Piper Jaffray Comments On FPIC Insurance Group Following Recent Earnings

FPIC Insurance Group FPIC reported operating EPS of $0.67 in 1Q11 compared to the consensus $0.63 and PJC's $0.68. This figure compares to operating EPS of $0.69 in 1Q10. The quarter fell roughly in line with expectations as higher premiums mitigated a higher loss ratio and lower investment income. Reserve releases driven by lower frequency and severity aided underwriting results. Net-net, FPIC reported a decent quarter and continued aggressive share repurchases. On a GAAP basis, FPIC reported a loss ratio of 59.7% compared to 60.6% in 1Q10 and PJC's estimate of 60.2%. On an accident year basis, the loss ratio came in at 72.1%, up 110bps from 70.1% Y/Y. Quarterly results contained $5.0M in favorable development from 2005-2009 books of business, as the positive claim trends from prior quarters continue. Net investment income declined 14.3 % Y/Y to $5.6M vs. our estimate of $5.9M. Management again identified lower yields from fixed-income investments and reduced invested assets as the primary culprits behind investment results. Cash and investments reported down 4.6% Y/Y and 2.8% sequentially at $687.6M. Interest rates continue to result in historically low returns and plague insurers from the investment side. Piper Jaffray has a $38 PT and Neutral rating on FPIC FPIC closed Wednesday at $34.75