HOUSTON, May 5, 2009 (GLOBE NEWSWIRE) -- HCC Insurance Holdings, Inc. (NYSE:HCC) today released results for the first quarter of 2009, which ended March 31.
"We are extremely pleased to report solid earnings for the first quarter of 2009 and results that show an increase over 2008. Our investment income should resume its steady growth following our exit from alternative investments and as our investment assets continue to increase," HCC Chief Executive Officer Frank J. Bramanti said.
Net earnings for the first quarter of 2009 were $83.2 million, compared with $80.5 million during the first quarter of 2008, a 3.4 percent increase. Net earnings per diluted share were $0.73 for the first quarter of 2009, compared to $0.69 for the same quarter of 2008, an increase of 5.8 percent.
The GAAP combined ratio for the first quarter of 2009 was 87.3 percent, compared to 83.7 percent for the first quarter of 2008. Book value per share increased to $24.14 at March 31, 2009, compared to $23.27 a share at December 31, 2008, a 3.7 percent increase. The Company's annualized return on average equity for the first quarter of 2009 was 12.4 percent.
For the first quarter of 2009, the gross written premium of HCC's insurance company subsidiaries increased 3.3 percent to $602.4 million, compared to $583.0 million for the same quarter of 2008. Net written premium was flat at $491.3 million during the first quarter of 2009, compared with net written premium of $493.6 million for the 2008 first quarter. Net earned premium increased 1.8 percent to $502.4 million for the first quarter of 2009, compared to $493.5 million for the same quarter of 2008.
"While we are optimistic about an eventual turn in the pricing cycle, our observation is that it has not happened yet. Accordingly, we remain disciplined in our approach to risk selection and pricing. Our underwriting results continue to be good but rates are continuing to fall in certain lines of business, albeit at a slowing pace. On the other hand, we continue to see improvement in pricing in our international aviation, medical stop-loss, financial institution professional liability and offshore energy businesses. These increases should lead to improving results into 2010," Mr. Bramanti added.
During the first quarter of 2009, HCC had net adverse prior year reserve development of $4.7 million, compared to net favorable prior year reserve development of $5.1 million for the same period in 2008. The adverse development is principally due to case reserve and IBNR increases in certain Life, Accident and Health lines of business.
Other operating income was $22.9 million for the 2009 first quarter, versus a loss of $4.9 million for the same period in 2008, reflecting the commutation of the MGIC reinsurance contract that the Company had been accounting for using the deposit method. HCC received $25.0 million of cash from the MGIC commutation, of which $5.0 million was recorded as fee and commission income. After reinsurance and other costs, the commutation increased pretax earnings by $15.6 million in the first quarter of 2009. The pretax earnings impact for the full year 2009, however, will be $7.8 million more than originally budgeted.
Investment income decreased during the first quarter of 2009 to $45.2 million, compared to $47.6 million a year earlier, reflecting much lower short-term interest rates in 2009.
HCC's fixed income securities generated $45.4 million in investment income in the 2009 first quarter, versus $40.9 million in the 2008 first quarter. The Company's fixed income investments increased 10.0 percent from March 31, 2008 to $4.3 billion at March 31, 2009.
As of March 31, 2009, HCC's fixed income securities portfolio had an average rating of AA+, an average duration of 4.8 years and an average tax equivalent yield of 5.2 percent. The Company held $8.1 million of subprime-related and Alt-A securities, which had an average rating of A, and owned no CDO or CLO securities. HCC has never been a counterparty to any credit default swap.
"At the end of the first quarter of 2009, HCC completed its exit from the last of its equity and equity-related investments, including hedge funds and other alternative investments. Those funds have been reinvested in fixed income securities. We incurred a $1.0 million loss during the first quarter of 2009. Our fixed income portfolio has continued to perform well and we had a net unrealized gain of $60.0 million on our available for sale fixed income securities at March 31, 2009," Mr. Bramanti said.
HCC repurchased 1.7 million common shares for a total of $35.5 million during the first quarter of 2009. This brings the total repurchased to 4.7 million shares for a total of $98.8 million at an average cost of $21.14 per share.
The Company's outstanding convertible debt issue was subject to a put option that expired on April 1, 2009. Investors elected to hold these securities and, therefore, they remain outstanding. Investors' next put option is April 1, 2014. HCC continues to maintain a $575 million syndicated bank line of credit facility that does not expire until the end of 2011. The Company's liquidity and cash flow remain strong and its shareholders' equity is a record $2.7 billion.
As of March 31, 2009, total investments were $5.0 billion, total assets were $8.6 billion, shareholders' equity was $2.7 billion and the Company's debt to total capital ratio remained very conservative at 13.6 percent.
See attached tables for further information about HCC's first quarter financial results.
HCC will hold an open conference call beginning at 8:00 a.m. Central Daylight Time on Wednesday, May 6. To participate, the number for domestic calls is (800) 374-0290 and the number for international calls is (706) 634-1061. 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.
Headquartered in Houston, Texas, HCC Insurance Holdings, Inc. (HCC) is a leading international specialty insurance group with offices across the United States and in Bermuda, Ireland, Spain and the United Kingdom. HCC has assets of $8.6 billion, shareholders' equity of $2.7 billion and is rated AA (Very Strong) by Standard & Poor's and AA (Very Strong) by Fitch Ratings. In addition, HCC's major domestic insurance companies are rated 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.
HCC Insurance Holdings, Inc. and Subsidiaries Financial Highlights March 31, 2009 (Unaudited, in thousands except per share data) Three months ended March 31, 2009 2008 ---------------- ---------------- (as adjusted)(a) Gross written premium $ 602,387 $ 582,999 Net written premium 491,250 493,647 Net earned premium 502,388 493,546 Fee and commission income 30,294 30,999 Net investment income 45,218 47,621 Other operating income (loss) 22,896 (4,946) Total revenue 600,738 567,388 Net earnings 83,170 80,455 Earnings per share (diluted) 0.73 0.69 Cash flow from operations 133,602 135,800 Weighted-average shares outstanding (diluted)(in millions) 113.3 116.4 GAAP net loss ratio 62.8% 59.4% GAAP combined ratio 87.3% 83.7% Paid loss ratio 54.0% 51.0% March 31, December 31, 2009 2008 ---------------- ---------------- (as adjusted)(a) Total investments $ 5,019,675 $ 4,804,283 Total assets 8,623,917 8,332,000 Shareholders' equity 2,704,910 2,640,023 Debt to total capital 13.6% 11.5% Book value per share $ 24.14 $ 23.27 (a) Certain amounts in 2008 changed due to our 1/1/2009 adoption of new accounting standards. HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited, in thousands) March 31, December 31, 2009 2008 ---------------- ---------------- ASSETS (as adjusted)(a) Investments: Fixed income securities - available for sale $ 4,228,306 $ 4,133,165 Fixed income securities - held to maturity 94,744 123,553 Short-term investments 671,355 497,477 Other investments 25,270 50,088 ---------------- ---------------- Total investments 5,019,675 4,804,283 Cash 33,013 27,347 Restricted cash and cash investments 184,666 174,905 Premium, claims and other receivables 807,177 770,823 Reinsurance recoverables 1,078,532 1,054,950 Ceded unearned premium 232,812 234,375 Ceded life and annuity benefits 63,513 64,235 Deferred policy acquisition costs 193,016 188,652 Goodwill 862,658 858,849 Other assets 148,855 153,581 ---------------- ---------------- Total assets $ 8,623,917 $ 8,332,000 ================ ================ LIABILITIES Loss and loss adjustment expense payable $ 3,490,033 $ 3,415,230 Life and annuity policy benefits 63,513 64,235 Reinsurance balances payable 132,447 122,189 Unearned premium 974,687 977,426 Deferred ceding commissions 63,299 63,123 Premium and claims payable 423,919 405,287 Notes payable 424,714 343,649 Accounts payable and accrued liabilities 346,395 300,838 ---------------- ---------------- Total liabilities 5,919,007 5,691,977 SHAREHOLDERS' EQUITY Common stock 116,743 116,457 Additional paid-in capital 888,121 881,534 Retained earnings 1,746,943 1,677,831 Accumulated other comprehensive income 51,902 27,536 Treasury stock (98,799) (63,335) ---------------- ---------------- Total shareholders' equity 2,704,910 2,640,023 ---------------- ---------------- Total liabilities and shareholders' equity $ 8,623,917 $ 8,332,000 ================ ================ (a) Certain amounts in 2008 changed due to our 1/1/2009 adoption of new accounting standards. HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Earnings (Unaudited, in thousands except per share data) Three months ended March 31, 2009 2008 ---------------- ---------------- REVENUE (as adjusted)(a) Net earned premium $ 502,388 $ 493,546 Fee and commission income 30,294 30,999 Net investment income 45,218 47,621 Net realized investment gain (loss) (58) 168 Other operating income (loss) 22,896 (4,946) ---------------- ---------------- Total revenue 600,738 567,388 ---------------- ---------------- EXPENSE Loss and loss adjustment expense, net 315,566 293,026 Policy acquisition costs, net 88,692 92,268 Other operating expense 68,998 59,204 Interest expense 4,639 4,953 ---------------- ---------------- Total expense 477,895 449,451 ---------------- ---------------- Earnings before income tax expense 122,843 117,937 Income tax expense 39,673 37,482 ---------------- ---------------- Net earnings $ 83,170 $ 80,455 ================ ================ Basic earnings per share data: Net earnings per share $ 0.73 $ 0.70 ================ ================ Weighted-average shares outstanding (millions) 112.8 115.2 ================ ================ Diluted earnings per share data: Net earnings per share $ 0.73 $ 0.69 ================ ================ Weighted-average shares outstanding (millions) 113.3 116.4 ================ ================ Cash dividends declared, per share $ 0.125 $ 0.110 ================ ================ (a) Certain amounts in 2008 changed due to our 1/1/2009 adoption of new accounting standards. HCC Insurance Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) Three months ended March 31, 2009 2008 ---------------- ---------------- (as adjusted)(a) Operating activities: Net earnings $ 83,170 $ 80,455 Adjustments to reconcile net earnings to net cash provided by operating activities: Change in premium, claims and other receivables (28,719) 3,779 Change in reinsurance recoverables (29,973) 2,671 Change in ceded unearned premium (217) 19,899 Change in loss and loss adjustment expense payable 67,544 91,845 Change in reinsurance balances payable 11,481 (5,761) Change in unearned premium (11,335) (16,960) Change in premium and claims payable, net of restricted cash 8,859 (45,449) Change in accounts payable and accrued liabilities (7,556) (7,015) Change in trading portfolio -- 9,062 Stock-based compensation expense 4,783 2,866 Depreciation and amortization expense 3,579 3,390 Other, net 31,986 (2,982) ---------------- ---------------- Cash provided by operating activities 133,602 135,800 ---------------- ---------------- Investing activities: Sales of available for sale fixed income securities 119,092 120,075 Maturity or call of available for sale fixed income securities 69,280 75,875 Maturity or call of held to maturity fixed income securities 85,821 -- Cost of available for sale securities acquired (210,093) (419,238) Cost of held to maturity fixed income securities acquired (59,515) -- Cost of other investments acquired -- (36,735) Change in short-term investments (177,715) 128,052 Proceeds from sales of other investments 48,579 19,038 Payments for purchase of businesses, net of cash received (32,966) (71,486) Other, net (3,482) (1,670) ---------------- ---------------- Cash used by investing activities (160,999) (186,089) ---------------- ---------------- Financing activities: Advances on line of credit 80,000 40,000 Sale of common stock 2,090 4,592 Purchase of common stock (35,464) -- Dividends paid (14,182) (12,658) Other, net 619 3,908 ---------------- ---------------- Cash provided by financing activities 33,063 35,842 ---------------- ---------------- Net increase (decrease) in cash 5,666 (14,447) Cash at beginning of period 27,347 39,135 ---------------- ---------------- Cash at end of period $ 33,013 $ 24,688 ================ ================ (a) Certain amounts in 2008 changed due to our 1/1/2009 adoption of new accounting standards. HCC Insurance Holdings, Inc. and Subsidiaries Insurance Company Premium March 31, 2009 (Unaudited, in thousands) 1st Qtr 1st Qtr Change 2009 2008 % ---------- ---------- ---------- GROSS WRITTEN Diversified financial products $ 245,112 $ 211,364 16 % Group life, accident & health 216,993 210,534 3 Aviation 41,952 44,828 (6) London market account 44,749 40,936 9 Other specialty lines 53,577 75,343 (29) Discontinued lines 4 (6) nm ---------- ---------- ---------- $ 602,387 $ 582,999 3 % ========== ========== ========== NET WRITTEN Diversified financial products $ 203,363 $ 180,501 13 % Group life, accident & health 199,056 202,375 (2) Aviation 30,611 32,346 (5) London market account 26,394 29,028 (9) Other specialty lines 31,822 49,403 (36) Discontinued lines 4 (6) nm ---------- ---------- ---------- $ 491,250 $ 493,647 -- % ========== ========== ========== NET EARNED PREMIUM Diversified financial products $ 214,084 $ 192,177 11 % Group life, accident & health 201,088 192,446 4 Aviation 32,814 34,993 (6) London market account 23,674 27,090 (13) Other specialty lines 30,724 46,846 (34) Discontinued lines 4 (6) nm ---------- ---------- ---------- $ 502,388 $ 493,546 2 % ========== ========== ========== nm - Not meaningful comparison HCC Insurance Holdings, Inc. and Subsidiaries Investments - Selected Disclosures March 31, 2009 (Unaudited, in thousands) Amortized % of Cost Fair Value Portfolio ---------- ---------- --------- Fixed Income Securities $4,263,073 $4,323,738 100.0% ========== ========== ========= Residential Mortgage Backed Securities & Collateralized Mortgage Obligations Agency $ 722,952 $ 766,643 17.7% Non-Agency Prime 79,076 68,346 1.6% Alt-A 7,048 6,426 0.1% Subprime 2,151 1,657 0.0% ---------- ---------- Total Residential MBS/CMO $ 811,227 $ 843,072 19.5% ========== ========== ========= Agency Securities Senior Agency Debt - FNMA / FHLMC $ 23,344 $ 24,373 0.6% ========== ========== ========= Corporate Bonds - Non Financial $ 391,168 $ 398,387 9.2% ========== ========== ========= Corporate Bonds - Financial Institutions $ 223,852 $ 213,751 4.9% ========== ========== ========= Commercial Mortgaged Backed Securities $ 170,474 $ 139,680 3.2% ========== ========== ========= Municipal Bond Portfolio $2,005,822 $2,054,822 47.5% ========== ========== ========= Insurance Enhanced $1,227,502 $1,253,548 29.0% ========== ========== ========= Insured - Underlying Ratings $1,227,502 $1,253,548 29.0% ========== ========== ========= Non-Insured $ 778,320 $ 801,274 18.5% ========== ========== ========= Asset Backed Securities Auto $ 45,577 $ 43,095 1.0% Credit Card 9,550 9,579 0.2% Other 5,883 5,279 0.1% ---------- ---------- Total Asset Backed Securities $ 61,010 $ 57,953 1.3% ========== ========== ========= Average Ratings ---------------------------------- AAA AA A ---------- ---------- ---------- Fixed Income Securities $2,123,820 $1,447,155 $ 618,295 Residential Mortgage Backed Securities & Collateralized Mortgage Obligations Agency 766,643 -- -- Non-Agency Prime 43,602 823 6,739 Alt-A 2,860 662 778 Subprime 1,274 -- -- Total Residential MBS/CMO Agency Securities Senior Agency Debt - FNMA / FHLMC 24,373 -- -- Corporate Bonds - Non Financial 47,544 42,697 263,289 Corporate Bonds - Financial Institutions 41,613 46,838 122,138 Commercial Mortgaged Backed Securities 139,071 609 -- Municipal Bond Portfolio 489,458 1,314,880 193,153 Insurance Enhanced 189,286 830,601 176,374 Insured - Underlying Ratings 185,276 770,054 273,775 Non-Insured 299,328 484,589 17,357 Asset Backed Securities Auto 35,068 1,900 1,649 Credit Card 9,579 -- -- Other 1,278 -- 3,320 Average Ratings ------------------- ----------------- BBB Below BBB Other Average -------- --------- -------- ------- Fixed Income Securities $119,768 $ 12,106 $ 2,594 AA+ Residential Mortgage Backed Securities & Collateralized Mortgage Obligations Agency -- -- -- AAA Non-Agency Prime 9,906 7,276 -- AA Alt-A 183 1,943 -- A Subprime 209 174 -- A+ Total Residential MBS/CMO Agency Securities Senior Agency Debt - FNMA / FHLMC -- -- -- AAA Corporate Bonds - Non Financial 42,331 2,526 -- A+ Corporate Bonds - Financial Institutions 3,162 -- -- AA- Commercial Mortgaged Backed Securities -- -- -- AAA Municipal Bond Portfolio 54,452 -- 2,879 AA Insurance Enhanced 54,655 -- 2,632 AA Insured - Underlying Ratings 877 -- 23,566 AA Non-Insured -- -- -- AA+ Asset Backed Securities Auto 4,478 -- -- AA+ Credit Card -- -- -- AAA Other 681 -- -- AA Notes: There are no CDOs/CLOs in the portfolio. Other Ratings are bonds with at least one enhanced rating; each issuer has an equivalent investment grade rating. Received paydown of $0.7 million for the first quarter of 2009 on subprime and Alt-A securities. Corporate Bonds - Financial Institutions includes $56.0 million of bonds issued by foreign financial institutions. HCC Insurance Holdings, Inc. and Subsidiaries Net Investment Income and Unrealized Gains and Losses Selected Disclosures March 31, 2009 (Unaudited, in thousands) Twelve months ended March 31, 2009 2008 ------- ------- Sources of net investment income: Fixed income securities Taxable $25,105 $22,452 Exempt from U.S. income taxes 20,333 18,472 ------- ------- Total fixed income securities 45,438 40,924 Short-term investments 1,794 8,592 Alternative investments (962) (1,205) Other investments -- 267 ------- ------- Total investment income 46,270 48,578 Investment expense (1,052) (957) ------- ------- Net investment income $45,218 $47,621 ======= ======= Unrealized gains and losses on available for sale fixed income securities: Change in unrealized gain for period $45,351 $1,114 ======= ======= Unrealized gain at March 31, 2009 $59,977 ======= Unrealized gain at December 31, 2008 $14,626 ======= HCC Insurance Holdings, Inc. and Subsidiaries Subprime Liability Exposure March 31, 2009 * As of March 31, the Company had 62 "non-Side A only" D&O, E&O and Fiduciary Liability claims and 17 "Side A only" D&O claims relating to subprime issues. * Of the D&O claims reported, three are on primary policies with gross policy limits totaling $12 million. The remaining D&O claims are on excess policies. * The average policy limit on the "non-Side A only" claims is $13.0 million gross and $8.6 million net, with an average attachment point of $88 million. * The average policy limit for "Side A only" claims is $14.2 million gross and $11.3 million net, with an average attachment point of $159 million. * Based upon the Company's present knowledge, HCC believes the ultimate subprime related losses will be contained within the current overall reserves for D&O, E&O and Fiduciary Liability business. HCC Insurance Holdings, Inc. and Subsidiaries Consolidated Insurance Companies Net Loss Ratios March 31, 2009 (Unaudited, in thousands) Year to Date 2009 Full Year 2008 ------------------------- ------------------------- Net Net Line of Earned Incurred Loss Earned Incurred Loss Business Premium Losses Ratio Premium Losses Ratio -------- -------- -------- ----- ---------- ---------- ----- Diversified financial products $214,084 $110,846 51.8% $ 805,604 $ 387,718 48.1% Group life, accident & health 201,088 150,033 74.6 777,268 567,947 73.1 Aviation 32,814 20,125 61.3 139,838 87,525 62.6 London market account 23,674 9,766 41.3 106,857 49,571 46.4 Other specialty lines 30,724 24,899 81.0 173,449 116,526 67.2 Discontinued lines 4 (103) nm 4,758 2,586 nm -------- -------- ----- ---------- ---------- ----- Total $502,388 $315,566 62.8% $2,007,774 $1,211,873 60.4% ======== ======== ===== ========== ========== ===== nm - Not meaningful comparison