HOUSTON, May 3, 2005 (PRIMEZONE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today released earnings for the first quarter of 2005.
Net earnings increased significantly for the first quarter of 2005 rising 29% to $57.3 million from $44.6 million for the first quarter of 2004. During the same period, net earnings per diluted share grew 19% to $0.81 per share from $0.68 per share, despite approximately $0.05 earnings per share dilution primarily from the Company's December 2004 equity offering.
Stephen L. Way, Chairman and Chief Executive Officer, said, "Our first quarter results reflect the profitable growth and strong margins from our underwriting activities which are at a pace somewhat ahead of our business plan."
Total revenue grew 37% during the first quarter of 2005 to $379.7 million, compared to the first quarter of 2004. As with last year, this increase was primarily due to the growth in our insurance company subsidiaries' earned premium, particularly in our two largest lines, diversified financial products and group life, accident and health. Overall revenue is expected to continue to show strong growth into 2006.
Although our insurance company subsidiaries' gross written premium growth slowed as expected during the first three months of 2005, net written premium increased substantially by 51% to $357.4 million and net earned premium by 47% to $320.1 million, both compared to the first quarter of 2004. This growth over last year's record levels was achieved as a result of generally increased retentions and strong performance from acquisitions made in 2004, notwithstanding the substantially negative effect from our discontinued lines. Market conditions in our specialty lines continue to be fairly stable and we expect this premium growth to continue.
The GAAP combined ratio for the first three months of 2005 was 84.5% compared to 83.3% in the corresponding period of 2004 and 90.7% for the full year 2004. It should be noted that our London Market operations continue to perform exceptionally well despite difficult market conditions.
Mr. Way added, "In an environment of corporate governance issues and suspect balance sheets, our high ratings from S&P of AA (Very Strong) and A.M. Best Company of A+ (Superior) continue to give us a competitive advantage and we believe that our superior underwriting skills will continue to differentiate HCC's results from those of our peers."
As expected, fee and commission income was down during the first quarter of 2005 to $33.1 million from $43.8 million during the same period in 2004. This reduction was due to the planned decrease in ceded reinsurance by our insurance company subsidiaries, which resulted in the reduced revenue of our reinsurance brokers and the ceding commissions earned by our insurance companies and underwriting agencies. In addition, effective January 1, 2005, we consolidated the operations of our largest underwriting agency into our life insurance company.
Net investment income continues to increase rapidly, growing 55% in the first quarter of 2005 to $22.3 million compared to the first quarter of 2004. Increased investment assets and higher short-term interest rates have fueled this increase and we anticipate growth continuing for the rest of this year and into 2006.
As of March 31, 2005, total investments increased to $2.6 billion, total assets exceeded $6.0 billion for the first time, book value per share increased to $20.10, shareholders' equity exceeded $1.4 billion and the Company's debt to total capital ratio was 18.2%. See tables.
HCC will hold an open conference call beginning at 4:00 p.m. Central Time on Tuesday, May 3. 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 on the website until Tuesday, May 10, 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 is traded on the NYSE (symbol: HCC), has assets exceeding $6.0 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
March 31, 2005
(amounts in thousands, except per share data)
Three Months Ended March 31, 2005 2004
--------------------------- -------------- -----------------
Gross written premium $ 475,119 $ 459,581
Net written premium 357,352 235,955
Net earned premium 320,117 217,063
Fee and commission income 33,076 43,843
Net investment income 22,341 14,435
Other operating income 4,147 2,159
Total revenue 379,678 278,018
Net earnings 57,318 44,568
Earnings per share (diluted) 0.81 0.68
Cash flow from operations 33,909 100,865
Weighted average shares
outstanding (diluted) 70,489 65,417
GAAP net loss ratio 58.1% 58.0%
GAAP combined ratio 84.5% 83.3%
March 31, 2005 December 31, 2004
-------------- -----------------
Total investments $ 2,554,243 $ 2,468,491
Total assets 6,099,136 5,933,437
Shareholders' equity 1,402,883 1,323,665
Debt to total capital 18.2% 19.0%
Book value per share $ 20.10 $ 19.45
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except per share data)
March 31, December 31,
2005 2004
---------- ----------
ASSETS
Investments:
Fixed income securities, at market
(cost: 2005-$1,904,630;
2004-$1,682,421) $1,905,297 $1,703,171
Short-term investments, at cost,
which approximates market 587,151 729,985
Other investments, at market
(cost: 2005-$58,646; 2004-$34,137) 61,795 35,335
---------- ----------
Total investments 2,554,243 2,468,491
Cash 70,077 69,933
Restricted cash and cash investments 192,083 188,510
Premium, claims and other receivables 1,028,903 923,638
Reinsurance recoverables 1,099,439 1,098,999
Ceded unearned premium 264,755 317,055
Ceded life and annuity benefits 75,136 74,627
Deferred policy acquisition costs 135,514 139,199
Goodwill 455,999 444,031
Other assets 222,987 208,954
---------- ----------
Total assets $6,099,136 $5,933,437
========== ==========
LIABILITIES
Loss and loss adjustment expense payable $2,142,284 $2,089,199
Life and annuity policy benefits 75,136 74,627
Reinsurance balances payable 199,933 228,998
Unearned premium 727,866 741,706
Deferred ceding commissions 81,323 94,896
Premium and claims payable 888,074 795,576
Notes payable 311,142 311,277
Accounts payable and accrued liabilities 270,495 273,493
---------- ----------
Total liabilities 4,696,253 4,609,772
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value;
250.0 million shares authorized
(shares issued and outstanding:
2005-69,797; 2004-68,038) 69,797 68,038
Additional paid-in capital 610,463 566,776
Retained earnings 702,601 651,216
Accumulated other comprehensive income 20,022 37,635
---------- ----------
Total shareholders' equity 1,402,883 1,323,665
---------- ----------
Total liabilities and
shareholders' equity $6,099,136 $5,933,437
========== ==========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(unaudited, in thousands, except per share data)
Three months ended March 31,
2005 2004
--------- ---------
REVENUE
Net earned premium $ 320,117 $ 217,063
Fee and commission income 33,076 43,843
Net investment income 22,341 14,435
Net realized investment gain (loss) (3) 518
Other operating income 4,147 2,159
--------- ---------
Total revenue 379,678 278,018
EXPENSE
Loss and loss adjustment expense, net 186,063 125,864
Operating expense:
Policy acquisition costs, net 59,357 44,764
Compensation expense 27,006 21,561
Other operating expense 18,943 15,086
--------- ---------
Total operating expense 105,306 81,411
Interest expense 1,808 2,212
--------- ---------
Total expense 293,177 209,487
--------- ---------
Earnings from continuing operations
before income tax expense 86,501 68,531
Income tax expense from
continuing operations 29,183 23,729
--------- ---------
Earnings from continuing operations 57,318 44,802
Loss from discontinued operations,
net of income tax benefit of $146 -- (234)
--------- ---------
Net earnings $ 57,318 $ 44,568
========= =========
Basic earnings per share data:
Earnings from continuing operations $ 0.83 $ 0.70
Loss from discontinued operations -- (0.01)
--------- ---------
Net earnings $ 0.83 $ 0.69
========= =========
Weighted average shares outstanding 68,827 64,249
========= =========
Diluted earnings per share data:
Earnings from continuing operations $ 0.81 $ 0.68
Earnings from discontinued operations -- --
--------- ---------
Net earnings $ 0.81 $ 0.68
========= =========
Weighted average shares outstanding 70,489 65,417
========= =========
Cash dividends declared, per share $ 0.085 $ 0.075
========= =========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands, except per share data)
Three months ended
March 31,
2005 2004
--------- ---------
Cash flows from operating activities:
Net earnings $ 57,318 $ 44,568
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Change in premium, claims and
other receivables (123,893) (108,556)
Change in reinsurance recoverables 251 (43,618)
Change in ceded unearned premium 52,300 (8,366)
Change in loss and loss adjustment
expense payable 49,939 93,623
Change in reinsurance balances payable (29,842) 37
Change in unearned premium (16,842) 27,632
Change in premium and claims payable,
net of restricted cash 88,925 103,013
Depreciation and amortization expense 3,710 3,390
Other, net (47,957) (10,858)
--------- ---------
Cash provided by operating activities 33,909 100,865
Cash flows from investing activities:
Sales of fixed income securities 55,681 103,092
Maturity or call of fixed income securities 32,250 33,116
Cost of securities acquired (277,000) (213,354)
Change in short-term investments 145,025 (59,045)
Payment for purchase of subsidiary,
net of cash received -- (43,307)
Other, net (1,118) 2,566
--------- ---------
Cash used by investing activities (45,162) (176,932)
Cash flows from financing activities:
Sale of common stock 21,087 9,924
Payments on notes payable (93) (91)
Dividends paid (5,783) (4,800)
Other (3,814) --
--------- ---------
Cash provided by financing activities 11,397 5,033
--------- ---------
Net increase (decrease) in cash 144 (71,034)
Cash at beginning of period 69,933 96,416
--------- ---------
Cash at end of period $ 70,077 $ 25,382
========= =========
HCC Insurance Holdings, Inc.
Insurance Company Premium
March 31, 2005
($ in thousands)
1st Qtr 1st Qtr Change
2005 2004 %
--------- --------- ---------
GROSS WRITTEN
Diversified financial products $ 199,072 $ 170,866 17%
Group life, accident & health 150,082 146,654 2
Aviation 49,102 43,133 14
London market account 43,196 56,700 (24)
Other specialty lines 35,072 31,020 13
--------- --------- ---------
476,524 448,373 6%
--------- ---------
Discontinued lines (1,405) 11,208 nm
--------- --------- ---------
$ 475,119 $ 459,581 3%
========= ========= =========
NET WRITTEN
Diversified financial products $ 145,997 $ 71,508 104%
Group life, accident & health 129,449 77,967 66
Aviation 32,126 20,950 53
London market account 28,912 32,717 (12)
Other specialty lines 20,627 18,905 9
--------- --------- ---------
357,111 222,047 61%
Discontinued lines 241 13,908 nm
--------- --------- ---------
$ 357,352 $ 235,955 51%
========= ========= =========
NET EARNED PREMIUM
Diversified financial products $ 106,851 $ 56,399 89%
Group life, accident & health 128,945 79,389 62
Aviation 33,817 24,269 39
London market account 26,711 26,114 2
Other specialty lines 20,976 12,571 67
--------- --------- ---------
317,300 198,742 60%
Discontinued lines 2,817 18,321 nm
--------- --------- ---------
$ 320,117 $ 217,063 47%
========= ========= =========
HCC Insurance Holdings, Inc.
Consolidated Insurance Companies
Net Loss Ratios
March 31, 2005
($ in thousands)
Year to Date 2005 Full Year 2004
------------------------- ---------------------------
Net Net
Line of Earned Actual Loss Earned Actual Loss
Business Premium Losses Ratio Premium Losses Ratio
------------- -------- -------- ------ ---------- -------- ------
Diversified
financial
products $106,851 $ 52,482 49.1% $310,809 $147,970 47.6%
Group life,
accident
& health 128,945 88,925 69.0 343,913 229,389 66.7
Aviation 33,817 17,440 51.6 127,248 80,458 63.2
London market
account 26,711 11,915 44.6 111,341 73,428 65.9
Other
specialty
lines 20,976 12,484 59.5 69,089 43,866 63.5
-------- -------- ------ ---------- -------- ------
317,300 183,246 57.8 962,400 575,111 59.8
Discontinued
lines 2,817 2,817 100.0 48,292 70,119 145.2
-------- -------- ------ ---------- -------- ------
Total $320,117 $186,063 58.1% $1,010,692 $645,230 63.8%
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