HOUSTON, Feb. 9, 2006 (PRIMEZONE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today reported results for the fourth quarter and year ended December 31, 2005.
Net earnings for the fourth quarter of 2005 increased to $66.5 million, or $0.59 per diluted share, from $56.2 million, or $0.56 per diluted share, for the same period in 2004. Net earnings for 2005 increased to $195.9 million, or $1.79 per diluted share, from $163.0 million, or $1.65 per diluted share, in 2004.
Diluted weighted average shares outstanding increased 11% to 109.4 million in 2005 compared to 98.8 million in 2004. This increase was due to the dilutive effects of previously issued convertible debt and stock option calculations, which were affected by the 34% increase in the Company's share price during the year, and the equity offering in the fourth quarter of 2005.
As of December 31, 2005, total assets increased 19% to $7.1 billion; total investments increased 32% to $3.3 billion; shareholders' equity increased 28% to $1.7 billion; and book value per share increased 18% to $15.29, all compared to December 31, 2004, and all at record levels. See attached tables.
Stephen L. Way, Chairman and Chief Executive Officer, said, "2005 was the best year in our history despite the $57.5 million, or $0.53 per diluted share, cumulative effect of hurricanes Katrina, Rita and Wilma (KRW)." Mr. Way added, "In 2005, we still achieved a 15% ROE and grew shareholders' equity by 28%."
The Company has previously provided 2006 net earnings guidance of at least $2.55 per diluted share which represents 42% growth and an 18% ROE, despite more than 7% dilution from the equity offering in December 2005 and the expensing of stock options.
Total revenue for 2005 increased 28% to $1.6 billion compared to $1.3 billion in 2004, driven by significant increases in net earned premium, investment income and despite a reduction in fee and commission income. The Company anticipates continued revenue growth in 2006.
Comparing 2005 to the previous year, the Company's insurance company subsidiaries' net written premium increased 36% to $1.5 billion and net earned premium increased 36% to $1.4 billion. Premium growth is due to a reduction in ceded reinsurance, organic growth and acquisitions made late in 2004 and in 2005. Although the Company maintains its disciplined underwriting standards, the Company expects net premium to continue to rise through at least 2006, due to increased retentions in non-catastrophe lines of business.
For 2005, fee and commission income decreased to $134.3 million from $182.3 million, primarily due to the integration of one of the Company's largest underwriting agencies into an affiliated insurance company and the general reduction in ceded reinsurance. Fee and commission income is expected to decrease somewhat slower in 2006 and then stabilize.
Cash flow from operations continued at a very strong pace in 2005 finishing at $624.0 million, albeit slightly less than in the previous year. During 2005, net investment income grew 52% to $98.9 million, due to substantially increased investment assets resulting from increased net loss reserves associated with higher retentions and commutations, as well as the cash flow from operations and rising interest rates. Investment strategy continues to be very conservative with little or no real estate, high yield bonds or derivatives and only approximately 5% of total investments in equities. Investment income growth is expected to continue in 2006.
Although KRW dramatically increased reinsurance recoverables by approximately $320 million, this demonstrates that the Company's reinsurance protection is adequate even for this unprecedented catastrophe activity. Without the effect of KRW, recoverables would have decreased since the end of 2004 due to commutations, the settlement of certain outstanding losses and increased retentions reducing the amount of new recoverables. Management has been very proactive commuting certain reinsurance recoverables and will continue to do this where appropriate, as commutations result in increased future investment income and reduce any credit risk.
HCC will hold an open conference call beginning at 4:00 p.m. Central Time on Thursday, February 9. 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.hcc.com. A replay of the webcast will be available until Thursday, February 16, 2006.
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 $7.0 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.hcc.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.
The HCC Insurance Holdings, Inc. logo is available at: http://www.primezone.com/newsroom/prs/?pkgid=1977.
HCC Insurance Holdings, Inc.
Financial Highlights
December 31, 2005
(amounts in thousands, except per share data)
Three Months Ended December 31, 2005 2004
---------------------------------------------------------------------
Gross written premium $ 498,284 $ 504,233
Net written premium 393,781 305,110
Net earned premium 374,087 293,369
Fee and commission income 31,830 46,513
Net investment income 28,812 19,271
Other operating income 13,657 5,189
Total revenue 447,796 365,669
Net earnings 66,534 56,239
Earnings per share (diluted) 0.59 0.56
Cash flow from operations 170,736 318,124
Weighted average shares outstanding
(diluted) 113,566 100,254
GAAP net loss ratio 64.5% 57.7%
GAAP combined ratio 90.2% 85.5%
December 31, December 31,
2005 2004
------------- -------------
Total investments $ 3,257,428 $ 2,468,491
Total assets 7,084,472 5,933,437
Shareholders' equity 1,693,696 1,323,665
Debt to total capital 15.5% 19.0%
Book value per share $ 15.29 $ 12.97
HCC Insurance Holdings, Inc.
Financial Highlights
December 31, 2005
(amounts in thousands, except per share data)
Twelve Months Ended December 31, 2005 2004
----------------------------------------------------------------------
Gross written premium $ 2,038,286 $ 1,975,153
Net written premium 1,501,224 1,105,519
Net earned premium 1,369,988 1,010,692
Fee and commission income 134,282 182,349
Net investment income 98,851 64,885
Other operating income 39,773 19,406
Total revenue 1,644,342 1,283,154
Net earnings 195,860 163,025
Earnings per share (diluted) 1.79 1.65
Cash flow from operations 623,990 668,703
Weighted average shares outstanding
(diluted) 109,437 98,826
GAAP net loss ratio 67.2% 63.8%
GAAP combined ratio 93.1% 90.7%
December 31, December 31,
2005 2004
-----------------------------
Total investments $ 3,257,428 $ 2,468,491
Total assets 7,084,472 5,933,437
Shareholders' equity 1,693,696 1,323,665
Debt to total capital 15.5% 19.0%
Book value per share $ 15.29 $ 12.97
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
December 31, December 31,
2005 2004
----------- -----------
ASSETS
Investments:
Fixed income securities $ 2,268,624 $ 1,703,171
Short-term investments 839,581 729,985
Other investments 149,223 35,335
----------- -----------
Total investments 3,257,428 2,468,491
Cash 73,935 69,933
Restricted cash and cash investments 170,978 188,510
Premium, claims and other receivables 950,132 923,638
Reinsurance recoverables 1,353,411 1,098,999
Ceded unearned premium 239,416 317,055
Ceded life and annuity benefits 73,415 74,627
Deferred policy acquisition costs 156,253 139,199
Goodwill 532,947 444,031
Other assets 276,557 208,954
----------- -----------
Total assets $ 7,084,472 $ 5,933,437
=========== ===========
LIABILITIES
Loss and loss adjustment expense
payable $ 2,813,720 $ 2,089,199
Life and annuity policy benefits 73,415 74,627
Reinsurance balances payable 176,954 228,998
Unearned premium 807,109 741,706
Deferred ceding commissions 65,702 94,896
Premium and claims payable 812,265 795,576
Notes payable 309,543 311,277
Accounts payable and accrued
liabilities 332,068 273,493
----------- -----------
Total liabilities 5,390,776 4,609,772
SHAREHOLDERS' EQUITY
Common stock 110,803 68,038
Additional paid-in capital 747,568 566,776
Retained earnings 817,013 651,216
Accumulated other comprehensive
income 18,312 37,635
----------- -----------
Total shareholders' equity 1,693,696 1,323,665
----------- -----------
Total liabilities and
shareholders' equity $ 7,084,472 $ 5,933,437
=========== ===========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(unaudited, in thousands, except per share data)
Years ended Three months ended
December 31, December 31,
2005 2004 2005 2004
---------- ---------- ---------- ----------
REVENUE
Net earned premium $1,369,988 $1,010,692 $ 374,087 $ 293,369
---------- ---------- ---------- ----------
Fee and commission
income 134,282 182,349 31,830 46,513
Net investment
income 98,851 64,885 28,812 19,271
Net realized
investment gain
(loss) 1,448 5,822 (590) 1,327
Other operating
income 39,773 19,406 13,657 5,189
---------- ---------- ---------- ----------
Total revenue 1,644,342 1,283,154 447,796 365,669
---------- ---------- ---------- ----------
EXPENSE
Loss and loss
adjustment
expense, net 921,197 645,230 241,265 169,151
Policy acquisition
costs, net 257,725 224,323 72,029 66,508
Other operating
expense 178,989 164,474 43,105 49,748
Interest expense 7,684 8,374 1,836 2,356
---------- ---------- ---------- ----------
Total expense 1,365,595 1,042,401 358,235 287,763
---------- ---------- ---------- ----------
Earnings from
continuing
operations before
income tax
expense 278,747 240,753 89,561 77,906
Income tax expense
on continuing
operations 85,647 81,732 25,080 25,693
---------- ---------- ---------- ----------
Earnings from
continuing
operations 193,100 159,021 64,481 52,213
Earnings from
discontinued
operations, net
of income tax
expense 2,760 4,004 2,053 4,026
---------- ---------- ---------- ----------
Net earnings $ 195,860 $ 163,025 $ 66,534 $ 56,239
========== ========== ========== ==========
Basic earnings per
share data:
Earnings from
continuing
operations $ 1.83 $ 1.64 $ 0.60 $ 0.53
Earnings from
discontinued
operations 0.03 0.04 0.02 0.04
---------- ---------- ---------- ----------
Net earnings $ 1.86 $ 1.68 $ 0.62 $ 0.57
========== ========== ========== ==========
Weighted average
shares outstanding 105,463 97,257 107,970 98,799
========== ========== ========== ==========
Diluted earnings
per share data:
Earnings from
continuing
operations $ 1.76 $ 1.61 $ 0.57 $ 0.52
Earnings from
discontinued
operations 0.03 0.04 0.02 0.04
---------- ---------- ---------- ----------
Net earnings $ 1.79 $ 1.65 $ 0.59 $ 0.56
========== ========== ========== ==========
Weighted average
shares outstanding 109,437 98,826 113,566 100,254
========== ========== ========== ==========
Cash dividends
declared, per
share $ 0.282 $ 0.213 $ 0.075 $ 0.057
========== ========== ========== ==========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
Years ended Three months ended
December 31, December 31,
2005 2004 2005 2004
--------- ---------- ---------- ----------
Cash flows from
operating activities:
Net earnings $ 195,860 $ 163,025 $ 66,534 $ 56,239
Adjustments to
reconcile net
earnings to net
cash provided by
operating
activities:
Change in
premium, claims
and other
receivables (39,294) 13,822 (2,895) 45,343
Change in
reinsurance
recoverables (247,284) (178,094) (90,807) 14,717
Change in ceded
unearned
premium 87,515 (22,504) 21,924 2,291
Change in loss
and loss
adjustment
expense payable 705,688 538,374 184,323 146,263
Change in
reinsurance
balances
payable (60,832) (69,647) (25,866) (50,235)
Change in
unearned
premium 38,809 122,317 (4,185) 12,642
Change in
premium and
claims payable,
net of
restricted cash 25,744 58,215 22,016 14,050
Gain on sale of
subsidiaries (8,717) (6,317) (3,307) (6,317)
Change in
trading
portfolio (66,809) 25,673 (12,155) 20,050
Depreciation and
amortization
expense 14,647 16,139 3,584 4,468
Other, net (21,337) 7,700 11,570 58,613
--------- ---------- ---------- ----------
Cash provided by
operating
activities 623,990 668,703 170,736 318,124
--------- ---------- ---------- ----------
Cash flows from
investing
activities:
Sales of fixed
income securities 237,480 253,398 73,639 53,907
Maturity or call
of fixed income
securities 186,075 154,357 52,684 43,932
Cost of securities
acquired (1,054,529) (935,053) (321,129) (306,052)
Change in short-
term investments (72,703) (160,229) (108,937) (165,208)
Payments for
purchase of
subsidiaries,
net of cash
received (94,056) (93,543) (49,768) (15,097)
Sale of
subsidiaries 21,116 -- 10,668 --
Other, net 3,637 268 10,506 (7,021)
--------- ---------- ---------- ----------
Cash used by
investing
activities (772,980) (780,802) (332,337) (395,539)
--------- ---------- ---------- ----------
Cash flows from
financing
activities:
Issuance of notes
payable 46,528 29,000 10,528 17,000
Payments on notes
payable (48,181) (40,176) (10,627) (27,889)
Sale of common
stock, net of
costs 186,103 116,776 153,419 102,138
Dividends paid
and other, net (31,458) (19,984) (8,038) (5,501)
--------- ---------- ---------- ----------
Cash provided
by financing
activities 152,992 85,616 145,282 85,748
--------- ---------- ---------- ----------
Net increase
(decrease) in
cash 4,002 (26,483) (16,319) 8,333
Cash at beginning
of period 69,933 96,416 90,254 61,600
--------- ---------- ---------- ----------
Cash at end of
period $ 73,935 $ 69,933 $ 73,935 $ 69,933
========== ========== ========== ==========
HCC Insurance Holdings, Inc.
Insurance Company Premium
December 31, 2005
($ in thousands)
4th Qtr 4th Qtr Change
2005 2004 %
--------- --------- ----
GROSS WRITTEN
Diversified
financial products $ 243,126 $ 250,452 (3)%
Group life, accident & health 145,004 143,657 1
Aviation 51,084 54,967 (7)
London market account 20,261 26,957 (25)
Other specialty lines 42,373 28,909 47
Discontinued lines (3,564) (709) nm
--------- --------- ----
$ 498,284 $ 504,233 (1)%
========= ========= ====
NET WRITTEN
Diversified financial products $ 195,537 $ 136,873 43 %
Group life, accident & health 121,438 94,824 28
Aviation 30,864 35,123 (12)
London market account 13,871 14,922 (7)
Other specialty lines 30,564 22,665 35
Discontinued lines 1,507 703 nm
--------- --------- ----
$ 393,781 $ 305,110 29 %
========= ========= ====
NET EARNED PREMIUM
Diversified financial products $ 159,722 $ 103,125 55 %
Group life, accident & health 123,701 97,968 26
Aviation 34,380 34,965 (2)
London market account 26,615 27,769 (4)
Other specialty lines 28,147 22,244 27
Discontinued lines 1,522 7,298 nm
--------- --------- ----
$ 374,087 $ 293,369 28 %
========= ========= ====
nm - Not meaningful comparison
HCC Insurance Holdings, Inc.
Insurance Company Premium
December 31, 2005
($ in thousands)
Full Year Full Year Change
2005 2004 %
----------- ---------- -----
GROSS WRITTEN
Diversified financial products $ 908,526 $ 857,299 6%
Group life, accident & health 593,382 584,747 1
Aviation 210,530 204,963 3
London market account 144,425 178,950 (19)
Other specialty lines 176,139 133,964 31
Discontinued lines 5,284 15,230 nm
----------- ---------- -----
$2,038,286 $1,975,153 3%
=========== ========== =====
NET WRITTEN
Diversified financial products $675,942 $ 404,870 67%
Group life, accident & health 502,805 343,996 46
Aviation 130,743 144,687 (10)
London market account 78,809 107,509 (27)
Other specialty lines 109,106 83,980 30
Discontinued lines 3,819 20,477 nm
----------- ---------- -----
$1,501,224 $1,105,519 36%
=========== ========== =====
NET EARNED PREMIUM
Diversified financial products $ 531,136 $ 310,809 71%
Group life, accident & health 504,382 343,913 47
Aviation 136,197 127,248 7
London market account 93,017 111,341 (16)
Other specialty lines 97,721 69,089 41
Discontinued lines 7,535 48,292 nm
----------- ---------- -----
$1,369,988 $1,010,692 36%
=========== ========== =====
nm - Not meaningful comparison
HCC Insurance Holdings, Inc.
Consolidated Insurance Companies
Net Loss Ratios
December 31, 2005
($ in thousands)
2005 2004
-------------------------- ---------------------------
Line of Net Earned Incurred Loss Net Earned Incurred Loss
Business Premium Losses Ratio Premium Losses Ratio
----------- --------- -------- ----- ---------- -------- -----
Diversified
financial
products $531,136 $255,570 48.1% $310,809 $147,970 47.6%
Group life,
accident &
health 504,382 361,289 71.6 343,913 229,389 66.7
Aviation 136,197 91,720 67.3 127,248 80,458 63.2
London market
account 93,017 98,638 106.0 111,341 73,428 65.9
Other specialty
lines 97,721 72,436 74.1 69,089 43,866 63.5
Discontinued
lines 7,535 41,544 551.3 48,292 70,119 145.2
---------- -------- ----- ---------- -------- -----
Total $1,369,988 $921,197 67.2% $1,010,692 $645,230 63.8%
========== ======== ===== ========== ======== =====