HOUSTON, May 4, 2006 (PRIMEZONE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today released earnings for the first quarter of 2006.
Net earnings increased significantly for the first quarter of 2006 rising 37% to $78.6 million from $57.3 million for the first quarter of 2005. During the same period, net earnings per diluted share grew 24% to $0.67 per share from $0.54 per share.
Stephen L. Way, Chairman and Chief Executive Officer, said, "Our first quarter results reflect the continuing strong margins from our underwriting activities and increasing investment income, which were achieved despite dilution of approximately $0.03 from the equity offering in December 2005, $0.01 from stock option expense and $0.03 from our convertible notes."
Total revenue grew 23% during the first quarter of 2006 to $466.1 million from $379.7 million, in the first quarter of 2005. This increase continues to be primarily due to the growth in our insurance company subsidiaries' earned premium and increases in overall investment income. Revenue is expected to continue to show strong growth throughout 2006.
Although our insurance company subsidiaries' gross written premium growth slowed as expected during the first three months of 2006, net written premium increased by 10% to $393.1 million and net earned premium by 19% to $380.6 million, both compared to the first quarter of 2005. Premiums are rising in part due to the strong energy market and growth in surety, offset by softening in the international D&O market and our non-renewal of an A&H program, on which we had no retention. Overall, market conditions in our specialty lines continue to be fairly stable.
The GAAP combined ratio for the first three months of 2006 was 85.2% compared to 84.5% in the corresponding period of 2005. No net loss reserve releases were taken in the quarter.
Mr. Way added, "To date, there has been no adverse reserve development from the catastrophe losses of 2005 and none is anticipated, as is our past record for all previous catastrophe losses."
Fee and commission income was down during the first quarter of 2006 to $31.5 million from $33.1 million during the same period in 2005. Although this reduction was contemplated, we expect this revenue source to stabilize during 2006 and anticipate it will begin to increase again next year.
Net investment income continues to increase rapidly, growing 64% in the first quarter of 2006 to $36.6 million compared to the first quarter of 2005. We anticipate investment income to continue to grow.
As of March 31, 2006, total investments increased to $3.4 billion, total assets exceeded $7.1 billion, book value per share increased to $15.82, shareholders' equity was $1.8 billion and the Company's debt to total capital ratio was 15.0%. See following tables.
HCC will hold an open conference call beginning at 4:00 p.m. Central Time on Thursday, May 4. 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 on the website until Thursday, May 11, 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 billion and is rated AA (Very Strong) by Standard & Poor's and A+ (Superior) by A. M. Best Company.
The HCC Insurance Holdings, Inc. logo is available at: http://www.primezone.com/newsroom/prs/?pkgid=1977
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.
HCC Insurance Holdings, Inc.
Financial Highlights
March 31, 2006
(In thousands, except per share data)
Three Months Ended
March 31,
2006 2005
--------- ---------
Gross written premium $ 506,058 $ 475,119
Net written premium 393,051 357,352
Net earned premium 380,571 320,117
Fee and commission income 31,468 33,076
Net investment income 36,581 22,341
Other operating income 18,750 4,147
Total revenue 466,072 379,678
Net earnings 78,551 57,318
Earnings per share (diluted) 0.67 0.54
Cash flow from operations 77,937 33,909
Weighted average shares outstanding
(diluted) 116,896 105,734
GAAP net loss ratio 58.0% 58.1%
GAAP combined ratio 85.2% 84.5%
March 31, December 31,
2006 2005
---------- ----------
Total investments $3,364,334 $3,257,428
Total assets 7,106,318 7,026,066
Shareholders' equity 1,758,303 1,693,696
Debt to total capital 15.0% 15.5%
Book value per share $ 15.82 $ 15.29
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
March 31, December 31,
2006 2005
---------- ----------
ASSETS
Investments:
Fixed income securities $2,541,316 $2,268,624
Short-term investments 592,831 839,581
Other investments 230,187 149,223
---------- ----------
Total investments 3,364,334 3,257,428
Cash 51,111 73,935
Restricted cash and cash investments 182,568 170,978
Premium, claims and other receivables 855,880 884,654
Reinsurance recoverables 1,349,351 1,360,483
Ceded unearned premium 239,530 239,416
Ceded life and annuity benefits 73,213 73,415
Deferred policy acquisition costs 161,329 156,253
Goodwill 531,286 532,947
Other assets 297,716 276,557
---------- ----------
Total assets $7,106,318 $7,026,066
========== ==========
LIABILITIES
Loss and loss adjustment expense
payable $2,837,495 $2,813,720
Life and annuity policy benefits 73,213 73,415
Reinsurance balances payable 149,897 176,954
Unearned premium 825,375 807,109
Deferred ceding commissions 66,900 65,702
Premium and claims payable 735,131 753,859
Notes payable 309,426 309,543
Accounts payable and accrued
liabilities 350,578 332,068
---------- ----------
Total liabilities 5,348,015 5,332,370
SHAREHOLDERS' EQUITY
Common stock 111,173 110,803
Additional paid-in capital 757,850 747,568
Retained earnings 887,226 817,013
Accumulated other comprehensive
income 2,054 18,312
---------- ----------
Total shareholders' equity 1,758,303 1,693,696
---------- ----------
Total liabilities and
shareholders' equity $7,106,318 $7,026,066
========== ==========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited, in thousands, except per share data)
Three months ended
March 31,
2006 2005
--------- ---------
REVENUE
Net earned premium $ 380,571 $ 320,117
Fee and commission income 31,468 33,076
Net investment income 36,581 22,341
Net realized investment loss (1,298) (3)
Other operating income 18,750 4,147
--------- ---------
Total revenue 466,072 379,678
--------- ---------
EXPENSE
Loss and loss adjustment expense,
net 220,567 186,063
Policy acquisition costs, net 78,215 59,357
Other operating expense 46,803 45,949
Interest expense 2,154 1,808
--------- ---------
Total expense 347,739 293,177
--------- ---------
Earnings before income tax expense 118,333 86,501
Income tax expense 39,782 29,183
--------- ---------
Net earnings $ 78,551 $ 57,318
========= =========
Basic earnings per share data:
Net earnings $ 0.71 $ 0.56
========= =========
Weighted average shares outstanding 111,014 103,241
========= =========
Diluted earnings per share data:
Net earnings $ 0.67 $ 0.54
========= =========
Weighted average shares outstanding 116,896 105,734
========= =========
Cash dividends declared, per share $ 0.075 $ 0.057
========= =========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Three months ended
March 31,
2006 2005
-------- --------
Cash flows from operating activities:
Net earnings $ 78,551 $ 57,318
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Change in premium, claims and
other receivables 44,362 (133,768)
Change in reinsurance
recoverables 11,132 (824)
Change in ceded unearned
premium (114) 52,300
Change in loss and loss
adjustment expense payable 23,775 49,939
Change in reinsurance balances
payable (27,057) (29,842)
Change in unearned premium 18,266 (16,842)
Change in premium and claims
payable, net of restricted
cash (30,318) 99,875
Change in trading portfolio (47,994) (41,328)
Depreciation and amortization
expense 3,825 3,710
Other, net 3,509 (6,629)
-------- --------
Cash provided by operating
activities 77,937 33,909
-------- --------
Cash flows from investing activities:
Sales of fixed income securities 65,654 55,681
Maturity or call of fixed income
securities 59,226 32,250
Cost of securities acquired (471,614) (277,000)
Change in short-term investments 246,750 145,025
Sale of strategic investment 17,363 --
Earnout payment for purchase of
subsidiary (24,000) --
Other, net (2,047) (1,118)
-------- --------
Cash used by investing
activities (108,668) (45,162)
-------- --------
Cash flows from financing activities:
Issuance of notes payable 11,000 --
Payments on notes payable (11,107) (93)
Sale of common stock 7,792 21,087
Dividends paid (8,310) (5,783)
Other 8,532 (3,814)
-------- --------
Cash provided by financing
activities 7,907 11,397
-------- --------
Net increase (decrease) in cash (22,824) 144
Cash at beginning of period 73,935 69,933
-------- --------
Cash at end of period $ 51,111 $ 70,077
======== ========
HCC Insurance Holdings, Inc.
Insurance Company Premium
March 31, 2006
(In thousands)
1st Qtr 1st Qtr Change
2006 2005 %
--------- --------- -------
GROSS WRITTEN
Diversified financial products $ 197,246 $ 199,072 (1)%
Group life, accident & health 134,154 150,082 (11)
Aviation 56,234 49,102 15
London market account 74,507 43,196 72
Other specialty lines 43,889 35,519 24
Discontinued lines 28 (1,852) nm
--------- --------- -------
$ 506,058 $ 475,119 7%
========= ========= =======
NET WRITTEN
Diversified financial products $ 161,645 $ 145,997 11%
Group life, accident & health 129,443 129,449 --
Aviation 35,425 32,126 10
London market account 38,723 28,912 34
Other specialty lines 27,900 21,074 32
Discontinued lines (85) (206) nm
--------- --------- -------
$ 393,051 $ 357,352 10%
========= ========= =======
NET EARNED PREMIUM
Diversified financial products $ 169,112 $ 106,851 58%
Group life, accident & health 127,761 128,945 (1)
Aviation 33,197 33,817 (2)
London market account 21,928 26,711 (18)
Other specialty lines 28,640 21,225 35
Discontinued lines (67) 2,568 nm
--------- --------- -------
$ 380,571 $ 320,117 19%
========= ========= =======
nm - Not meaningful comparison
HCC Insurance Holdings, Inc.
Consolidated Insurance Companies
Net Loss Ratios
March 31, 2006
(In thousands)
Year to Date 2006
----------------------------------
Net Earned Incurred Loss
Line of Business Premium Losses Ratio
------------------------------ --------- --------- -----
Diversified financial products $ 169,112 $ 85,850 50.8%
Group life, accident & health 127,761 89,067 69.7
Aviation 33,197 18,041 54.3
London market account 21,928 10,551 48.1
Other specialty lines 28,640 16,806 58.7
Discontinued lines (67) 252 nm
--------- --------- ----
Total $ 380,571 $ 220,567 58.0%
========= ========= ====
Full Year 2005
----------------------------------
Net Earned Incurred Loss
Premium Losses Ratio
--------- --------- -----
Diversified financial products $ 531,136 $ 255,570 48.1%
Group life, accident & health 504,382 361,289 71.6
Aviation 136,197 91,720 67.3
London market account 93,017 98,638 106.0
Other specialty lines 97,721 72,436 74.1
Discontinued lines 7,535 41,544 nm
--------- --------- -----
Total $1,369,988 $ 921,197 67.2%
========== ========= =====
nm - Not meaningful comparison