Hamilton, Bermuda, 2 November 2000 -- Mutual Risk Management Ltd. (NYSE:MM) today reported operating results for the third quarter and nine months ended September 30, 2000.
In a joint statement Robert A. Mulderig, Chairman and Chief Executive Officer and John Kessock, Jr., President said: "The results for the third quarter of 2000 reflect strong growth of Fee income across all of our business segments, improved profit margins and a significant increase in Operating income. Our insurance services businesses are benefiting from an improved primary property-casualty insurance market, where rates have finally begun to increase after many years of decline. Program Business fees grew by 24% to a record $33.3 million, aided by increased primary rates and a general reduction in competition, despite the significant loss of fees on programs terminated over the last year. Corporate Risk Management fees increased by 9% and sales of new Corporate Risk Management business have been strong recently. Financial Services fees increased by 48% in the third quarter, aided by strong growth in assets in our fund administration business, which now exceed $31 billion. We believe that these operating results demonstrate significant progress toward a return to our historic levels of growth and profitability."
Fee income grew by 22% in the third quarter to $55.8 million and 11% to $151.5 million for the nine months of 2000. Pre-tax profit margins were 28% for the third quarter and 27% for the nine months of 2000 as compared to 27% and 32% in the corresponding 1999 periods. Operating income increased 83% to $13.4 million or
$0.32 per diluted share for the third quarter of 2000 as compared to $7.3 million or $0.17 per diluted share in the 1999 third quarter. For the nine months of 2000, Operating income amounted to $37.2 million or $0.89 per diluted share as compared to $45.4 million or $0.99 per diluted share in 1999. During the third quarter of 1999, the Company established a provision related to net losses incurred on a number of terminated programs of $8 million net of tax, or $0.18 per diluted share.
Net investment income increased by 7% to $9.2 million in the third quarter and by 20% to $30.3 million for the first nine months. Investment yields were 7.4% in the third quarter and 8.0% for the nine months of 2000 as compared to 6.0% and 6.8% in 1999. The nine-month increase includes $3.7 million of investment income from a special purpose entity, Endeavour Real Estate Securities Ltd. ("Endeavour") recorded in the first quarter of 2000. Endeavour was established by the Company's Financial Services segment to offer offshore investors an opportunity to invest in U.S. real estate investment trusts. The investment income from Endeavour in the first quarter was offset by $1.4 million of Realized losses, $1.9 million of Interest expense, $0.9 million of Operating expenses and $(0.8) million of Minority interest. In the second quarter of 2000, the ownership structure of Endeavour was changed so that it is no longer consolidated on a line by line basis, but is accounted for on an equity basis.
Operating expenses increased 20% to $40.0 million for the quarter, compared to $33.4 million in the third quarter of last year, and increased 21% to $112.3 million for the nine months of 2000, compared to $92.9 million in 1999. The increase in Operating expenses is attributable to growth in personnel and other expenses to service the Company's business, the effect of recent acquisitions and $0.9 million of Operating expenses from Endeavour recorded in the first quarter of 2000.
During the third quarter, the Company completed the refinancing of its former bridge loan facility. Amounts outstanding under the bridge loan facility were refinanced through a $180 million, three year syndicated bank facility and by a private placement of $40 million of 33-month floating rate trust preferred securities, known as RHINOS, with a trust organized by Banc of America Securities LLC. Interest expense increased by $10.0 million for the nine months of 2000 as a result of increased debt, higher interest rates and Endeavour interest, offset in part by a reduction in debenture interest over the corresponding 1999 period.
Program Business involves replacing traditional insurers and acting as a conduit between producers of specialty books of business and reinsurers wishing to write that business. The segment accounted for 60% of total Fee income in the quarter and 58% for the nine months of 2000 compared to 59% and 55% in the corresponding 1999 periods. Fees from Program Business increased 24% in the third quarter to $33.3 million and 15% to $87.2 million for nine months as compared to $26.8 million and $75.8 million, respectively, in 1999. This resulted primarily from the growth of existing programs due to premium increases and decreased competition. Profit margins were 31% for the quarter and 28% for the nine months of 2000, compared to 30% and 34% for the corresponding periods of 1999.
Gross premiums written increased 31% to $1.1 billion for the nine months of 2000 as compared to $850.8 million in 1999, primarily as a result of the growth within the Program Business segment. Program Business generally involves greater premium volume per unit than Corporate Risk Management business. Premiums earned increased 43% to $72.1 million in the third quarter and 38% to $191.9 million in the nine months of 2000, as compared to $50.6 million and $139.6 million in the corresponding 1999 periods. These increases in Premiums earned were also
primarily due to the growth within the Program Business segment and are offset by similar increases in Total insurance costs.
Corporate Risk Management, the Company's original business segment, involves providing services to businesses and associations seeking to insure a portion of their risk in a loss sensitive Alternative Market structure. This segment accounted for 20% of total Fee income in the third quarter and 22% for the nine months of 2000, down from 23% and 28% in the corresponding 1999 periods. Corporate Risk Management fees increased by 9% in the third quarter to $11.5 million aided by changes in market conditions, but decreased by 10% for the nine months to $33.6 million. Profit margins were 26% in the third quarter and 25% for the nine months of 2000, compared to 28% and 38% in 1999. The Company continues to expect that a firming of prices generally will continue to improve the sale of Corporate Risk Management accounts and fees. This was reflected in strong unit sales in the month of October.
The Company's Specialty Brokerage business segment provides access to Alternative Risk Transfer insurers and reinsurers in Bermuda and Europe. The segment produced $3.6 million of total Fee income in the third quarter and $10.9 million in the nine months of 2000, representing 7% of total Fee income in both the third quarter and nine months of 2000. Specialty Brokerage fees grew by 9% in the third quarter and 12% in the nine months of 2000 as a result of increased business placed in Bermuda and London. Profit margins decreased to 29% in the third quarter, and to 30% for the nine months, from 33% and 40% in the corresponding 1999 periods as a result of increased operating expenses.
The Financial Services business segment provides administrative services to offshore mutual funds and other companies, offers a proprietary family of mutual funds as well as asset accumulation life insurance products for the high net worth market and provides trust and private client services. The segment accounted for 13% of total Fee income for both the third quarter and nine months of 2000. Fees from Financial Services increased in the quarter by 48% to $7.4 million, and by 41% to $19.9 million for the nine months, primarily as a result of an increase in mutual fund assets under administration which exceeded $31 billion at September 30, 2000. Profit margins in the Financial Services segment have been adversely affected since 1998 by the previously announced revised executive incentive plan and staff expansion costs to service new business, but increased to 21% in the third quarter and 19% for the nine months of 2000, as compared to 7% and 5% in the corresponding 1999 periods. Excluding the effect of the revised executive incentive plan, which will end in December 2000, the profit margins in this segment would have been 24% for the quarter and 23% for the nine months as compared to 17% and 16% for the corresponding 1999 periods.
As of September 30, 2000, the Company was involved in arbitration and litigation to collect balances due from a number of companies and Lloyd's syndicates that are disputing their obligations to the Company. The Company has paid $47 million in claims on this business for which it has not received reimbursement. To date, reinsurers have failed to supply any specific facts to support their non-payment of claims and the Company expects to recover the amounts owed, in full. One accident and health program accounts for $35 million, or 75%, of the total un-reimbursed paid claims. There were five such disputes at the end of the third quarter as compared to four at the end of the second quarter of 2000. These disputes have adversely affected the operating cash flow, which was negative $14.4 million for the
third quarter and $10.4 million for the nine months of 2000 as compared to positive $25.9 million and $6.5 million in 1999. The Company expects to record positive cash flow for the fourth quarter.
During the quarter, the Company announced the acquisition of certain entities associated with the American Psychiatric Association's professional liability program. The entities acquired include a Barbados insurance company, an onshore risk retention group and Professional Risk Management Services, Inc. (PRMS), a Virginia based managing general agent with special expertise in behavioral health-care liability and risk management. PRMS is responsible for the marketing, underwriting and claims administration associated with the professional liability program. Legion Insurance Company has been the program's primary insurance carrier since 1988 and will continue to issue coverage for the program.
The Company will conduct a conference call for interested shareholders, analysts and investors on Thursday, November 2, 2000 at 11.00 a.m. A.S.T. (10.00 a.m. E.S.T.) which can be accessed by calling (212) 896-6061 or logging on to the Company's website at www.accessmrm.com (or www.streetfusion.com). A replay of the conference call will be available at 1-800-633-8284 (reservation #16030636) until 12.30 p.m. E.S.T., Thursday, November 9, 2000.
Mutual Risk Management Ltd. provides risk management services to clients in the United States, Canada and Europe seeking alternatives to traditional commercial insurance for certain of their risk exposures, as well as financial services to offshore mutual funds and other companies. Mutual Risk Management Ltd. (MM) Common Shares are listed on the New York and Bermuda stock exchanges.
This press release contains forward-looking statements within the meaning of the U.S. federal securities laws with regard to our future growth, profitability and income from some of our business segments. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in these laws. These statements are not guarantees of performance. Actual events or results may differ materially from our expectations. Important factors that could cause our actual results to be materially different from our expectations include changing market conditions and those factors discussed in our Annual Report on Form 10-K, as amended, under the caption "Risk Factors".