The MIIX Group, Inc. of Lawrenceville, NJ, a provider of medical professional liability insurance services, announced net operating income of $7.2 million, or $.54 per share, for the first quarter ended March 31, 2003, compared to a net operating loss for the first quarter ended March 31, 2002 of $38.9 million, or $2.90 per share.
Net income for the first quarter was $5.2 million, or $.38 per share, compared to a net loss of $45.4 million, or $3.38 per share in the first quarter of 2002. It explained that “Net operating income is a non-GAAP financial measure calculated by adding realized investment losses of $2.0 million to GAAP net income of $5.2 million. ”
“The Company had a stable quarter in a very unstable operating environment,” stated Chairman and CEO Patricia A. Costante. “Loss reserves and the investment portfolio remained strong, with some exceptions, while operations otherwise reflected the ongoing run-off of the Company’s insurance operations, with continued declines in investment income and underwriting expenses.”
The company reported that the number of claims outstanding continued to drop, “from 7,496 at December 31, 2002 to 7,067 at March 31, 2003, representing a 5.7% decline in the quarter.” It added that “the emerging loss and loss adjustment expense data now suggests that loss reserve development may be accelerating, from prompter reporting of claims to quicker movement of claims through the litigation process and, ultimately, to earlier settlement of claims.
“This has been expected, due to the Company’s run-off status and financial challenges as well as to a ‘best practices’ program in the New Jersey court system that was instituted during 2001. The ultimate economic impact of the acceleration is unclear at this time. The Company expects that it could lead to lower settlement values and reduced loss adjustment expenses but with some level of offset associated with reduced investment income. ”
The Company also noted that it has “received approval from the New Jersey Department of Banking and Insurance to discount net loss and loss adjustment expense reserves as of December 31, 2002. Statutory surplus for MIIX Insurance Company was $72.3 million after inclusion of $53.6 million of discount calculated at a 3% interest rate for its statutory basis financial statements.”
It believes that the discounted reserves provide a more accurate picture of the economics of the run-off operations. In addition, the Company agreed to certain operating limitations with the Department including, primarily, prior approval before incurring new debt, paying dividends or investing in below investment-grade assets.
“Future loss reserve development remains very unclear given the tremendous volatility of the legal and medical environments. The medical professional liability situation is now in crisis in many states and the ultimate outcome of the crisis, as reflected in new tort reform legislation or otherwise, is very difficult to predict. We are working very aggressively to manage this difficult situation. We have sought to provide additional data on our progress to the Company’s investors through the quarterly financial supplement. The Company continues in its transformation from an insurance risk-bearer to an insurance services provider. Our goal is to preserve the existing value in the Company and to build that value through growth in our servicing and consulting businesses,” Costante concluded.
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