ALEXANDRIA, Va., /FOOLWIRE/ --- INTERCARGO CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ICAR)") else Response.Write("(NASDAQ:ICAR)") end if %> today reported second quarter earnings for the period ended June 30, 1996, announced declaration of its semi-annual dividend, and announced the selection of a new Chief Financial Officer. Earnings were $0.23 per share for the current quarter as compared to $0.27 per share for the same period in 1995. There were 7.7 million average weighted shares outstanding for both the current and prior periods. Earnings for the current period continue to be suppressed as the Company is deliberately utilizing more conservative loss reserve assumptions.

Total revenues for the quarter ended June 30, 1996 were down 25.8% to $17.9 million from $24.1 million for the 1995 period. Net income for the period declined 15.5% to $1.8 million from $2.1 million for the prior period. Revenues for the six month period showed similar decreases over the comparable 1995 results with insurance premium income down 28.2% to $31.3 million from $43.6 million and total revenues down 28.5% to $33.8 million from $47.3 million. Net income for the six months of 1995 declined to $2.9 million from the $4.2 million reported for the six months of 1995.

SEGMENT BY SEGMENT ANALYSIS

Total gross premiums earned, excluding Kingsway, was up 12.2% with marine showing the largest gain at 19.1%. The written exercise showed increases in all lines except property & casualty. The company was up a little more than 1.9% in customs bonds, a positive development because of the way that these are accounted for. They have restructured the custom bond program and increased the available limits of insurance and have introduced a fourth player into the reinusrance treaty. They have recaptured a $1.6 million reserve rate.

Contract bonds showed a bit of a slow start and a softness in the contract bond market. They have chosen not to chase contract bond business aggressively, choosing instead to hold to the underwriting discipline with premiums up 2.3%.

Marine business was up 28.9% UK 17% continue to get solid increases in the accounts that need them, as well as being attractive to a lot of the bigger producers They have increased catastrophe protect at no additional cost

Their E&O line up saw revenues rise by 10%. They believe in this line and other lines the company is getting significant premium increases where they need them. The company now does not get the deferral of any of the policy acquisition costs as a result of more conservative assumptions.

The property & casualty (P&C) line was down 25% in volume, about $1.5 million, for the first half primarily the result of eliminating $800,000 in truck business from agents that were producing poor loss ratios. The company also got out of the farm business, which was $600,000 in premiums last year. The company has also been restructuring reinsurance here as well in order to improve the cost structure.

BUILDING RESERVES

They continue to use conservative loss-building approaches to avoid the December surprise that was so unhappy for everyone. Reserves-wise, bond lines have not changed, marine line as gone up 2.5% since last year, P&C saw an increase of about 14%, professional liability was up 27%. In aggregate, this is about $1.6 million that goes into the balance sheet as opposed to the income statement based on the assumed losses. On the P&C side since they have thrown out many of the adverse agents and they are doing the same thing on the marine side, they want to be able to convince the actuaries that they deserve a lower loss assumption. They have gone through every account that had an unacceptable rating and have taken and implemented corrective action on those accounts.

INITIAL PUBLIC OFFERING OF KINGSWAY

In December 1995, Kingsway Financial Services, Inc. undertook an initial public offering on the Toronto Stock Exchange to raise capital for planned growth. Intercargo participated in the offering by selling 660,000 shares to fund expansion of its U.S. operations and entry into Hong Kong. As a result, Kingsway is no longer a majority owned subsidiary of Intercargo and its results of operations and financial position are not consolidated at June 30, 1996. Equity in the earnings of Kingsway amounted to $1.1 million for the current quarter and $1.7 million for the first six months of 1996 as compared to $912 thousand and $1.3 million for the comparable periods in 1995.

Kingsway continues to prosper. They have had solid premium increases. In the 6 mos. ended July 30, the premiums have more than doubled. Although they have lost the consolidation, the public offering has been very fruitful for them as it has positioned them to cover a number of opportunities. The stock was offered at $10 and is currently at $17 and $18. Their value in that enterprise is $30.5 million and is carried on the balance sheet at the cost of $13.1.

OTHER DATA POINTS

Intercargo's book value at the end of the quarter was $5.83 with Kingway being carried on the books at cost. If Kingsway at was valued at what the public market is pricing it at, Intercargo's book value would be $8.10.

Orion Capital currently owns 23.8% of the company.

Intercargo had $41,763 in capital gains for the quarter.

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