PMA Capital Notes $10.4M 4thQ Loss – $48M Loss in 2002

Philadelphia-based PMA Capital Corp. (PMACC) announced a net loss of $10.4 million, or $0.33 per diluted share, for the fourth quarter of 2002, compared to net income of $6.6 million, or $0.29 per diluted share, for the fourth quarter of 2001. The company posted a net loss of $48.0 million, or $1.53 per diluted share, compared with net income of $7.1 million, or $0.32 per diluted share, for the full year.

Other highlights of the earnings report included the following:
*Full year 2002 gross written premiums were $1.4 billion; net written premiums were $1.1 billion.
*25 percent increase in net premiums written for the quarter; 44% increase in net premiums written for the year.
*4th quarter net loss on a GAAP basis was $10.4 million, or 33 cents per diluted share, and 4th quarter after-tax operating loss was $13.0 million, or 41 cents per diluted share, reflecting a charge of approximately $26 million after-tax, or 83 cents per diluted share, primarily due to adverse loss development from reinsurance business written for 1998, 1999 and 2000.
*Book value at December 31, 2002 including unrealized gains and losses on investments was $18.56 per share.
*2003 after-tax operating earnings are expected to be between $1.70 and $1.85 per diluted share.

Standard & Poor’s issued an announcement following the appearance of the results which noted that the fourth quarter “reflected a charge of about $26 million (after taxes) related to reserve strengthening at its reinsurance subsidiary, PMA Capital Insurance Co. (A-/Negative/–).”

S&P’s indicated that it had lowered its ratings on PMACC and related subsidiaries last August “because of the companies’ poor operating performance and marginal interest coverage at the holding company in recent years, primarily as a function of reserve increases at its reinsurance and excess and surplus subsidiaries.” It stated, however, that it “will not be taking any rating action on PMACC or its subsidiaries as a result of the recent announcement, as it believes PMACC’s poor earnings performance through 2002 was already accounted for in the previous rating action.”

The bulletin went on to note that the “current ratings on PMACC are based on the expectation that the group’s operating results will improve substantially in 2003 and 2004 as it takes advantage of improving premium rate conditions in its lines of business.” S&P added that it doesn’t expect there will be a need for further reserve strengthening, and that PMACC’s “capital adequacy is expected to remain supportive of the current ratings at 140 percent-145 percent.