Motor Club Announces Income Before Federal Taxes as of December 31, 2000; Completion of Audit Pending Tax Item

Apr 02, 2001, 01:00 ET from Motor Club of America

    PARAMUS, N.J., April 2 /PRNewswire/ --
 Motor Club of America (Nasdaq: MOTR) ("the Company") today reported its income
 before Federal income taxes for the fourth quarter ended December 31, 2000 was
 $646,439 compared to a loss before Federal income taxes of $1,511,095 in 1999.
 Income before Federal income taxes for the year ended December 31, 2000 was
 $2,999,677 compared to $102,146 in 1999.  The Company also announced that it
 would report its net income when the audit of its financial statements was
 complete, which is expected to be no later than April 17, 2001.  Being
 reviewed is a complex tax item related to a subsidiary that was rendered
 insolvent in 1992, but is still required to continue to be included in its
 consolidated Federal tax return.  The Company reported that as to this tax
 item, any present or future tax liabilities established would have no impact
 on the operations, cash flow or surplus of the Company's active insurance
 subsidiaries or on consolidated income before Federal income taxes.  Book
 value at December 31, 2000 is presently estimated to be approximately
 $13.40 per share.
     Revenues for the fourth quarter and year ended December 31, 2000 were
 $23,329,714 and $90,127,147, respectively, as compared to $17,708,809 and
 $61,067,719 in the same periods in 1999.
     Income before Federal income taxes in 2000 improved as a result of a
 $3,748,269 improvement in underwriting results from insurance operations.
 This was the result of strong growth and improved loss ratios at the Company's
 Preserver Insurance Company subsidiary, economies of scale gained from our
 acquisition that enabled Motor Club of America Insurance Company to improve
 its expense ratio and sharply lower expenses at North East Insurance Company.
 Mountain Valley Indemnity Company's results were largely as anticipated.  In
 1999, Motor Club and Preserver had incurred $638,000 in losses and expenses
 related to Hurricane Floyd, which struck New Jersey in September 1999.
     These improved underwriting results offset a $1,419,000 increase in
 interest expense related to the Convertible Subordinated Debentures and
 Promissory Notes issued in 1999 and 2000, respectively, related to the
 Company's acquisitions of North East and Mountain Valley.  Expenses related to
 those acquisitions also declined, from $800,000 in 1999 to $354,000 in 2000.
     With regard to the Federal tax item, MCA Insurance Company in Liquidation
 and its subsidiaries ("MCAIC") are required to continue to be included in the
 Company's consolidated tax return filed with the Internal Revenue Service.
 Since the 1992 insolvency, MCAIC has generally continued to generate taxable
 losses included in the Company's consolidated tax return.
     Under the applicable rules, the Company is entitled to, and has taken
 current tax benefits for net operating losses that MCAIC and its subsidiaries
 have generated since 1992.  However, to the extent that the Company does not
 have positive basis (as defined by the Internal Revenue Code), it may also be
 required to pay future tax liabilities (which may offset the current tax
 benefit) subject to certain events which may trigger such payments.  To the
 extent that the Company has such positive basis, it is able to and has
 recognized tax benefit from these losses in prior years.
     Until 2000, the Company has had to record such liabilities once, in 1997,
 which it was able to eliminate in 1998 under the rules. Based on tax
 information received from MCAIC (which the Company does not control) during
 2000, the Company will have to establish deferred tax liabilities for such
 future payments and eliminate deferred tax assets that will no longer be
 realizable.  Such liabilities are presently estimated to be approximately
 $1.9 million, with a corresponding reduction in deferred tax assets of
 approximately $875,000.  The Company and its independent accountants are
 presently reviewing these amounts.  The Company is presently evaluating
 whether such information requires a restatement of prior periods or whether
 such information constitutes a 2000 event.  Irrespective of this accounting
 consideration, establishment of these liabilities does not require payment
 presently, nor is the Company subject to penalties and interest on these
 liabilities.
     Based on the current profitability of the Company and its active
 subsidiaries, the amount of net operating loss carry forwards that both the
 Company and MCAIC have available, and the application of the appropriate rules
 to such matters, the Company believes it is more likely than not that such
 deferred tax liabilities may fluctuate in the future.  Strategies to mitigate
 this future tax liability may be limited, although the Company expects to
 continue to review all avenues available to it.
     Accordingly, the Company is making the necessary filings to extend the
 time to file its Annual Report on Form 10-K with the Securities and Exchange
 Commission pending resolution of this matter.
     Motor Club of America owns and operates five regionally focused property
 and casualty insurance companies, including companies that specialize in small
 and mid-sized commercial insurance through the Preserver Insurance Group.
     The Preserver Insurance Group consists of Preserver Insurance Company,
 which writes small commercial and homeowners insurance presently in New
 Jersey, and Mountain Valley Indemnity Company, which writes small and
 mid-sized commercial insurance presently in New England and New York.  The
 Preserver Insurance Group is rated B++ (Very Good) by A.M. Best Company.
 American Colonial Insurance Company plans to commence operations in New York
 in 2001, writing commercial lines in tandem with Mountain Valley.
     Motor Club of America Insurance Company writes personal automobile
 insurance in New Jersey and is rated B+ (Very Good) by Best.  North East
 Insurance Company writes personal automobile and small commercial lines
 insurance in the State of Maine and is rated B (Fair) by Best.
 
     Forward-Looking Statement Disclaimer.  This press release contains
 statements that are not historical facts and are considered "forward-looking
 statements" (as defined in the Private Securities Litigation Reform Act of
 1995), which can be identified by terms such as "believes," "expects,"  "may,"
 "will," "should," "anticipates," the negatives thereof, or by discussions of
 strategy.  Certain statements are forward-looking statements that involve
 risks, uncertainties, opinions and predictions, and no assurance can be given
 that the future results will be achieved since events or results may differ
 materially as a result of risks facing the Company.  These include, but are
 not limited to, the cyclical nature of the property casualty insurance
 industry, the impact of competition, product demand and pricing, claims
 development and the process of estimating reserves, the level of the Company's
 retentions, catastrophe and storm losses, legislative and regulatory
 developments, changes in the ratings assigned to the Company by rating
 agencies, investment results, availability of reinsurance, availability of
 dividends from our insurance company subsidiaries, investing substantial
 amounts in our information systems and technology, the ability of our
 reinsurers to pay reinsurance recoverables owed to us, our entry
 into new markets, our acquisition of North East Insurance Company on
 September 24, 1999, our acquisition of Mountain Valley Indemnity Company on
 March 1, 2000, our successful integration of these  acquisitions, potential
 future tax liabilities related to an insolvent subsidiary and state regulatory
 and legislative actions which can affect the profitability of certain lines of
 business and impede our ability to charge adequate rates, and other risks
 detailed from time to time in the Company's filings with the Securities and
 Exchange Commission.
 
 

SOURCE Motor Club of America
    PARAMUS, N.J., April 2 /PRNewswire/ --
 Motor Club of America (Nasdaq: MOTR) ("the Company") today reported its income
 before Federal income taxes for the fourth quarter ended December 31, 2000 was
 $646,439 compared to a loss before Federal income taxes of $1,511,095 in 1999.
 Income before Federal income taxes for the year ended December 31, 2000 was
 $2,999,677 compared to $102,146 in 1999.  The Company also announced that it
 would report its net income when the audit of its financial statements was
 complete, which is expected to be no later than April 17, 2001.  Being
 reviewed is a complex tax item related to a subsidiary that was rendered
 insolvent in 1992, but is still required to continue to be included in its
 consolidated Federal tax return.  The Company reported that as to this tax
 item, any present or future tax liabilities established would have no impact
 on the operations, cash flow or surplus of the Company's active insurance
 subsidiaries or on consolidated income before Federal income taxes.  Book
 value at December 31, 2000 is presently estimated to be approximately
 $13.40 per share.
     Revenues for the fourth quarter and year ended December 31, 2000 were
 $23,329,714 and $90,127,147, respectively, as compared to $17,708,809 and
 $61,067,719 in the same periods in 1999.
     Income before Federal income taxes in 2000 improved as a result of a
 $3,748,269 improvement in underwriting results from insurance operations.
 This was the result of strong growth and improved loss ratios at the Company's
 Preserver Insurance Company subsidiary, economies of scale gained from our
 acquisition that enabled Motor Club of America Insurance Company to improve
 its expense ratio and sharply lower expenses at North East Insurance Company.
 Mountain Valley Indemnity Company's results were largely as anticipated.  In
 1999, Motor Club and Preserver had incurred $638,000 in losses and expenses
 related to Hurricane Floyd, which struck New Jersey in September 1999.
     These improved underwriting results offset a $1,419,000 increase in
 interest expense related to the Convertible Subordinated Debentures and
 Promissory Notes issued in 1999 and 2000, respectively, related to the
 Company's acquisitions of North East and Mountain Valley.  Expenses related to
 those acquisitions also declined, from $800,000 in 1999 to $354,000 in 2000.
     With regard to the Federal tax item, MCA Insurance Company in Liquidation
 and its subsidiaries ("MCAIC") are required to continue to be included in the
 Company's consolidated tax return filed with the Internal Revenue Service.
 Since the 1992 insolvency, MCAIC has generally continued to generate taxable
 losses included in the Company's consolidated tax return.
     Under the applicable rules, the Company is entitled to, and has taken
 current tax benefits for net operating losses that MCAIC and its subsidiaries
 have generated since 1992.  However, to the extent that the Company does not
 have positive basis (as defined by the Internal Revenue Code), it may also be
 required to pay future tax liabilities (which may offset the current tax
 benefit) subject to certain events which may trigger such payments.  To the
 extent that the Company has such positive basis, it is able to and has
 recognized tax benefit from these losses in prior years.
     Until 2000, the Company has had to record such liabilities once, in 1997,
 which it was able to eliminate in 1998 under the rules. Based on tax
 information received from MCAIC (which the Company does not control) during
 2000, the Company will have to establish deferred tax liabilities for such
 future payments and eliminate deferred tax assets that will no longer be
 realizable.  Such liabilities are presently estimated to be approximately
 $1.9 million, with a corresponding reduction in deferred tax assets of
 approximately $875,000.  The Company and its independent accountants are
 presently reviewing these amounts.  The Company is presently evaluating
 whether such information requires a restatement of prior periods or whether
 such information constitutes a 2000 event.  Irrespective of this accounting
 consideration, establishment of these liabilities does not require payment
 presently, nor is the Company subject to penalties and interest on these
 liabilities.
     Based on the current profitability of the Company and its active
 subsidiaries, the amount of net operating loss carry forwards that both the
 Company and MCAIC have available, and the application of the appropriate rules
 to such matters, the Company believes it is more likely than not that such
 deferred tax liabilities may fluctuate in the future.  Strategies to mitigate
 this future tax liability may be limited, although the Company expects to
 continue to review all avenues available to it.
     Accordingly, the Company is making the necessary filings to extend the
 time to file its Annual Report on Form 10-K with the Securities and Exchange
 Commission pending resolution of this matter.
     Motor Club of America owns and operates five regionally focused property
 and casualty insurance companies, including companies that specialize in small
 and mid-sized commercial insurance through the Preserver Insurance Group.
     The Preserver Insurance Group consists of Preserver Insurance Company,
 which writes small commercial and homeowners insurance presently in New
 Jersey, and Mountain Valley Indemnity Company, which writes small and
 mid-sized commercial insurance presently in New England and New York.  The
 Preserver Insurance Group is rated B++ (Very Good) by A.M. Best Company.
 American Colonial Insurance Company plans to commence operations in New York
 in 2001, writing commercial lines in tandem with Mountain Valley.
     Motor Club of America Insurance Company writes personal automobile
 insurance in New Jersey and is rated B+ (Very Good) by Best.  North East
 Insurance Company writes personal automobile and small commercial lines
 insurance in the State of Maine and is rated B (Fair) by Best.
 
     Forward-Looking Statement Disclaimer.  This press release contains
 statements that are not historical facts and are considered "forward-looking
 statements" (as defined in the Private Securities Litigation Reform Act of
 1995), which can be identified by terms such as "believes," "expects,"  "may,"
 "will," "should," "anticipates," the negatives thereof, or by discussions of
 strategy.  Certain statements are forward-looking statements that involve
 risks, uncertainties, opinions and predictions, and no assurance can be given
 that the future results will be achieved since events or results may differ
 materially as a result of risks facing the Company.  These include, but are
 not limited to, the cyclical nature of the property casualty insurance
 industry, the impact of competition, product demand and pricing, claims
 development and the process of estimating reserves, the level of the Company's
 retentions, catastrophe and storm losses, legislative and regulatory
 developments, changes in the ratings assigned to the Company by rating
 agencies, investment results, availability of reinsurance, availability of
 dividends from our insurance company subsidiaries, investing substantial
 amounts in our information systems and technology, the ability of our
 reinsurers to pay reinsurance recoverables owed to us, our entry
 into new markets, our acquisition of North East Insurance Company on
 September 24, 1999, our acquisition of Mountain Valley Indemnity Company on
 March 1, 2000, our successful integration of these  acquisitions, potential
 future tax liabilities related to an insolvent subsidiary and state regulatory
 and legislative actions which can affect the profitability of certain lines of
 business and impede our ability to charge adequate rates, and other risks
 detailed from time to time in the Company's filings with the Securities and
 Exchange Commission.
 
 SOURCE  Motor Club of America