HOUSTON, Dec. 27, 2006 (PRIME NEWSWIRE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) announced today that its independent review of the Company's option granting practices has concluded and the Company has filed a Form 10-K/A for the year ended December 31, 2005, a Form 10-Q/A for the quarter ended March 31, 2006, and Forms 10-Q for the quarters ended June 30 and September 30, 2006. As a result of these filings, and with subsequent delivery of these filings to the trustee for the Convertible Noteholders, the Company will have cured any possible Event of Default arising from the failure to timely deliver these reports under the Indentures governing the Company's outstanding 1.30% and 2.00% Convertible Notes.
The gross non-cash compensation expense relating to the correction of errors discovered in our option investigation for the years 1997 through and including 2005 was $26.6 million. This pretax charge had no impact on our reported net revenue, cash or cash flow. At December 31, 2005, the net after-tax decrease in shareholders' equity due to the restatement of previously filed financial statements was $3.3 million.
The Company provided the following discussion of its previously unreleased earnings for the third quarter and first nine months of 2006.
Net earnings for the third quarter of 2006 increased to $93.3 million, or $0.80 per diluted share, from $7.4 million, or $0.07 per diluted share, for the third quarter of 2005. The prior year includes the impact of 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.
For the first nine months of 2006, net earnings increased 107% to $261.5 million, or $2.24 per diluted share from $126.2 million, or $1.17 per diluted share for the same period of 2005.
Frank J. Bramanti, Chief Executive Officer, said, "Our results were positively affected by the lack of catastrophes in the period and continue to show the execution of our strategic business plan. We will continue to explore opportunities to expand our businesses."
Total revenue showed significant growth, increasing 24% for the first nine months of 2006 to $1.5 billion from $1.2 billion in the corresponding period of 2005. This increase was primarily due to growth in net earned premium and higher investment income.
The GAAP net combined ratio of our insurance company subsidiaries for the first nine months of 2006 was 82.9% compared to 94.5% in the same period of 2005 (84.7% excluding the effects of the hurricanes and reinsurance commutations completed during the first nine months of 2005) and on substantially higher net earned premium.
Premium of our insurance company subsidiaries continued to grow substantially during the first nine months of 2006, with net written premium increasing 17% to $1.3 billion from $1.1 billion during the first nine months of 2005 and net earned premium increasing by 21% to $1.2 billion from $995.9 million during the same period.
Mr. Bramanti added, "Although there is increased competition, our diverse lines of business continue to perform at acceptable margins. We anticipate this to continue in the fourth quarter and are optimistic about 2007."
Fee and commission income increased during the first nine months of 2006 to $104.4 million from $101.0 million in the same period of 2005. The company intends to continue to focus on expanding its agency operations.
During the first nine months, investment income increased from $70.0 million in 2005 to $109.0 million in 2006 while other operating income grew from $26.1 million to $59.1 million in the same period. The Company continues to follow a conservative investment philosophy with a relatively short duration portfolio, no high yield bonds and relatively few equity investments. Total investments rose 17% to $3.8 billion compared to year end 2005.
Cash flow from operating activities decreased 21% during the first three quarters of 2006 to $359.7 million from $453.3 million during the first nine months of 2005. This was primarily due to a large reinsurance commutation in the prior year period.
As of September 30, 2006, total assets grew more than 7% to $7.5 billion; book value per share increased 15% to $17.59; and shareholders' equity grew 16% to almost $2.0 billion, all compared to December 31, 2005. The Company's debt to total capital ratio was 16.7% at the end of the third quarter of 2006. See attached tables.
HCC will hold an open conference call beginning at 4:00 p.m. (CST) on Wednesday, December 27, to discuss our third quarter 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.hcc.com. A replay of the webcast will be available until Friday, January 12, 2007.
Headquartered in Houston, Texas, HCC is a leading international specialty insurance group with offices across the United States and in Bermuda, Spain and the United Kingdom. HCC has assets exceeding $7.5 billion, shareholders' equity of almost $2.0 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. and Subsidiaries
Financial Highlights
September 30, 2006
(Unaudited, in thousands except per share data)
Three Months Ended September 30,
2006 2005
------------- -------------
Gross written premium $ 536,101 $ 525,447
Net written premium 422,581 371,698
Net earned premium 421,050 338,058
Fee and commission income 38,862 32,073
Net investment income 36,205 24,998
Other operating income 20,276 16,864
Total revenue 516,697 412,031
Net earnings 93,257 7,412
Earnings per share (diluted) 0.80 0.07
Cash flow from operations 99,765 334,417
Weighted average
shares outstanding (diluted) 117,003 109,818
GAAP net loss ratio 56.1% 87.5%
GAAP combined ratio 80.6% 112.8%
September 30, December 31,
2006 2005
-------------- -------------
Total investments $ 3,804,379 $ 3,257,428
Total assets 7,544,239 7,028,800
Shareholders' equity 1,961,208 1,690,435
Debt to total capital 16.7% 15.5%
Book value per share $ 17.59 $ 15.26
HCC Insurance Holdings, Inc. and Subsidiaries
Financial Highlights
September 30, 2006
(Unaudited, in thousands except per share data)
Nine Months Ended September 30,
2006 2005
------------- --------------
Gross written premium $1,628,213 $1,540,002
Net written premium 1,299,114 1,107,443
Net earned premium 1,204,941 995,901
Fee and commission income 104,409 100,999
Net investment income 108,959 70,039
Other operating income 59,071 26,116
Total revenue 1,476,187 1,195,093
Net earnings 261,543 126,156
Earnings per share (diluted) 2.24 1.17
Cash flow from operations 359,706 453,254
Weighted average
shares outstanding (diluted) 116,986 108,003
GAAP net loss ratio 57.2% 68.3%
GAAP combined ratio 82.9% 94.5%
September 30, December 31,
2006 2005
---------- ----------
Total investments $3,804,379 $3,257,428
Total assets 7,544,239 7,028,800
Shareholders' equity 1,961,208 1,690,435
Debt to total capital 16.7% 15.5%
Book value per share $ 17.59 $ 15.26
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
September 30, December 31,
2006 2005
------------- -----------
ASSETS
Investments:
Fixed income securities $2,840,610 $2,268,624
Short-term investments 673,406 839,581
Other investments 290,363 149,223
---------- ----------
Total investments 3,804,379 3,257,428
Cash 59,638 73,935
Restricted cash and
cash investments 171,501 170,978
Premium, claims and
other receivables 867,127 884,654
Reinsurance recoverables 1,305,952 1,361,983
Ceded unearned premium 244,003 239,416
Ceded life and
annuity benefits 72,429 73,415
Deferred policy
acquisition costs 181,111 156,253
Goodwill 554,430 532,947
Other assets 283,669 277,791
---------- ----------
Total assets $7,544,239 $7,028,800
========== ==========
LIABILITIES
Loss and loss adjustment
expense payable $2,907,626 $2,813,720
Life and annuity
policy benefits 72,429 73,415
Reinsurance balances payable 139,384 176,954
Unearned premium 924,518 807,109
Deferred ceding commissions 67,231 67,886
Premium and claims payable 684,660 753,859
Notes payable 393,167 309,543
Accounts payable and
accrued liabilities 394,016 335,879
---------- ----------
Total liabilities 5,583,031 5,338,365
SHAREHOLDERS' EQUITY
Common stock 111,491 110,803
Additional paid-in capital 786,759 762,170
Retained earnings 1,029,318 798,388
Accumulated other
comprehensive income 33,640 19,074
---------- ----------
Total shareholders' equity 1,961,208 1,690,435
---------- ----------
Total liabilities and
shareholders' equity $7,544,239 $7,028,800
========== ==========
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,
2006 2005 2006 2005
---------- --------- --------- ---------
REVENUE
Net earned premium $1,204,941 $ 995,901 $ 421,050 $ 338,058
Fee and commission income 104,409 100,999 38,862 32,073
Net investment income 108,959 70,039 36,205 24,998
Net realized investment
gain (loss) (1,193) 2,038 304 38
Other operating income 59,071 26,116 20,276 16,864
---------- --------- --------- ---------
Total revenue 1,476,187 1,195,093 516,697 412,031
---------- --------- --------- ---------
EXPENSE
Loss and loss adjustment
expense, net 689,122 679,932 236,030 295,768
Policy acquisition
costs, net 231,012 187,696 78,203 65,708
Other operating expense 156,279 137,077 59,277 41,206
Interest expense 7,912 5,848 3,475 2,070
---------- --------- --------- ---------
Total expense 1,084,325 1,010,553 376,985 404,752
---------- --------- --------- ---------
Earnings from continuing
operations before income
tax expense 391,862 184,540 139,712 7,279
Income tax expense on
continuing operations 130,319 59,091 46,455 574
---------- --------- --------- ---------
Earnings from continuing
operations 261,543 125,449 93,257 6,705
Earnings from
discontinued operations,
net of income tax
expense -- 707 -- 707
---------- --------- --------- ---------
Net earnings $ 261,543 $ 126,156 $ 93,257 $ 7,412
========== ========= ========= =========
Basic earnings per share
data:
Earnings from continuing
operations $ 2.35 $ 1.20 $ 0.84 $ 0.06
Earnings from
discontinued operations -- 0.01 -- 0.01
---------- --------- --------- ---------
Net earnings per share $ 2.35 $ 1.21 $ 0.84 $ 0.07
========== ========= ========= =========
Weighted average shares
outstanding 111,198 104,617 111,359 105,623
========== ========= ========= =========
Diluted earnings per
share data:
Earnings from continuing
operations $ 2.24 $ 1.16 $ 0.80 $ 0.06
Earnings from
discontinued operations -- 0.01 -- 0.01
---------- --------- --------- ---------
Net earnings per share $ 2.24 $ 1.17 $ 0.80 $ 0.07
========== ========= ========= =========
Weighted average shares
outstanding 116,986 108,003 117,003 109,818
========== ========= ========= =========
Cash dividends declared,
per share $ 0.275 $ 0.207 $ 0.100 $ 0.075
========== ========= ========= =========
HCC Insurance Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine months ended Three months ended
September 30, September 30,
2006 2005 2006 2005
---------- --------- --------- ---------
Cash flows from operating
activities:
Net earnings $ 261,543 $ 126,156 $ 93,257 $ 7,412
Adjustments to reconcile
net earnings to net
cash provided by
operating activities:
Change in premium,
claims and other
receivables 36,626 (74,007) 46,924 16,604
Change in reinsurance
recoverables 56,031 (145,305) 47,336 (126,291)
Change in ceded
unearned premium (4,587) 60,509 (5,722) 14,648
Change in loss and loss
adjustment expense
payable 93,906 521,365 (10,815) 396,478
Change in reinsurance
balances payable (37,509) (23,906) (14,803) 15,744
Change in unearned
premium 113,638 42,994 10,559 17,458
Change in premium and
claims payable, net of
restricted cash (78,293) 30,585 (61,071) 15,049
Change in trading
portfolio (99,193) (54,654) (14,702) (16,600)
Depreciation and
amortization expense 12,242 11,063 4,598 3,703
Stock-based
compensation expense 9,463 1,920 3,373 750
Other, net (4,161) (43,466) 831 (10,538)
---------- --------- --------- ---------
Cash provided by
operating activities 359,706 453,254 99,765 334,417
---------- --------- --------- ---------
Cash flows from investing
activities:
Sales of fixed income
securities 184,175 163,841 20,078 49,071
Maturity or call of
fixed income securities 174,758 133,391 57,060 34,923
Cost of securities
acquired (958,822) (733,400) (167,437) (235,256)
Change in short-term
investments 171,198 36,234 (47,658) (145,482)
Sale of strategic
investment 40,354 7,758 22,991 7,758
Payments for purchase of
subsidiaries, net of
cash received (55,290) (44,288) (17,833) (9,407)
Sale of subsidiary -- 10,448 -- 10,448
Other, net (8,612) (14,627) (3,515) (3,249)
---------- --------- --------- ---------
Cash used by investing
activities (452,239) (440,643) (136,314) (291,194)
---------- --------- --------- ---------
Cash flows from financing
activities:
Issuance of notes payable 140,000 36,000 101,000 3,000
Payments on notes payable (56,346) (37,554) (45,097) (23,089)
Sale of common stock 14,973 32,684 5,313 3,847
Dividends paid (27,774) (19,606) (11,126) (7,890)
Other 7,383 (3,814) 1,755 --
---------- --------- --------- ---------
Cash provided (used) by
financing activities 78,236 7,710 51,845 (24,132)
---------- --------- --------- ---------
Net increase (decrease)
in cash (14,297) 20,321 15,296 19,091
Cash at beginning of
period 73,935 69,933 44,342 71,163
---------- --------- --------- ---------
Cash at end of period $ 59,638 $ 90,254 $ 59,638 $ 90,254
========== ========= ========= =========
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
September 30, 2006
(Unaudited, in thousands)
3rd Qtr 3rd Qtr Change
2006 2005 %
--------- --------- -------
GROSS WRITTEN
Diversified financial
products $ 240,046 $ 241,781 (1)%
Group life, accident & health 142,457 147,236 (3)
Aviation 50,976 53,090 (4)
London market account 44,799 32,366 38
Other specialty lines 57,837 49,991 16
Discontinued lines (14) 983 nm
--------- --------- -------
$ 536,101 $ 525,447 2 %
========= ========= =======
NET WRITTEN
Diversified financial
products $ 200,333 $ 184,931 8 %
Group life, accident & health 130,007 124,358 5
Aviation 38,446 31,597 22
London market account 20,761 (370) nm
Other specialty lines 32,963 30,220 9
Discontinued lines 71 962 nm
--------- --------- -------
$ 422,581 $ 371,698 14 %
========= ========= =======
NET EARNED PREMIUM
Diversified financial
products $ 189,744 $ 143,084 33 %
Group life, accident & health 129,234 125,079 3
Aviation 40,430 35,008 15
London market account 31,590 8,784 260
Other specialty lines 30,033 25,023 20
Discontinued lines 19 1,080 nm
--------- --------- -------
$ 421,050 $ 338,058 25 %
========= ========= =======
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Insurance Company Premium
September 30, 2006
(Unaudited, in thousands)
Year to Date Year to Date Change
2006 2005 %
---------- ---------- -------
GROSS WRITTEN
Diversified financial
products $ 690,779 $ 665,400 4 %
Group life, accident & health 415,215 453,558 (8)
Aviation 166,072 159,446 4
London market account 202,964 124,134 64
Other specialty lines 152,960 133,766 14
Discontinued lines 223 3,698 nm
---------- ---------- -------
$1,628,213 $1,540,002 6 %
========== ========== =======
NET WRITTEN
Diversified financial
products $ 574,098 $ 480,405 20 %
Group life, accident & health 388,895 381,367 2
Aviation 128,810 99,879 29
London market account 111,278 64,938 71
Other specialty lines 96,056 78,542 22
Discontinued lines (23) 2,312 nm
---------- ---------- -------
$1,299,114 $1,107,443 17 %
========== ========== =======
NET EARNED PREMIUM
Diversified financial
products $ 538,063 $ 371,414 45 %
Group life, accident & health 385,257 380,681 1
Aviation 112,661 101,817 11
London market account 80,455 66,402 21
Other specialty lines 88,569 69,574 27
Discontinued lines (64) 6,013 nm
---------- ---------- -------
$1,204,941 $ 995,901 21 %
========== ========== =======
nm - Not meaningful comparison
HCC Insurance Holdings, Inc. and Subsidiaries
Consolidated Insurance Companies
Net Loss Ratios
September 30, 2006
(Unaudited, in thousands)
Year to Date 2006
------------------------------
Net Earned Incurred Loss
Line of Business Premium Losses Ratio
------------------------------ --------- --------- -----
Diversified financial products $ 538,063 $ 263,647 49.0 %
Group life, accident & health 385,257 274,748 71.3
Aviation 112,661 62,964 55.9
London market account 80,455 35,806 44.5
Other specialty lines 88,569 51,465 58.1
Discontinued lines (64) 492 nm
--------- --------- -----
Total $ 1,204,941 $ 689,122 57.2 %
========= ========= =====
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 70,936 72.6
Discontinued lines 7,535 41,544 nm
---------- ---------- -----
Total $ 1,369,988 $ 919,697 67.1 %
========= ========= =====
nm - Not meaningful comparison