UniCare Financial Reports 75% Drop in Profit

UniCare Financial Corp. said Monday that its profit fell almost 75% in the second quarter as its costs rose and as California’s economy remained sluggish.

The Irvine-based company, which underwrites state workers’ compensation insurance, reported earnings of $720,000, or 14 cents a share, contrasted with $2.5 million, or 46 cents a share, in the same period a year earlier. Sales, however, climbed 15% to $34.5 million from $30 million.

“The workers’ compensation system in California is now in a very difficult environment,” Chairman Russell E. Leatherby said. “It’s a tough market.”

As it did in the first quarter, UniCare faced escalating medical costs, rapidly rising litigation expenses and an increase in its disability case load.

“The magnitude of the drop (in earnings) is somewhat startling,” said Ray Dirks, a research analyst for RAF Securities in New York. “This is a very good company. It is a larger drop than I expected. But for one quarter at an insurance company, you can have these swings. They’re in the risk business.”

In the first half of the year, UniCare’s profit fell 67% to $1.6 million from $4.9 million a year earlier. The 1992 results include a gain of $502,000 from an accounting change. Sales were up 19% to $68.1 million from $57.5 million.

UniCare also has been hurt by the lingering recession, which has pushed up the number of claims and forced the company to spend more money investigating them, Leatherby said. “When people are out of work, they have a greater incentive to find reasons to file claims.”

UniCare has been supporting calls for reform in the state’s workers’ compensation system, especially more safeguards against fraudulent claims.

Although the rest of the year will be difficult, Leatherby said, the company has had sales growth, high rates of renewal and new orders for accounts, all reasons for optimism.

UniCare’s stock was unchanged in Monday’s trading on the New York Stock Exchange, closing at $8.25 a share.