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Terra Achieves 74th Consecutive Quarterly Record
Corte Madera, CA - Terra Insurance Company has achieved a new record-high book value per share for the 74th consecutive quarter: $203.90 as of September 30, 2005. The new per-share mark - unaudited at this point - represents an almost-10% advance over third-quarter 2004's then-record results ($185.49), and is more than 4% above the $195.95 per-share record set on December 31, 2004. Terra shareholders' equity - $21.23 million - also advanced to a new record high.
"Terra's accomplishments seem to belie the cyclical nature of the insurance industry," said Terra CEO David L. Coduto. "But you have to understand why the industry is cyclical." He said that many insurance companies seek to profit by buying into what he labeled "the investment du jour." They raise investment money by "borrowing on the future"; i.e., by selling insurance below cost to attract more customers and offering coverage to risks they shouldn't. "The approach works well for a while," Mr. Coduto said, "in that the investment returns are strong enough to make the underwriting losses worthwhile. But what goes up, must come down. When the investment sours - as it invariably will - the company is left with a low-yielding return - if any at all - that's far from adequate to offset its huge underwriting losses."
Terra avoids "cycling problems by pursuing a classic business model. We profit from what we sell - professional inability insurance - and maintain a conservative, slow-but-sure investment portfolio that's yielded a positive return year after year, since 'day one,'" Mr. Coduto said. "And that's just the way our owner/insureds want it."
Because Terra is a risk retention group, all its insureds also are part-owners of the company. Many of them provided the capital Terra needed when it converted to risk retention group status in 1988, after almost two decades as an "off-shore" company. The original owner/insureds paid $10 per share and have seen their investment grow by almost 2000%. They've also seen phenomenal change in the industry. "A number of our competitors no longer exist," Mr. Coduto remarked, "and a number of markets no longer write professional liability insurance for design professionals, particularly the geotechnical and environmental engineering firms that comprise the majority of Terra's insureds."
For the nine months ending September 30, 2005, Terra's net income (also unaudited) was $6.99 per share, about 10% ahead of the $6.36 per share Terra reported for the nine months ending September 30, 2004. "The increase is due to a healthy increase in net written premium stemming from steady growth of the underlying fee base of our owner/insureds. As with other professional liability insurers, our rates are based on a percentage of our owner/insureds' fees. The more they bill, the more we earn."
Mr. Coduto commented that "Terra owner/insureds comprise some of the best-managed engineering firms in North America. This is reflected in the small number of claims they report each year, their steady growth, and their strong profitability. To the extent that their performance inures to the benefit of Terra, it also benefits our insureds because, of course, they own the Company. When they do well, Terra does well, and that helps them all do even better. It's a pretty simple formula for success," Mr. Coduto said, "It has worked well for 74 consecutive quarters and I expect it to continue for at least 74 more."
Terra's performance has been recognized by A. M. Best Company, the internationally respected insurance-company rating agency. It has reaffirmed Terra's stated rating of "A (Excellent)", Class V, as well as Terra's implied rating of "A++ (Superior)", Class V. According to Mr. Coduto, "Best rates thousands of insurance companies. Fewer than 2% achieve a rating of 'A++'."
Terra comprises 90 owner/insureds whose gross annual fees range from $500,000 to $90 million. More information about Terra and the products it offers, as well as free risk management materials and a copy of the Terra "QuickApp," can be found at www.terrarrg.com, or by contacting Terra Insurance Company, 2 Fifer Avenue/Suite 100, Corte Madera, CA 94925; tel. 1/800-872-0077 (in CA, 415/927-2901); e-mail terra@terrarrg.com.
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