Unico American Corporation Reports Third Quarter 2017 Financial Results

CALABASAS, Calif.--()--Unico American Corporation (NASDAQ:UNAM) (“Unico” or the “Company”) announced today its consolidated financial results for the three and nine months ended September 30, 2017. For the three months ended September 30, 2017, revenues were $9.3 million and net loss was $2.9 million ($0.55 diluted loss per share) compared with revenues of $9.0 million and net loss of $2.0 million ($0.37 diluted loss per share) for the three months ended September 30, 2016. For the nine months ended September 30, 2017, revenues were $27.5 million and net loss was $5.9 million ($1.12 diluted loss per share) compared with revenues of $26.3 million and net loss of $2.0 million ($0.38 diluted loss per share) for the nine months ended September 30, 2016.

“Costs related to our other restructuring initiatives executed during the quarter account for most of the remaining balance of this quarter’s $2.9 million net loss.”

Stockholders’ equity was $63.0 million as of September 30, 2017, or $11.86 per common share including unrealized losses, net of deferred income tax, of $0.007 million, compared to stockholders’ equity of $68.9 million as of December 31, 2016, or $12.98 per common share including unrealized investment gains, net of deferred income tax, of $0.008 million.

“We have identified and addressed the causes of recent quarterly losses, and we do not expect these kinds of losses to recur. For example, of the third quarter’s $2.9 million net loss, $1.1 million can be attributed to adverse results on two claim files. Both of those claims involved assault and battery litigation that occurred at two different nightclubs insured by our subsidiary, Crusader Insurance Company, and both of those cases resulted in runaway jury awards at trial that were both unexpected and inconsistent with our experience over the prior 32 years of having handled hundreds of substantially similar cases with much more modest results,” said Cary L. Cheldin, Unico’s President and Chief Executive Officer. “Another $0.5 million of the net loss this quarter is attributed to three other assault and battery cases at nightclubs. These five cases, along with many other assault and battery cases that we resolved during the past 18 months reflect relatively recent social, legal and economic changes that have materially impacted the cost of insuring that type of risk in California. Consequently, we have decided to significantly curtail or entirely exclude coverage for the risk of assault and battery claims at nightclubs in California while continuing to service that group of our customers in other ways.

“In light of the adverse development on the nightclub business we underwrote, we increased our estimate of expected ultimate loss ratios used in our IBNR calculation for policies issued to nightclubs, resulting in a significant increase in our IBNR reserves. $0.9 million of this quarter’s $2.9 million net loss is attributable to our strengthening of IBNR reserves associated with the exposures we have on those nightclubs.

“Costs related to our other restructuring initiatives executed during the quarter account for most of the remaining balance of this quarter’s $2.9 million net loss.

“While adverse development and reserve strengthening on prior accident years reduced our earnings again, we remain strongly capitalized and we spent the quarter making positive changes. We improved our underwriting and marketing operations, completed the vendor selection phase for a new policy administration system, launched three new websites, and improved the yields on our investment portfolio. I remain extremely optimistic and confident about the future success of Unico’s current team of employees, Unico’s operations and Unico’s profitability.”

Headquartered in Calabasas, California, Unico is an insurance holding company that underwrites property and casualty insurance through its insurance company subsidiary; provides property, casualty and health insurance through its agency subsidiaries; and through its other subsidiaries provides insurance premium financing and membership association services. Unico has conducted the majority of its operations through its subsidiary Crusader Insurance Company since 1985. For more information concerning Crusader Insurance Company, please visit the Crusader’s website at www.crusaderinsurance.com.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and the Company intends that such forward-looking statements are subject to the safe harbors created thereby. These statements, which may be identified by words or phrases such as “anticipate,” “appear,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “will,” “may,” “likely,” “future,” “should,” “could,” and “would” and similar words, are intended to identify forward-looking statements. In addition, any statements that refer to projections of the Company’s future financial performance, trends in its businesses, or other characterizations of future events or circumstances are forward-looking statements.

The forward-looking statements included herein are based on current expectations of the Company’s management based on available information and involve certain risks and uncertainties, many of which are beyond the control of the Company. Such risks and uncertainties could cause actual results to differ materially from those anticipated by these forward-looking statements. Factors that could cause actual results to differ materially include, among others: failure to meet minimum capital and surplus requirements; vulnerability to significant catastrophic property loss; a change in accounting standards issued by the Financial Accounting Standards Board; required adoption of International Financial Reporting Standards; ability to adjust claims accurately; insufficiency of loss and loss adjustment expense reserves to cover future losses; ability to realize deferred tax assets; ability to accurately underwrite risks and charge adequate premium; ability to obtain reinsurance or collect from reinsurers; extensive regulation and legislative changes; reliance on subsidiaries to satisfy obligations; downgrade in financial strength rating by AM Best; intense competition; changes in interest rates; investments subject to credit, prepayment and other risks; geographic concentration; reliance on independent insurance agents and brokers; insufficient reserve for doubtful accounts; litigation; enforceability of exclusions and limitations in policies; reliance on information technology systems; ability to prevent or detect acts of fraud with disclosure controls and procedures; change in general economic conditions; dependence on key personnel; ability to attract, develop and retain employees and maintain appropriate staffing levels; insolvency, financial difficulties, or default in performance of obligations by parties with significant contracts or relationships; implementation of new computer software; ability to effectively compete; maximization of long-term value and no focus on short-term earnings expectations; control by a small number of shareholders; failure to maintain effective system of internal controls; difficulty in effecting a change of control or sale of any subsidiaries; and losses in excess of reinsurance limits. Except as may be required by law, the Company undertakes no obligation to update any forward-looking statements to reflect new information or events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

                         

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($ in thousands)

 

September 30,

December 31,

2017 2016

(Unaudited)

ASSETS

Investments
Available for sale:

Fixed maturities, at fair value (amortized cost: $84,279 at September 30, 2017, and $80,372 December 31, 2016)

$ 84,269 $ 80,384
Short-term investments, at fair value   13,081     10,205
Total Investments 97,350 90,589
Cash 230 13,496
Accrued investment income 436 186
Receivables, net 6,047 6,008
Reinsurance recoverable:
Paid losses and loss adjustment expenses 1,692 261
Unpaid losses and loss adjustment expenses 11,891 9,521
Deferred policy acquisition costs 4,231 4,432
Property and equipment, net 10,118 10,283
Deferred income taxes 1,231 1,177
Other assets   4,853     2,269
Total Assets $ 138,079   $ 138,222
 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

LIABILITIES

Unpaid losses and loss adjustment expenses $ 53,067 $ 47,056
Unearned premiums 19,472 19,375
Advance premium and premium deposits 430 224
Accrued expenses and other liabilities   2,156     2,661
Total Liabilities $ 75,125   $ 69,316
 
Commitments and contingencies
 

STOCKHOLDERS' EQUITY

Common stock, no par – authorized 10,000,000 shares; 5,307,133 shares issued and outstanding at September 30, 2017, and December 31, 2016

$ 3,773 $ 3,761
Accumulated other comprehensive (loss) income (7 ) 8
Retained earnings   59,188     65,137
Total Stockholders’ Equity $ 62,954   $ 68,906
 
Total Liabilities and Stockholders' Equity $ 138,079   $ 138,222
 
 
           

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

($ in thousands, except per share)

 
Three Months Ended Nine Months Ended

September 30,

September 30,

2017       2016 2017       2016

REVENUES

Insurance company operation:
Net premium earned $ 8,168 $ 7,981 $ 24,309 $ 23,271
Investment income 310 235 785 659
Net realized investment gains (losses) - - 1 (1 )
Other income   108     66     244     201  
Total Insurance Company Operation 8,586 8,282 25,339 24,130
 
Other insurance operations:
Gross commissions and fees 685 697 2,098 2,064
Finance charges and fees earned 22 18 58 51
Other income   -     1     -     6  
Total Revenues   9,293     8,998     27,495     26,251  
 

EXPENSES

Losses and loss adjustment expenses 9,918 8,038 24,352 17,983
Policy acquisition costs 1,854 1,742 4,943 5,142
Salaries and employee benefits 1,221 1,319 4,535 3,980
Commissions to agents/brokers 40 40 127 121
Other operating expenses   696     826     2,592     2,053  
Total Expenses   13,729     11,965     36,549     29,279  
 
Loss before taxes (4,436 ) (2,967 ) (9,054 ) (3,028 )
Income tax benefit   1,509     1,013     3,105     1,027  
Net Loss $ (2,927 ) $ (1,954 ) $ (5,949 ) $ (2,001 )
 
 
 

PER SHARE DATA:

Basic
Loss per share $ (0.55 ) $ (0.37 ) $ (1.12 ) $ (0.38 )
Weighted average shares 5,307,133 5,307,133 5,307,133 5,307,881
Diluted
Loss per share $ (0.55 ) $ (0.37 ) $ (1.12 ) $ (0.38 )
Weighted average shares 5,307,133 5,307,133 5,307,133 5,307,881
 
 
               

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

($ in thousands)

 
Nine Months Ended

September 30,

2017           2016
Cash flows from operating activities:
Net loss $ (5,949 ) $ (2,001 )
Adjustments to reconcile net loss to net cash from operations:
Depreciation and amortization 386 361
Bond amortization, net (533 ) (13 )
Bad debt expense 16 -
Non-cash stock based compensation 12 17
Realized investment (gains) losses (1 ) 1
Changes in assets and liabilities:
Net receivables and accrued investment income (305 ) (727 )
Reinsurance recoverable (3,801 ) 237
Deferred policy acquisitions costs 201 (314 )
Other assets 478 698
Unpaid losses and loss adjustment expenses 6,011 728
Unearned premiums 97 1,323
Advance premium and premium deposits 206 277
Accrued expenses and other liabilities (505 ) 331
Income taxes current/deferred   (3,109 )   (1,037 )
Net Cash Used by Operating Activities   (6,796 )   (119 )
 
Cash flows from investing activities:
Purchase of fixed maturity investments (44,321 ) (12,032 )
Proceeds from maturity of fixed maturity investments 39,354 10,894
Proceeds from sale of fixed maturity investments 1,594 746
Net (increase) decrease in short-term investments (2,876 ) 7,467
Additions to property and equipment   (221 )   (536 )
Net Cash (Used by) Provided by Investing Activities   (6,470 )   6,539  
 
Cash flows from financing activities:
Repurchase of common stock   -     (90 )
Net Cash Used by Financing Activities   -     (90 )
 
Net (decrease) increase in cash (13,266 ) 6,330
Cash and restricted cash at beginning of period   13,496     8,259  
Cash and Restricted Cash at End of Period $ 230   $ 14,589  
 
Supplemental Cash Flow Information
Cash paid during the period for:
Interest - -
Income taxes $ 9 $ 9
 

Contacts

Unico American Corporation
Michael Budnitsky
Chief Financial Officer
818-591-9800

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Release Summary

Unico American Corporation Reports Third Quarter 2017 Financial Results

Unico American Corporation