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Merchants Group's fourth-quarter profits tumbled by 97 percent as the Buffalo-based insurer was stung by higher losses on its automobile and worker's compensation policies.

In response to the lower profits, which were in line with the warning the company issued late last month that it expected to roughly break even during the quarter, Merchants said it is moving to increase rates, stiffen its underwriting guidelines and drop unprofitable agencies in a bid to become more profitable.

Merchants said its profits fell to $51,000, or 2 cents per share, from $1.64 million, or 63 cents per share, a year ago.

Most of the increase in claims came from losses and expenses related to accidents that occurred last year and during 1999. Merchants' expenses related to its claims grew by 17 percent during the quarter.

The company's revenues rose 2 percent to $27.6 million from $27 million, led by a 1 percent increase in its net premiums and 6 percent rise in investment income.

Robert M. Zak, Merchants' chief operating officer, warned that the efforts to make the company more profitable could lead to a drop in total premiums in the near future.

For the year, Merchants' profits fell 36 percent to $4.3 million, or $1.74 per share, from $6.8 million, or $2.48 per share, a year ago.

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