Canton, Ohio-based pet insurer Hartville, Group Inc. announced financial results for the company’s first quarter of 2005, ended March 31, 2005. All reported results for the prior-year period reflect the previously announced restatement for the company’s first, second and third quarters of 2004.
For the first quarter, total premiums were $1.5 million, of which $833,664 was retained by the company’s reinsurance company, Hartville Re, compared to total premiums of $1.9 million, of which Hartville Re retained $793,748 for the three months ended March 31, 2004. Year over year, retention of premiums increased from 42 percent to 55 percent. This higher retention relative to the premium written is primarily due to the higher quota share of the underwriting risk that Hartville on average assumed.
Commissions earned by Petsmarketing Insurance.com for the quarter was $256,603 compared to commissions earned of $1.5 million for the comparable quarter last year. The decrease from 2004 was due to a one-time recognition of a sliding scale commission in 2004 of $934,001, of which $609,107 was reversed in subsequent quarters.
Commissions retained by the agency were 20 percent for the first quarter of 2005 compared to 30 percent for the first quarter last year.
Operating expenses were $2.8 million for the quarter compared to operating expenses of $1.8 million last year, increased expenses were the result of increased employment costs after an increase in staff hired in the forth quarter of 2004, amortization of a proprietary software system which the company began amortizing in July 2004, amortization of prepaid expenses and warrants issued in connection with capital raised. Approximately $460,000 of these expenses in the first quarter of 2005 are non-cash. Discounting these items, operating expenses would have been $2.4 million. The parent company had one-time fees related to investment banking costs on capital raised, which are being amortized over the terms of the capital raise, and interest penalties on failure to register shares pursuant to agreements. These expenses for the first quarter 2005 were approximately $318,000.
The company reported an operating loss of $1.7 million for the quarter, compared to operating income of $423,290 for the first quarter last year. The net loss for the quarter was $2.1 million, or 14 cents per share, compared to net income of $447,424 or 4 cents per share for the same quarter last year. The net loss is comprised of the reduction in ceded premium due to policy runoff, where 2004 premium was $1.9 million compared to $1.5 million in 2005, and a discontinued marketing campaign with PetPartners/American Kennel Club. Additionally, the agency segment (Petsmarketing) recognized a reduction in commission income due to premium runoff as noted in the reinsurance segment, as well as incurred increased operating expenses through expansion of staff. Also impacting the loss were legal and brokerage fees associated with capital funding transactions, and interest penalties on failure to register shares pursuant to the agreements.
“We successfully unwound the proposed acquisition and put it behind us, enabling the management team to refocus on the task of returning Hartville to profitability,” said Dennis C. Rushovich, who was appointed chief executive officer on April 28, 2005. “We are evaluating our administrative overhead and our policy pricing structure to ensure that our product offerings are in line with customer expectations and being offered at the appropriate price point. Additionally, effective, Jan. 1 we were able to negotiate improved reinsurance terms, which we anticipate will positively impact profitability by the third quarter. Meanwhile, we continue to explore alternatives to acquire or create a property and casualty company, enabling Hartville to retain the majority of the profit associated with underwriting risk assumption.”