21st Century Holding Company may have issued materially false statements regarding its loss reserve policies, future competition and increased cost of reinsurance, which artificially inflated 21st Century's stock price.
This is a securities fraud class action lawsuit against 21st Century Holding Company and certain officers and directors.
21st Century is an insurance holding company that engages in insurance underwriting, distribution and claims processing, primarily in the United States. 21st Century is authorized through its wholly owned subsidiaries to underwrite homeowners' property and casualty insurance, commercial general liability insurance, and personal automobile insurance in various states with various lines of authority.
The class action securities complaint alleges that during the Class Period 21st Century reported the 21st Century's financial results in a positive manner and issued positive financial guidance touting 21st Century's purportedly strong financial performance and prospects. 21st Century, however, failed to fully disclose:
(i) the negative effect on 21st Century's financial performance and prospects resulting from their decision to increase loss reserves through the hiring of new actuaries;
(ii) the increased competition from the state-backed Citizens Property Insurance Corp.; and
(iii) the impact of increased reinsurance rates.
On May 3, 2007, 21st Century shocked the market when it announced disappointing financial results for the first quarter of 2007 and substantially lowered its previously issued guidance for 2007 from $4.50 per share to $2.00 to $2.50 per share. The May 3, 2007 press release also reported that prepaid reinsurance premiums had grown from $8,671,572 in the first quarter of 2006 to $16,972,078 in the first quarter of 2007. Loss and loss adjustment expenses had increased from $7,568,843 to $14,102,655 during that same period. In a conference call that day, the Company's CFO attributed the disappointing quarterly results, which were below market expectations, to the increased cost of reinsurance.
This negative news caused the 21st Century's share price to plunge the next day by $8.94 -- a drop of more than 44% from the previous day's closing price of $19.11, to close on May 4, 2007, at $11.05 per share on extremely heavy volume of over two million shares traded.
Name (Stock Symbol)
21st Century Holding Company (TCHC)
21st Century Holding Company is an insurance holding company, which, through its subsidiaries and its contractual relationships with its independent agents and general agents, controls and generates revenue from substantially all aspects of its insurance businesses. 21st Century Holding Company is authorized to underwrite homeowners property and casualty insurance, commercial general liability insurance, personal automobile insurance, and commercial automobile insurance in various states with various lines of authority though its wholly owned subsidiaries, Federated National Insurance Company and American Vehicle Insurance Company.
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