and a significant increase in operating income in its core businesses for the second quarter of 2002. Operating income (loss) excludes net realized investment results and therefore differs from net income (loss) under generally accepted accounting principles. Excluding run-off operations, after-tax operating income was $10.5 million, or $0.34 per diluted share, for the second quarter of 2002, compared with $5.0 million, or $0.23 per diluted share, for the same period last year. PMA Capital had previously announced on May 1, 2002 its decision to withdraw from the excess and surplus lines (E&S) marketplace previously served by its Caliber One operating segment. As a result of the decision to exit this business, the results of this segment are now reported as run-off operations. Including run-off operations we had an after-tax operating loss of $18.3 million, or $0.59 per diluted share, for the quarter. These second quarter results reflect the previously announced after-tax charge of $28 million, or $0.90 per diluted share, associated with our exit from and run-off of the E&S business. "I am very pleased with the execution we are getting from both of our well-established specialty insurance businesses. PMA Re and The PMA Insurance Group continue to enjoy excellent growth in premiums and operating earnings in an exceptionally strong underwriting environment. Business flow is quite strong with record levels of submissions affording our underwriters the opportunity to select the better risks, with better terms and conditions," stated John W. Smithson, President and Chief Executive Officer of PMA Capital. "Our outlook for the remainder of 2002 is for continued favorable underwriting conditions, which we expect will enable us to achieve our full year plan for PMA Re and The PMA Insurance Group. Given the strength of the current underwriting environment and our outlook for continued growth into 2003, we intend to remain disciplined in our underwriting and continue to seek out profitable growth opportunities in our markets. Our effective $250 million universal shelf registration statement should provide PMA Capital with the financial flexibility and capital raising capacity necessary to continue to provide excellent support to our insurance businesses," continued Mr. Smithson. Excluding run-off operations, for the first six months of 2002, PMA Capital reported after-tax operating income of $20.4 million, or $0.65 per diluted share, compared to pro forma after-tax operating income of $8.7 million, or $0.40 per diluted share, for the same period last year. Including run-off operations, we had after-tax operating losses of $36.5 million, or $1.17 per diluted share, in the first six months of 2002. For the six months ended June 30, 2001 after-tax operating income was $10.7 million, or $0.49 per diluted share. Results for the first six months of 2001 include an after-tax gain of $6.3 million, or $0.29 per diluted share, from the sale of real estate, as well as a tax benefit of $10.1 million, or $0.46 per diluted share, resulting from the completion of an IRS examination. Partially offsetting the favorable impact on earnings from these events were after-tax operating losses of $14.4 million, or $0.66 per diluted share, for the run-off operations. Pro forma 2001 after-tax operating income excludes the effects of these non-recurring events. Net Income (Loss) ----------------- PMA Capital recorded a net loss of $29.7 million, or $0.95 per diluted share, for the second quarter of 2002, compared to net income of $6.0 million, or $0.28 per diluted share, for the second quarter of 2001. For the first six months of 2002, we recorded a net loss of $47.0 million, or $1.50 per diluted share, compared with net income of $14.1 million, or $0.65 per diluted share, for the comparable period last year. Included in the net loss for the second quarter and first six months of 2002 were after-tax net realized investment losses of $11.4 million and $10.5 million, primarily reflecting impairment losses of $10.3 million after-tax on fixed income securities, including a $9.2 million after-tax loss for WorldCom, Inc. bonds. For the three and six months ended June 30, 2001, after-tax net realized gains were $1.0 million and $3.5 million, respectively. Operating Revenues ------------------ Operating revenues include net premiums earned, net investment income and other service revenues. Operating revenues for the second quarter of 2002 and 2001 were $301.7 million and $215.5 million, respectively. For the first six months of 2002, operating revenues were $527.7 million, compared to $405.4 million for the same period in 2001. The 40% and 29% increases in revenues for the quarter and year-to-date periods primarily reflect higher net premiums earned. Financial Condition ------------------- Total assets were $4.2 billion as of June 30, 2002, compared to $3.8 billion as of December 31, 2001. Shareholders' equity was $559.9 million as of June 30, 2002, compared with $612.0 million as of December 31, 2001. The decline in shareholders' equity primarily reflects the net loss for the period. Book value per share, excluding unrealized gains and losses on fixed maturities, decreased to $17.71 as of June 30, 2002, compared with $18.78 as of March 31, 2002. 2 PMA Re ------ PMA Re reported pre-tax operating income of $13.8 million for the second quarter of 2002, up 108% from $6.6 million for the same period last year. Pre-tax operating income for the first six months of 2002 was $26.7 million, an increase of 113% compared with $12.5 million for the first six months of 2001. The increase in pre-tax operating income reflects improved underwriting results and, to a lesser extent, higher net investment income. Net premiums written were $209.0 million in the second quarter of 2002 and $299.3 for the first six months of 2002. Net premiums written included approximately $44 million for the quarter and six months resulting from stronger than expected premium growth from our treaty ceding companies in the two most recent underwriting years. Excluding this change, net premiums written were $164.8 million and $255.1 million, compared to $85.2 million and $149.1 million for the same periods last year. The increases in net premiums written reflect higher premium volume across all of our underwriting units -- Finite Risk & Financial Products, Traditional and Specialty treaty, and Facultative reinsurance. So far in 2002, rate increases as measured by the level of premium increase on renewed in-force business have averaged approximately 30% on our Traditional and Specialty business. The combined ratio, as computed using generally accepted accounting principles (GAAP), was 100.3% and 100.4% for the second quarter and first six months of 2002, compared with 105.6% and 107.0% for the same periods last year. Net investment income was $14.1 million and $27.9 million for the second quarter and first six months of 2002, compared with $11.7 million and $23.8 million for the same periods last year. These improvements primarily reflect higher interest earned on invested assets and funds held assets, partially offset by lower yields on the portfolio. The PMA Insurance Group ----------------------- The PMA Insurance Group reported pre-tax operating income of $6.4 million for the second quarter of 2002, up 11% from $5.8 million for the same period last year. For the first six months of 2002, pre-tax operating income was $12.8 million, an increase of 11%, compared with $11.5 million for the same period last year. These increases are primarily due to improved underwriting results, partially offset by lower investment income. Net premiums written increased 36% to $83.6 million for the second quarter of 2002, compared with $61.6 million for the second quarter of 2001. Net premiums written increased 37% to $260.1 million for the first six months of 2002, compared with $189.5 million for the comparable period last year. The significant growth in premiums primarily reflects improved pricing in all lines of insurance business underwritten by us. To a lesser extent, we continue to see premium growth through an increase in the number of new business accounts written, resulting from our focused marketing efforts in selected territories. The GAAP combined ratio in 2002 was 103.1% for the second quarter and 103.4% for the first six months of 2002, both of which improved from the corresponding periods last year when the GAAP combined ratio was 106.1% and 105.9%, respectively. 3 Net investment income decreased by $841,000 and $1.7 million in the second quarter and first six months of 2002, compared with the comparable periods of 2001. These declines reflect a lower invested asset base resulting from the paydown of prior years' losses and, to a lesser extent, lower invested asset yields. Run-off Operations ------------------ In May 2002, the Company announced its decision to withdraw from the excess and surplus lines marketplace previously served by its Caliber One operating segment. As a result of the decision to exit this business, Caliber One's results are now being reported as Run-off Operations. Results for Run-off Operations were a pre-tax operating loss of $44.4 million in the second quarter of 2002, which includes the previously announced charge of approximately $43 million pre-tax, $28 million after-tax, for costs to exit from and run-off this business. Components of the pre-tax charge include expenses associated with the recognition of $20 million in liabilities for costs, including long-term lease obligations of $7 million and involuntary employee termination benefits of $3 million. In addition, the charge includes $23 million to write-down assets to their estimated net realizable value, including a non-cash charge of $8 million for leasehold improvements and other fixed assets of $7 million and goodwill of $1 million. Pre-tax operating losses for the Run-off Operations for the first six months of 2002 were $87.5 million and included approximately $40 million for higher than expected prior year loss development in the first quarter of 2002 related to certain casualty and, to a lesser extent, property lines of business; and the $43 million charge to exit from and run-off this business. For the second quarter and first six months of 2001, the Run-off Operations recorded pre-tax operating income of $57,000 and a pre-tax operating loss of $22.3 million. The pre-tax operating loss for the six months ended June 30, 2001 included net prior year loss development of $17.8 million on certain casualty and property lines of business, primarily professional liability policies for the nursing home class of business. Corporate and Other ------------------- The Corporate and Other segment includes unallocated investment income and expenses, including debt service, as well as the results of certain of the Company's real estate properties. For the second quarter of 2002 and 2001, pre-tax operating losses for this segment were $3.7 million and $4.3 million, respectively. Through six months of 2002, Corporate and Other recorded a pre-tax operating loss of $8.0 million, compared to pre-tax operating income of $98,000 for the same period last year. Results for the first six months of 2001 include a pre-tax gain of $9.8 million from the sale of certain real estate properties. Absent the gain on sale of real estate in 2001, operating results for the segment improved in 2002 primarily due to declines in interest expense of $1.2 million and $2.9 million for the three and six months ended June 30, 2002, compared to the same periods last year. The declines in interest expense reflect a lower amount of debt outstanding and lower interest rates. 4 Business Outlook ---------------- Based on management's current expectations, the estimated range of consolidated 2002 after-tax operating income from continuing operations is between $1.35 and $1.45 per share, excluding losses from run-off operations, as well as the costs to exit from and run-off this business. This statement is forward-looking, and actual results may differ materially. Please see the Cautionary Statements that follow for the factors that may cause actual results to differ materially from our current expectations. As a reminder, PMA Capital will hold a conference call with investors beginning at 5:30 p.m. Eastern Time today to review the second quarter 2002 results along with our outlook for full year 2002. The conference call will be available via a live webcast over the Internet at www.pmacapital.com by entering the Investor Information section, clicking on News Releases and then clicking on the microphone icon. Please note that by accessing the conference call via the Internet, you will be in a listen-only mode. The call-in numbers for the conference call are as follows: Live Call Replay --------- ------ 800-776-9694 (Domestic) 800-615-3210 (Domestic) 952-556-2869 (International) 703-326-3020 (International) A replay of the conference call will be available over the Internet or by dialing the call-in number for the replay along with the passcode (6106860). The replay will be available from approximately 8:30 p.m. Eastern Time today until 11:59 p.m. Eastern Time on Friday, August 2nd. Status of Business Outlook -------------------------- PMA Capital's corporate representatives authorized to speak on behalf of the Company may meet privately during the quarter with investors, the media, investment analysts and others. At these meetings, PMA Capital's spokespersons may reiterate the Business Outlook published in this press release. At the same time, PMA Capital will keep this press release, including this Business Outlook publicly available on its website at http://www.pmacapital.com. Prior to the start of the Quiet Period (described below), the public can continue to rely on this Business Outlook as still being PMA Capital's current expectations on matters covered, unless PMA Capital publishes a press release stating otherwise. Beginning October 24, 2002, PMA Capital will observe a "Quiet Period" during which the Business Outlook as provided in this press release and the Company's periodic filing on Form 10-Q no longer constitute management's current expectations. During the Quiet Period, the Business Outlook in these documents should be considered historical, speaking as of prior to the beginning of the Quiet Period only and should not be relied upon. The Company expressly disclaims any current intention to update its Business Outlook during the Quiet Period. During the Quiet Period, PMA Capital spokespersons will not comment on the Business Outlook or PMA Capital's financial results or expectations. The Quiet Period will last until PMA Capital's next quarterly Earnings Release is published, currently scheduled for November 7, 2002. 5 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements contained in this press release, including in the Business Outlook section and made by John W. Smithson, and oral statements made by individuals authorized to speak on behalf of PMA Capital Corporation (the "Company") that are not historical facts are forward-looking statements and are based on estimates, assumptions and projections. Actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements are based on currently available financial, competitive and economic data and the Company's current operating plans based on assumptions regarding future events. The Company's actual results could differ materially from those expected by the Company's management. The factors that could cause actual results to vary materially, some of which are described with the forward-looking statements, include, but are not limited to: o changes in general economic conditions, including the performance of financial markets, interest rates and the level of unemployment; o regulatory or tax changes, including changes in risk-based capital or other regulatory standards that affect the cost of, or demand for, the Company's products or otherwise affect the ability of the Company to conduct its business; o competitive conditions that may affect the level of rate adequacy related to the amount of risk undertaken and that may influence the sustainability of adequate rate changes; o ability to implement and maintain rate increases; o the effect of changes in workers' compensation statutes and their administration, which may affect the rates that we can charge and the manner in which we administer claims; o the Company's ability to predict and effectively manage claims related to insurance and reinsurance policies; o the lowering or loss of one or more of the financial strength or claims paying ratings of the Company's insurance subsidiaries; o adequacy of reserves for claim liabilities; o adverse property and casualty loss development for events the Company insured in prior years; o the uncertain nature of damage theories and loss amounts and the development of additional facts related to the attack on the World Trade Center; o uncertainty as to the price and availability of reinsurance on business we intend to write in the future, including reinsurance for terrorist acts; o adequacy and collectibility of reinsurance purchased by the Company; o severity of natural disasters and other catastrophes; o reliance on key management; and o other factors disclosed from time to time in the Company's most recent Forms 10-K, 10-Q and 8-K filed by the Company with the Securities and Exchange Commission. Investors should not place undue reliance on any such forward-looking statements. The Company disclaims any obligation to update forward-looking information and to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 6 PMA Capital's Second Quarter Statistical Supplement, which provides more detailed historical information about PMA Capital and its insurance businesses, is available on our website. Please see the Investor Information section of our website at http://www.pmacapital.com. You may also obtain a copy of this supplement from the Company by sending your request to: Albert Ciavardelli Vice President - Finance PMA Capital Corporation 1735 Market Street Philadelphia, PA 19103 Alternatively, you may submit your request by telephone (215.665.5063) or by e-mail to aciavardelli@pmare.com. PMA Capital Corporation, headquartered in Philadelphia, Pennsylvania, is an insurance holding company, whose operating subsidiaries provide specialty risk management products and services to customers throughout the United States. The primary product lines of PMA Capital's subsidiaries include property and casualty reinsurance, underwritten and marketed through PMA Re, and workers' compensation, integrated disability and other commercial property and casualty lines of insurance in the eastern part of the United States, underwritten and marketed under the trade name The PMA Insurance Group. 7 PMA Capital Corporation GAAP Financial Highlights (Dollars in thousands, except per share amounts)
------------------------------------------------------------------------------------------ Three months ended June 30, Income Statement Data: 2002 2001 ------------------------------------------------------------------------------------------ Net premiums written: PMA Re $ 208,982 $ 85,196 The PMA Insurance Group 83,647 61,621 Run-off Operations 10,089 28,117 Corporate and Other (215) (201) ------------ ------------ Consolidated $ 302,503 $ 174,733 ============ ============ Revenues: Net premiums earned: PMA Re $ 168,991 $ 89,414 The PMA Insurance Group 100,689 81,458 Run-off Operations 5,335 19,788 Corporate and Other (215) (201) ------------ ------------ Consolidated net premiums earned 274,800 190,459 Net investment income 23,200 22,043 Realized gains (losses) (17,552) 1,561 Other revenues 3,691 3,012 ------------ ------------ Consolidated revenues $ 284,139 $ 217,075 ============ ============ Components of operating income (loss) (1): PMA Re $ 13,769 $ 6,611 The PMA Insurance Group 6,387 5,773 Run-off Operations (44,407) 57 Corporate and Other (3,747) (4,276) ------------ ------------ Pre-tax operating income (loss) $ (27,998) $ 8,165 ============ ============ After-tax operating income (loss) $ (18,340) $ 5,025 ============ ============ Net income (loss) $ (29,749) $ 6,040 ============ ============ Weighted average common shares outstanding: Basic 31,279,419 21,520,461 Diluted 31,279,419 21,861,063 After-tax operating income (loss) per share: Basic $ (0.59) $ 0.23 ============ ============ Diluted $ (0.59) $ 0.23 ============ ============ Net income (loss) per share: Basic $ (0.95) $ 0.28 ============ ============ Diluted $ (0.95) $ 0.28 ============ ============ ------------------------------------------------------------------------------------------
(1) Operating income (loss) differs from net income(loss) under generally accepted accounting principles ("GAAP") because operating income(loss) excludes net realized investment gains and losses. Pre-tax operating income (loss) is defined as income (loss) from continuing operations before income taxes, excluding net realized investment gains and losses. The Company excludes net realized investment gains (losses) from the profit and loss measure it utilizes to assess the performance of its operating segments because (i) net realized investment gains (losses) are unpredictable and not necessarily indicative of current operating fundamentals or future performance and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains (losses) that do not relate to the operations of the individual segments. 8 PMA Capital Corporation Pro Forma Financial Highlights (1) (Dollars in thousands, except per share amounts)
------------------------------------------------------------------------------------------------------------ Three months ended June 30, Income Statement Data: 2002 2001 ------------------------------------------------------------------------------------------------------------ Net premiums written: PMA Re $ 208,982 $ 85,196 The PMA Insurance Group 83,647 61,621 Corporate and Other (215) (201) ------------ ------------ Net premiums written - continuing operations $ 292,414 $ 146,616 ============ ============ Revenues: Net premiums earned: PMA Re $ 168,991 $ 89,414 The PMA Insurance Group 100,689 81,458 Corporate and Other (215) (201) ------------ ------------ Net premiums earned - continuing operations 269,465 170,671 Net investment income 22,961 21,377 Realized gains (losses) (17,538) 1,041 Other revenues 3,691 3,012 ------------ ------------ Revenues - Continuing operations 278,579 196,101 Revenues - Run-off Operations 5,560 20,974 ------------ ------------ Consolidated revenues - total $ 284,139 $ 217,075 ============ ============ Components of operating income (2): Pre-tax operating income from continuing operations: PMA Re $ 13,769 $ 6,611 The PMA Insurance Group 6,387 5,773 Corporate and Other (3,747) (4,276) ------------ ------------ Pre-tax operating income - Continuing operations $ 16,409 $ 8,108 ============ ============ After-tax operating income - Continuing operations $ 10,530 $ 4,956 Realized gains (losses) - Continuing operations (11,400) 677 Income (loss) from Run-off Operations, net of tax (28,879) 407 ------------ ------------ Net income (loss) $ (29,749) $ 6,040 ============ ============ Weighted average common shares outstanding: Basic 31,279,419 21,520,461 Diluted 31,279,419 21,861,063 After-tax operating income per share - Continuing operations: Basic $ 0.34 $ 0.23 ============ ============ Diluted $ 0.34 $ 0.23 ============ ============ Income (loss) per share - Continuing operations: Basic $ (0.03) $ 0.26 ============ ============ Diluted $ (0.03) $ 0.26 ============ ============ ------------------------------------------------------------------------------------------------------------
(1) Pro forma financial highlights represent our reported GAAP results adjusted to report the results of Caliber One as Run-off operations. (2) Operating income (loss) differs from net income (loss) under generally accepted accounting principles ("GAAP") because operating income (loss) excludes net realized investment gains and losses. Pre-tax operating income (loss) is defined as income (loss) from continuing operations before income taxes, excluding net realized investment gains and losses. The Company excludes net realized investment gains (losses) from the profit and loss measure it utilizes to assess the performance of its operating segments because (i) net realized investment gains (losses) are unpredictable and not necessarily indicative of current operating fundamentals or future performance and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains (losses) that do not relate to the operations of the individual segments. 9 PMA Capital Corporation GAAP Financial Highlights (Dollars in thousands, except per share amounts)
-------------------------------------------------------------------------------------------------- Six months ended June 30, Income Statement Data: 2002 2001 -------------------------------------------------------------------------------------------------- Net premiums written: PMA Re $ 299,307 $ 149,123 The PMA Insurance Group 260,100 189,486 Run-off Operations 32,170 31,548 Corporate and Other (433) (403) ------------ ------------ Consolidated $ 591,144 $ 369,754 ============ ============ Revenues: Net premiums earned: PMA Re $ 251,032 $ 163,308 The PMA Insurance Group 206,340 161,576 Run-off Operations 17,535 20,190 Corporate and Other (433) (403) ------------ ------------ Consolidated net premiums earned 474,474 344,671 Net investment income 45,786 44,376 Realized gains (losses) (16,160) 5,312 Other revenues 7,414 16,315 ------------ ------------ Consolidated revenues $ 511,514 $ 410,674 ============ ============ Components of operating income (loss) (1): PMA Re $ 26,706 $ 12,533 The PMA Insurance Group 12,794 11,490 Run-off Operations (87,495) (22,256) Corporate and Other (7,980) 98 ------------ ------------ Pre-tax operating income (loss) $ (55,975) $ 1,865 ============ ============ After-tax operating income (loss) $ (36,492) $ 10,678 ============ ============ Net income (loss) $ (46,996) $ 14,131 ============ ============ Weighted average common shares outstanding: Basic 31,240,098 21,511,941 Diluted 31,240,098 21,875,746 After-tax operating income (loss) per share: Basic $ (1.17) $ 0.49 ============ ============ Diluted $ (1.17) $ 0.49 ============ ============ Net income (loss) per share: Basic $ (1.50) $ 0.66 ============ ============ Diluted $ (1.50) $ 0.65 ============ ============ Balance Sheet Data: June 30,2002 December 31, 2001 ------------------- ------------ ----------------- Total assets $ 4,214,565 $ 3,802,979 Shareholders' equity $ 559,901 $ 612,006 Shareholders' equity per share (including FAS 115) $ 17.88 $ 19.64 Shareholders' equity per share (excluding FAS 115) $ 17.71 $ 19.46 --------------------------------------------------------------------------------------------------
(1) Operating income (loss) differs from net income (loss) under generally accepted accounting principles ("GAAP") because operating income (loss) excludes net realized investment gains and losses. Pre-tax operating income (loss) is defined as income (loss) from continuing operations before income taxes, excluding net realized investment gains and losses. The Company excludes net realized investment gains (losses) from the profit and loss measure it utilizes to assess the performance of its operating segments because (i) net realized investment gains (losses) are unpredictable and not necessarily indicative of current operating fundamentals or future performance and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains (losses) that do not relate to the operations of the individual segments. 10 PMA Capital Corporation Pro Forma Financial Highlights (1) (Dollars in thousands, except per share amounts)
---------------------------------------------------------------------------------------------------- Six months ended June 30, Income Statement Data: 2002 2001 ---------------------------------------------------------------------------------------------------- Net premiums written: PMA Re $ 299,307 $ 149,123 The PMA Insurance Group 260,100 189,486 Corporate and Other (433) (403) ------------ ------------ Net premiums written - continuing operations $ 558,974 $ 338,206 ============ ============ Revenues: Net premiums earned: PMA Re $ 251,032 $ 163,308 The PMA Insurance Group 206,340 161,576 Corporate and Other (433) (403) ------------ ------------ Net premiums earned - continuing operations 456,939 324,481 Net investment income 45,324 43,023 Realized gains (losses) (16,262) 3,448 Other revenues 7,414 6,552 ------------ ------------ Revenues - Continuing operations 493,415 377,504 Revenues - Run-off Operations 18,099 23,407 Gain on sale of real estate - 9,763 ------------ ------------ Consolidated revenues - total $ 511,514 $ 410,674 ============ ============ Components of operating income (2): Pre-tax operating income from continuing operations: PMA Re $ 26,706 $ 12,533 The PMA Insurance Group 12,794 11,490 Corporate and Other (7,980) (9,665) ------------ ------------ Pre-tax operating income - Continuing operations $ 31,520 $ 14,358 ============ ============ After-tax operating income - Continuing operations $ 20,373 $ 8,655 Realized gains (losses) - Continuing operations (10,571) 2,242 Loss from Run-off Operations, net of tax (56,798) (13,212) Gain on sale of real estate, net of tax - 6,346 Tax benefit - IRS examination - 10,100 ------------ ------------ Net income (loss) $ (46,996) $ 14,131 ============ ============ Weighted average common shares outstanding: Basic 31,240,098 21,511,941 Diluted 31,240,098 21,875,746 After-tax operating income per share - Continuing operations: Basic $ 0.65 $ 0.40 ============ ============ Diluted $ 0.65 $ 0.40 ============ ============ Income per share - Continuing operations: Basic $ 0.31 $ 0.51 ============ ============ Diluted $ 0.31 $ 0.50 ============ ============ ----------------------------------------------------------------------------------------------------
(1) Pro forma financial highlights represent our reported GAAP results adjusted to report the results of Caliber One as Run-off operations and to separately report the effect on 2001 results of a gain on real estate and a tax benefit recognized upon completion of an IRS examination. This presentation is provided for informational purposes only and is not in conformity with GAAP. (2) Operating income (loss) differs from net income (loss) under generally accepted accounting principles ("GAAP") because operating income (loss) excludes net realized investment gains and losses. Pre-tax operating income (loss) is defined as income (loss) from continuing operations before income taxes, excluding net realized investment gains and losses. The Company excludes net realized investment gains (losses) from the profit and loss measure it utilizes to assess the performance of its operating segments because (i) net realized investment gains (losses) are unpredictable and not necessarily indicative of current operating fundamentals or future performance and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains (losses) that do not relate to the operations of the individual segments. 11 PMA Capital Corporation GAAP Consolidated Balance Sheets (Dollars in thousands)
---------------------------------------------------------------------------------- June 30, December 31, 2002 2001 ---------------------------------------------------------------------------------- Assets: Investments and cash: Fixed maturities available for sale $ 1,409,827 $ 1,425,281 Short-term investments 506,866 350,054 Cash 9,493 20,656 ----------- ----------- Total investments and cash 1,926,186 1,795,991 Accrued investment income 20,105 19,121 Premiums receivable 383,323 301,104 Reinsurance receivable 1,350,211 1,210,764 Deferred income taxes 107,051 82,120 Deferred acquisition costs 83,683 64,350 Funds held by reinsureds 148,104 145,239 Other assets 195,902 184,290 ----------- ----------- Total assets $ 4,214,565 $ 3,802,979 =========== =========== Liabilities: Unpaid losses and loss adjustment expenses $ 2,394,229 $ 2,324,439 Unearned premiums 439,003 308,292 Short-term debt 62,500 62,500 Accounts payable, accrued expenses and other liabilities 251,271 217,490 Funds held under reinsurance treaties 236,102 227,892 Dividends to policyholders 18,205 17,132 Payable under securities loan agreements 253,354 33,228 ----------- ----------- Total liabilities 3,654,664 3,190,973 ----------- ----------- Shareholders' Equity: Class A Common stock 171,090 171,090 Additional paid-in capital 109,331 109,331 Retained earnings 326,510 382,165 Accumulated other comprehensive income 5,766 5,375 Notes receivable from officers (61) (158) Treasury stock, at cost (52,735) (55,797) ----------- ----------- Total shareholders' equity 559,901 612,006 ----------- ----------- Total liabilities and shareholders' equity $ 4,214,565 $ 3,802,979 =========== =========== ----------------------------------------------------------------------------------
12 PMA Capital Corporation GAAP Consolidated Statements of Operations (Dollars in thousands) ------------------------------------------------------------------------------ Three months ended June 30, 2002 2001 ------------------------------------------------------------------------------ Gross premiums written $ 393,129 $ 218,661 ========= ========= Net premiums written $ 302,503 $ 174,733 ========= ========= Revenues: Net premiums earned $ 274,800 $ 190,459 Net investment income 23,200 22,043 Net realized investment gains (losses) (17,552) 1,561 Other revenues 3,691 3,012 --------- --------- Total revenues 284,139 217,075 --------- --------- Expenses: Losses and loss adjustment expenses 206,009 142,816 Acquisition expenses 64,318 39,825 Operating expenses 56,387 20,249 Dividends to policyholders 2,403 2,683 Interest expense 572 1,776 --------- --------- Total losses and expenses 329,689 207,349 --------- --------- Pre-tax income (loss) (45,550) 9,726 --------- --------- Income tax expense (benefit): Current -- 3,233 Deferred (15,801) 453 --------- --------- Total income tax expense (benefit) (15,801) 3,686 --------- --------- Net income (loss) $ (29,749) $ 6,040 ========= ========= Pre-tax operating income (loss) $ (27,998) $ 8,165 ========= ========= After-tax operating income (loss) $ (18,340) $ 5,025 ========= ========= ------------------------------------------------------------------------------ 13 PMA Capital Corporation Pro Forma Consolidated Statements of Operations (1) (Dollars in thousands)
------------------------------------------------------------------------------------------- Three months ended June 30, 2002 2001 ------------------------------------------------------------------------------------------- Gross premiums written $ 350,017 $ 187,249 ========= ========= Net premiums written $ 292,414 $ 146,616 ========= ========= Revenues: Net premiums earned $ 269,465 $ 170,671 Net investment income 22,961 21,377 Net realized investment gains (losses) (17,538) 1,041 Other revenues 3,691 3,012 --------- --------- Total revenues 278,579 196,101 --------- --------- Expenses: Losses and loss adjustment expenses 195,879 127,346 Acquisition expenses 61,124 36,773 Operating expenses 19,730 18,374 Dividends to policyholders 2,403 2,683 Interest expense 572 1,776 --------- --------- Total losses and expenses 279,708 186,952 --------- --------- Pre-tax income (loss) - Continuing operations (1,129) 9,149 --------- --------- Income tax expense (benefit): Current -- 3,611 Deferred (259) (95) --------- --------- Total income tax expense (benefit) (259) 3,516 --------- --------- Income (loss) from Continuing operations (870) 5,633 Income (loss) from Run-off operations, net of tax (28,879) 407 --------- --------- Net income (loss) $ (29,749) $ 6,040 ========= ========= Pre-tax operating income - Continuing operations $ 16,409 $ 8,108 ========= ========= After-tax operating income - Continuing operations $ 10,530 $ 4,956 ========= ========= -------------------------------------------------------------------------------------------
(1) Pro forma Consolidated Statements of Operations represent our reported GAAP results adjusted to report the results of Caliber One as Run-off operations. 14 PMA Capital Corporation GAAP Consolidated Statements of Operations (Dollars in thousands) -------------------------------------------------------------------------------- Six months ended June 30, 2002 2001 -------------------------------------------------------------------------------- Gross premiums written $ 780,937 $ 474,674 ========= ========= Net premiums written $ 591,144 $ 369,754 ========= ========= Revenues: Net premiums earned $ 474,474 $ 344,671 Net investment income 45,786 44,376 Net realized investment gains (losses) (16,160) 5,312 Other revenues 7,414 16,315 --------- --------- Total revenues 511,514 410,674 --------- --------- Expenses: Losses and loss adjustment expenses 392,227 288,495 Acquisition expenses 105,812 64,811 Operating expenses 78,504 39,426 Dividends to policyholders 6,007 6,794 Interest expense 1,099 3,971 --------- --------- Total losses and expenses 583,649 403,497 --------- --------- Pre-tax income (loss) (72,135) 7,177 --------- --------- Income tax expense (benefit): Current -- 592 Deferred (25,139) (7,546) --------- --------- Total income tax benefit (25,139) (6,954) --------- --------- Net income (loss) $ (46,996) $ 14,131 ========= ========= Pre-tax operating income (loss) $ (55,975) $ 1,865 ========= ========= After-tax operating income (loss) $ (36,492) $ 10,678 ========= ========= -------------------------------------------------------------------------------- 15 PMA Capital Corporation Pro Forma Consolidated Statements of Operations (1) (Dollars in thousands)
------------------------------------------------------------------------------------------- Six months ended June 30, 2002 2001 ------------------------------------------------------------------------------------------- Gross premiums written $ 680,977 $ 410,536 ========= ========= Net premiums written $ 558,974 $ 338,206 ========= ========= Revenues: Net premiums earned $ 456,939 $ 324,481 Net investment income 45,324 43,023 Net realized investment gains (losses) (16,262) 3,448 Other revenues 7,414 6,552 --------- --------- Total revenues 493,415 377,504 --------- --------- Expenses: Losses and loss adjustment expenses 331,284 251,163 Acquisition expenses 100,540 62,226 Operating expenses 39,227 35,544 Dividends to policyholders 6,007 6,794 Interest expense 1,099 3,971 --------- --------- Total losses and expenses 478,157 359,698 --------- --------- Pre-tax income - Continuing operations 15,258 17,806 --------- --------- Income tax expense (benefit): Current -- (3,194) Deferred 5,456 10,103 --------- --------- Total income tax expense 5,456 6,909 --------- --------- Income from Continuing operations 9,802 10,897 Loss from Run-off operations, net of tax (56,798) (13,212) Gain on sale of real estate, net of tax -- 6,346 Tax benefit - IRS examination -- 10,100 --------- --------- Net income (loss) $ (46,996) $ 14,131 ========= ========= Pre-tax operating income - Continuing operations $ 31,520 $ 14,358 ========= ========= After-tax operating income - Continuing operations $ 20,373 $ 8,655 ========= ========= -------------------------------------------------------------------------------------------
(1) Pro forma Consolidated Statements of Operations represent our reported GAAP results adjusted to report the results of Caliber One as Run-off operations and to separately report the effect on 2001 results of a gain on real estate and a tax benefit recognized upon completion of an IRS examination. This presentation is provided for informational purposes only and is not in conformity with GAAP. 16 PMA Capital Corporation Consolidating Statements of Operations For the Three Months Ended June 30, 2002 (Dollars in thousands)
------------------------------------------------------------------------------------------------------------------------------- PMA Ongoing Total Insurance Insurance Corp Ongoing Run-off PMA Re Group Operations & Other Operations Operations Consolidated ------------------------------------------------------------------------------------------------------------------------------- Gross premiums written $ 252,781 $ 97,451 $ 350,232 $ (215) $ 350,017 $ 43,112 $ 393,129 =========================================================================================== Net premiums written $ 208,982 $ 83,647 $ 292,629 $ (215) $ 292,414 $ 10,089 $ 302,503 =========================================================================================== Revenues: Net premiums earned $ 168,991 $ 100,689 $ 269,680 $ (215) $ 269,465 $ 5,335 $ 274,800 Net investment income 14,142 9,193 23,335 (374) 22,961 239 23,200 Other revenues -- 3,309 3,309 382 3,691 -- 3,691 ------------------------------------------------------------------------------------------- Total operating revenues 183,133 113,191 296,324 (207) 296,117 5,574 301,691 ------------------------------------------------------------------------------------------- Expenses: Losses and LAE 121,432 74,447 195,879 -- 195,879 10,130 206,009 Acquisition expenses 43,557 17,567 61,124 -- 61,124 3,194 64,318 Operating expenses 4,375 12,387 16,762 2,968 19,730 36,657 56,387 Dividends to policyholders -- 2,403 2,403 -- 2,403 -- 2,403 Interest expense -- -- -- 572 572 -- 572 ------------------------------------------------------------------------------------------- Total losses and expenses 169,364 106,804 276,168 3,540 279,708 49,981 329,689 ------------------------------------------------------------------------------------------- Pre-tax operating income (loss) 13,769 6,387 20,156 (3,747) 16,409 (44,407) (27,998) Net realized investment losses (8,823) (8,715) (17,538) -- (17,538) (14) (17,552) ------------------------------------------------------------------------------------------- Pre-tax income (loss) $ 4,946 $ (2,328) $ 2,618 $ (3,747) $ (1,129) $ (44,421) $ (45,550) =========================================================================================== Ratios - GAAP basis: Loss and LAE ratio 71.9% 73.9% 72.6% --------------------------------------- Expense ratio: Acquisition expenses 25.8% 17.4% 22.7% Operating expenses 2.6% 9.4% 5.1% --------------------------------------- Total expense ratio 28.4% 26.8% 27.8% --------------------------------------- Policyholders' dividend ratio NA 2.4% 0.9% --------------------------------------- Combined ratio 100.3% 103.1% 101.3% ======================================= Net investment income ratio -8.4% -9.1% -8.7% --------------------------------------- Operating ratio 91.9% 94.0% 92.6% ======================================= -------------------------------------------------------------------------------------------------------------------------------
17 PMA Capital Corporation Consolidating Statements of Operations For the Three Months Ended June 30, 2001 (Dollars in thousands)
----------------------------------------------------------------------------------------------------------------------- PMA Ongoing Total Insurance Insurance Corp Ongoing Run-off PMA Re Group Operations & Other Operations Operations Consolidated ----------------------------------------------------------------------------------------------------------------------- Gross premiums written $111,386 $ 76,064 $187,450 $ (201) $187,249 $ 31,412 $218,661 ================================================================================= Net premiums written $ 85,196 $ 61,621 $146,817 $ (201) $146,616 $ 28,117 $174,733 ================================================================================= Revenues: Net premiums earned $ 89,414 $ 81,458 $170,872 $ (201) $170,671 $ 19,788 $190,459 Net investment income 11,663 10,034 21,697 (320) 21,377 666 22,043 Other revenues -- 2,726 2,726 286 3,012 -- 3,012 --------------------------------------------------------------------------------- Total operating revenues 101,077 94,218 195,295 (235) 195,060 20,454 215,514 --------------------------------------------------------------------------------- Expenses: Losses and LAE 67,333 60,013 127,346 -- 127,346 15,470 142,816 Acquisition expenses 22,349 14,424 36,773 -- 36,773 3,052 39,825 Operating expenses 4,784 11,325 16,109 2,265 18,374 1,875 20,249 Dividends to policyholders -- 2,683 2,683 -- 2,683 -- 2,683 Interest expense -- -- -- 1,776 1,776 -- 1,776 --------------------------------------------------------------------------------- Total losses and expenses 94,466 88,445 182,911 4,041 186,952 20,397 207,349 --------------------------------------------------------------------------------- Pre-tax operating income (loss) 6,611 5,773 12,384 (4,276) 8,108 57 8,165 Net realized investment gains 559 482 1,041 -- 1,041 520 1,561 --------------------------------------------------------------------------------- Pre-tax income (loss) $ 7,170 $ 6,255 $ 13,425 $ (4,276) $ 9,149 $ 577 $ 9,726 ================================================================================= Ratios - GAAP basis: Loss and LAE ratio 75.3% 73.7% 74.5% ---------------------------------- Expense ratio: Acquisition expenses 25.0% 17.7% 21.5% Operating expenses 5.3% 11.4% 8.2% ---------------------------------- Total expense ratio 30.3% 29.1% 29.7% ---------------------------------- Policyholders' dividend ratio NA 3.3% 1.6% ---------------------------------- Combined ratio 105.6% 106.1% 105.8% ================================== Net investment income ratio -13.0% -12.3% -12.7% ---------------------------------- Operating ratio 92.6% 93.8% 93.1% ================================== -----------------------------------------------------------------------------------------------------------------------
18 PMA Capital Corporation Consolidating Statements of Operations For the Six Months Ended June 30, 2002 (Dollars in thousands)
------------------------------------------------------------------------------------------------------------------------------- PMA Ongoing Total Insurance Insurance Corp Ongoing Run-off PMA Re Group Operations & Other Operations Operations Consolidated ------------------------------------------------------------------------------------------------------------------------------------ Gross premiums written $ 388,474 $ 292,936 $ 681,410 $ (433) $ 680,977 $ 99,960 $ 780,937 =========================================================================================== Net premiums written $ 299,307 $ 260,100 $ 559,407 $ (433) $ 558,974 $ 32,170 $ 591,144 =========================================================================================== Revenues: Net premiums earned $ 251,032 $ 206,340 $ 457,372 $ (433) $ 456,939 $ 17,535 $ 474,474 Net investment income 27,909 18,031 45,940 (616) 45,324 462 45,786 Other revenues -- 6,898 6,898 516 7,414 -- 7,414 ------------------------------------------------------------------------------------------- Total operating revenues 278,941 231,269 510,210 (533) 509,677 17,997 527,674 ------------------------------------------------------------------------------------------- Expenses: Losses and LAE 178,856 152,428 331,284 -- 331,284 60,943 392,227 Acquisition expenses 64,458 36,082 100,540 -- 100,540 5,272 105,812 Operating expenses 8,921 23,958 32,879 6,348 39,227 39,277 78,504 Dividends to policyholders -- 6,007 6,007 -- 6,007 -- 6,007 Interest expense -- -- -- 1,099 1,099 -- 1,099 ------------------------------------------------------------------------------------------- Total losses and expenses 252,235 218,475 470,710 7,447 478,157 105,492 583,649 ------------------------------------------------------------------------------------------- Pre-tax operating income (loss) 26,706 12,794 39,500 (7,980) 31,520 (87,495) (55,975) Net realized investment gains (losses) (8,071) (8,191) (16,262) -- (16,262) 102 (16,160) ------------------------------------------------------------------------------------------- Pre-tax income (loss) $ 18,635 $ 4,603 $ 23,238 $ (7,980) $ 15,258 $ (87,393) $ (72,135) =========================================================================================== Ratios - GAAP basis: Loss and LAE ratio 71.2% 73.9% 72.5% --------------------------------------- Expense ratio: Acquisition expenses 25.7% 17.5% 22.0% Operating expenses 3.5% 9.1% 6.1% --------------------------------------- Total expense ratio 29.2% 26.6% 28.1% --------------------------------------- Policyholders' dividend ratio NA 2.9% 1.3% --------------------------------------- Combined ratio 100.4% 103.4% 101.9% ======================================= Net investment income ratio -11.1% -8.7% -10.0% --------------------------------------- Operating ratio 89.3% 94.7% 91.9% ======================================= -------------------------------------------------------------------------------------------------------------------------------
19 PMA Capital Corporation Pro Forma Consolidating Statements of Operations(1) For the Six Months Ended June 30, 2001 (Dollars in thousands)
---------------------------------------------------------------------------------------------------------------------------------- PMA Ongoing Total Insurance Insurance Corp Ongoing Run-off PMA Re Group Operations & Other Operations Operations Consolidated ---------------------------------------------------------------------------------------------------------------------------------- Gross premiums written $ 192,297 $ 218,642 $ 410,939 $ (403) $ 410,536 $ 64,138 $ 474,674 ========================================================================================= Net premiums written $ 149,123 $ 189,486 $ 338,609 $ (403) $ 338,206 $ 31,548 $ 369,754 ========================================================================================= Revenues: Net premiums earned $ 163,308 $ 161,576 $ 324,884 $ (403) $ 324,481 $ 20,190 $ 344,671 Net investment income 23,836 19,682 43,518 (495) 43,023 1,353 44,376 Other revenues -- 5,454 5,454 1,098 6,552 -- 6,552 ----------------------------------------------------------------------------------------- Total operating revenues 187,144 186,712 373,856 200 374,056 21,543 395,599 ----------------------------------------------------------------------------------------- Expenses: Losses and LAE 132,216 118,947 251,163 -- 251,163 37,332 288,495 Acquisition expenses 33,744 28,482 62,226 -- 62,226 2,585 64,811 Operating expenses 8,651 20,999 29,650 5,894 35,544 3,882 39,426 Dividends to policyholders -- 6,794 6,794 -- 6,794 -- 6,794 Interest expense -- -- -- 3,971 3,971 -- 3,971 ----------------------------------------------------------------------------------------- Total losses and expenses 174,611 175,222 349,833 9,865 359,698 43,799 403,497 ----------------------------------------------------------------------------------------- Pre-tax operating income (loss) 12,533 11,490 24,023 (9,665) 14,358 (22,256) (7,898) Net realized investment gains (losses) 4,328 (880) 3,448 -- 3,448 1,864 5,312 ----------------------------------------------------------------------------------------- Pre-tax income (loss) $ 16,861 $ 10,610 $ 27,471 $ (9,665) $ 17,806 $ (20,392) $ (2,586) ========================================================================================= Ratios - GAAP basis: Loss and LAE ratio 81.0% 73.6% 77.3% ------------------------------------- Expense ratio: Acquisition expenses 20.7% 17.6% 19.2% Operating expenses 5.3% 10.5% 7.9% ------------------------------------- Total expense ratio 26.0% 28.1% 27.1% ------------------------------------- Policyholders' dividend ratio NA 4.2% 2.1% ------------------------------------- Combined ratio 107.0% 105.9% 106.5% ===================================== Net investment income ratio -14.6% -12.2% -13.4% ------------------------------------- Operating ratio 92.4% 93.7% 93.1% ===================================== ----------------------------------------------------------------------------------------------------------------------------------
(1) Excludes a gain on sale of real estate of $9.8 million from the Corporate and Other segment. 20