Newspaper article The Florida Times Union

FPIC's New York Unit Sale Tugs at Stock's Recent High

Newspaper article The Florida Times Union

FPIC's New York Unit Sale Tugs at Stock's Recent High

Article excerpt

Byline: Mark Basch

FPIC Insurance Group Inc. had been trading at its highest level in seven years recently, but the stock dipped a bit last week after the company announced the sale of a profitable business unit.

On Monday, Jacksonville-based FPIC announced the sale of its New York-based insurance management operations for $40 million in cash to a private company controlled by Anthony Bonomo, who has been the chief executive of those operations. FPIC said the sale allows it to focus on its main business of providing medical malpractice insurance in Florida and other states.

The sold operations provided management services for Physicians' Reciprocal Insurers, a New York-based medical malpractice insurer. Those operations accounted for $23.7 million of FPIC's $154.2 million in revenue in the first six months of this year and $5.3 million of its $18.8 million in earnings, according to a statement filed with the Securities and Exchange Commission. But FPIC sees some risks ahead in the New York market, so it said it was a good time to exit.

"We believe the operations were at the height of their profitability and franchise value," said a statement by FPIC President and CEO John Byers.

"The transaction we've completed allows us to exit on attractive terms based on our assessment of the operations' prospects and risks," he said.

Analysts agreed that it was a good strategic move for the long term.

"Based on the expectation that the growth and earnings power of PRI was due to decelerate at a fairly brisk pace, the timing seems to be right to divest that business," said a research note by Stifel, Nicolaus & Co. analyst Michael Paisan, who maintains a "hold" rating on the stock.

But the loss of earnings from that business is hurting the stock in the short term. FPIC's stock fell $1.82 to $38.10 Wednesday after SunTrust Robinson Humphrey analyst David Lewis lowered his rating from "buy" to "neutral."

Besides the loss of income from the New York operations, Lewis' research note also said the entire medical malpractice industry is seeing some softness, which could reduce growth in insurance premiums. But he still thinks the sale is a good long-term move for FPIC.

"In addition to having confidence in FPIC's management team, its disciplined underwriting strategy and the potential for reserve releases in the near future, we hold a favorable long-term view on FPIC. However, the significant EPS dilution from the sale and the recent gross premium burdens does not justify a Buy rating now, in our view," Lewis said. …

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