Frontier Says $54M
Loss Not Surprising
By John Emerson
ROCK HILL August 18, 2000 A reported loss of $54 million in a quarter is not something any company likes to see, but for Frontier Insurance Group, that loss is not nearly as bad as it appears, according to one company executive.
The company announced the loss late Monday night through a series of financial statements. Stock prices fell to all-time lows of 43.75 cents per share on the New York Stock Exchange, where the companys stock is traded.
However, despite the negative sounds accompanying the release of the second-quarter financial statements, Mark H. Mishler, executive vice-president of Frontier Insurance Group and president of the Frontier Insurance Company subsidiary, said the losses were anticipated as the company goes through restructuring.
We did about what we expected to do in the second quarter, and that was show a small loss on operations, he said. Most of the losses that were reported are one-time charges as we sell off assets.
The companys corrective action plan, implemented to right the foundering company and return it to profitability, is well underway. As unprofitable lines of business are sold and the company goes through shrinking pains, such losses are to be expected, said Mishler.
One of the major bright spots for Frontier is an option on $800 million of reinsurance that will be used to supplement the companys reserves the money set aside to pay claims. Mishler said any time money is added to the reserve fund, it must be shown as a liability on financial statements. The reinsurance option eliminates the need to show that portion of the reserves covered by the reinsurance as a liability.
We have $515 million in reserves now, and that number goes up and down, he said. The reinsurance option gives us a 60 percent cushion [about $300 million] that we wont have to recognize as a loss.
Among the one-time charges reported in the second quarter was a $20 million addition to the reserve. Other one-time charges that appeared on the financial statements were a $3.3 million loss attributed to the sale of Regency Insurance Company, a $7.6 million loss attributed to the sale and operations of the One Stop.com e-commerce subsidiary and a write-off of $10.1 million in goodwill arising from the sale of other companies earlier this year.
Were continuing to follow the corrective action plan and still have several assets that we will be selling, Mishler said. I would expect by the first of the year we should be about where we should be. The basic core of the company will be intact and operating.