Management Criticized In NCRIC Merger

By Mark E. Ruquet

NU Online News Service, Feb. 28, 6:40 p.m. EST?Two medical liability insurers, NCRIC Group Inc. and Pro Assurance announced a $69.6 million merger deal today that the companies' management said was the best option for loss-battered NCRIC.[@@]

Some investors were critical of the quick decision to merge Washington, D.C.-based NCRIC with ProAssurance, but executives defended the arrangement saying the financial road ahead looked bleak for NCRIC after it took a hefty reserve charge and faced the possibility of a multi-million dollar civil judgment against it.

NCRIC and ProAssurance Corp., headquartered in Birmingham, Ala., said the merger was an all stock deal merging NCRIC into ProAssurance that would value NCRIC stock at $10.10 a share.

The deal is subject to regulatory and stockholder approval.

Both companies are underwriters of medial professional liability insurance. ProAssurance said it has gross written premiums of $790 million and more than $3.2 billion in assets.

By comparison, NCRIC reported today, for the fourth quarter and year ending 2004, gross written premium of more than $87 million for the year ending 2004.

For the forth quarter, NCIRC reported a net loss of $8.3 million, or a loss of $1.30 a share, compared to a net loss of $5.6 million, or a loss of 89 cents a share, in 2003. Net premiums earned rose from $12 million to $17 million.

The company took a $10.3 million reserve charge in the quarter based on the recommendations of it actuary, management said.

For the year, net income showed a net loss of more than $7 million, or a loss of $1.12 a share, compared to a net loss of more than $4 million, or a loss of 65 cents a share, in 2003. Net premiums written grew from $47.3 million to $66.5 million in 2004.

In an analysts and investors conference call with management from both NCRIC and ProAssurance, executives revealed that the merger was completed in three weeks of discussion, which drew criticism from some questioners, one of whom called it "a great deal for ProAssurance" but cast doubt over whether it was equally good for NCRIC.

Another asked management to note that during the conference call shareholders voiced little faith in NCRIC management and appeared to indicate that they did not want to see current management continue with ProAssurance.

In response, R. Pate Jr., NCRIC vice chairman, president and chief executive officer said, "I believe the shareholders, in this transaction, will be better served, than if we had stayed the course and continued as a small independent insurance company."

Said an investor in response, "I fear that is true, but that's mostly because of management."

Dr. A. Derrill Crowe, ProAssurance's chairman and chief executive officer, in defense of NCRIC, said as a small company, NCRIC would not survive faced with continuing reserve charges and an $18.2 million civil judgment.

In February of 2004, a jury ruled against NCRIC in favor of Columbia Hospital for Women Medical Center, Inc., in a premium collection litigation case. NCRIC has not reserved for the judgment.

"To absorb this entire loss would have a devastating effect on a company their size," said Dr. Crowe. He said ProAssurance, on the other hand, would be able to absorb the loss, and still allow NCRIC to continue to grow and service clients in the Washington vicinity.

The merger is expected to be competed during the third quarter of this year.

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Management Criticized In NCRIC Merger

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