Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good afternoon, and welcome, ladies and gentlemen, to the Philadelphia Consolidated Holding Corp. second quarter ended July 22nd, 2004 conference call. At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the Company we will open the conference up for questions and answers after the presentation.
The information included in this presentation and other statements, or materials, published or to be published by the Company, are not historical facts but are forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new and existing products, expectations for market segment and growth, and similar matters.
In connection with the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 the Company provides the following cautionary remarks regarding important factors which among others could cause a Company's actual results and experience to differ materially from the anticipated results or other expectation expressed in the Company's forward-looking statements.
The risks and uncertainties that may affect the operations, performance, development, results of the Company's business, and other matters referred to above include but are not limited to changes in the business environment in which the Company operates, including inflation in interest rates, changes in taxes, governmental laws and regulations, competitive product and pricing activity, difficulty of managing growth profitability, claims development, inadequacy of our liability for unpaid loss and loss adjustment expenses, severity of natural disasters, and other catastrophe losses, adequacy of reinsurance coverage which may be obtained by the company, ability and willingness of our reinsurance to pay, and future terroristic attacks.
I will now turn the conference over to [Joseph J. Barnholt] [ph], Director of Investor Relations. Please go ahead, Mr. Barnholt.
JOSEPH J BARNHOLT, DIRECTOR OF INVESTOR RELATIONS, PHLY: Thank you, Charlene.
On behalf of Philadelphia Insurance Companies I would also like to welcome you to our second quarter ended June 30th, 2004 conference call.
I'll begin by introducing the members of our Management Team who are joining me this afternoon. First of all, I'd like to introduce Jamie Maguire, our President and CEO, who I will turn the conference over to shortly. Also joining us is Sean Sweeney, Executive Vice President and Chief Marketing Officer, Craig Keller, Executive Vice President and Chief Financial Officer, and Chris Maguire, Executive Vice President and Chief Underwriting Officer.
A replay of today's conference call will be available from 5:00 p.m. today until August 13th, 2004. You can access the replay by visiting the Company's web site, phly.com. Additionally, the supplemental quarterly materials have been posted on our web site under supplemental financial information.
Please feel free to contact me with any follow-up questions or data requests. My direct dial number is 610-617-7626. My e-mail address is firstname.lastname@example.org.
I now will turn the conference over to Jamie Maguire, our President and CEO.
JAMES MAGUIRE, PRESIDENT, CEO, DIRECTOR, PHLY: Thank you, Joe. And welcome, everyone, to our conference call, and welcome to those of you listening on the web. We've released our press release, and so hopefully you've seen that. As Joe mentioned, we have supplemental financial information attached to the press release, and we also have the typical supplemental financial information that we release on a quarterly basis. And lastly, we have the presentations, which I'm going to be going through, on our web site, and so I encourage you to follow along.
We have a lot to cover on this conference call, and so let's get right to it. Moving to slide 3 on the presentation, the agenda. We're going to first discuss the restatement, which is discussed in detail in our press release. And, as I mentioned, the restatement includes a detailed schedule at the back which shows how the two profit shares have been allocated among prior quarters. We're going to discuss the second quarter financial highlights, and we had a very good second quarter from an operating standpoint. Our core operations are doing very well. I'm going to update our guidance for 2004. And then lastly, we'll take the q and a.
Moving to slide 4, the restatement. As I mentioned, we have a detailed analysis. And I would encourage all of you listening to go through the press release and review the detailed analysis of the restatement. An issue with the restatement are two treaties, two reinsurance treaties, that we entered into in 2003. And the restated amounts or the profit share amounts from those two treaties, the first one being our 2003 quota share, which we've discussed at numerous times on the conference calls, $5.4m pre-tax was the profit share amount for the quota share, $3.5m after-tax. And then the second treaty was a 2003 catastrophe treaty, a lower layer catastrophe treaty, $6m [versus] [ph] $4m, where we recognized a profit share of $7.3m pre-tax, $4.7m after-tax. And that treaty was to be commuted in the second quarter of this year, and raised the issue of the accounting treatment of those two profit shares from those treaties. There were no losses seeded to these two treaties, hence, the profit shares which were due us.
An issue with the two treaties and the profit shares is the timing of the recognition of the profit. We were of the opinion that the profit share, the profit commission from these two treaties was going to be due at the end of the treaty period. Typically, profit shares are realized either at the end of the contract term or at some other time either through a commutation, a termination, or a non-renewal. In discussing our second quarter results with our auditors it came to light that there was some contract wording which was overlooked on our part, and requires that we restate the profit shares from these two treaties and put them back into the quarters of the 2003 year.
The procurement process for these treaties, I feel we have a very good process in place which involves internal company personnel, myself included, our Audit Committee, as well as external experts, including our auditors, reinsurance brokers and …