HOUSTON, Nov. 1, 2005 (PRIMEZONE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today released earnings for the third quarter and first nine months of 2005.
Net earnings for the third quarter of 2005 were lower at $8.0 million, or $0.07 per diluted share, compared to $15.8 million, or $0.16 per diluted share, for the third quarter of 2004 due to the impact of the previously reported hurricane losses and the effect of reinsurance commutations completed during the quarter, which together reduced net earnings by $65.2 million, or $0.59 per diluted share. Hurricane losses also affected net earnings in the same period in 2004 by $35.7 million, or $0.36 per diluted share.
For the first nine months of 2005 and despite the effect of the third quarter hurricane activity and the reinsurance commutations, net earnings increased 21% to a record $129.3 million, or $1.20 per diluted share, from $106.8 million, or $1.09 per diluted share, in the corresponding period of 2004.
Stephen L. Way, Chairman and Chief Executive Officer, said, "Our core operations continue to perform very well, notwithstanding the effect of the unprecedented hurricane losses and we expect strong earnings growth to continue into 2006."
Total revenue showed significant growth, increasing 30% for the first nine months of 2005 to $1.2 billion from $917.5 million in the corresponding period of 2004. This increase was predominantly due to the organic growth in most lines of business, investment income and various acquisitions made in 2004 and 2005.
The GAAP net combined ratio of our insurance company subsidiaries for the first nine months of 2005 was 94.3% compared to 92.9% in the same period of 2004, but on substantially higher net earned premium. Without the effect of the hurricanes and the reinsurance commutations, the combined ratio would have been lower by 9.8% for the first nine months of 2005 and lower by 7.6% during the same period in 2004.
Premium of our insurance company subsidiaries continued to grow substantially during the first nine months of 2005, with net written premium increasing 38% to $1.1 billion from $800.4 million during the first nine months of 2004 and net earned premium increasing by 39% to $995.9 million from $717.3 million during the same period. Excluding discontinued lines of business, these increases were considerably greater with net written premium rising 42% and net earned premium rising 46%. The larger premiums are a result of various acquisitions in 2004 and 2005 and strong organic growth particularly in our diversified financial products and life, accident and health lines of business where we significantly increased our retentions in 2005.
Mr. Way added, "Rates generally seem to be stabilizing and increases are expected in several lines following the disastrous industry results in the third quarter of 2005, giving us further optimism about future earnings growth."
Fee and commission income decreased during the first nine months of 2005 to $102.5 million from $135.8 million in the same period of 2004. This decrease is due to planned reductions in ceded reinsurance and the integration of our largest underwriting agency into our life insurance company subsidiary.
Net investment income increased 54% in the first nine months of 2005 to a record $70.0 million from $45.6 million in the same period of 2004. This growth was primarily a result of higher short-term yields and increased investment assets, which grew 20% as of September 30, 2005, to $3.0 billion compared to $2.5 billion at December 31, 2004. The Company continues to follow a conservative investment philosophy with a relatively short duration portfolio, no junk bonds and relatively few equity investments.
Cash flow from operating activities continued to be very strong during the first three quarters of 2005 increasing to $453.3 million from the previous record of $350.6 million during the first nine months of 2004, as a result of increased net loss reserves and reinsurance commutations during the third quarter of 2005.
As of September 30, 2005, total assets grew 12% to $6.6 billion; book value per share increased 8% to $13.97; and shareholders' equity grew 12% to $1.5 billion, all compared to December 31, 2004. The Company's debt to total capital ratio was 17.3% at the end of the third quarter of 2005. See attached tables.
HCC will hold an open conference call beginning at 4:00 p.m. (CST) on Tuesday, November 1, to discuss these results. To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-1303. In addition, there will be a live webcast available on a listen-only basis that can be accessed through the HCC website at www.hcch.com. A replay of the webcast will be available until Tuesday, November 8, 2005.
HCC is an international insurance holding company and a leading specialty insurance group since 1974, based in Houston, Texas with offices across the USA and in Bermuda, England and Spain. HCC has assets exceeding $6.6 billion and is rated AA (Very Strong) by Standard & Poor's and A+ (Superior) by A. M. Best Company.
For more information, visit our website at www.hcch.com
Forward-looking statements contained in this press release are made under "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. The types of risks and uncertainties which may affect the Company are set forth in its periodic reports filed with the Securities and Exchange Commission.
HCC Insurance Holdings, Inc. Financial Highlights September 30, 2005 (amounts in thousands, except per share data) Three Months Ended September 30, 2005 2004 ---------------------------------- -------- -------- Gross written premium $525,447 $490,149 Net written premium 371,698 255,593 Net earned premium 338,058 248,190 Fee and commission income 32,073 45,891 Net investment income 24,998 16,212 Other operating income 16,864 7,978 Total revenue 412,031 322,197 Net earnings 7,950 15,803 Earnings per share (diluted) 0.07 0.16 Cash flow from operations 334,417 136,945 Weighted average shares outstanding (diluted) 109,818 98,409 GAAP net loss ratio 87.5% 81.5% GAAP combined ratio 112.8% 107.8% September 30, December 31, 2005 2004 ------------ ----------- Total investments $ 2,952,520 $ 2,468,491 Total assets 6,628,933 5,933,437 Shareholders' equity 1,477,184 1,323,665 Debt to total capital 17.3% 19.0% Book value per share $ 13.97 $ 12.97 HCC Insurance Holdings, Inc. Financial Highlights September 30, 2005 (amounts in thousands, except per share data) Nine Months Ended September 30, 2005 2004 ------------------------------ ---------- ---------- Gross written premium $1,540,002 $1,470,920 Net written premium 1,107,443 800,409 Net earned premium 995,901 717,323 Fee and commission income 102,452 135,836 Net investment income 70,039 45,614 Other operating income 26,116 14,217 Total revenue 1,196,546 917,485 Net earnings 129,326 106,786 Earnings per share (diluted) 1.20 1.09 Cash flow from operations 453,254 350,579 Weighted average shares outstanding (diluted) 108,003 98,361 GAAP net loss ratio 68.3% 66.4% GAAP combined ratio 94.3% 92.9% September 30, December 31, 2005 2004 ------------ ----------- Total investments $ 2,952,520 $ 2,468,491 Total assets 6,628,933 5,933,437 Shareholders' equity 1,477,184 1,323,665 Debt to total capital 17.3% 19.0% Book value per share $ 13.97 $ 12.97 HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited, in thousands, except per share data) Sept. 30, Dec. 31, 2005 2004 ASSETS ---------- ---------- Investments: Fixed income securities, at fair value (cost: 2005 - $2,115,472; 2004 - $1,682,421) $2,114,792 $1,703,171 Short-term investments, at cost, which approximates fair value 719,077 729,985 Other investments, at fair value (cost: 2005 - $116,796; 2004 - $34,137) 118,651 35,335 ---------- ---------- Total investments 2,952,520 2,468,491 Cash 90,254 69,933 Restricted cash and cash investments 183,628 188,510 Premium, claims and other receivables 951,139 923,638 Reinsurance recoverables 1,262,604 1,098,999 Ceded unearned premium 261,340 317,055 Ceded life and annuity benefits 73,675 74,627 Deferred policy acquisition costs 154,219 139,199 Goodwill 468,601 444,031 Other assets 230,953 208,954 ---------- ---------- Total assets $6,628,933 $5,933,437 ========== ========== LIABILITIES Loss and loss adjustment expense payable $2,629,397 $2,089,199 Life and annuity policy benefits 73,675 74,627 Reinsurance balances payable 202,820 228,998 Unearned premium 811,294 741,706 Deferred ceding commissions 71,379 94,896 Premium and claims payable 794,422 795,576 Notes payable 309,679 311,277 Accounts payable and accrued liabilities 259,083 273,493 ---------- ---------- Total liabilities 5,151,749 4,609,772 SHAREHOLDERS' EQUITY Common stock, $1.00 par value; 250.0 million shares authorized (shares issued and outstanding: 2005 - 105,725; 2004 - 102,057) 105,725 68,038 Additional paid-in capital 593,029 566,776 Retained earnings 758,790 651,216 Accumulated other comprehensive income 19,640 37,635 ---------- ---------- Total shareholders' equity 1,477,184 1,323,665 ---------- ---------- Total liabilities and shareholders' equity $6,628,933 $5,933,437 ========== ========== HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Earnings (unaudited, in thousands, except per share data) Nine months ended Three months ended September 30, September 30, 2005 2004 2005 2004 --------- --------- --------- --------- REVENUE Net earned premium $ 995,901 $ 717,323 $ 338,058 $ 248,190 Fee and commission income 102,452 135,836 32,073 45,891 Net investment income 70,039 45,614 24,998 16,212 Net realized investment gain 2,038 4,495 38 3,926 Other operating income 26,116 14,217 16,864 7,978 --------- --------- --------- --------- Total revenue 1,196,546 917,485 412,031 322,197 --------- --------- --------- --------- EXPENSE Loss and loss adjustment expense, net 679,932 476,079 295,768 202,317 Policy acquisition costs, net 185,696 157,815 65,708 55,312 Other operating expense 135,884 114,726 40,403 38,975 Interest expense 5,848 6,018 2,070 2,060 --------- --------- --------- --------- Total expense 1,007,360 754,638 403,949 298,664 --------- --------- --------- --------- Earnings from continuing operations before income tax expense 189,186 162,847 8,082 23,533 Income tax expense on continuing operations 60,567 56,039 839 7,907 --------- --------- --------- --------- Earnings from continuing operations 128,619 106,808 7,243 15,626 Earnings (loss) from discontinued operations, net of income tax 707 (22) 707 177 --------- --------- --------- --------- Net earnings $ 129,326 $ 106,786 $ 7,950 $ 15,803 ========= ========= ========= ========= Basic earnings per share data: Earnings from continuing operations $ 1.23 $ 1.10 $ 0.07 $ 0.16 Earnings from discontinued operations 0.01 -- 0.01 -- --------- --------- --------- --------- Net earnings $ 1.24 $ 1.10 $ 0.08 $ 0.16 ========= ========= ========= ========= Weighted average shares outstanding 104,617 96,740 105,623 97,019 ========= ========= ========= ========= Diluted earnings per share data: Earnings from continuing operations $ 1.19 $ 1.09 $ 0.06 $ 0.16 Earnings from discontinued operations 0.01 -- 0.01 -- --------- --------- --------- --------- Net earnings $ 1.20 $ 1.09 $ 0.07 $ 0.16 ========= ========= ========= ========= Weighted average shares outstanding 108,003 98,361 109,818 98,409 ========= ========= ========= ========= Cash dividends declared, per share $ 0.207 $ 0.157 $ 0.075 $ 0.057 ========= ========= ========= ========= HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited, in thousands, except per share data) Nine months ended Three months ended September 30, September 30, 2005 2004 2005 2004 --------- --------- --------- --------- Cash flows from operating activities: Net earnings $ 129,326 $ 106,786 $ 7,950 $ 15,803 Adjustments to reconcile net earnings to net cash provided by operating activities: Change in premium, claims and other receivables (37,538) (31,521) 39,121 37,218 Change in reinsurance recoverables (156,477) (192,811) (138,947) (128,039) Change in ceded unearned premium 65,591 (24,795) 14,648 (18,153) Change in loss and loss adjustment expense payable 521,365 392,111 396,478 222,886 Change in reinsurance balances payable (34,966) (19,412) 15,744 9,391 Change in unearned premium 42,994 109,675 17,458 23,492 Change in premium and claims payable, net of restricted cash 3,728 44,165 5,188 (33,524) Change in trading portfolio (54,654) 5,623 (16,600) 4,174 Depreciation and amortization expense 11,063 11,671 3,703 4,303 Other, net (37,178) (50,913) (10,326) (606) --------- --------- --------- --------- Cash provided by operating activities 453,254 350,579 334,417 136,945 --------- --------- --------- --------- Cash flows from investing activities: Sales of fixed income securities 163,841 199,491 49,071 65,797 Maturity or call of fixed income securities 133,391 110,425 34,923 38,085 Cost of securities acquired (733,400) (629,001) (235,256) (222,738) Change in short-term investments 36,234 4,979 (145,482) 13,786 Payments for purchase of subsidiaries, net of cash received (44,288) (78,446) (9,407) (7,408) Sale of subsidiary 10,448 -- 10,448 -- Other, net (6,869) 7,289 4,509 2,546 --------- --------- --------- --------- Cash used by investing activities (440,643) (385,263) (291,194) (109,932) --------- --------- --------- --------- Cash flows from financing activities: Issuance of notes payable 36,000 2,000 3,000 -- Payments on notes payable (37,554) (2,287) (23,089) (102) Sale of common stock 32,684 14,639 3,847 1,569 Dividends paid (19,606) (14,484) (7,890) (4,848) Other (3,814) -- -- -- --------- --------- --------- --------- Cash provided (used) by financing activities 7,710 (132) (24,132) (3,381) --------- --------- --------- --------- Net increase (decrease) in cash 20,321 (34,816) 19,091 23,632 Cash at beginning of period 69,933 96,416 71,163 37,968 --------- --------- --------- --------- Cash at end of period $ 90,254 $ 61,600 $ 90,254 $ 61,600 ========= ========= ========= ========= HCC Insurance Holdings, Inc. Insurance Company Premium September 30, 2005 ($ in thousands) 3rd Qtr 3rd Qtr % 2005 2004 Change --------- --------- --------- GROSS WRITTEN Diversified financial products $ 241,781 $ 215,184 12% Group life, accident & health 142,086 147,235 (3) Aviation 53,090 53,003 -- London market account 32,366 34,649 (7) Other specialty lines 49,991 41,061 22 --------- --------- --------- 519,314 491,132 6% Discontinued lines 6,133 (983) nm --------- --------- --------- $ 525,447 $ 490,149 7% ========= ========= ========= NET WRITTEN Diversified financial products $ 184,931 $ 100,183 85% Group life, accident & health 124,358 87,860 42 Aviation 31,597 34,483 (8) London market account (370) 10,701 nm Other specialty lines 30,220 22,506 34 --------- --------- --------- 370,736 255,733 45% Discontinued lines 962 (140) nm --------- --------- --------- $ 371,698 $ 255,593 45% ========= ========= ========= NET EARNED PREMIUM Diversified financial products $ 143,084 $ 77,571 84% Group life, accident & health 125,079 86,055 45 Aviation 35,008 35,016 -- London market account 8,784 22,050 (60) Other specialty lines 25,023 18,554 35 --------- --------- --------- 336,978 239,246 41% Discontinued lines 1,080 8,944 nm --------- --------- --------- $ 338,058 $ 248,190 36% ========= ========= ========= nm - Not meaningful comparison HCC Insurance Holdings, Inc. Insurance Company Premium September 30, 2005 ($ in thousands) Year to Date Change 2005 2004 % ---------- ---------- ---------- GROSS WRITTEN Diversified financial products $ 665,400 $ 606,847 10% Group life, accident & health 448,378 441,090 2 Aviation 159,446 149,996 6 London market account 124,164 151,993 (18) Other specialty lines 133,766 105,055 27 ---------- ---------- ---------- 1,531,154 1,454,981 5% Discontinued lines 8,848 15,939 nm ---------- ---------- ---------- $1,540,002 $1,470,920 5% ========== ========== ========== NET WRITTEN Diversified financial products $ 480,405 $ 267,997 79% Group life, accident & health 381,367 249,172 53 Aviation 99,879 109,564 (9) London market account 64,938 92,587 (30) Other specialty lines 78,542 61,315 28 ---------- ---------- ---------- 1,105,131 780,635 42% Discontinued lines 2,312 19,774 nm ---------- ---------- ---------- $1,107,443 $ 800,409 38% ========== ========== ========== NET EARNED PREMIUM Diversified financial products $ 371,414 $ 207,684 79% Group life, accident & health 380,681 245,945 55 Aviation 101,817 92,283 10 London market account 66,402 83,572 (21) Other specialty lines 69,574 46,845 49 ---------- ---------- ---------- 989,888 676,329 46% Discontinued lines 6,013 40,994 nm ---------- ---------- ---------- $ 995,901 $ 717,323 39% ========== ========== ========== nm - Not meaningful comparison HCC Insurance Holdings, Inc. Consolidated Insurance Companies Net Loss Ratios September 30, 2005 ($ in thousands) Year to Date 2005 Full Year 2004 -------------------------- --------------------------- Line of Net Earned Actual Loss Net Earned Actual Loss Business Premium Losses Ratio Premium Losses Ratio ----------- -------- -------- ----- ---------- -------- ----- Diversified financial products $371,414 $178,568 48.1% $ 310,809 $147,970 47.6% Group life, accident & health 380,681 277,924 73.0 343,913 229,389 66.7 Aviation 101,817 74,635 73.3 127,248 80,458 63.2 London market account 66,402 63,162 95.1 111,341 73,428 65.9 Other specialty lines 69,574 52,939 76.1 69,089 43,866 63.5 -------- -------- ----- ---------- -------- ----- 989,888 647,228 65.4 962,400 575,111 59.8 Discontinued lines 6,013 32,704 543.9 48,292 70,119 145.2 -------- -------- ----- ---------- -------- ----- Total $995,901 $679,932 68.3% $1,010,692 $645,230 63.8% ======== ======== ===== ========== ======== =====
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