Minnesota-based RTW Inc., a provider of products and services to cost-effectively manage both insured and self-insured workers’ compensation programs, reported net income for the fourth quarter ended Dec. 31, 2004 of $7.0 million or $1.32 per basic and $1.25 per diluted share.
Net income for the year ended Dec. 31, 2004 was $9.9 million, or $1.90 per basic and $1.81 per diluted share. Comparable 2003 net income for the fourth quarter was $2.7 million, or $0.52 per basic and $0.49 per diluted share and was $7.0 million, or $1.37 per basic and $1.32 per diluted share for the year.
Jeffrey Murphy, president and CEO of RTW, said, “We had a very good year in 2004. We focused on two strategic initiatives: (i) maintaining profit in our insurance offerings; and (ii) building a service business. On both counts, we are pleased with our progress.”
According to Murphy:
— We increased premiums in force at Dec. 31, 2004 to $62.7 million from $58.1 million at Dec. 31, 2003. We continue to focus on writing profitable insurance business, underwriting at the right price and non-renewing or passing on business that does not meet our underwriting requirements. Rate increases have been hard to come by and, for 2004 rates increased less than 1.0% on renewing policies. We expect this trend to continue and may see decreasing rates on renewing business in 2005;
— Gross premiums earned followed the growth in premiums in force, increasing to $16.4 million in the fourth quarter of 2004 from $15.1 million for the same period in the prior year and increasing to $63.4 million for the year ended Dec. 31, 2004 from $54.4 million for 2003;
— Premiums earned increased to $13.7 million in the fourth quarter of 2004 from $12.6 million for the same period in 2003 and increased to $53.7 million for the year ended Dec. 31, 2004 from $46.3 million for 2003. Premiums ceded under excess of loss treaties, as a percentage of gross premiums earned, increased in 2004 as rates increased for excess of loss reinsurance coverage;
— Total revenue increased to $15.1 million in the fourth quarter of 2004, compared to $13.7 million in the same period last year and increased to $58.9 million for the year ended Dec. 31, 2004, compared to $51.6 million for 2003. Included in total revenue is investment income of $1.0 million for the fourth quarters of 2004 and 2003 and $3.8 million for the year ended Dec. 31, 2004, compared to $4.5 million for 2003. Total revenue includes realized investment gains of $705,000 in 2004 compared to $685,000 in 2003 as we took advantage of market conditions in both years to realize capital gains and reposition our portfolio in anticipation of interest rate increases. Investment income in 2004 decreased slightly as we retained more of our available funds in cash expecting that investment yields would increase in the next 18 months;
— We continued to benefit from improving our claim management capabilities and realized net pre-tax decreases in claim and claim settlement expenses of $3.2 million for the fourth quarter and $4.6 million for the year ended 2004 for claims previously reported. Comparable pre-tax decreases for 2003 totaled $2.0 million for the fourth quarter and $6.7 million for 2003 for claims previously reported. This result reflects our commitment to continue to improve outcomes for open claims from prior accident years;
— General and administrative expenses include bonus expense of $845,000 in the fourth quarter and $1.3 million for the year ended Dec. 31, 2004. The quarter and year-end 2003 results include $341,000 and $941,000 in bonus expense, respectively; and
— Income tax benefit in the fourth quarter and year ended Dec. 31, 2004 includes a $3.6 million benefit resulting from a reversal of the remaining allowance on our deferred income tax asset at Dec. 31, 2004. The fourth quarter and year ended Dec. 31, 2003 include similar benefits totaling $1.9 million and $3.1 million, respectively.”
Murphy added; “We continued our strategic initiative to deliver our workers’ compensation services on a non-insurance basis to self-insured employers and other alternative markets during the fourth quarter of 2004. These services include third-party claims administration, claim consulting and other services that leverage our proven competencies, ID15 and The RTW Solution.
“Our largest non-insurance customer is the Minnesota Assigned Risk Plan (ARP) with whom we have a twenty-five percent servicing contract that began July 1, 2004. Our service revenue, including this contract, grew to $350,000 in the fourth quarter of 2004 from $143,000 in the third quarter of 2004 and to $633,000 for the year ended December 31, 2004 from $283,000 for the nine months ended September 30, 2004. Our non-insurance services enable us to expand the types of customers we service and allow us to expand geographically. From our existing offices, we are providing ID15 as a tool to allocate resources and achieve improved outcomes under pilot programs in California and Indiana. We expect continued growth in our non-insured services as we continue to expand to areas outside our traditional Minnesota, Michigan and Colorado regions where we currently provide workers’ compensation insurance and broaden our product offerings in response to customers’ needs.”
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