CERG Ceres (MM)

Ceres Group Reports Fourth Quarter and 2003 Results CLEVELAND, March 3 /PRNewswire-FirstCall/ -- For the quarter: -- Net operating income of $4.1 million ($0.12 per share) -- Net income of $4.5 million ($0.13 per share) -- Senior Segment pre-tax operating income of $6.4 million -- Medical Segment pre-tax operating income of $0.9 million For the full year 2003: -- Net operating income of $15.4 million ($0.45 per share) -- Net income of $22.9 million ($0.67 per share) -- Senior Segment pre-tax operating income of $19.0 million -- Medical Segment pre-tax operating income of $8.3 million Ceres Group, Inc. (NASDAQ:CERG) today reported net operating income of $4.1 million ($0.12 per share), excluding $0.4 million ($0.01 per share) from net realized investment gains for the fourth quarter ended December 31, 2003. This compares to net operating income of $1.9 million ($0.06 per share) for the fourth quarter of 2002, excluding $0.4 million ($0.01 per share) from net realized investment gains and a loss of $9.8 million ($0.29 per share) from discontinued operations related to the sale of Pyramid Life Insurance Company. Net income was $4.5 million ($0.13 per share) in the fourth quarter of 2003, compared to a net loss of $7.4 million ($0.22 per share) in 2002. (Logo: http://www.newscom.com/cgi-bin/prnh/20000315/CRLOGO ) For the full year 2003, the company posted net operating income of $15.4 million ($0.45 per share), excluding $1.2 million ($0.04 per share) from net realized investment gains, $2.7 million ($0.08 per share) related to a decrease in the valuation allowance for deferred taxes, and $3.6 million ($0.11 per share) from discontinued operations. This compares to net operating income of $2.2 million ($0.06 per share) for 2002, excluding $1.5 million ($0.04 per share) from net realized investment gains, $1.5 million ($0.05 per share) from a special charge related to the retirement of the company's former CEO, and a loss of $4.5 million ($0.13 per share) from discontinued operations. Net income was $22.9 million ($0.67 per share) for 2003, compared to a net loss of $2.4 million ($0.07 per share) in 2002. "We finished 2003 in a strong financial position, exceeding our goals and dramatically improving our balance sheet," said Tom Kilian, president and chief executive officer of Ceres. "Both business segments showed positive earnings, expenses were in line with our revenues, and we enhanced our management team and board of directors. "Our strategies in theSenior and Medical segments have proven effective in balancing our results," Kilian added. "Earnings in the Senior Segment remain solid and this segment is now poised for growth in 2004 and beyond. At the same time, we continue to selectively market in our Medical Segment to maintain stable results." Segment Results Ceres reports its financial results in two primary business segments: Senior and Medical. For all periods presented, the segment results exclude the discontinued operations of Pyramid Life Insurance Company, which was sold on March 31, 2003. Senior Segment (Medicare supplement, long-term care, dental, life insurance, and annuities) Pre-tax operating income for the quarter was $6.4 million, compared to $2.0 million in the fourth quarter of 2002. For the full year, Senior Segment pre-tax operating income totaled $19.0 million, compared to $14.2 million for 2002. Benefits, claims, losses and settlement expenses in the Senior Segment were $30.9 million, compared to $33.8 million in the fourth quarter of 2002. The Senior Segment benefit and claims loss ratio was 69.9%, compared to 79.3% in the fourth quarter of 2002. For the full year, the Senior Segment benefits, claims, losses and settlement expenses were $127.5 million, compared to $129.2 million, with the benefit claims loss ratio at 73.7% and 76.0%, respectively. The improvement in the Senior Segment results for 2003 was due primarily to the reduction in Medicare supplement loss ratios from 69.8% in 2002 to 67.1% in 2003. "Pre-tax operating income in our Senior Segment increased 34% for the year, and we are optimistic about the growth potential for this historically predictable and profitable segment," Kilian said. "Our strategy is to expand this segment by emphasizing competitive markets, working with select distributors, exploring new marketing relationships and increasing our agent base. We will continue to concentrate on our primary product Medicare supplement, and increase our market reach through new plan offerings and portfolio refinements. I believe that we have the financial strength, technology and superior administrative platform to support this expansion." Medical Segment (catastrophic and comprehensive medical plans) Pre-tax operating income forthe quarter was $0.9 million, compared to pre-tax operating income of $1.8 million in the fourth quarter of 2002. For the full year, Medical Segment pre-tax operating income totaled $8.3 million, compared to a pre-tax operating loss of $7.1 million for 2002. Benefits, claims, losses and settlement expenses in the Medical Segment were $51.6 million, compared to $68.9 million in the fourth quarter of 2002. The Medical Segment benefit and claims loss ratio was 75.1%, compared to 74.7% in the fourth quarter of 2002. The fourth quarter loss ratio reflects the seasonal nature of claim payment patterns for this product line and is consistent with management's forecasted levels. For the year, the Medical Segment benefits, claims, losses and settlement expenses were $226.2 million, compared to $291.8 million in 2002, with the benefit claims loss ratio at 74.1% and 78.9%, respectively. "We made substantial progress in turning around our Medical Segment results," Kilian said. "The key to this improvement is our selective approach, or niche marketing, which focuses on states, producers and products with the greatest profit potential. Overall new sales in the fourth quarter improved over the same quarter a year ago, and sales of our group medical products increased for both the quarter and the year. We continue to expand on marketing relationships with experienced producers, as well as product and pricing refinements to remain competitive in this challenging market." Outlook "In 2004, we will continue to expand our Senior Segment and focus on target market opportunities in our Medical Segment," Kilian said. "The Senior Segment is positioned financially for growth, and we are now actively marketing senior products in both of our major subsidiaries. In addition, the Medical Segment loss ratios improved, and our claim inventory levels remain at historic lows. Over the next two years, one of our strategic objectives is to balance revenues equally between these two business units. This will offset the unpredictability inherent in major medical with the more stable earnings and higher returns on invested capital available on the senior side." As previously stated, the company expects to achieve net operating income per diluted share of $0.53 for 2004, an increase of approximately 18% over 2003. This is based on the company's prospects for growth in the Senior Segment and continued profitability in its Medical Segment. Net operating income excludes certain items that, in the opinion of management, are not indicative of overall operating trends. In the company's results for 2003 and its outlook for 2004, net operating income excludes the impact of net realized investment gains, the reduction in the deferred tax valuation allowance, andthe results of discontinued operations. A conference call with management regarding fourth quarter and 2003 results is scheduled for 10:00 a.m. (Eastern) on, Thursday, March 4, 2004. To listen to the live conference call over the Internet, go to http://www.ceresgp.com/ or http://www.firstcallevents.com/service/ajwz400500257gf12.html . To listen to the webcast, please log onto this site at least 15 minutes prior to the call to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available after the call. CERES GROUP, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, ---------------------- ----------------------- 2003 2002 2003 2002 --------- --------- ---------- ---------- REVENUES Premiums, net Medical $68,687 $92,236 $305,441 $370,029 Senior and other 44,187 42,645 172,885 170,107 --------- --------- ---------- ---------- Total premiums, net 112,874 134,881 478,326 540,136 Net investment income 6,518 5,714 25,090 24,258 Net realized gains 561 605 1,891 2,262 Fee and other income 6,643 7,231 27,139 30,705 Amortization of deferred reinsurance gain 305 489 1,736 2,843 --------- --------- --------- --------- 126,901 148,920 534,182 600,204 --------- --------- --------- --------- BENEFITS, LOSSES AND EXPENSES Benefits, claims, losses and settlement expenses Medical 51,617 68,880 226,249 291,789 Senior and other 30,887 33,801 127,491 129,235 --------- --------- ---------- ---------- Total benefits, claims, losses and settlement expenses 82,504 102,681 353,740 421,024 Selling, general and administrative expenses 35,763 41,751 146,834 175,232 Net (deferral) amortization and change in acquisition costs and value of business acquired 1,140 467 5,953 (3,845) Interest expense and financing costs 594 465 1,620 2,001 Special charge - - - 2,381 --------- --------- ---------- ---------- 120,001 145,364 508,147 596,793 --------- --------- ---------- ---------- Income from continuing operations before federal income taxes and minority interest 6,900 3,556 26,035 3,411 Federal income tax expense 2,450 1,241 6,647 1,343 --------- --------- ---------- ---------- Income from continuing operations after tax and before minority interest 4,450 2,315 19,388 2,068 Minority interest (7) (12) 23 (49) --------- --------- ---------- ---------- Income from continuing operations 4,457 2,327 19,365 2,117 --------- --------- ---------- ---------- Discontinued operations Income from operations of Pyramid Life (less tax expense of $0, $1,010, $3,223 and $3,877, respectively) - 1,865 5,732 7,109 Loss on sale of Pyramid Life (less tax benefit of $0, $683,$79, and $683, respectively) - (11,627) (2,149) (11,627) --------- --------- ---------- ---------- Income (loss) from discontinued operations - (9,762) 3,583 (4,518) --------- --------- ---------- ---------- Net income (loss) $4,457 $(7,435) $22,948 $(2,401) ========= ========= ========== ========== Basic earnings (loss) per share Continuing operations $0.13 $0.07 $0.56 $0.06 Discontinued operations - (0.29) 0.11 (0.13) --------- --------- ---------- ---------- Net income (loss) $0.13 $(0.22) $0.67 $(0.07) ========= ========= ========== ========== Diluted earnings(loss) per share Continuing operations $0.13 $0.07 $0.56 $0.06 Discontinued operations - (0.29) 0.11 (0.13) --------- --------- ---------- ---------- Net income (loss) $0.13 $(0.22) $0.67 $(0.07) ========= ========= ========== ========== Basic weighted average shares outstanding 34,370 34,170 34,311 34,019 Diluted weighted average shares outstanding 34,488 34,170 34,347 34,019 CERES GROUP, INC. and SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Unaudited (in thousands, except per share amounts) In this press release, the company presented net operating income, net operating income per share, and Medical and Senior Segment pre-tax operating income, which are non-GAAP financial measures. Management believes that these measures of profitability provide a meaningful presentation of the underlying earnings of the company's operations. Net operating income, net operating income per share, and Medical and Senior Segment pre-tax operating income exclude certain items that, in the opinion of management, are not indicative of overall operating trends. For the periods presented, net operating income, net operating income per share, and Medical and Senior Segment pre-tax operating income exclude the results of the discontinued operations of Pyramid Life Insurance Company (a subsidiary that was sold on March 31, 2003), realized gains on the sale of investments, reductions to the valuation allowance for deferred taxes, and special charges. The following is a reconciliation to the most directly comparable GAAP financial measure: Three Months Ended Twelve Months Ended December 31, December 31, ---------------------- ----------------------- 2003 2002 2003 2002 --------- --------- ---------- ---------- NET OPERATING INCOME Net operating income $4,092 $1,934 $15,445 $2,195 Net realized gains 561 605 1,891 2,262 Income taxes on net realized gains (1) (196) (212) (662) (792) Special charge - - - (2,381) Income tax benefit on special charge (1) - - - 833 Reduction to the valuation allowance for deferred taxes - - 2,691 - --------- --------- ---------- ---------- Net income from continuing operations $4,457 $2,327 $19,365 $2,117 ========= ========= ========== ========== NET OPERATING INCOME PER SHARE DATA (DILUTED) Net operating income per share $0.12 $0.06 $0.45 $0.06 Net realized gains, net of tax (1) 0.01 0.01 0.04 0.04 Special charge, net of tax (1) - - - (0.05) Reduction to the valuation allowance for deferred taxes - - 0.08 - --------- --------- ---------- ---------- Net income per share from continuing operations $0.13 $0.07 $0.56 $0.06 ========= ========= ========== ========== SENIOR SEGMENT PRE-TAX OPERATING INCOME Senior Segment pre-tax operating income $6,434 $1,995 $19,011 $14,234 Net realized gains (losses) 244 (37) 905 634 --------- --------- ---------- ---------- Senior Segment profit before federal income taxes and minority interest $6,678 $1,958 $19,916 $14,868 ========= ========= ========== ========== MEDICAL SEGMENT PRE-TAX OPERATING INCOME (LOSS) Medical Segment pre-tax operating income (loss) $899 $1,806 $8,307 $(7,145) Net realized gains 207 534 550 1,194 --------- --------- ---------- ---------- Medical Segment profit (loss) before federal income taxes and minority interest $1,106 $2,340 $8,857 $(5,951) ========= ========= ========== ========== (1) Taxes on net realized gains and special charges are based upon a 35% effective tax rate for all periods. Note: Certain amounts may not total due to rounding of individual components. CERES GROUP, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) December 31, December 31, 2003 2002 ---------- ---------- ASSETS Investments $484,280 $397,103 Cash and cash equivalents 26,394 32,118 Reinsurance receivable 143,397 170,075 Assets of Pyramid Life - 157,774 Deferred acquisition costs 69,609 74,891 Value of business acquired 13,034 16,084 Goodwill and licenses 14,097 14,243 Other assets 23,103 25,193 ---------- ---------- Total assets $773,914 $887,481 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Policy liabilities and benefits accrued $504,493 $512,003 Deferred reinsurance gain 9,456 11,037 Other policyholders' funds 20,821 23,610 Debt 13,000 25,003 Liabilities of Pyramid Life - 102,457 Other liabilities 41,005 45,847 ---------- ---------- Total liabilities 588,775 719,957 Stockholders' equity 185,139 167,524 ---------- ---------- Total liabilities and stockholders' equity $773,914 $887,481 ========== ========== Equity per common share: After accumulated other comprehensive income (1) $5.38 $4.89 Before accumulated other comprehensive income (1) 5.17 4.51 Book value per share excluding goodwill and licenses 4.97 4.48 (1) Accumulated other comprehensive income relates primarily to the net unrealized gain (loss) on available-for-sale securities. CERES GROUP, INC. and SUBSIDIARIES INDUSTRY SEGMENT DATA (excluding operations of Pyramid Life Insurance Company) Unaudited (in thousands) Three Months Ended Twelve Months Ended December 31, December 31, --------------------- --------------------- 2003 2002 2003 2002 --------- -------- -------- -------- MEDICAL Revenues Net premiums $68,687 $92,236 $305,441 $370,029 Net investment income 1,350 1,714 5,598 7,317 Net realized gains 207 534 550 1,194 Other income 4,724 6,507 21,680 30,481 --------- -------- -------- -------- 74,968 100,991 333,269 409,021 --------- -------- -------- -------- Expenses Benefits and claims 51,617 68,880 226,249 291,789 Other operating expenses 22,245 29,771 98,163 123,183 --------- -------- -------- -------- 73,862 98,651 324,412 414,972 --------- -------- -------- -------- Segment profit (loss) before federal income taxes and minority interest $1,106 $2,340 $8,857 $(5,951) ========= ======== ======== ======== SENIOR AND OTHER Revenues Net premiums $44,187 $42,645 $172,885 $170,107 Net investment income 5,168 3,997 19,487 16,932 Net realized gains (losses) 244 (37) 905 634 Other income 2,223 1,213 7,188 3,067 --------- -------- -------- -------- 51,822 47,818 200,465 190,740 --------- -------- -------- -------- Expenses Benefits and claims 30,887 33,801 127,491 129,235 Other operating expenses 14,257 12,059 53,058 46,637 --------- -------- -------- -------- 45,144 45,860 180,549 175,872 --------- -------- -------- -------- Segment profit before federal income taxes and minority interest $6,678 $1,958 $19,916 $14,868 ========= ======== ======== ======== CORPORATE AND OTHER Revenues Net investment income $- $3 $5 $9 Net realized gains 110 108 436 434 Other income 1 - 7 - --------- -------- -------- -------- 111 111 448 443 --------- -------- -------- -------- Expenses Interest expense and financing costs 594 465 1,620 2,001 Other operating expenses 401 388 1,566 1,567 Special charge - - - 2,381 --------- -------- -------- -------- 995 853 3,186 5,949 --------- -------- -------- -------- Segment loss before federal income taxes and minority interest $(884) $ (742) $(2,738) $(5,506) ========= ======== ======== ======== Income from continuing operations before income taxes and minority interest $6,900 $3,556 $26,035 $3,411 ========= ======== ======== ======== Medical loss ratio 75.1% 74.7% 74.1% 78.9% Senior loss ratio 69.9% 79.3% 73.7%76.0% Overall loss ratio 73.1% 76.1% 74.0% 77.9% About Ceres Group Ceres Group, Inc., through its insurance subsidiaries, provides a wide array of health and life insurance products through two primary business segments. Ceres' Medical Segment includes major medical health insurance for individuals, families, associations, and small businesses. The Senior Segment includes senior health, life and annuity products for Americans age 55 and over. To help control medical costs, Ceres also provides medical cost management services to its insureds. Ceres' nationwide distribution channels include independent agents and its electronic distribution system. For more information, visit http://www.ceresgp.com/ . This news release contains certain forward-looking statements with respect to the financial condition, results of operations and business of the company. Forward-looking statements are statements other than historical information or statements of current condition. In light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements herein should not be regarded as representation by the company or any other person that the objectives or plans of the company will be achieved. Many factors could cause actual results to differ materially from those contemplated by such forward-looking statements, including, among others, failure to accurately predict claims liabilities, rising healthcare costs, business conditions and competition in the healthcare industry, developments in healthcare reform and other regulatory issues (including failure to meet statutory capital requirements), adverse outcomes in litigation, ability to develop and administer competitive products, performance of our reinsurers and failure to comply with financial and other covenants in our loan agreements, and the failure to successfully implement the business plans for the company and its subsidiaries. This review of important factors should not be construed as exhaustive. Investors and others should refer to Ceres' filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2002, and its quarterly reports on Form 10-Q and other periodic filings, for a description of the foregoing and other factors. Ceres undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. http://www.newscom.com/cgi-bin/prnh/20000315/CRLOGO http://photoarchive.ap.org/ DATASOURCE: Ceres Group CONTACT: David I. Vickers, Chief Financial Officer, +1-440-878-2941, or Gayle M. Vixler, Senior Vice President, +1-440-572-8848, both of Ceres Group Web site: http://www.ceresgp.com/

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